Financial Planner morning report – Thursday
The only way is up
Overnight, global share markets recovered on the back of an improving crude oil price, now $32 per barrel, and an uptick in airline bookings, sending both sectors up 4% in the US.
The S&P 500 (+1.7%) benefitted from the news that all 50 US states had now eased restrictions. In a sign the economy may be beginning to turn, the more cyclical smaller companies added 2.7%.
Walt Disney Co (NYSE: DIS) was a key beneficiary of the news overnight, as the likelihood of live sports returning coincided with improving sentiment. Despite Walt Disney’s cruise assets, I see the company as the global leader in content and a must-own in all portfolios.
The ASX managed to deliver a positive return on Wednesday after falling at the open, adding 0.2% on the back of a continued commodity price recovery.
Higher revenue, higher costs
US retailer Target reported results overnight, with digital sales increasing 141%, but profit falling some $500 million as the costs associated with dealing with COVID-19 began to bite. Target’s revenue rose to $19.62 billion for the quarter from $17.63 billion in the prior quarter thanks to a 12% larger basket of goods per customer. After close to a decade of cost-cutting and capital returns for shareholders, it seems the tables have turned.
Australian retail sales fell 17.9%, driven primarily by lower foot traffic, whilst 10% of all spending moved online. EML Payments Ltd (ASX: EML), which provides prepaid gift cards including servicing the likes of Smart Group and Zip Money, saw revenue increase 20% for the nine-month period to $87.1 million. However, the company withdrew guidance for 2021. EML delivered incredible margins of 73.7% on gross debit volumes of $9.83 billion, a 55% increase. This is an interesting play on the continued move to contactless payments around the world.
3 stocks to watch
Similarly to Walt Disney, CBS Media stock has rallied 20% in two days, after announcing its strongest streaming quarter ever, up 55%. Despite an inability to record new TV shows the company will benefit from a restart of the PGA Golf in June.
Australian Agricultural Company (ASX: AAC) appears to be faring through the export market difficulty quite well, reporting strong sales in Asia, up 19%, North America, up 34%, and Australia, up 16%. That said, AAC’s total sales fell $30 million, but profit improved $80 million on the back of improving livestock and property valuations.
Video Game producer Take-Two Interactive, which produces video games including NBA 2K20, Red Dead Redemption and Grand Theft Auto, remains a key beneficiary of the lockdowns, reporting 40% higher revenue at $760 million and profit growth of over 116%. As an avid fan of the NBA 2K series, this company appears well-positioned for changes to the way we relax post-COVID-19.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.