Yovich & Co. Market Update - 8 December 2021

Dec 8, 2021 | Commentary

Market Update 20211208

 

The NZ index was slightly up last week, with 31 of the 50 companies making price gains.

Commodity currencies declined over the week against the USD due to Omicron concerns, with the NZD down to 0.6783 against the USD, however in recent days we have seen these concerns ease and commodity currencies regaining some of the declines.

Biggest Movers 20211208

Market Themes


Inflation: In NZ, the spike in inflation risks becoming more permanent given the labour market is tight, increasing pressure on wages.

Rising interest rates: Due to inflationary pressures, the Reserve Bank of New Zealand (RBNZ) has already increased the Official Cash Rate (OCR) from 0.25% to 0.75%, and signalled their intention to gradually raise the OCR further above 2.00% by the end of 2022.

Cooling housing market: With the RBNZ increasing the OCR, mortgage rates have risen and will likely continue to rise, affecting home loan affordability. Other factors that will act to cool house prices are recent increases to loan-to-value ratio (LVR) restrictions, debt-to-income limits that some banks have implemented, and surging house construction that is closing the housing shortage.

 

Listed Property Vehicles (LPV’s) have been under selling pressure given their sensitivity to interest rate movements, with all stocks down on a 3-month basis and the NZ REIT Index down 7.7% over the last 3 months to end of November.

The retirement sector relies on house price growth, and a cooling market will have the same cooling effect on this sector, while continuing buoyant construction activity is a positive for companies in the construction sector such as Fletcher Building (FBU).

Power companies are also affected by interest rates given their high dividend yields, however rising rates over the past few months have been mostly priced in, and the longer term themes of decarbonisation (100% renewable generation) and increased electricity usage are a positive for the sector. Contact Energy and Meridian Energy are two of the preferred stocks in the sector.

Investment News

Kiwi Property Group Limited (KPG.NZ) – Selling land at Sylvia Park to IKEA (New Zealand’s First)

KPG has a conditional agreement with IKEA to sell the retailer 3.2 ha of land adjacent to Sylvia Park. KPG will develop c.6,500 sqm of large format retail (LFR) adjacent to the land sold to IKEA with it likely to attract premium LFR rents in doing so. There will likely be a meaningful uplift in visitation to the area with an IKEA store - New Zealand's first. The intention is to link the IKEA site into the Sylvia Park shopping mall which should result in meaningful foot traffic for KPG's flagship asset. This has the potential to help support rental growth and valuation uplift for Sylvia Park in time.

While the LPV sector has downside risks due to rising interest rates, KPG is one of our preferred options in this sector.

Current Share Price: $1.15, Consensus Target Price: $1.26

 

Stride Property Group (SPG.NZ) – Share Purchase Plan

SPG is conducting a Share Purchase Plan to eligible shareholders, with shares being offered at the lower of $2.00 (being an 8.5% discount to the closing price on 24th November), and a 2.5% discount to the VWAP (volume weighted average price) over the five days immediately prior to the Closing Date (10th December 2021).

The proceeds of the capital raising will be applied initially in debt reduction, providing the company with greater flexibility and options for the establishment of Stride’s office fund, along with other strategic initiatives.

SPG is another of our preferred options in the LPV sector, paying a quarterly dividend.

For further information please refer to the following link to the Offer Document: Stride Retail Offer Click here

 

 

 

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Brock Fannin



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