Winemaker has high hopes for Oyster Bay and the Barossa Valley Estate, plus NZ sharemarket’s new record eclipsed by ongoing cyber attack fears

Delegat reports a lift in net profit and sales

Covid-19 has had little impact on winemaker Delegat’s performance to date, with sales up 9 percent and plans revealed by the company to increase sales by a further 17 percent over the next three years.

Delegat is pinning its hopes on its Oyster Bay brand in North America and its Barossa Valley Estate across a range of markets globally. It is aiming to achieve sales of 3.8 million cases of wine per year by 2023.

Operating net profit increased 20 percent to $60.8 million for the year ended June after global case sales hit a record 3.4 million, up 9 percent.

While the company did see a decline in hospitality sales due to the lockdown, these were offset by increased sales in retail and e-commerce channels as consumers switched their buying patterns to drinking more at home than in bars and restaurants.

Delegat is forecasting an operating profit in the 2021 financial year of between $60 to $65 million, based on sales growing 2 percent.

The directors announced a dividend payout of 17.0 cents per share. Delegat shares closed up 2.3 percent at $13.50.

NZX cyber attacks causing increasing concern

Investors will hope trading on the NZX this week will be smoother than last after the exchange was subjected to four consecutive days of cyber attacks. This prevented trading occurring due to the inability of the stock exchange operator to communicate market information to investors simultaneously.

Finance Minister Grant Robertson said the Government Communications Security Bureau has been directed to assist the NZX in resolving the issue.

On Friday the market was only able to trade for one hour, frustrating investors and brokers alike. Some fund managers over the weekend have expressed concern that the ongoing interruptions have the potential to affect fund valuations.

As the exchange is a critical part of the economy, the government’s national security system had been activated to coordinate a response from various agencies.

The NZX has been working with service provider Spark and national and international cyber security partners to address the issue.

To date, the company has said little publicly about the nature of the attacks or their origin or if the perpetrators have been seeking payment of a ransom to cease their activities, as is often the case.

Markets continue to push higher

The NZX50 finally managed to set a new record high last week, though the event was largely overshadowed by the ongoing cyber attacks that significantly curtailed trading.

The local benchmark index starts the week at 12,094, after closing on Friday 21 points above its previous high of 12,073 set on February 21. For the week, it gained 2.2 percent after a solid round of earnings results.

Across the Tasman, things were more muted, with the ASX200 ending the week at 6074, down 0.6 percent. By contrast, the ASX200 remains 15 percent below its February high and has largely been range bound for the past 10 weeks.

US markets continued their unrelenting push higher. The S&P500 has only fallen on 2 of the past 23 trading days underlining the strong positive sentiment that continues to underpin US markets. For the week, the S&P500 closed up 3.3 percent to close at another record high of 3508 after comments from the US Federal Reserve that it was changing its inflation management policy (see below).

After losing ground in recent weeks, gold ended the week up 1.25 percent at US$1962/oz while the kiwi dollar starts the week at 67.42 US cents after gaining 3.1 percent for the week, its biggest weekly advance since early June.

Port of Tauranga profit eases

Port of Tauranga, the country’s largest port, reported an after-tax net profit on Friday of $90 million for the year to the end of June, down 10 percent on FY19.

Despite the ongoing disruption caused by the Covid-19 global pandemic, container volumes increased slightly by 1.5 percent to 1,251,741 TEUs. Imports decreased 7.8 percent to 9 million tonnes while exports decreased 8 percent to 15.8 million tonnes.

Port of Tauranga’s chair, David Pilkington, says the results reflected a turbulent year, taking into account an almost 22 percent reduction in log exports. He said Covid had produced contrasting fortunes for customers, with some achieving record export volumes, while others, including the logging sector, had been unable to operate during lockdown.

Port of Tauranga has extended its strategic alliance with the country’s biggest container exporter, Kotahi, through to 2031. The Port also has long-term freight volume agreements in place with other key exporters such as Oji Fibre Solutions and Zespri International.

A planned 220-metre extension at Sulphur Point to meet increasing container growth is on track, with resource consent applications to be lodged in coming months. The current operation, served by nine cranes, handled the equivalent of 1.25 million 20-foot units last year, but the planned expansion will significantly increase its throughput.

The port is expecting to spend about $23 million on the extension in the current financial year, with total capital expenditure expected to rise to almost $59.3 million, from $38.3 million in FY20.

No earnings guidance has been provided for FY21. The Board has declared a final dividend of 6.4 cents per share, bringing the full year ordinary dividend to 12.4 cents per share.

Port of Tauranga shares closed down 1.6 percent at $7.45.

South Port prepares for life after Tiwai

Bluff’s South Port is considering plans to deepen its entrance channel and increase the 9.7 metre draft as it prepares for the impending closure of the Tiwai Point aluminium smelter, one of its biggest customers, and for the need to develop new business opportunities.

Chief executive Nigel Gear said the port would benefit from a dredging programme to remove the highpoint in the channel, helping improve safety margins and allow ships to take on additional cargo.

Reporting its results for the year ended June 30, the company said total cargo throughput was 3.3 million tonnes, a 7.2 percent decline on the prior year, with total container volumes down 2 percent.

Total operating revenue from port services was $44.6 million, slightly higher than in 2019, although net profit at $9.43 million was down 3.6 percent on its 2019 result.

Forestry cargo volumes declined, with both logs and wood chips down by a third as a result of the Level 4 lockdown. However, on the plus side, the port processed record volumes of bulk stock food products, which also increased revenue from its recently upgraded cold storage facility and container activities.

While the port signalled an earnings decline of 2 percent for the current financial year it said it hoped to maintain its dividend in FY21.

The board declared a final dividend of 18.5 cents per share, taking the annual return to 26 cents, unchanged from last year.

South Port shares, which had fallen as low as $5.60 in July following the announcement of Tiwai’s closure next year, ended on Friday at $6.30, up 1.6 percent.

US Federal Reserve changes its thinking on inflation management

‘Lower for longer’ seems to be the new mantra from the US Federal Reserve after the world’s leading central bank announced a major policy shift on Friday that that will likely keep interest rates low for longer than previously anticipated in order to let prices rise and jobs flourish.

After an 18-month review, the Fed announced changes to its long-term strategy that are designed to help the central bank meet long-elusive inflation goals.

The new strategy, unexpectedly laid out in detail in a speech by Fed chairman Jerome Powell, declares the central bank will now seek to achieve inflation that averages 2 percent over time, suggesting the central bank will increase its inflation tolerance.

Market watchers said the Fed is once again signalling it won’t be in a rush to lift interest rates, even if inflation begins to pick up, as the US recovers from the pandemic.

The shifts underscore the Fed’s fears of tumbling into a deflationary spiral of ever-lower inflation, similar to what Japan has experienced since 1989. Central banks have struggled to reverse such cycles because they become self-fulfilling prophesies. Once people expect prices to fall, they hold off on purchases until they do. It is especially difficult to recover from deflation when interest rates are already at zero – as they effectively are now in the US.

“We have seen this adverse dynamic play out in other major economies around the world and have learned that once it sets in, it can be very difficult to overcome,” Powell said in the speech. “We want to do what we can to prevent such a dynamic from happening here.”

US tech stocks achieve new, eyewatering milestone

The dominance of major U.S. tech stocks has pushed the sector past a new milestone, becoming more valuable than the entire European stock market, according to Bank of America Global Research.

The firm said it’s the first time the market cap of the U.S. tech sector, at US$9.1 trillion, exceeds Europe, which, including the U.K. and Switzerland, is now at US$8.9 trillion. To put that into perspective, Bank of America said that in 2007, Europe was four times the size of the U.S. technology sector

While Apple’s share price continues to surge, it’s Amazon’s performance that is largely responsible for the significant growth in the value of the sector. The company has been growing into a dominant force in e-commerce since the 1990s, but the explosion of the cloud computing industry has helped its stock surge over the past decade. Its share price was almost 20 times higher last week than it was in August 2010 while founder Jeff Bezos is now estimated to be worth in excess of US$200 billion.

Tech’s overtaking of Europe in value is also reflected in the overall performance of the U.S. and European markets. Since the beginning of 2010, the S&P 500 has gained nearly 200 percent, while the Euro Stoxx 50 has risen just 13 percent and the U.K.’s FTSE 100 has gained just under 11 percent.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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