Wisetech Soars +28% | Scales Outperforms

26 August 2021

Global markets were a touch higher overnight, (US markets S&P 500 +0.2%) as investors remained upbeat on the economy and reopening stocks as the 10-year Treasury yield edged higher.

Financials led the market higher as a benefactor of higher interest rates as well as economically sensitive stocks after the House of Representatives on Tuesday moved forward with US$3.5 trillion infrastructure budget blueprint. Travel and Leisure stocks were also higher as it believed COVID cases, particularly the recent delta strain, could be peaking – helped by higher vaccination rates in many parts of world. 
We focus on local earnings season today as global market moves were muted overnight, ahead of fresh clues around the path of interest rates from central bankers at the Jackson Hole meeting.

Wisetech Global (WTC:ASX)

Wisetech shares soared up +28% yesterday after delivering a strong result for the 2021 financial year – the share price jump intensified by short squeeze. This was pleasing as we upgraded WTC to a High-Risk BUY in May at $25.62, an 80% return for investors who bought.  

WTC reported revenues rose by +18% from last year to $507m, as well as a 63% rise in operating earnings (EBITDA) to $206m. The standout being 141% increase in dividend to 3.85 cents per share – which is sizeable jump but only represents a 0.14% dividend yield on the current share price.

More importantly, despite supply chain disruptions Wisetech has been a huge benefactor to global logistic industry and even after the result guided that solid growth should continue with revenue expected to increase by 18% to 25% in the following year, and operating earnings (EBITDA), expected to rise 26% to 38%.

WiseTech shares have always been priced at sharp premium, but we remain comfortable as the company  consolidates integrated logistics platforms globally. Keep in mind our BUY rating does come with a high-risk caveat due to the volatile nature of the stock. From here, investors with an appetite for risk may want to wait for some share price consolidation from this current surge and time/stage their entry.

Scales (SCL:NZX)

Scales shares jumped +9.2% yesterday after delivering a solid result for the first half of the 2021 financial year, as well as lifting 2021 full year earnings guidance.

Reported net profit after tax for the half came in at $32.6m, up +17.5% from last year, while underlying operating earnings (EBITDA) rose +11% from last year to $49.4m. Earnings were stronger than expected with higher pricing and in-house logistics operations offsetting the labour shortage costs and supply chain challenges – with lower export volumes faced by much of the agriculture and horticulture sector. Management also lifted their earnings guidance (+$8.5m) for the 2021 full year expected operating earnings (EBITDA) to be between $65m and $72m.

We remain confident in Scales underlying business, with issues facing its Horticulture mostly short-term in our opinion. Current valuations remain supportive of Scales existing business still set to pay a ~4% dividend. We see growth some potential for the business both organically and from any potential acquisitions – given the large amount of funds available (circa ~$250m) for reinvestment.


Australia & New Zealand Market Movers

The Australian market was up again yesterday (ASX 200 index +0.4%) making it its third day in the green.

Major miners and tech stocks led the gain, as iron ore prices rebounded on the prospects for additional stimulus from China Whilst Wisetech soared on its result, which prompted other tech names to follow: Nuix up +6.3% and Appen advancing +8.7%.

BHP rose +1.3% and Rio Tinto was up +2.6%, which supported other miners to perform strongly such as Lynas up +5.7% and OZ Minerals climbing +3.8%, all recovering from their recent sell-off.

Afterpay shares slipped -1.2% on their result despite strong top ling growth, as its losses widened on increased marketing spending and higher bad debts on new and riskier customers from its global expansion. Likewise ZipCo was down -2.6% after its operating earnings fell and net loss reached $500m

The New Zealand market was up on Wednesday (NZX 50 index, +0.1%), as investors continue to remain bullish on companies which recently delivered strong earnings

SkyCity shares were up +6.1%, after delivering a strong result, investors welcoming the return of dividends given the business is generating positive cashflow. Meridian Energy shares were down -1.4% on a soft result which was flagged earlier to the market due to low hydro generation.

Scales (+9.2%) shares were the best performer, followed Summerset which was up +8.7% as investors digested its strong result and broker upgrades building confidence. 

3 Things Markets will be Watching this Week

  1. ​Local corporate earnings is underway. Major names reporting this week include Chorus, Freightways, Boral, Oil Search, Scentre Group, Summerset, Afterpay, Wisetech Global, Meridian, SkyCity, Flight Centre, Link Administration, Next DC, Qantas, Qube Logistics, Ramsay Health Care, Woolworths, Air NZ, A2 Milk and Wesfarmers.
  2. ​COVID & Lockdown updates are front & centre on both sides of the Tasman. 
  3. Globally, economic events this week include US 2nd Quarter GDP data, manufacturing data across Europe and Australia, and the latest retail sales prints in Australia and NZ.
We focus on local earnings season today as global market moves were muted overnight, ahead of fresh clues around the path of interest rates from central bankers at the Jackson Hole meeting.

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