Choppy markets are not encouraging investors to jump in. Photo / Bradley Ambrose
Choppy markets are not encouraging investors to jump in. Photo / Bradley Ambrose
It’s been a tough month for US markets, with the S&P 500 down around 4 per cent for September as US politicians continue to fight over increasing its debt ceiling ahead of the October 1 deadline.
The 10-year US bond yield has hit a 15-year high of 4.6 per centand has risen sharply in the last month from around 4.1 per cent, while oil prices have also risen fast in the last few months.
Shane Solly, portfolio manager at Harbour Asset Management, said it was a tough environment for investors.
“Interest rates are going up on a combo of things - central banks warning that rates have to be higher for longer, and I think oil has added fuel to that fire with the oil price rising.
“What it’s doing is seeing people do exactly what central banks want, which is [to] take capital away from supporting growth and put it into buying bonds - buying US govt bond yields at 4.6 per cent is pretty much what is going on.”
The NZX50 index is down from 11528 at the start of the month to 11316 as of Wednesday’s close.
September has typically been known as a seasonally weak month. Solly said that could be put down to it being between major company reporting periods while it also coincided with the US debt ceiling talks.
But Devon Funds head of retail Greg Smith said there was a case for some brightness on the horizon.
“... while October has seen some seismic events in the past (the 1929 crash and Black Monday in 1987), it has largely been a good month for the market historically, and is known as “The Bear Killer”.
Smith said statistically, there was also much to suggest that the coming quarter could be a good one.
“When the S&P 500 is up year-to-date between 10-20 per cent at the end of September, the fourth quarter has been higher 84 per cent of the time.”
The S&P 500 is up around 11 per cent so far this year.
What’s in store for Hallenstein Glasson?
Hallenstein Glassons is facing a tough economic environment.
Analysts will be closely watching any outlook statements from Hallenstein Glassons Holdings, with the retailer due to deliver its full-year result today amid the challenging economic environment.
Yesterday, fellow retailer The Warehouse Group delivered a net profit of $29.9 million, down a whopping 65.6 per cent as inflation took a hefty toll on the business.
Forsyth Barr’s Margaret Bei and Andy Bowley are forecasting a net profit after tax of $32m for Hallensteins - well inside its guidance range of $31.8m to $32.3m.
They estimate revenue of $409.7m and a dividend of 48.5c per share. Bei and Bowley said the clothing retailer had achieved record group revenue of $223m for the first half of its financial year, and their forecasts implied more subdued growth of 3 per cent in the second half of FY22 compared to the 29 per cent year-on-year growth achieved in 1H23.
And they expect things to get tougher from here.
“We believe it may be challenging for HLG to maintain positive revenue growth in 1H24 given a substantially more challenging backdrop in both key markets (Australia and NZ), and a record prior period. We estimate a modest ~-1 per cent decline in 1H24 versus 1H23.”
They note the company has faced considerable cost inflation like many of its peers, but has previously indicated a bid to make cost efficiencies.
The analysts are also keen to hear more about inventory levels and the outlook on the gross margin. They have an underperform rating on the stock and a target price of $5.50.
Hallenstein’s shares closed on $5.75 on Wednesday and are up nearly 14 per cent for the year.
The irony of a2 Milk and Synlait
a2 Milk has too much cash on its books.
A2 Milk and its closely linked infant formula maker, Synlait Milk, have opposite problems.
A2 has too much money while Synlait has too little.
At last count, a2 Milk had $757.2m in cash, and that’s after forking out $149.1m in a share buyback, according to the annual result released in August.
In contrast, Synlait’s result this week showed that its net debt was up 21 per cent at $413.5m.
On paper at least, that means a2 Milk – which already has a 20 per cent stake in Synlait - could buy the dairy company (market cap $286m) twice over and still have money in the bank.
However, the sticking point might be China’s Bright Dairy, which has a near 40 per cent stake in Synlait, and which has been quietly supportive of the company through its various issues.
Synlait said the sale of its Dairyworks business - estimated to be worth $120m to $150m - was in progress, with Synlait engaging with several parties.
In 2023, Dairyworks generated Ebitda of $21m, a net profit of $10m and closing net asset value of $117m (versus $150m initial investment), Jarden said in a research note.
Looking ahead, Jarden said the downside risks for Synlait were: 1) China macro risks, including SAMR (China license) renewal; 2) commodity price volatility; and 3) execution of a turnaround plan.
