Zero Interest Rates | Spark’s Result

27 August 2020

Global markets were higher overnight (US S&P 500 Index +1.0%) as Wall street continues to rally to new all-time highs.
Optimism was lifted by reports in Bloomberg that the Federal Reserve is likely to keep short-term interest rates near zero for five-years or possibly longer, and may relax rules around a strict inflation target. The Fed is due to speak Friday morning (NZ/AU time) and will be closely watched by investors for guidance around interest rate levels. 
Closer to home, several major bank economists see the RBNZ moving to a negative cash rate (OCR).

Also supporting tech sector gains,, a software-as-a-service provider, saw its shares soar +26% following its strong earnings report, prompting Facebook and Netflix to make solid gains as investors stayed focused on large-cap momentum stocks that have outperformed since the onset of the covid-19  pandemic.

Spark shares were down yesterday despite delivering fairly solid result for the 2020 financial year, highlighting the robustness of their business in light of covid-19 pandemic. This saw net profit after tax grow +4.4% from last year to $427m, thanks to strong revenue growth from its mobile and cloud services business and continued cost saving from its cost out program.

Looking ahead, Spark is focused on investing heavily into its core 5G mobile and cloud services to offset further declines in its voice business as well as near-term uncertainty created by covid-19. Spark’s earnings and capital expenditure guidance was largely inline with 2020 result and expectations. However, they anticipate to pay a dividend of 23 to 25 cents per share (a first hint of  a possible dividend cut) for the 2021 financial year which did not go down well with investors. 

We continue to remain BUY rated on Spark as a quality business which it still offers an attractive and stable dividend. 

Australia & New Zealand Market Movers

The major banks led the losses on the local market, giving back some of their strong gains from the previous session. A fall in iron ore prices weighed on the major miners, with BHP Group falling -0.8% and Rio Tinto sliding -1.6%.

APA Group shares dropped -2.7%  despite posting a +5.1% per cent jump in full-year gross profit after advising that earnings may slip this year due to slowing customer demand amid the COVID-19 pandemic. Cleanaway Waste Management climbed +8.5% after reporting a solid full-year result, with group profit margins coming in ahead of expectations.

New Zealand shares ended yesterday higher (NZX 50 Index +0.3%), despite another compressed trading session in the middle of the day. 

Meridian Energy rose +1.6% after reporting a +3% increase in operating earnings. Scales corporation shares were lower after reporting their horticulture business was impacted by covid-19 resulting in a -11% fall in underlying operating earnings.  
Pushpay Holdings dropped -2.8%, after announcing its CEO sold down approximately half of his stake in the business earlier this week.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​​COVID-19 related news-flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
  2. Investors will be looking for guidance from the world’s Central Bankers as they meet (virtually) at the Jackson Hole symposium
  3. Locally, it is another big week of earnings ahead. Companies of note reporting include: Fortescue, Chorus, Ansell, Stockland, Meridian, Spark NZ, Ramsay Health Care, Woolworths, Air NZ, Boral, NEXTDC and Port of Tauranga.
Global markets were higher overnight (US S&P 500 Index +1.0%) as Wall street continues to rally to new all-time highs.

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