Yovich & Co. Market Update - 19 March 2020
Mar 19, 2020 | Commentary
19 March 2020
New Zealand Equities
In summary, all companies on the NZX50G were down. Last week the market closed down 13.99%. The RBNZ made an emergency announcement March 16 cutting the OCR to an unprecedented low of 0.25% for at least the next 12 months (this provides short term certainty of interest rates). Other tools utilised by RBNZ were pushing back the capital requirements that Banks were required to hold at 1 July 2020 to 1 July 2021, providing banks greater movement to support businesses and households. If required the RBNZ will consider the option of buying large scale Government bonds. Last week the NZX50G was at levels of November 2019, it is now at levels as of January 2019. KiwiSaver members’ balances are also experiencing the negativity from the COVID-19 effects, especially the members in Growth funds, as these funds are weighted to the share market. Yovich & Co are advising that if clients’ goals and time frame have not changed then to stay the course. If at all concerned please contact your adviser.
Advises that year-to-date trading, including results from January, February and early March 2020, remains ahead of the prior year. While a decline in air and sea freight to and from Asian operations, trading across other international trade-lanes, and domestically within New Zealand, Australia and Europe continues at reasonable levels. More recently, China volumes are re-emerging as factories and ports return to normal operations. Although heading into a period of uncertainty, the world’s freight trade-lanes remain open. Mainfreight’s experience in China has given some knowledge of how to operate in this new environment. Current Share Price: $27.66, Gross dividend yield: 2.96%, PE Ratio: 19.75, Target Price: $38.00.
The Warehouse Group
Normalised tax paid profit for the first half FY2020 ending January 26 was up 16.7% at $46.2m, group retail sales up 2.6% to $1.68b. TheMarket.com which was launched 1 August 2019, now offers over two million products and 3,000 brands. The Warehouse Group has a debt gearing ratio of 12.6% ($69m), providing sufficient capacity to fund investment in growth strategic initiatives. The FY20 adjusted Net Profit After Tax is expected to be in the range of $75m - $77m, subject to no material changes in trading conditions. The gross interim dividend of H1 FY20 of 13.89 cents (an increase of 1 cent) has an ex-dividend date of 1 April with a payment date 17 April 2020. Current Share Price: $2.13, Gross dividend yield: 11.14%, PE Ratio: 12.36, Target Price: $2.45.
Auckland International Airport
Announced that expected gross interim dividend of 15.278 cents is cancelled because of developments in the outbreak of COVID-19. This is on the back of the announcement that Auckland Airport has suspended earnings guidance for the year to 30 June 2020. Further market updates will be issued as significant new information emerges. A wide range of cost cutting measures have been introduced this week, including a hiring freeze, a suspension on all discretionary spending and a review of work underway with external consultants. In addition, Management is reviewing its capital expenditure programme and the Board has decided to reduce directors’ fees by 20%, while Mr Littlewood has volunteered to cut his salary by 20%. Current Share Price: $4.66, Gross dividend yield: 6.63%, PE Ratio: 10.78, Price/NTA: 0.93 Target Price: $6.75.
Advises that its performance for the year ending 31 March 2020 is not expected to be adversely affected as a result of the impacts from COVID-19. Due to organisations temporarily closing their physical premises, the demand shift to digital mobile technology solutions are increasing. Pushpay’s processing volume over the last weekend was higher than the company expected prior to COVID-19. Updated and reiterated guidance for the year ending 31 March 2020: Operating revenue of between US$121.0 million and US$124.0 million; Gross margin of over 63%; Total Processing Volume of between US$4.8 billion and US$5.0 billion; EBITDAF of between US$25.0 million and US$27.0 million. Greater detail of FY2020 will be released 6 May 2020. Current Share Price: $3.03, PE Ratio: 17.65.
Has been advised by Adams NZ Bidco Limited that the New Zealand Overseas Investment Office has granted consent to Bidco acquiring all of the Abano shares under the Scheme. All regulatory approvals except shareholder approval and final court approval for the Scheme have now been met and the Scheme is progressing as expected.
Proxy voting closes: 10.00am on 18 March 2020
• Scheme Meeting: 10.00am on 20 March 2020
If the Scheme is approved by shareholders and all outstanding requirements are satisfied:
• Last day of trading in Abano shares: 7 April 2020
• Scheme Record Date for determining entitlements to Scheme price: 5.00pm 9 April 2020
• Implementation Date and Payment to shareholders: Between 16 April and 22 April 2020
Normalised tax paid profit for the first half FY2020 ending December 31 was up at $293m from $72m. Free cash flow up at $369m from -$782m. Food Service EBIT section up at $147m from $61m and the Consumer section EBIT up at $116m from $67m. Full year forecast normalised earnings of 15-25 cents per share. CEO Miles Hurrell said “We are now a very different Co-op to this time last year – we’re prioritising New Zealand milk and staying focused on what we know we’re good at and what makes a difference to our farmer owners, unit holders, employees and communities.” Fonterra is focused on reducing debt, so it is no more than 3.75 times its earnings. The sale of assets throughout last year has reduced debt by 22% ($1.6b) compared to $5.8b last year. Debt reduction has meant that there will be no interim dividend payment. Current Share Price: $3.92, Price/NTA: 0.97, Target Price: $3.97.
Disclaimer: This publication has been prepared for your general information. While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken for any errors or omissions. This publication does not constitute financial or insurance product advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. No part of this publication may be reproduced without prior written permission from our company. Disclosure statements relating to the financial advisers associated with this newsletter are available on request and free of charge.
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