Yovich & Co. Market Update - 10 May 2021

May 10, 2021 | Commentary

Market Update 20210510

In summary, the NZX50G had 21 companies on the downside, 2 remained unchanged and 27 companies were on the upside. The Global Dairy Trade results on May 4, 2021 were down 0.7% at US$4,162 with 22,020 MT sold. Fonterra had significantly increased butter volumes ahead of the auction, and the inelastic nature of demand saw prices fall substantially (butter -12.1%). The powders skim milk, whole milk and butter milk all increased 2%, 0.7% and 14.4% respectively. The US nonfarm payroll (a compiled name for goods, construction, and manufacturing companies in the US, excluding farm workers, private household employees, or non-profit organization employees), results on Friday were lower than expected. Investors were expecting 1m new jobs added in April, but the figure was just over 266,000.  This saw US stocks climb to record highs, as fears about higher inflation and a reduction in stimulus subsided.

 Biggest Movers 20210510

Investment News

Fonterra

Has announced its proposed capital structure review, the proposed changes are subject to a farmer shareholder vote and legislative change following an extended consultation. Fonterra's preferred option, which includes a reduced share standard (currently 1 share per 1 milk solid; proposed 1 share per 4 milk solids produced), is aimed at lowering barriers to entering the cooperative for farmers, appropriately responding to longer-term challenges facing milk supply. This should enable Fonterra to more effectively compete against commercial milk processors that do not require an upfront capital commitment, which is important in the context of flat or declining milk supply period. Part two of the proposal is for Fonterra to close the Fund (which non-farmers owners trade) via a buy back, or to cap the Fund to protect farm ownership and control. If changes are implemented, then a shareholder vote will be required.

Current Share Price (FSF.nz): $4.01, Forecasted Gross Dividend Yield: 3.50%, Target Price: $4.55.

Z Energy

Has a new strategy to increase earnings in FY22, continue to reduce structural costs, hold market share, optimise the use of terminals to improve returns (monetising scale) and deliver new customer offers (managing scale). Tax paid profit for the year ending March 2021 was $57m from a loss of $88m the prior corresponding period, structural cost savings of $49m was achieved which exceeded original targets. Total market volume was down 22% at 3,086m litres. Z Energy is still in talks with the NZ Refining company, negotiations are expected to conclude by end of May. Z Energy is forecasting EBITDAF for FY22 to be between $270m and $310m with dividends to be in the range of 19 to 23 cents per share. A final gross dividend of 19.44 cents per share has been announced, carrying an ex-dividend date of May 20, 2021 and is payable June 2, 2021.

Current Share Price: $2.89, Forecasted Gross Dividend Yield: 6.92%, Target Price: $4.11.

Briscoes Group

Announced that unaudited sales for the first trading quarter ended 2 May 2021 (91 days) were $173.1 million, being 78.42% higher than the $97.0 million achieved for the same quarter of last year (impacted by 33 days of store closures). A more relevant period to compare to is the first quarter of 2 years ago, against which this first quarter performance represents an increase in sales of 14.94%. First quarter sales for the Group’s homeware segment increased by 81.43% to $104.6 million, while sporting goods sales increased by 74.01% to $68.5 million. Compared to the same quarter 2 years ago the Group’s homeware segment increased by 15.32% while sporting goods increased by 14.37%. Group Managing Director Rod Duke said “The increased consumer demand experienced towards the end of last year has continued through into this first quarter. Gross margin has also continued to be strong for the Group, delivering ahead of expectations. I am very confident that the Group is on track to produce a half-year result significantly ahead of the $28.0 million reported for the first half of last year.”

Current Share Price: AU$5.65, Forecasted Gross Dividend Yield: 4.34%, Target Price: $6.94.

A2Milk

Lowered its annual earnings forecast for the fourth time since September as the pandemic continues to crush sales via Chinese surrogate shoppers. The company also said the chief executive of its Asia-Pacific division, Peter Nathan, has resigned and it has started a review of its business, in particular its reliance on daigou surrogate shopping sales. A2 Milk's share price has slumped by nearly two thirds since August last year, wiping about $7.3b New Zealand dollars from its market value. Before the slide, it was one of the largest companies by capitalization in New Zealand's share market despite its reliance on the opaque daigou trade for part of its sales. A2Milk has forecasted underlying profit margin of 11% to 12% for its 2021 fiscal year, down from the 24%-26% it forecast at its third earnings downgrade on February 25. The substantial downgrade partly reflects an estimated NZ$80 million to NZ$90 million of new provisions against profits for excess inventory that will need to be written down in value. A2Milk said the amount of inventory in the daigou and reseller system was larger than it had anticipated earlier in its financial year when it laid plans for a recovery in daigou sales. It expects full-year revenue of NZ$1.2 billion to NZ$1.3 billion, down from NZ$1.4 billion forecast in February. The company had about NZ$775 million of cash at the end of 2020. A2Milk is considering options for returning capital to shareholders, including a share buyback.


Current Share Price: $6.33, Target Price: $10.41.

 

SkyCity

Has announced that the SkyCity’s $125m, 6-year fixed price bond offer maturing 21 May 2027, will have minimum interest rate of 3% per annum. And an indicative issue margin range above underlying swap rate for the bonds is 1.70% to 1.90% p.a. Opening date is May 10, 2021 and closing 12:00pm May 14, 2021.


Current Share Price: $3.45, Forecasted Gross Dividend Yield: 1.44%, Target Price: $3.42.

 

Heartland Bank

Unaudited tax paid profit of 3Q ending 31 March 2021 was $21m ($65.1m year to date), Underlying return on equity (ROE) was 11.9%. Momentum in lending increased in 3Q 2021, with gross finance receivables (including reverse mortgages) growing $158.6m (13.7%), a significant uplift from $59.3m (2.5%) in 1H2021, resulting in a YTD growth of $218m (6.2%). Growth was experienced in Motor finance, both New Zealand and Australian Reverse Mortgages and Business Intermediated. Current Home Loans pipeline momentum remains strong, with $580m approved online and $30.3m drawn down YTD. Heartland recently expanded its Home Loans offering with the provision of a Revolving Credit facility at New Zealand’s lowest rate. Looking forward, provided current trends continue as expected and economic conditions remain stable, Heartland now expects NPAT for FY2021 to be in the range of $85m to $86m.

Current Share Price: $1.89, Forecasted Gross Dividend Yield: 4.34%, Target Price: $1.95.

 

 

 

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Nathanael McDonald



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