WealthYovich & Co. Market Update - 14th August 2022.
by Brock Fanninpublished 14-08-2022
Download Article by Brock Fanninpublished 14-08-2022
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The NZ market was flat last week, rising 0.02%, while the Australian market was up slightly higher by 0.53%. The US market however continued its recent strong trend, with the Dow Jones up 2.92% and the NASDAQ up 3.08%. Overall in the US, the S&P 500 index rose by 3.26% during the week. The CBOE Market Volatility Index, VIX, showing the market’s expectation of volatility, was down 7.7%.
Commodity prices rose during the week, with the Dow Jones Commodity Index up 3.55%, as well as oil, up 3.65% to just under US$98 per barrel.
The NZD and AUD were both up against the USD during the week on more positive risk appetite, with the NZD up 3.49% to 0.6452 against the USD. The US Dollar Index, DXY, was down 0.8%.
Interest rates continued to trend higher in NZ, with the 2-year swap rate up 18bps to 3.96%, while the 5-year swap rate increased by 19bps to 3.71%, and the 10-year swap rate increased by 24bps to 3.73%. In the US, the 2-year Treasury rate increased by 14bps to 3.19%, while the 10-year Treasury yield increased by 19bps to 2.88%.
The Reserve Bank of NZ will deliver its next Monetary Policy Statement (MPS) this week, where the market has forecast another 50bps rate hike, which would take the OCR to 3.0%.
NZ house prices fell 2.9% in the year to July, and were down 10.8% from the November peak, according to the Real Estate Institute of NZ’s (REINZ) house price index.
Infratil has announced there is a new investor in Longroad Energy, of which Infratil is a shareholder, as well as the NZ Super Fund. Longroad Energy is a Boston-headquartered renewable energy developer focussed on wind and solar energy throughout the US. MEAG, an asset management firm, is investing US$300m for a 12.5% stake in Longroad Energy. Both Infratil and NZ Super Fund will each also invest a further US$100m to retain an approximate 37% stake each. At the completion of the transaction, Infratil will have invested a net US$112m in Longroad since 2016, and achieved an IRR of 59% based on the value implied by this transaction. This represents a significant value boost to Infratil’s investment.
Current Share Price: $9.075, Consensus Target Price: $9.07
A2 Milk has responded to a media article in the Australian Financial Review suggesting that the company is nearing approval from the US Food and Drug Administration (FDA) to allow A2MC to import infant milk formula products into the US. A2 Milk has confirmed that their application is under active review by the FDA, but at this stage there is no certainty as to the outcome of the application.
Current Share Price: $5.58, Consensus Target Price: $6.38
NZX is to establish a new institute as a centre of excellence for corporate governance in NZ’s listed companies. The new body will make recommendations to NZX on the settings for issuers’ corporate governance practices. The aim is to improve performance and increase shareholder value in a sustainable manner, while lowering issuers’ cost of capital.
Current Share Price: $1.23, Consensus Target Price: $1.49
Disclaimer: “Yovich & Co Limited believes the information in this publication is correct, and it has reasonable grounds for any opinion or recommendation found within this publication on the date of this publication. However, no liability is accepted for any loss or damage incurred by any person as a result of any error in any information, opinion or recommendation in this publication. 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. The information contained in this publication is general in nature. It may not be relevant to individual circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. This publication is for the use of persons in New Zealand only. Copyright in this publication is owned by Yovich & Co Limited. You must not reproduce or distribute content from this publication or any part of it without prior permission.
In November 2021, the government initiated a Commerce Commission review into whether competition for residential building supplies (plasterboard, structural timber, and concrete) is working well. Their draft report was released on 4th August, with the final report due out in December. The draft report comes at a time of high inflation generally, but particularly so in the building industry, where there has been a shortage of GIB plasterboard. As a result, residential builds have seen major delays, and those needing GIB sooner are paying astronomical prices for the privilege.
Currently, around 95% of the plasterboard used in NZ is the GIB brand manufactured by Winstone Wallboards, a subsidiary of Fletcher Building. During the Covid lockdown, Winstone was forced to shut down its factory, creating a shortfall in the supply of GIB at a time of high demand caused by a construction boom. With GIB being such a common product in NZ, it is actually specified in a lot of councils’ building consent application documents. To use a different brand of plasterboard then requires a minor variation to the application, costing more money and time.
In response to the GIB shortage, the government in June established a taskforce to investigate ways of increasing plasterboard supplies. By the end of July, Building and Construction Minister Megan Woods announced that there are four alternative plasterboard products able to be used as substitutes for GIB, that meet the requirements of the NZ Building Code for bracing qualities, being Elephant Board, USG Boral, ProRoc, and SaveBoard. Also announced was the fact there are now 12 importers of plasterboard, and about 100 containers on their way to NZ; enough for about 440 houses.
Initial Report
In light of the current shortage, and realisation of the reliance the NZ building industry has on one company, there was a lot of anticipation around the ComCom’s findings. The initial findings and recommendations are very benign, with the Commission making general recommendations that could improve access to markets over time, driven more by regulatory changes than by forced short-term changes. This suggests nothing of concern for Fletcher Building.
Of particular concern for Fletcher Building would have been their vertical integration, however the ComCom has no problem with integrated players, indicating that this is unlikely to be anti-competitive. The Commission did note that the competition in the supply of plasterboard is not working well, however also noted that NZ’s small market size and isolated location make it challenging for domestic manufacturers to reach efficient scale and less attractive to import products, limiting the number of suppliers who can feasibly operate in NZ.
Last week we reported that A2 Milk had applied to the US Food and Drug Administration (FDA) to allow the company to import infant milk formula products into the US. During the week, the company announced that the FDA has deferred further consideration of the company’s request.
Current Share Price: $5.37, Jarden Target Price: $5.00
VHP has announced their full year results for FY22, with net property income up 12.2% to $123.0m, and EBIT up 8.6% to $85.5m. Excluding the capital gain on investment property, their adjusted funds from operations (AFFO) was up 18.0% to $67.8m. A dividend for the fourth quarter of 2.4375cps has been announced, taking the full-year dividend to 9.625cps. The forecast dividend for FY23 is 9.75cps; an increase of 1.3%.
Current Share Price: $2.835, Consensus Target Price: $2.80
CBA has announced their full year results for FY22, with cash net profit up 11% to AUD$9,595m. Net interest income was up 1% to AUD$19,473m, despite the net interest margin falling from 2.08% to 1.90% over the year.
Current Share Price: AUD$100.34, Consensus Target Price: AUD$92.20
Disclaimer: “Yovich & Co Limited believes the information in this publication is correct, and it has reasonable grounds for any opinion or recommendation found within this publication on the date of this publication. However, no liability is accepted for any loss or damage incurred by any person as a result of any error in any information, opinion or recommendation in this publication. 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. The information contained in this publication is general in nature. It may not be relevant to individual circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. This publication is for the use of persons in New Zealand only. Copyright in this publication is owned by Yovich & Co Limited. You must not reproduce or distribute content from this publication or any part of it without prior permission.