Research Team, 22 November 2018

The NZX 50 started the week on the back foot, following sharemarkets around the globe, as concerns of rising interest rates, slowing economic growth and global trade continue to dominate. It was another busy week on the local corporate front on news Trade Me received a $2.54bn private-equity takeover bid, as well as annual meetings from a2 Milk, Fletcher Building, Kathmandu and The Warehouse.

Thursday saw annual net migration fall to its lowest since 2015. For the year ending October, net migration fell to 61,800, down 8,900 from October last year. The fall was due to fewer migrants entering the country and a greater number leaving.

Trade Me was the talk of the town after receiving a non-binding, indicative proposal from Apax Partners, a London based private equity firm, with a takeover bid of $2.54bn. The offering of $6.40 a share in cash, represented a 25% premium to its closing price on Tuesday. The deal is subject to due diligence and Trade Me is open to rival offers before Apax presents its binding bid on December 12. Following the news, shares soared 16.3% to $5.93, jumping to a new record for the company.

In contrast, Fletcher Building weighed heavily on the index after another earnings downgrade at its annual meeting. On Wednesday, shares were off 18% for the week, breaking through 2009’s low and at its worst level since 2004. The embattled construction company expects EBIT before significant items of $630m - $680m. The company also aims to recommence dividend payments in 2019.

The a2 Milk Company released a strong four-month trading update which was in line with market expectations. The company said it expects revenue growth to continue but at a slightly more moderate rate. The milk marketer remains one of the top performers in the index, with shares up 30% this year, despite being 25% off its peak in March.

Meanwhile, dairy prices slipped further at the latest Global Dairy Trade (GDT) auction. The headline index fell 3.5%, which brings the cumulative decline in average pricing to 25% since May. Key product group, whole milk powder, fell 1.8%, its lowest point since August 2016 and is expected to fall further on strong supply. Skim milk powder was down 1.6%, while anhydrous milk fat and butter weighed heavily, falling 9.4% and 9.6%, respectively.

Off the main index, Metro Performance Glass fell to a record low after it said a new entrant is looking to enter the New Zealand glass processing market. The new entrant is expected to enter the market mid-2020, with a processing plant near Hamilton and will be of similar scale to Metroglass’ Highbrook plant. Shares plunged 24% to 64 cents. The same day, the company welcomed a new Chief Executive, Simon Mander. Metroglass is set to release its half year result on Monday.

US markets also remained volatile as the tech sell-off continued, pushing both the Dow Jones Industrial Average and the broader S&P 500 negative for the year. Weak earnings results from major retailers also heightened fears of slowing growth.

Tech’s ‘FAANG’ stocks – Facebook, Amazon, Apple, Netflix and Google (Alphabet) all closed in bear market, down more than 20% from their 52 week highs. Collectively, the five companies have shed more than US$1 trillion in value. Apple, which accounts for 12% of the Nasdaq Composite and 5% of the Dow Jones Industrial Average, dropped to its lowest level since early May, on concerns of slowing demand for iPhones. It was also reported Facebook’s CEO, Mark Zuckerburg, has adopted a more aggressive managerial style as the company remains under pressure from lawmakers, investors and users.

The technology sector was the best performer in the S&P 500 last year and is the second best performer this year, despite it being down 10% from its 52 week high. Oil prices also remained under pressure this week, with WTI crude down as much as 7% on Tuesday, adding to negative sentiment and causing further weakness across energy companies.