Heading into 2023, analysts were highly bearish after a tough year for both equities and bonds in 2022, but markets have surprised on the upside.
The S&P 500 is up over 14 per cent in the past six months, while the Nasdaq is firmly in bull market territory with a rise of over 30 per cent.
New Zealand’s share market, which is dominated by more defensive stocks, hasn’t recovered as strongly but is still up 3.5 per cent - not to be sneezed at after last year’s 12 per cent drop.
Analysis by Harbour Asset Management this week shows the performance from equity markets has been driven by a small number of sectors and stocks, with IT and consumer discretionary stocks at the forefront.
“An unwind of bearish positioning also helped drive returns upwards, as did earnings, which were not as bad as feared.”
But Harbour’s Chris Di Leva and Hamish Pepper think the path higher for markets looks tougher heading into the second half of the year.
“Positioning is back to more normal levels and is, in fact, stretched in some areas of the market.
“For example, the ratio of bulls to bears within the AAII Investor Survey is back to 2021 levels.”
Valuations and price-to-earnings ratios are not as attractive, the analysts say, and on top of that, manufacturing data is pointing to more softness in earnings to come.
Di Leva and Pepper say longer-dated bonds may be subject to weakness as investors demand more compensation for uncertainty, but shorter-dated bonds are offering great value with yields at elevated levels.
“... with central bank policy rates close to cycle highs, bond benchmark running yields are 3.5-5 per cent in most countries.
“We think these are well above neutral rates of interest. This suggests that bonds continue to offer good levels of income and the ability to provide capital gain should yields fall more quickly than markets anticipate.”
And as the US banking fallout in March showed, bonds also provide a defensive place to invest when markets get volatile.
Kami, the Auckland-based education technology firm that boomed to more than 35 million customers worldwide during the pandemic, has confirmed to the Herald that it has retained an adviser.
The confirmation followed an item in AFR’s Street Talk gossip item earlier this week that said Kami had met with investment banks and “is the next technology business headed towards the dealmaking circuit.”
“In April, we ran a process to appoint a corporate finance adviser to Kami. We would like to make clear this is for advisory services and there is no transaction in progress,” a spokeswoman told the Herald.
Kami was formed by three Auckland University students, Hengjie Wang, Jordan Thoms and Alliv Samson, who were after an online tool to annotate their notes and decided to make their own.
They later added admin tools for teachers. The trio were joined by Bob Drummond (now chairman), an industry veteran who has previously worked for two tech firms that went the IPO route: Plexure, which listed on the NZX and ASX and LHS Telekommunikation, which relocated from Frankfurt to Atlanta before listing on the Nasdaq.
In late 2021, as Kami topped the Deloitte Fast 50 with 1171 per cent revenue growth over the past three years amid a lockdown boom in digital learning tools, Henjie told the Herald his firm had 30 million teachers and students using its software worldwide.
To celebrate the milestone, all 53 employees had been given a $10,000 bonus. The cofounder said Kami was profitable and funding its growth organically. In the coming year, revenue would be between $30 million and $50m (the AFR put it at “more than $50m”). Kami says it now has more than 36 million users worldwide.
Jarden has significantly lifted its target price on Comvita after its acquisition of Singapore honey retailer HoneyWorld for $10m this week.
The broker now reckons the stock is worth $4.65 a share, up from $4.50. That’s well above yesterday’s (Thursday) opening price of $3.20.
Analyst Christian Bell said Comvita had provided “vague guidance” that the acquisition would provide a 22 per cent earnings per share uplift which appeared to be based on internal estimates, with more synergies expected once the business was fully integrated.
Bell noted that Comvita left its FY25 target Ebitda number unchanged, although the company said the acquisition would accelerate its delivery.
“However, without further guidance, it is difficult to know whether the added EPS [earnings per share] acts as a buffer to a slight underlying downgrade - and hence we assume there is a minor downgrade...
“Notwithstanding this, it appears that HoneyWorld presents a strategic fit for Comvita in a relatively untapped market and at what appears to be an undemanding price.”
Bell revised his Ebitda forecasts upwards by 8 per cent for FY24 and 5 per cent for FY25.
“We expect more detail at the upcoming FY23 results, including FY24 guidance to understand and calibrate more accurately.”
Bell said its rating remained a buy, and noted the current share price appeared to factor in little earnings growth and strong operating cashflows were expected in FY24 given the wind-down of inventory.
Forsyth Barr analysts Margaret Bei and Andy Bowley were also upbeat regarding the deal.
“... we estimate the incremental contribution from HoneyWorld is $3.5m Ebit. At an implied EV/Ebit multiple of 3x, we believe the acquisition appears attractive.
“We view Comvita’s increased focus on bricks-and-mortar retail positively, reflecting: diversification of channel risk, increased access to new consumers and reinforcement of CVT’s premium brand positioning.”
In a sign of market madness, investors have spent almost US$200m trading theoretically worthless shares in Bed, Bath and Beyond since the retailer went bankrupt at the end of May, the Financial Times reports.
The stock was one of those that became popular as part of the ‘meme stock’ phenomenon, which saw small investors come together through social media to push share prices higher against the views of professional investors.
Video store GameStop was the most popular of these stocks and has managed to continue operating despite its share price going on a rollercoaster ride. Its shares got as high as US$81.25 in January 2021, but are now trading around US$23.90.
But Bed, Bath and Beyond filed for Chapter 11 Bankruptcy and was delisted. Nevertheless, an average of 18 million of the company’s shares have changed hands each day on over-the-counter markets since then, according to Bloomberg data.
- Additional reporting Chris Keall.
The centres say changing their primary health organisation will help avoid fee increases.