Business & Investing: Joe Biden’s big infrastructure package pushes US stocks higher,  Plus: Rakon profit sees shares at 10-year high

Local investors returning from the Easter break will be feeling encouraged by last week’s market moves in the US, which saw the S&P500 index finally break through the 4000 level for the first time to close at a new all-time high of 4020, up 1.1 percent for the week and a gain of 7 percent for the quarter.

US investors were buoyed by President Joe Biden’s plans to launch a US$2 trillion infrastructure spending initiative focusing on roading and bridge repairs, high speed internet upgrades and a range of other initiatives (more below). The announcement follows hard on the heels of his administration’s  $1.6 trillion stimulus package.

Adding to the good news, US nonfarm payrolls surged by 916,000 jobs last month, the biggest gain since last August last year.

The figure was well above economists’ median forecast of 647,000. Data for February was also revised higher to show 468,000 jobs created instead of the previously reported 379,000.

Since Biden’s election in early November the US stockmarket has now gained almost 20 percent, while the NZX50 is up just 3.5 percent over the same period, highlighting the impact of multiple economic stimulus packages in the US. The local index finished the shortened trading week at 12,488 after gaining 1.1 percent for the week, while Australia’s benchmark ASX200 ended the week more-or-less where it began, at 6829.

Brent crude oil futures lifted 0.8 percent last week to US$64.44, Bitcoin fell 1.7 percent to US$57,064 and the NZ dollar was steady at 70.33 US cents.

AFT Pharmaceuticals downgrades profit by 50 percent

AFT Pharmaceuticals shares were hit hard last Thursday after the company downgraded its profit guidance by as much as 50 percent, blaming delays to licensing negotiations being hampered by the Covid pandemic for the fall.

It now expects operating profit will come in between $9 million and $11m for the year ended March 31 compared with its November guidance of $14m to $18m.

“We are disappointed to be revising our guidance, a move which, to a large extent, reflects delays to licensing negotiations we expected to conclude in the 2021 financial year,” founder and managing director Dr Hartley Atkinson said.

“The discussions have been hampered by Covid-related travel restrictions and the difficulties collaborating across different time zones.”

The company said it remained confident but could not guarantee that it would be able to conclude negotiations with financial benefits which would, if negotiations were successful, accrue in the new financial year.

In November, the company reported a significant fall in first-half net profit to $1.2m.

AFT shares closed on Thursday at $4.38, down 11.5 percent.

Rakon boosts earnings outlook as shares hit 10-year high

Advanced frequency control manufacturer Rakon lifted its earnings guidance for the current financial year by 35-45 percent last Thursday.

The announcement saw its shares close at a 10-year high of $1.01, up 7.5 percent.

Rakon said it expected to achieve underlying earnings before interest tax and depreciation for the year ending March next year of between $27-$32 million.

The company said in February that revenue for the 12 months to March 2022 was expected to improve by at least 20 percent as a result of improved demand for its products following a major fire at a competitor’s manufacturing facility and growing optimism for the eventual roll-out of 5G technologies.

The news will be welcomed by long-suffering shareholders, who have seen the shares languish at around 20c since 2013, after they previously traded as high as $5.60 following the company’s listing in 2007.

In early January, NZX regulator NZ Reg Co queried whether Rakon was compliant with its continuous disclosure obligations following a 21 percent spike in its share price.

Fonterra announces sale of controversial loss-making farms in China

Fonterra has brought to a close its expensive foray into offshore expansion after announcing last week it had completed the sale of two of its Chinese dairy farms for $552 million.

It’s estimated costs and operational losses attributable to the project over the past decade amount to more than $1 billion which has been an ongoing source of frustration for many of its farmer-shareholders.

The decision to invest directly in Chinese farms began under former chief executive Andrew Ferrier and they were added to by his successor, Theo Spierings, before current CEO Miles Hurrell decided to pull the pin last year, announcing the divestment of offshore assets as part of a major strategic shift.

Putting a positive spin on the decision, Hurrell said Fonterra had “contributed to the development of the Chinese dairy industry by establishing the farms.”

“We’re pleased to now hand ownership over to Youran for the next phase of [their] development,” Hurrell said.

Fonterra said its China team would now continue with its focus on creating value through new products, applications and close partnerships with customers.

Separately, the co-op said the completion of the sale of its 85 percent interest in its Hangu farm to minority shareholder Beijing Sanyuan Venture Capital, announced in October, is progressing and is expected to be completed this financial year.

Tourism operator offers $1 fares for unique South Island visitor experience

Tourism operator Real Journeys is offering fares as low as $1 for one of its most iconic cruises, which also happens to be one of the country’s biggest international drawcards

The six-day offer, which opened last Thursday and closes today, is offering 1,000 spots available to cruise through the Milford Sound between April 1 and Sept 30. Real Journeys operates three vessels in Milford and typically charges $89 per trip.

Stephen England-Hall, chief executive of Real Journeys said Te Anau and Milford have been hit hard by the border closures.

“The Te Anau and Fiordland communities heavily rely on visitors and we really want to put a national spotlight on Milford Sound and encourage all New Zealanders to visit for themselves,” England-Hall said.

“The boats are going and there’s fixed cost anyway, but if we can get more people on those boats, those people will be going through Milford and Te Anau.”

While Real Journeys said it might not directly benefit from the $1 cruises, it’s likely to get ‘spillover’ benefits if visitors use its other services, such as the coach tours to Milford or scenic flights from Queenstown.

US President Joe Biden unveils largest infrastructure plan in 50 years.

Not since the construction of the US interstate highway network in the 1960s and 70s has America seen a spending plan on the scale that US President Joe Biden unveiled in Pittsburgh last week ahead of the Easter break.

Announcing a $2 trillion spending plan to overhaul and upgrade the nation’s infrastructure, Biden called it a “transformational effort that could create the most resilient, innovative economy in the world” adding that it was not a plan that “tinkers around the edges,” but would be a “once-in-a-generation investment in America.”

White House officials said the proposal’s combination of spending and tax credits would translate into 20,000 miles of rebuilt roads, repairs to the 10 most economically important bridges in the country, the elimination of lead pipes from the nation’s water supplies and a long list of other projects intended to create millions of jobs in the short run and strengthen American competitiveness in the long run.

The plan is also intended to accelerate the fight against climate change by hastening the shift to new, cleaner energy sources.

The costs would be offset by increased corporate tax revenues raised over 15 years, particularly from multinationals that earn and book profits overseas. The president cast those increases as a means to encourage companies into investing and producing more in the United States.

With Republicans already signalling scepticism or outright opposition to the proposal, the President appealed for support from both parties in Congress, saying the program would be “unlike anything we have seen or done since we built the interstate highway system and the space race decades ago” and calling it “the largest American jobs investment since World War II.”

Investors responded positively to the announcement pushing the S&P500 index to a record close (see above).

LG Electronics to close mobile phone division

South Korea’s LG Electronics confirmed yesterday that it would terminate its loss-making smartphone business, with analysts saying LG’s focus is now expected to shift to its more profitable home appliance and TV divisions.

The division has posted losses of more than 5 trillion won (NZ$6.3 billion) over the past six years.

Despite the end of the business, the company said that it would continue to leverage its mobile expertise and develop mobility-related technologies such as 6G telecommunications to help further strengthen its competitiveness in other business areas.

“Core technologies developed during the two decades of LG’s mobile business operations will also be retained and applied to existing and future products,” the company said.

Analysts had been expecting the decision to exit the devices business after the collapse of talks with potential buyers, such as Vietnam’s Vingroup and Russia’s sovereign fund. They said it was the right move, if a belated one.

The move closes the curtain on more than two decades manufacturing and selling phones. LG started its mobile business in 2000 by acquiring LG Information & Communications.

At its peak in the mid-2000s it was the world’s third-largest phone maker behind Nokia and Samsung. However as of the third quarter of 2020, LG’s global market share for smartphones was less than 2 percent, according to Counterpoint Research.

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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