Author: Consultant

• Marketing revenue rose in the first three months of 2023 for several Chinese internet giants — but not Alibaba, the largest of them all by dollar value. That’s on a year-on-year basis.
• Rather than 2023, “the general consensus in the industry is that 2024 is going to be the year of growth and rebound,” said Ashley Dudarenok, founder of ChoZan, a China marketing consultancy.
• Among major U.S.-listed Chinese internet platforms, Pinduoduo saw the biggest year-on-year increase in revenue from ad sales in the first quarter. The company operates a group-buying app known for bargain discounts.

https://www.cnbc.com/2023/06/12/ad-sales-in-china-are-pointing-to-a-soft-recovery-for-the-consumer.html

Published: 6/12/2023 5:56 AM ET

Oil prices fell nearly 3 percent on Monday amid persistent concerns around the demand outlook and ahead of a slew of key central bank meetings due this week.

Benchmark Brent crude futures tumbled 2.5 percent to $72.94 a barrel, while WTI crude futures were down 2.6 percent at $68.34.

Concerns about China’s fuel demand growth and rising Russian crude supply weighed on prices, with Goldman Sachs Group Inc. cutting its price forecast by nearly 10 percent.

Goldman Sachs lowered its Brent outlook for December to $86 a barrel from $95 a barrel, citing signs of increasing supply and slower demand for crude.

The investment bank also revised down its WTI forecast for December from $89 per barrel to $81 despite Saudi Arabia’s announcement of output cuts and efforts by OPEC Plus to limit supplies into 2024.

Meanwhile, investors await the outcome of a slew of central bank meetings this week that should determine the short-term outlook for the global economy.

Traders will pay close attention to the Federal Reserve’s monetary policy meeting scheduled from 13th June to 14th, with the U.S. central bank expected to pause its recent interest rate increases.

The Fed’s accompanying statement as well as key U.S. consumer inflation data will be key as investors look for clues about the outlook for rates.

Meanwhile, more Chinese banks cut deposit rates, signaling monetary easing ahead. There is a chance of China cutting its medium-term lending facility on Thursday.

Analysts expect the European Central Bank to hike rates by 25 bps on Thursday while the Bank of Japan is likely to maintain its current loose policy settings on Friday.

 | Published: 6/12/2023 8:13 AM ET

Canadian shares are likely to open on a mixed note Monday morning, with investors tracking positive lead from Europe, and commodity prices.

With major central banks scheduled to announce their monetary policies during the course of this week, the mood is likely to remain a bit cautious.

The Federal Reserve’s rate decision is due on Wednesday. The U.S. central bank is expected to pause in raising interest rates amid signs of cooling inflation and slowing economic growth.

The Fed’s accompanying statement as well as U.S. CPI data will be key as investors look for clues about the outlook for rates.

The People’s Bank of China, European Central Bank and Bank of Japan are scheduled to announce their monetary policies this week.

The Canadian market ended weak on Friday, moving lower after showing a lack of direction early in the session. The benchmark S&P/TSX Composite Index fell 50.64 points or 0.3% to 19,892.06, closing lower for the third straight session.

The extended pullback on Bay Street came as traders continued to react to the Bank of Canada’s interest rate hike on Wednesday, which came after the Canadian central bank left rates unchanged for two straight meetings.

Asian stocks closed mostly lower on Monday as growth worries lingered, and investors looked for cues from key central bank meetings due later in the week.

European stocks traded higher on Monday ahead of a big week of central bank meetings. The European Central Bank is widely expected to hike rates by 25 basis points on Thursday.

West Texas Intermediate Crude oil futures are down $1.67 or 2.38% at $68.50 a barrel.

Gold futures are up marginally at $1,977.70 an ounce, while Silver futures are down $0.100 or 0.44% at $24.310 an ounce.

Shares in Saputo Inc. SAP-T -11.17%decrease closed down by 11 per cent Friday after the company’s chief executive cautioned negative consumer sentiment could dampen the outlook for the start of its 2024 fiscal year.

Speaking to analysts about the Montreal-based dairy company’s fourth-quarter results, president and chief executive Lino A. Saputo said he felt confident about delivering on the company’s promises in the year ahead, but warned that it could face rough waters early on.

“What we’ve seen since the beginning of this fiscal year, and we’re talking about six, seven weeks, the tone in the markets are a bit more cautious and I would say somewhat uncertain,” he told analysts on the earnings call.

Despite major dairy producing countries not seeing an overcapacity of volume, consumer sentiment “has turned somewhat negative” to start the fiscal year, Saputo said.

“We believe that this is a temporary situation, that consumer demand, not just domestically but globally, will return and once it does return we will have the infrastructure to be able to derive the value that we had originally anticipated,” he said.

He also noted China’s opening has occurred slower than expected, which has impacted commodity prices.

“China is a huge consumer of dairy products and has an impact on the global market and the global pricing,” Saputo said.

RBC Dominion Securities analyst Irene Nattel said despite “encouraging signs” in the results, extreme dairy market volatility since the start of the company’s 2024 first quarter “gives us pause.”

“With muddled visibility on both global macro and commodity backdrops, in our view, shares are likely to be stuck in a range until visibility improves meaningfully,” she said in an analyst note.

Saputo credited pricing initiatives, strong international markets and favourable commodity prices for what he called a solid fourth quarter in 2023.

Its net earnings for the fourth quarter amounted to $159 million, up from $37 million a year earlier. Revenue for the quarter ended March 31 totalled $4.5 billion, up from $4.0 billion in the same quarter last year.

Diluted earnings per share were 38 cents, up from nine cents a year earlier.

Net earnings for the full financial year were $755 million, up from $485 million, while revenues rose to $17.8 billion from $15.0 billion.

Saputo saw strong consumer demand despite navigating “a difficult and volatile environment with ongoing inflation and supply chain disruptions.”

“We capitalized on this strong demand with better supply chain performance enabling us to recover from a challenging fiscal 2022,” he told analysts.

Saputo shares ended down $3.89 at $30.93 Friday afternoon.

Monday June 12

China’s aggregate yuan financing and money supply

Japan producer prices and machine tool orders

(2 p.m. ET) U.S. Treasury Budget for May.

Earnings include: Oracle Corp.; Sprott Physical Gold and Silver Trust

—

Tuesday June 13

Germany CPI

(6 a.m. ET) U.S. NFIB Small Business Economic Trends Survey for May.

(8:30 a.m. ET) U.S. CPI for May. The Street is expecting an increase of 0.2 per cent from April and 4.1 per cent year-over-year.

Also: U.S. Fed meeting begins

Earnings include: Major Drilling Group International Inc.

—

Wednesday June 14

Euro zone industrial production

(8:30 a.m. ET) Canadian national balance sheet accounts for Q1.

(8:30 a.m. ET) U.S. PPI for May. Consensus is a decline of 0.1 per cent from April and up 1.4 per cent year-over-year.

(2 p.m. ET) U.S. Fed announcement and summary of economic projections with chair Jerome Powell’s press conference to follow.

Also: Canadian and U.S. new motor vehicle sales for April

Earnings include: Algoma Steel Group Inc.; Lennar Corp.; Wall Financial Corp.

—

Thursday June 15

China’s industrial production, retail sales and fixed asset investment

Japan trade deficit and core machine orders

ECB Monetary Policy Meeting

(8:15 a.m. ET) Canadian housing starts for May. Estimate is an annualized rate decline of 4.4 per cent.

(8:30 a.m. ET) Canadian construction invesmtment for April.

(8:30 a.m. ET) Canada’s manufacturing sales and orders for April. Estimate is month-over-month drops of 0.2 per cent for both.

(8:30 a.m. ET) U.S. initial jobless claims for week of June 19. Estimate is 250,000, down 11,000 from the previous week.

(8:30 a.m. ET) U.S. retail sales for May. The Street expects a flat reading versus April.

(8:30 a.m. ET) U.S. import prices for May. Consensus is a decline of 0.6 per cent from April and down 5.8 per cent year-over-year.

(8:30 a.m. ET) U.S. Empire State Manufacturing Survey for June.

(9 a.m. ET) Canadian existing home sales for May. Estimate is an increase of 4.0 per cent year-over-year with average prices rising 1.5 per cent.

(9 a.m. ET) Canada’s MLS Home Price Index for May. Estimate is a decline of 9.0 per cent year-over-year.

(9:15 a.m. ET) U.S. industrial production and capacity utilization for May.

(10 a.m. ET) U.S. business inventories for April.

Earnings include: Adobe Systems Inc.; Kroger Co.; Sigma Lithium Resources Corp.

—

Friday June 16

Euro zone CPI

(8:30 a.m. ET) Canadian wholesale trade for April. Estimate is an increase of 1.6 per cent from March.

(8:30 a.m. ET) Canadian international securities transactions for April.

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for June.

Earnings include: Canaccord Genuity Group Inc.

Amid fierce competition, WestJet will wind down its Swoop subsidiary by late October as it folds the budget airline’s operations under its main banner, the airline said Friday.

The move marks a major shift in Canada’s aviation skyscape, arriving five years after Swoop first surfaced as a response to discount rival Flair Airlines’ launch in 2017.

It also comes after pilots with WestJet and Swoop ratified a new collective agreement that brings them onto a level pay scale, and also gives them a 24-per-cent hour pay bump over four years.

WestJet chief executive officer Alexis von Hoensbroech said he mulled keeping Swoop separate, but that higher wages for its flight crews made the option less feasible.

“We were prepared for both possible outcomes, and then decided that provided the overall deal didn’t make sense, we are actually ready to integrate Swoop into the mainline business,” Mr. von Hoensbroech said in a phone interview from WestJet’s Calgary headquarters.

Each trip by the carrier’s 180-plane fleet will offer a portion of ultralow-cost fares, he said.

“We are actually broadening our ultralow-cost reach to a much, much broader network than we could have ever covered with Swoop. So therefore we actually see this as an advantage and as an increased footprint for the ultralow-cost offering in Canada.”

No bookings will be affected, he added.

Swoop’s 16 narrow-body 737s will ply its current network through to Oct. 28, when it will cease to fly, WestJet said. Soon after, the pink-daubed planes will be repainted with the blue and turquoise of WestJet’s livery.

The company said no layoffs are expected from the integration, with all Swoop employees slated to move to the mainline.

Competition for budget airfares has grown in recent years, particularly in Western Canada, as upstarts Flair Airlines and Lynx Air challenged Swoop – all three are Alberta-based – for market share on key routes.

“The market has become pretty competitive,” Mr. von Hoensbroech said, but insisted Swoop’s integration strengthens its grip on discount offerings, rather than marking a retreat.

The CEO, who took the helm at WestJet in February, 2022, said less than a month ago the airline hadn’t turned a quarterly profit since 2019. The drop in bookings prompted by the threat of a strike only added red ink.

“That month was certainly heavily impacted,” Mr. von Hoensbroech said Friday. “Going forward we are actually looking at positive numbers and positive margins.”

Bargaining with pilots came down to the wire, with WestJet cancelling more than 230 flights in preparation for job action before an agreement-in-principle was reached hours ahead of the strike deadline on May 19. Ratification of the deal was announced Friday.

“Having this agreement in place will go a long way to solve many of the airline’s labour issues, and bring more stability to our operations,” said Bernard Lewall, who heads the Air Line Pilots Association’s WestJet contingent, which represents about 1,800 pilots.

The new agreement, taking effect on Canada Day and retroactive to Jan. 1, provides higher compensation, better job security and more flexible schedules, he said in a release.

Founded as a regional upstart in 1996, WestJet has grown to serve 28 per cent of Canada’s domestic air travel market as of last month, versus the 47 per cent run by Air Canada, according to aviation data firm Cirium.

Going public in 1999, the airline went private again two decades later after Toronto-based investment manager Onex Corp. acquired it in a $5-billion deal that closed in December, 2019, three months before the COVID-19 pandemic kicked off.

On today’s Breakouts report, there are 19 stocks on the positive breakouts list (stocks with positive price momentum), and 39 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a defensive stock that is just 1 per cent away from appearing on the negative breakouts list – George Weston Ltd. (WN-T -1.33%decrease).Month-to-date, the share price is down 9.5 per cent, making it the worst-performing stock in the S&P/TSX consumer staples index. Given the swift sell-off, the stock is now in oversold territory.

A brief outline on GWL is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Toronto-based GWL is a holding company with two core business segments: Loblaw (L-T +0.90%increase) and Choice Properties Real Estate Investment Trust (CHP-UN-T -0.37%decrease). Loblaw, its largest reporting segment, is a leading grocery and drug retailer with banners that include Loblaw, No Frills, Valu-Mart, Fortinos and Shoppers Drug Mart. At the end of 2022, the company’s ownership interest in Loblaw stood at approximately 52.6 per cent. Choice Properties REIT has a portfolio of commercial and residential properties. At year-end, the company’s ownership interest in Choice Properties REIT stood at 61.7 per cent.

The Weston family is the largest shareholder with an ownership position of approximately 56 per cent, according to Bloomberg.

WESTON GEORGE

153.09-14.90 (-8.87%)

YEAR TO DATE

MARCH 29, 2023

DEC. 29, 2022

167.99

JUNE 9, 2023

153.09

SOURCE: BARCHART

Quarterly earnings

Before the market opened on May 9, the company reported its first quarter financial results. Adjusted earnings per share came in at $1.99, up 4.7 per cent year-over-year driven by share buybacks. The share price was relatively unchanged that day, declining 22 cents or 0.1 per cent.

At the annual meeting of shareholders held that day, management executives made the following remarks:

President and chief financial officer Richard Dufresne highlighted the company’s financial results:

“Loblaw recorded $56.5 billion in sales on growth of 6.3 per cent from the past year. Food same-store sales was up by 4.7 per cent. All of its banners performed very well, and its discount banners saw exceptional growth as consumers search for value…. In 2022, Choice delivered stable and consistent unitholder returns driven by the strength and resiliency of its market-leading portfolio. Financial highlights for 2022 include strong period end occupancy of 97.8 per cent, with retail and industrial operating at near full capacity. Solid funds from operation at $0.964 per unit, an increase of 1 per cent compared to 2021, and an increase in same-asset NOI [net operating income] of 3.8 per cent over the prior year. 3.6 per cent growth in net asset value and strong debt metrics with a debt-to-EBITDA [earnings before interest, taxes, depreciation and amortization] ratio of 7.5 times and liquidity of $1.2 billion… On a consolidated basis, George Weston reported revenues of $57 billion, an increase of 6.1 per cent compared to 2021. Adjusted net earnings available to common shareholders were $1.4 billion, an increase of 16.2 per cent compared to 2021. With its two strong operating businesses, George Weston generates strong cash flow from the dividends received from Loblaw, distributions received from Choice Properties and proceeds from participation in Loblaw’s normal course issuer bid.”

Chairman and chief executive officer Galen Weston commented on consumer behaviour:

“When it comes to protein and by that, most of the stuff that’s on their center of plate mostly meat. The highest price sort of per pound is beef, the next highest prices, pork and lamb. And then the next — sort of the lowest priced animal protein is chicken. And so what we’ve seen is a shift of consumers away from the higher-priced items like beef, much more towards the lower-priced animal proteins like chicken…We’re also seeing customers shift into control brand products… Our no-name products are consistently 25 per cent cheaper than the national brand for equal to or, in some cases, better than quality… And then the third one I’ll share is customers are shifting to discount formats.”

Returning capital to shareholders

The company pays its shareholders a quarterly dividend of 71.3 cents per share, or $2.85 per share yearly, equating to a current annualized yield of 1.7 per cent.

Since 2012, the company has announced at least one dividend increases in each calendar year, typically in May. Its latest dividend hike was announced on May 9 – an 8 per cent dividend hike to its current level of 71.3 cents per share.

In the first quarter, the company repurchased 1.4 million shares.

Analysts’ recommendations

There are nine analysts who cover this large-cap consumer staples stock, of which five analysts have buy recommendations and four analysts have neutral recommendations.

The firms providing research coverage on the company are: BMO Nesbitt Burns, CIBC World Markets, Desjardins Securities, ISS-EVA, Morningstar, RBC Dominion Securities, Scotia Capital, TD Securities and Veritas Investment Research.

Revised recommendations

Month-to-date, three analysts have made minor revisions to their target prices.

• CIBC’s Mark Petrie to $209 from $210.
• RBC’s Irene Nattel to $214 from $215.
• Scotia’s George Doumet to $183 from $181.

Financial forecasts

The consensus earnings per share estimates are $11.06 in 2023, rising 15 per cent to $12.73 in 2024.

Earnings forecasts have been relatively stable for 2023 but have declined for 2024. Three months ago, the consensus earnings per share estimates were $11.15 for 2023 and $13.43 the following year.

Valuation

The stock is commonly valued using a sum-of-the-parts methodology, ascribing holdco discounts to its ownership positions in Loblaw and Choice Properties REIT. The average one-year target price is $193.13, implying the stock has 17 per cent upside potential over the next 12 months.

Individual target prices provided by eight firms are as a follows in numerical order: $174 (from Morningstar’s Dan Wasiolek), $180, $183, $192, $193, $200, $209 and $214 (from RBC’s Irene Nattel).

Insider transaction activity

Quarter-to-date, there has not been any trading activity in the public market reported by insiders.

Chart watch

Month-to-date, GWL is the worst performing stock in the S&P/TSX consumer staples index. The stock is nearing correction territory, declining 9.7 per cent from its record closing high of $182.36 set on May 1. This swift sell-off has placed the stock in oversold territory. The relative strength index (RSI) reading is 29. Generally, an RSI reading at or below 30 reflects an oversold condition.

Year-to-date, the share price is down 2 per cent, underperforming the S&P/TSX composite index that is up 3.9 per cent.

In terms of key technical support and resistance levels, the stock is sitting near strong technical support between $160 and $164, which is close to its 200-day moving average at $164.05. Failing that, there is support around $140. On a recovery, there is major resistance between $180 and $182, close it its record closing high of $182.36 reached at the beginning of this month.

ESG Risk Rating

According to Sustainalytics, the company has an environmental, social and governance (ESG) risk score of 27.7 as of April 13, 2023. A risk score of between 20 and 30 reflects a “medium risk” rating.

After ending the previous session off its worst levels but still notably lower, the price of crude oil saw further downside during trading on Friday.

Crude for July delivery slumped $1.12 or 1.6 percent to $70.17 a barrel after tumbling $1.24 or 1.7 percent at $71.29 a barrel during Thursday’s trading.

The continued weakness in the price of crude oil reflected ongoing concerns about the outlook for demand ahead of several key central bank meetings next week.

“Next week will be big for oil as we get a few major central bank rate decisions that should determine the short-term outlook for the global economy,” said Edward Moya, senior market analyst at OANDA.

“China may cut rates, the Fed could deliver a hawkish skip, and the ECB is still playing catch up with their tightening cycles,” he added. “Oil will eventually trade higher when stockpiles are at uncomfortably low levels.”

The Federal Reserve’s monetary policy meeting is likely to be in the spotlight, with the U.S. central bank expected to pause its recent interest rate increases.

Traders are likely to pay close attention to the Fed’s accompanying statement as well as key inflation due next week for clues about the outlook for rates.

Statistics Canada says the unemployment rate rose to 5.2 per cent in May, marking the first increase since August 2022.

The federal agency says overall employment was little changed last month as the economy lost a modest 17,000 jobs.

The job report comes two days after the Bank of Canada raised its key interest rate by a quarter of a percentage point, citing concerns about a string of hot economic data, including low unemployment.

The unemployment rate previously hovered at five per cent for five consecutive months.

Last month, there were fewer people working in business, building and other support services as well as professional, scientific and technical services, while employment rose in manufacturing, utilities and services such as maintenance.

Meanwhile, wages continued to grow rapidly in May, rising by 5.1 per cent compared to a year ago.