Business & Investing: A2 Milk’s share price woes continued in Australia while NZ had a day off, Plus: AMP to demerge its two business units

Investors who paid $9.02 for A2 Milk shares last week will not be pleased to see their investment down 12 percent already.

In the two months since A2 Milk last provided the market with a trading update, its shares have fallen 15 percent. Increasing broker and analyst speculation last week that the company is preparing to announce a fourth earnings downgrade saw A2 shares fall sharply, sliding 11.3 percent for the week to close on Friday at $7.90, just 2c off its low for the day.

The NZX didn’t respond to Newsroom’s email on Friday asking why it hadn’t initiated a price inquiry, given the significant fall in the share price without any statement or explanation from the company.

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And while the local market was closed yesterday for the Anzac Day holiday observance, the ASX continued to trade where A2 Milk shares fell a further 3 percent. That’s likely to mean the shares will open at around $7.65 when the NZX begins trading today.

Last year A2 Milk provided a trading update on April 22, so it’s looking increasingly likely the company will be updating its guidance this week ahead of its end of financial year in June. Investors should brace themselves for more bad news.

In its February statement, A2 Milk said: “the outlook for FY21 assumes the actions being taken to reactivate the daigou/reseller channel [will] deliver a significant improvement in quarter-on-quarter growth from the third quarter to the fourth quarter.”

Judging by the share price, investors and analysts are increasingly assuming that improvement has failed to materialise. For some, after seeing a 65 percent slide in the share price since August last year when they peaked at $21.50, their patience with the former market darling will have just about run out.

Markets hold on to gains but make little headway

Markets last week largely remained in a holding pattern and struggled to push higher, despite solid gains in US banking stocks after record earnings and continued investor optimism that central banks will remain accommodative.

The NZX50 ended the week down 0.3 percent at 12,650 after making little headway during the week. It was much the same across the Tasman where Australia’s benchmark ASX200 index ended last week largely unchanged at 7061.

In the US, the S&P500 index was also barely changed, falling just 0.1 percent to close at 4180 after failing to push above 4200.

Brent Crude Oil futures fell 1 percent to US$65.98 a barrel and gold was little changed gaining just 0.1 percent for the week to US$1777 an ounce.

Bitcoin fell sharply, sliding 12.7 percent to US49,128, though it rallied more than 6 percent yesterday to recover some of last week’s losses. However, the high-profile cryptocurrency looks to be on track to record its first monthly fall since September.

The NZ dollar pushed higher to 72 US cents, up 0.77 percent for the week, after the US dollar index continued to weaken.

AMP announces plans to demerge its two business units after planned sale falls through

AMP has confirmed plans to separate its AMP Capital private market investment arm into an independent business after talks to sell the division fell through.

The company said the demerger would create two, more focused businesses that are better equipped to allocate capital and realise efficiencies.

AMP Limited would continue operating as a retail-focused wealth management company and would retain a minority stake in the new Private Markets business, which would continue its work investing in infrastructure equity and debt, and real estate assets.

The independent business would be free to establish a new brand that distances itself from AMP which has seen its reputation battered in recent years after a banking sector inquiry found serious misconduct and settlement of a sexual harassment claim against the former boss of AMP Capital, Boe Pahari, further damaged its previously blue-chip brand.

A search is underway for a new CEO to lead the operation as Pahari, who had been the global head of infrastructure investment, is leaving the business as a result of the claim.

Previous plans to sell the business to Ares Management hadn’t materialised after the two parties were unable to agree on a sale price.

Chair Debra Hazelton said a portfolio review found either selling or separating Private Markets would support growth.

“We had substantial and constructive discussions with Ares regarding a sale, however, we have not been able to reach an agreement that would deliver appropriate value for our shareholders,” she said.

Shares in the Australasian financial giant hit an all-time low last week of A$1.10 after it reported another quarter in which more than a $1 billion flowed out of its wealth management business. Just two years ago, in March 2018, the shares were trading at A$5.50.

The demerger is expected to be completed in the first half of 2022; however, the internal separation will begin immediately.

Corporations step up to help India

Despite record numbers of Covid-19 infections that have seen India record more than a million cases in a matter of days, its two main stock market indices, the Sensex and the Nifty, are proving to be remarkably resilient in the face of the growing crisis, falling just 3 percent since the start of the month.

Businesses globally have swung into action to support the world’s second most populous nation as it faces a critical shortage of breathing equipment and oxygen.

Singapore state investor Temasek said yesterday that it had partnered with Air India and Amazon India to airlift medical equipment such as oxygen concentrators and ventilators from the city-state. The medical supplies were sent to the financial capital of Mumbai in Maharashtra and the eastern state of West Bengal, where cases are rising.

Big tech companies including Microsoft and Google have also publicly pledged to help.

Corporate India has also stepped up efforts to help the country secure medical supplies to ease the strain on the health care infrastructure.

Indian media reported that billionaire Mukesh Ambani’s Reliance Industries will produce over 700 tonnes of medical-grade oxygen per day at one of its oil refineries. It would reportedly be given to worst-hit states for free.

Tata Group said last week it would import 24 cryogenic containers, which are also reportedly in short supply, to transport liquid oxygen. Meanwhile Jindal Steel and Power said it would supply 500 metric tonnes of liquid oxygen to hospitals that urgently need it.

Social media platforms are also being used extensively to coordinate availability and access to medical supplies, oxygen cylinders and other forms of aid.

Inflation concerns remain elevated as investors take steps to protect portfolios

Investors are not taking the US Federal Reserve at its word that it will be able to contain inflation. Increasingly, they are taking measures to protect against inflation running hotter than expected in coming years, marking the latest sign that concerns over price growth persist even as a bond sell-off has eased – for now.

A measure calculated by the Minneapolis Federal Reserve based on options trades suggests a one-in-three chance that the US consumer inflation rate climbs above 3 per cent over the next five years. The rise in the implied odds to the highest level in eight years shows how traders are seeking to protect themselves against a sustained uptick in inflation, even if many Wall Street economists still only expect a gradual rise in prices on the horizon as economic growth accelerates.

Data released last week showing investors have bought up US$14.4bn of inflation-protected Treasuries in 2021 provides further evidence money managers are keen to protect their portfolios.

Fears of inflation have shaken the $21tn market for US government debt, which sets the baseline for global borrowing costs, since more rapid price growth eats away at the fixed income streams the bonds provide. Long-dated Treasuries suffered the heaviest sell-off in four decades during the first quarter of this year as US President Biden’s $1.9tn stimulus programme and an improving vaccine rollout brightened the economic outlook.

However, the sell-off has lost steam in recent weeks, with the benchmark 10-year Treasury note yield falling to around 1.55 per cent from a high of nearly 1.8 per cent in late March. Yields fall when prices rise.

Elon Musk accepts offer to host Saturday Night Live

Never one to shy away from a publicity opportunity, “Saturday Night Live,” the popular US variety show has announced its next celebrity host will be Elon Musk, the eccentric CEO of Tesla and one of the richest people on the planet.

Miley Cyrus will join Musk as musical guest on May 8.

The choice of Musk is an odd one for “SNL” since the show is not usually known for picking hosts from the tech or business world. Also, Musk has shunned the media lately, making the decision all the more surprising

However, there have been occasional appearances by business moguls before including former New York Yankees owner George Steinbrenner and Donald Trump, both before he became President and also, controversially for the show, while he was a candidate in 2015.

As for Musk, how comedic he really is remains to be seen, though it’s likely the show will gain a significant ratings spike as a result of his large following, particularly amongst millennials, some of whom have done extremely well as early-stage Tesla shareholders.

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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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