Yovich & Co. Market Update - 07 April 2020

Apr 7, 2020 | Commentary

7 April 2020

New Zealand Equities

Market update 2020-04-07

 

What a volatile last few weeks it has been, as the COVID-19 pandemic takes hold of the global economy. In summary, last week the NZ50G saw 19 companies on the downside 1 remained unchanged and 30 on the upside. Many companies announced that they are to suspend their upcoming dividend payments, disappointing many investors, but in this current time of uncertainty it is the correct action by companies requiring strengthening of their balance sheet. This reaffirms that investors should not just be buying companies based on dividends, but on the underlying performance of a company. It was also a week of companies withdrawing their forecasted profit guidance for the FY2020. Capital raising (companies selling shares in the company to investors) has started with companies announcing equity raising this week. The NZX50G is at levels as of April 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.

Biggest movers 2020-04-07

Investment News

Abano Healthcare

The Scheme Implementation Agreement with Adams NZ Bidco Limited has been terminated as a Material Adverse Change has occurred. Both parties have agreed they have no other liability to each other, as a result of the termination. The Abano Board’s focus remains the preservation and maximisation of shareholder value, both in and post the COVID-19 environment. Abano is assessing a number of initiatives in this light. This includes an intention to engage with Bidco, which has indicated that it is willing to explore whether there is an alternative potential transaction. Current Share Price: $1.26, PE Ratio: 19.15.

Tourism Holdings

Advises that it has entered into an agreement to undertake a managed exit from its technology joint venture, Togo Group (Togo), in favour of a digital strategy focusing on New Zealand and Australia and more closely aligned with Tourism Holdings core RV rentals business. This has resulted in a US$6m payment from Togo’s other joint venture Thor Industries. THL’s holding in Togo Group will reduce from a 50% shareholding to 26.49%. The option for Thor Industries to purchase the remaining THL shares in Togo Group for USD$20m is required to be exercised within four years. Current Share Price: $0.99, Price/NTA: 0.54, PE Ratio: 5.31, Target Price: $2.64.

Sanford

Seafood remains in demand and business fundamentals remain strong. Consumer behaviour is changing significantly, from foodservice to a huge increase in online sales. Fresh seafood sales are up 35% and frozen up 100+%, reflecting previously low in home consumption of fresh fish and a (global) trend of frozen in retail being the big winner. Balance sheet is in strong position with gearing at 23.6% (September FY19), this allowing sufficient headroom in borrowing facilities to withstand shock. FY20 outlook is challenging however fundamentals are strong and demand for product is high. Current Share Price: $6.60, Price/NTA: 6.54 PE Ratio: 14.81, Target Price: $8.15.

Kathmandu

Has announced a retail entitlement offer, opening 6 April and closing 5.00pm (NZ time) 17 April 2020. The offer allows investors to subscribe for 1.2 new shares for every 1 Kathmandu share held on the record date being 7.00pm (NZ time) 3 April 2020. The entitlement offer is $0.50 per new share a 51% discount to NZ$1.02, being the last closing price of Kathmandu’s shares on the NZX on 30 March 2020, and a 30.2% discount to the theoretical ex-rights price of NZ$0.72. Under the Offer, there will be no trading of entitlements or any shortfall bookbuild of new shares not taken up. Shareholders who do not exercise their entitlements, or who are ineligible to do so, will have their shareholdings diluted.   Current Share Price: $0.75, PE Ratio: 4.67, Target Price: $0.98.

Serko

Is Australasia's leading online travel booking and expense management company for businesses. An integrated Online Booking Tool used by administrators and travellers to book flights, accommodation and car hire from the broadest possible set of travel providers. The Online Booking Tool ensures that travel bookings comply with corporate travel management policy without limiting the user’s choice of travel provider. Business travel disruption arising as a result of COVID-19 has significantly impacted travel transactional revenue, however Serko is in a strong cash balance position following its capital raising in October 2019:

o Serko’s cash balance remains strong at $42 million (as at 31 March 2020).

o Serko has no exposure to refunds or credits for cancelled or postponed travel.

o Cost reduction initiatives are in place targeting an average cash burn rate of no

     more than $2 million per month through to the end of FY21.

o Modelling for FY21 has been prepared with the conservative assumption that

    travel restrictions remain in place.

Current Share Price: $2.10, Price/NTA: 18.54.

Auckland International Airport

Announced it's raising up to NZD$1.2b to ride out the coronavirus pandemic. The equity raising comprises an underwritten NZ$1 billion share placement and a NZ$200 million share purchase plan (SPP) for shareholders in New Zealand and Australia. The cash raised will be sufficient to meet all operating, investing and financing obligations under a range of recovery scenarios. Auckland Airport said “its bankers have relaxed financial covenants and extended credit facilities that would have come due in the period through to December 2021”.  The floor price for the placement (for institutional investors) is set at NZD$4.50 which is a discount of 10.7% to the company's last closing price. Under the SPP shareholders as of 3 April 2020 are eligible to purchase up to NZD$50,000 at the lowest of either the placement price or a 2.5% discount to the five day volume weighted average price (VWAP). Current Share Price: $5.04, Price/NTA: 1.01, Target Price: $6.75.

Z Energy

Has been impacted by a series of material external factors over the past 18 months, including heightened retail competition and a challenging refining market that has seen historically low refining margins endure for an exceptional period of time. Z Energy is now facing unprecedented trading conditions as the economy manages through the COVID-19 crisis. Guidance of FY20 is to be in the range of $355m to $365m from $350m to $385m. This guidance includes expected provisions of $27 million related to COVID-19 costs that have already been incurred as well as additional COVID-19 related provisions. In light of COVID-19 the final FY20 dividend will be cancelled. Current Share Price: $2.89, PE Ratio: 15.84, Target Price: $4.30.

 

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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Nathanael McDonald



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