The New Zealand sharemarket could be in for a rebound today after finishing last week in the red following earnings results that failed to excite investors and the prospect of more 50bp rate hikes in the pipeline added to investor nervousness.
The local market was more downbeat than the US and Australia where equity markets recorded solid gains for the week, including a 2.5 percent gain on Wall Street on Friday (US time).
The NZX50 finished the week at a new low for the year, falling a further 1.8 percent, after the Reserve Bank hiked the OCR by 50bp for a second time as expected, but surprised investors with a more hawkish tone than had been anticipated.
In its latest monetary policy statement, the RBNZ said that it plans to continue to lift the cash rate at a “brisk” pace.
“Once aggregate supply and demand are more in balance”, the central bank said, “the OCR can then return to a lower, more neutral level.”
Economists now expect at least two more 50bp hikes in July and August which is likely to mean the OCR will be at 3.5 percent by the end of the year and upwards of 4 percent by next year according to the Reserve Bank’s latest forecasts.
Compare that with investors in the US who increasingly believe the Fed may be forced to reduce the number of planned rate hikes in the face of softening economic data which saw the benchmark S&P500 index surge 6.6 percent to record its best week since November 2020 ending the longest run of weekly losses since 2001.
The technology-heavy Nasdaq Composite also rallied, gaining 6.8 per cent for the week, while in Australia the ASX200 finished the week up 0.5 percent.
Weaker economic data in the US, coupled with early signs that inflation may have peaked, gave investors enough reason to dial back their expectations for how aggressively the US Federal Reserve will raise interest rates giving stocks a much needed lift.
Weak manufacturing data and a report of lower-than-expected new home sales added to nervousness following a number of poor first-quarter earnings reports from leading retailers such as Target and Walmart last week which unnerved investors.
However, despite the bounce in stock prices many investors remain wary. The positive narrative only holds if softening data does not foretell a recession, and if the Fed’s campaign to curb inflation is successful before it cuts too far into growth.
Local investors, it seems, are also taking a wait and see attitude.
With just two days to go until the end of the month, the NZX50, which has already fallen 7 percent in May, has so far recorded just five up days versus 15 down days over the past 20 trading sessions highlighting the extent of the bearish sentiment among investors.
Year-to-date the local market is now down almost 16 percent with four of the top 10 leading stocks either at or near 52-week lows including Fletcher Building ($5.43), F&P Healthcare ($19.50), Contact Energy ($7.37) and Meridian Energy ($4.42).
Against the trend Ryman Healthcare gained a further 1.7 percent for the week continuing its strong rebound since reporting its annual result on May 20, though it finished the week well off its intraday high at $10.10.
A total of nine listed companies (see below) will report full-year earnings results today and tomorrow.
Oil price hits 10-year high on worries. Cryptos continue to lose ground. NZ dollar higher
The increasing likelihood that the EU will agree on an oil embargo on Russian oil has seen commodities analysts raise their oil-price forecast for each of the next three quarters.
Brent crude oil futures hit a 10-year high on Friday trading at US$119, a gain of almost 6 percent for the week and more than 50 percent year-to-date.
As the Memorial Day Weekend in the US marks the start of the summer driving season, the next near-term catalyst for energy markets is expected to arrive this week when Opec oil ministers, as well as representatives of countries such as Russia which have more recently aligned themselves with Opec, will hold a virtual meeting to discuss production plans.
Cryptocurrencies remain out of favour after failing to follow the lead of equity markets with Bitcoin falling 5 percent for the week, while Ether fell more than 12 percent to US$1780 as it edges ever closer to a key support level at US$1700.
The NZ dollar added to last week’s gains pushing higher for a second week to 65.36 US cents, up 2 percent.
Mainfreight and F&P Healthcare results fail to lift market
While market heavyweights Mainfreight and F&P Healthcare both reported solid full year results this past week their numbers failed to lift investor’s spirits.
Global logistics company Mainfreight delivered its best financial year yet, posting an 89 percent lift in net profit and hitting $5 billion-plus revenue.
Net profit was a record $355.4 million, up $167.3m on FY21. Revenue at $5.22b was up $1.67b or 47.2 percent.
The company will pay a discretionary profit bonus to staff totalling $94.2m, up 115 percent on the previous year.
However, CEO Don Braid warned investors not to expect the quantum of profit improvement of this past year to reoccur in the short term, saying he anticipates it will revert to more normal levels of revenue and profit growth.
Meanwhile, shares in F&P Healthcare closed on Friday at a two and a half year low after the company reported full year earnings in line with expectations but without providing future guidance.
It’s net profit fell 28 percent to $376m and revenue dropped 15 percent to $1.7 billion as Covid-related demand for its hospital products declined.
The result had been expected but the company was non-committal when it came to providing forward guidance.
F&P Healthcare said the increased amount of its hardware installed in hospitals should lead to strong growth in its consumable products in the medium term, but it was unable to say how long that would take.
Its shares ended the week at $19.50, down 7 percent.
Napier Port result highlights impact of disrupted shipping schedules
Napier Port posted a 15 percent drop in net profit to $9 million for the six months ended March 31 from $10.6m a year earlier blaming disrupted shipping schedules and ongoing labour problems for the lower result.
While the port reported a favourable trading environment for forestry and other primary exports, it experienced an almost 9 percent reduction in bulk cargo volumes and a 12 percent reduction in charter vessel visits in the same period as a year earlier which translated to a 3.6 percent dip in revenues to $50.7m.
Napier Port shares finished the week at a one-year low of $2.75.
AFT Pharmaceuticals a rare bright spot
AFT Pharmaceuticals annual result was one of the local market’s few bright spots pushing the company’s shares up 16 percent for the week to $4.20 after the maker of painkiller Maxigesic more than doubled its annual profit and signalled it will start paying dividends from next year.
Net profit rose to $19.8 million in the 12 months ended March 31, from $7.8m a year earlier, on a 15.2% increase in revenue to $130.3m.
The company said it enjoyed a stronger second half as Covid-19 became more endemic and nations eased restrictions, and some previously delayed products came to market.
Kiwi Property Group also reported a 14.1 percent lift in its annual net profit amid improved trading conditions and the rising value of its properties.
Net profit for the year ended March rose to $224.3 million, up from $196.5m the previous year.
The latest result includes a $120.5m gain in the value of Kiwi’s properties to $3.6 billion, compared with a $99.8m gain the previous year.
Pushpay in buyers sights
Pushpay Holdings look set to be at the centre of a potential bidding war after releasing a statement saying it was in the early stages of discussions with multiple interested buyers.
Two existing shareholders, BGH Capital and Sixth Street, disclosed they had agreed to cooperate on a takeover bid. Together they hold a combined stake of 20.3 percent.
The cooperation agreement says they will work together to negotiate and implement a proposed bid and prevents them from selling shares or supporting a competing proposal, which seems likely.
Pushpay shares ended the week up 20 percent at $1.44
UK power companies facing new windfall tax
Shares in some of Britain’s biggest power companies fell sharply last week over concerns that the government will hit electricity generators as well as oil and gas companies with a windfall tax.
Much like NZ, pressure is mounting on the British Government to do more to help households offset the soaring cost-of-living as the UK regulator warned that domestic energy bills were expected to surge by more than 40 percent later this year.
Shares in Drax, owner of the UK’s biggest power station, fell more than 16 percent after the Financial Times revealed that UK chancellor Rishi Sunak had ordered officials to widen the scope of a potential windfall tax.
The Treasury had already been looking at imposing a levy on the profits of North Sea producers, including BP and Shell, which have reported bumper profits driven by high oil and gas prices in the last year. But officials have also been asked to look at expanding the levy to other companies in the energy supply chain as domestic energy bills have soared.
Snap shares plunge as earnings outlook darkens. Twitter shares remain under pressure
Shares in US-based social media company Snap plunged more than 30 percent this past week after the company warned that it would miss its own targets for revenue and adjusted earnings in the current quarter.
Snap CEO Evan Spiegel said that the macro environment had “deteriorated further and faster” than had been anticipated when the company issued its quarterly guidance last month. As a result, revenues had been growing more slowly than anticipated..
In April, Snap reported first-quarter earnings that missed Wall Street expectations for sales and profit. At the time, the company said it expected between 20 percent and 25 percent year-over-year growth in revenue but now expects to report revenues at the low end of the guidance range.
Snap shares have now fallen more than 80 percent since September last year closing on Friday at a two-year low of US$15.58.
Meanwhile, in the latest twist involving Elon Musk’s increasingly acrimonious acquisition of Twitter, investors are planning on suing the Tesla founder and the company itself over the handling of the billionaire’s US$44 billion bid.
The case alleges Musk violated California corporate laws accusing the Tesla boss of “wrongful conduct” as his “false statements and market manipulation have created ‘chaos’ at Twitter’s headquarters in San Francisco”.
Twitter shares closed on Friday (US time) at US$40.17, more than 25 percent below Musk’s $54.20 offer price.
The lawsuit also claimed Musk benefited financially by delaying the disclosure of his significant stake in Twitter, and his plan to become a board member of the company, while also alleging that several of his posts were “misleading”.
Coming Up This Week….
Monday
- Plexure – Full Year result
- Trade Window Holdings – Full Year result
- Radius Residential Care – Full Year result
- Metro Performance Glass – Full Year result
- ikeGPS Group – Full Year result
- Arvida Group – Full Year result
- NZ Automotive Investments – Full Year results
- Savor – Full Year results
Tuesday
- PaySauce – Full Year result
- Building Consents issued (April) – Stats NZ
Thursday
- International Trade & Balance of Payments (March qtr) – Stats NZ
Friday
- Asset Plus – Special Shareholders Meting
- Value of Building Work in Place (March qtr) – Stats NZ
