AU
UK
CA
US
IND
NZ
Company Overview:
Metro Performance Glass Limited (NZX: MPG) produces the range of customised glass products which are predominantly utilised in residential as well as non-residential construction applications such as windows, doors, etc. Accordant Group Limited (NZX: AGL) is the NZ-based recruitment company engaged in the supply of temporary staff, contractor resources as well as recruitment of permanent staff.
Kalkine’s Sector Report covers the Key Financial Metrics, Risks, Outlook, Technical Analysis along with the Valuation, Target Price, and Recommendation on the stock.
1.Sector Landscape and Outlook
As per the ‘Fortnightly Economic Update’ dated 12 April 2024 released by The Treasury, the Reserve Bank maintained restrictive policy stance as interest rates are dampening the demand. The building consent issuance for new residential dwellings witnessed a rise of 15% in February post an 8.6% decline in January. While the monthly increase was witnessed throughout all the dwelling types and marked the largest lift since 2021, it is unlikely to hint a change in underlying demand for construction.
Apart from weak sentiment, the consent issuance does vary markedly month-to-month, and headwinds include subdued house prices, high interest rates, etc. On annual basis, consents remained 29% lower than the peak which was reached in May 2022.
The global expansion has been defying earlier predictions of significant slowdown in 2024, and inflation remains sticky. Notably, the recovery in global manufacturing and ongoing labour market strength and sticky inflation resulted in markets reassessing expectations of central bank interest rate cuts this year.
Overseas merchandise trade: March 2024
As per Stats NZ, in March 2024, goods exports increased $240 Mn (or 3.8%) to $6.5 Bn and goods imports declined $1.9 Bn (or 25%) to $5.9 Bn as compared to March 2023. Notably, the monthly trade balance was a surplus of $588 Mn.
With respect to the exports, fruits led to the rise in exports. As per the release, fruit increased $170 Mn (or 74%) to $399 Mn. This was led by kiwifruit, that increased $141 Mn (or 125%) to $253 Mn as well as fresh apples, that increased $26 Mn (or 27 percent) to $124 million. Milk powder, butter, and cheese increased $61 Mn (or 3.6%) to $1.7 Bn.
Exhibit 1: Goods Imports and Exports - March 2024 Month Versus March 2023 Month
Data Source: This work is based on/includes Stats NZ’s data which are licensed by Stats NZ for reuse under the Creative Commons Attribution 4.0 International Licence; Chart Created by Kalkine Group
Monthly Import Movements- By Country
With respect to China, total imports declined $289 Mn (or 20%) and the largest declines were electrical machinery and equipment, down by $92 Mn, railway stock, down $45 Mn; and vehicles, parts, and accessories, down by $43 Mn. For EU, total imports declined $571 Mn (or 43%).
The largest falls were art and antiques, which were down $187 Mn; aircraft and parts, down by $130 Mn; and vehicles, parts, and accessories, down $90 Mn.
Talking about Australia, the total imports declined $98 Mn (or 13%). However, the largest increases were inorganic chemicals, up by $19 Mn and food residues, wastes, and fodder, up by $11 Mn. With respect to the USA, total imports declined $361 Mn (or 42%).
Exhibit: 2 Goods Exports- Destinations
Data Source: This work is based on/includes Stats NZ’s data which are licensed by Stats NZ for reuse under the Creative Commons Attribution 4.0 International Licence; Chart Created by Kalkine Group
Key Risks and Challenges:
The construction sector outlook is weak for 2024. After the significant decline in building consents over the past few years, construction firms as well as architect offices are pessimistic. Architects reported waning activity throughout housing sector. Stats NZ’s electronic card spending data has confirmed that trading conditions remained weak in the March quarter, rising 0.1% on the December quarter, less than inflation.
The farming sector continues to suffer from low profitability as margins are squeezed by increased production costs as well as higher interest rates. The businesses reported weaker domestic tourism. The number of travellers and per-person spending declined on previous years.
Exhibit 3. Key Risks in Industrials Sector:
Source: Analysis by Kalkine Group
Outlook:
Despite the cost pressures, household net disposable income remained higher than household spending in the December quarter as per Stats NZ’s experimental national income accounts. The aggregate household saving remained $424 Mn in the December 2023 quarter. This was down from $577 Mn on the previous quarter reflecting the larger increase in consumption relative to the net disposable income.
The inflation environment remained more benign in the euro area. Headline inflation slowed to 2.4% in March. This was led by declines in Germany and France to 2.3% and 2.1% respectively. However, the CPI excluding energy and unprocessed food, slowed to 3.0% from 3.3% in the prior month.
Overall, the international visitor arrivals remained ~80% of pre-Covid levels as well as the industry is expecting international demand to rise over 2024. Notably, the Chinese arrivals remain ~50% of pre-covid levels. That being said, the businesses are expecting this to pick up as more capacity is added by airlines during 2024.
Apart from the sector-specific factors, an analysis on 2 NZX-listed companies is provided. This report covers their insights, outlook, performance and potential as expected to be delivered in the near to medium term.
1) Metro Performance Glass Limited (Recommendation: Speculative Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 16.6 million)
Business Description:
Metro Performance Glass Limited (NZX: MPG) produces range of customised glass products which are predominantly utilised in residential and non-residential construction applications.
Outlook:
Australian Glass Group (or AGG) has been delivering satisfactory financial and operational performance at the time of residential sector softness partially offset by the penetration of double glazing in new residential buildings. Notably, capital programme remains on track which would expand capacity and improve plant reliability.
In Australia, demand for AGG’s products and services is solid due to national construction code changes increasing double-glazing usage in residential buildings. Notably, AGG’s niche positioning is offering some protection from the wider sector softening.
Technical Overview:
Technical Commentary
On the daily chart, MPG’s stock prices are experiencing a downtrend characterized by lower lows and lower highs, indicating a negative bias. Most recently, the stock broke below below its previous low, providing further support for the previous observation. Prices are trading below both the trend-following indicators 21-period and 50-period SMAs, which might function as dynamic resistance levels for the stock; in contrast, the stock’s next round level may act as a sentimental support level. A significant support level for the stock is placed at NZD 0.080, while critical resistance level is located at NZD 0.100.
Stock Recommendation
Considering the aforementioned factors, a ‘Speculative Buy’ rating is given on the stock at the closing market price of NZD 0.090 per share, down by 8.16% as of 2nd May 2024.
2) Accordant Group Limited (Recommendation: Speculatuive Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 20.2 million, Annual Dividend Yield: 13.88%)
Business Description:
Accordant Group Limited (NZX: AGL) is a New Zealand-based recruitment company engaged in the supply of temporary staff, contractor resources and recruitment of permanent staff.
Outlook:
The positive earnings as well as robust banking relationship give a level of stability. The company is planning to expand offerings in FY 2025 in order to meet long-term demand in additional growth markets. While the company has responded to current market conditions by reducing operating costs in H2 FY 2024, the company is conscious about retaining suitable capability and capacity to respond to market changes. Notably, the sales, marketing as well as business development capability remains strong and active.
Technical Overview:
Technical Commentary
On the daily chart, AGL’s stock prices are undergoing a downtrend characterized by lower peaks and lower troughs, indicating a negative bias. Moreover, the momentum oscillator RSI (14-period) is trading below the midpoint, adding further evidence to the previous recommendation. Prices are trading below both the trend-following indicators 21-period and 50-period SMAs, which might function as dynamic resistance levels for the stock; in contrast, the stock’s most recent low may act as a support level. A significant support level for the stock is positioned at NZD 0.550, while critical resistance level is located at NZD 0.680.
Stock Recommendation
Considering the aforementioned factors, a ‘Speculative Buy’ rating is given on the stock at the closing market price of NZD 0.600 per share as on 2nd May 2024
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Note 1: Past performance is neither an indicator nor a guarantee of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is May 2, 2024. The reference data in this report has been partly sourced from REFINITIV.
Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.
Note 4: Annual Dividend Yield is on a Trailing Twelve Month (TTM1) basis and are subject to change based on factors such as company performance, stock price changes, etc.
Technical Indicators Defined: -
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Disclaimer
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Past performance is not a reliable indicator of future performance.
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