Yovich & Co. Market Update - 12 August 2020
Aug 12, 2020 | Commentary
12 August 2020
New Zealand Equities
COVID-19 Message Yovich & Co provide an essential service so is able to provide on going advice regardless of the Alert Level and place trades on market as usual.
In summary, last week the NZ50G saw 27 companies on the downside, 6 remained unchanged and 17 on the upside. As all New Zealand is aware Auckland is at Alert Level 3 while the rest of NZ is at level 2. As expected, fearful investors are selling down their equity positions; the NZX50G opened 2.6% in the red. End of day down 1.3%. ASB are expecting a GDP hit of 0.15% to 0.5% per week of lockdown under the new announcement. NZ Retail card spending hit a record high in July up $610m to $6bn, +11% YoY. Pent-up demand post lockdown is driving the surge in spending, combined with a desire to support local and money set aside for overseas trips being redirected to domestic spending. The Reserve Bank of NZ will announce its Monetary Policy Statement from 3pm today, with interest focused on changes to the Large Scale Asset Purchase Programme. Investors have been enquiring about gold as a safe haven in uncertain economic times. On 7 August gold reached a record high of $2074.93 per oz, up 36.76% for the year. As at time of writing gold has dropped 5.75% off its highs. It is important to remember that gold does not produce an income and capital is not preserved like term deposits and bonds as the price is cyclical.
The graph below shows the reaction to stock prices during the first COVID-19 lockdown (Feb 24 peak-Mar 23 trough in New Zealand). The sectors and stock that we believe will be most impacted are Tourism & Travel – THL, AIR, AIA, SKO, SKC; Retail – KMD MHJ, WHS, RBD; Property (retail/sub-prime) – KPG, SPG, ARG; Retirement – OCA, RYM, SUM, ARV; Fuel industry – ZEL, NZR. The least impacted stocks and sectors included: Healthcare – FPH, EBO; Consumer – ATM, FSF, SCL, SAN, SML; Telco/Infra – CNU, VCT, SPK; Property (prime-office/industrial) – GMT, PCT, IPL). Notably stocks that recovered the most from the market-trough included: PPH, MFT, SKL, SCL, NZX, OCA, RYM, SUM, THL, RBD.
Graph 1 Source: Jarden
New Zealand’s second largest energy company has released its FY20 ending 30 June results. Tax paid profit down 26% at $125m (bearing in mind that last year included a one off sale of Rockgas business and the Ahuroa gas storage facility combined total worth $170m). EBITDAF from continuing operations was down 11% at $451m due to a combination of lower renewable generation, lower wholesale prices and the impact of rising costs of thermal generation and restricted gas supply. Since the closure announcement of Tiwai smelter, Contact has been in discussion with commercial and industrial customers to reduce their carbon footprints. From these discussions Open Country Dairy has agreed to a long term 13MW renewable agreement. A final gross dividend of 28.83 cents with a dividend date of 26 August and payment date of 15 September. The Board has noted that the current dividend policy (97% of operating fee cash flow), is under review. Guidance will be provided as soon as NZAS exit timeline known. Current Share Price: $6.23, EPS: $,0.175 PE ratio: 35.58, Gross dividend yield: 7.83%.
Announced a non-binding agreement with Yansteel (a Hong Kong company) to form a 50:50 joint venture on the Thunderbird Mineral Sands Project and associated tenements. Yansteel will invest A$130.1m and purchase 34,259,421 shares (9.9% of post issue share capital) for approximately $A12.9m. Yansteel has agreed to take or pay offtake for 100% of the stage 1 ilmenite. This agreement demonstrates a credible path to construction and production for the Thunderbird, and will bring hundreds of jobs and economic opportunities. The joint venture is subject to final negotiation, agreement and execution of formal agreements and approval from the Foreign Investment Review Board. Share price increased to 36 cents and is now trading at 30 cents. Current Share Price: $0.30.
Has announced an AU$2 billion capital raise via an entitlement offer (Offer). The raise will reduce debt from $9.1b to 7.1B. The retail Offer will allow shareholders as of 14 August (record date) to purchase 1 share for every 5.15 held at $4.56, a 13.2% discount to theoretical ex-entitlement price being $5.26. The Offer is renounceable allowing investors to sell their entitlements on market. Information booklet will be issued 18 August 2020. Last close price was AU$5.39.
For Investors wanting gold exposure:
Is an iShares ETF providing investors exposure to global gold miners, priced in the USD. This provides investors exposure to the fluctuations in the NZD/USD currency. As gold price increases so do the margins and profit of gold mining companies. This ETF has provided a five year average return of 17.20%. For greater detail please click on the link.https://www.ishares.com/us/literature/fact-sheet/ring-ishares-msci-global-gold-miners-etf-fund-fact-sheet-en-us.pdf Current Share Price: US$32.33.
Allows investors to invest in physical gold (bullion), without having to store their gold themselves. This ETF is designed to offer investors a simple, cost-efficient and secure way to access physical gold by providing a return equivalent to the movements in the gold spot price. GOLD.asx is backed by physical allocated gold held by JP Morgan Chase Bank, in London. For greater detail please click on the link. https://www.etfsecurities.com.au/product/gold Current Share Price: US$248.67.
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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