Yovich & Co. Market Update - 25 May 2020
May 24, 2020 | Commentary
25 May 2020
As of 11.59pm 13 May New Zealand is at alert level 2, and we will be progressively moving back to the office when practically possible. COVID-19 has not affected any services Yovich & Co provide and remember to keep up with social distancing, stay safe and shop local.
New Zealand Equities
In summary, last week the NZ50G saw 18 companies on the downside, 3 remained unchanged and 29 on the upside. Todd Muller is now the new National Party leader with Nikki Kaye in support as deputy, following the ousting of Simon Bridges after weak polling data last week. Banks are in a game of “race to the bottom” with all major banks cutting one-year Home Loan rates to under 3%. Global Dairy Trade (GDT) was up 1% resulting in an average USD metric tonne (MT) price of $2,907, with 16,787 MT sold. The two main drivers for farmgate price were; whole milk powder down 0.5% at $2,677 and skim milk powder up 6.7% at $2,549. Fonterra announced the forecast farmgate milk price range for the 2019/2020 season at $7.10-$7.30 per kg milk solids (kgMS) and the 2020/2021 season at $5.40-$6.90 per kgMS with the advance rate set at mid-point of $6.15 per kgMS.
As investors try to navigate the post COVID-19 world, Yovich & Co are advising clients that if their goals and time frames have not changed then to stay the investment course. If at all concerned please contact your adviser.
Announced that the agreement to sell its NZ business to Verifone has now been cancelled. The termination releases Smartpay from its restrictions to seek other potential offers for the business. Smartpay noted a 40% decline in aggregate merchant transaction revenues. Since the easement of restriction levels transaction revenue has recovered to 75% pre COVID-19. Unaudited FY2020 ending 31 March revenues have increased 34% at $28.3m from $21.1m. Expect full year results released early mid June. The board is expecting greater uptake of Smartpay’s cashless and contactless payment products. The institutional capital raise of about AUD$13m at AUD$0.42 per share, has been completed and details regarding the Share Purchase Plan (for existing investors) will be released later this week. Current Share Price: $0.48.
Will be delisting from the NXZ Main Board close of business Monday 29 June 2020. The final day of trading on the NZX will be Thursday 25 June 2020, SeaDragon will commence trading on the Unlisted Securities Exchange (USX) on 30 June 2020. Full information on trading ordinary shares on USX can also be found on USX’s website www.usx.co.nz.
CDC Data Centres, which Infratil is a 48% shareholder of, will be expanding into NZ via way of developing two world class hyperscale data centres in Auckland with the near-term capacity of up to 20MW, with the option of additional vacant land to be progressively developed overtime to support expected demand. The expansion allows CDC to meet demand from existing customers for data centre facilities in New Zealand and represents an extension of CDC’s existing secure co-location data centre ecosystem to New Zealand. Current Share Price: $4.74, Price/NTA: 1.62, EPS: $0.294, PE ratio: 161.90.
Plans to reduce its workforce in New Zealand and Australia by 1,500 people as the pandemic induces a sharp economic downturn in the coming year and beyond, about 1000 of the job losses will be in NZ. Due to COVID-19 restrictions Fletcher Building has recorded an operating loss of about $55m in April. Core businesses are expected to be profitable in May and June. Future expectations are consents for new homes to fall 30% in New Zealand in FY21 and a further 10% in FY22 due to pandemic fallout. For Australia, it sees a 15% fall in FY21 and stabilization the following year. That's bad news for earnings as residential construction makes up about half of its revenue in both countries and is the key profit driver. Current Share Price: $3.23, Price/NTA: 1.01, EPS: $0.185, PE ratio: 17.46.
Third quarter business update ending 30 April, provided positive figures. Debt reduced by 23% ($1.7b) to $5.7b, free cash flow up $1.4b to $698m. Total group normalised earnings before interest and tax (EBIT) up from $514m at $815m, expenses down $148m at $1.665m. All three of the business units (Ingredients, Foodservice and Consumer) EBIT has performed well. Headwinds to consider are EU and US peak milk supply, increasing competition for sales, resulting in prices softening. The move into longer-life products as the EU and US governments intervention programmes support these products. Based on the previous 9 months, earnings per share is to be in the range of 15-25 cents. Current Share Price: $3.63, Price/NTA: 1.47.
Tax paid profit for the FY2020 ending March was up at $12.6m from a loss of $2.4m pcp, total revenue at a recorded high up 24% at $105.6m. Well managed debt facility of $43.2m was refinanced on significantly lower interest rates. Operating profits for the year to 31 March 2021 are expected to rise to between $14.0 million - $18.0 million from the underlying operating profit of $11.4 million for this FY2020 year. The Maxigesic pain relief portfolio continues expanding into Australasian and Internal territories. AFT are continuing to grow their product offering adding NasoSurf and Pascomer, once achieved all have the potential to generate significant shareholder value and improve healthcare outcomes for patients around the globe. Current Share Price: $4.59, EPS: $0.13, PE ratio: 35.20.
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