Yovich & Co. Market Update - 1 May 2017

May 1, 2017 | Commentary

Changes in Market




Market Themes

  • The past four weeks has seen the New Zealand market grind back towards record highs as interest rates remain low and investors continue to pursue income from quality listed stocks.

  • The biggest gain has been made by A2 Milk as they continue to beat earnings estimates on the back of strong demand for their health related milk and infant formula products, especially in Australia and China.

  • In Australia the market has been equally as strong with the market on the brink of another post GFC high. CSR Limited, the Building Products Manufacturer was one of the best performing companies in the ASX 200 as they posted a gain of over 12% in the past month.

  • With the Trump Presidency now passing 100 days the market optimism has not diminished. The NASDAQ is up almost 20% and the Dow is up just over 17% since the US Election on 8 November 2016.

  • The New Zealand Dollar has continued its slide against the US and the Aussie Dollars.

Investment News

New Zealand King Salmon Co (NZK.nz) - Sustainable & Premium Export Quality Protein

NZ King Salmon listed in October last year and has been one of the IPO successes with the shares trading at a 17% premium to the listing price of $1.12. It ticks the boxes for us as it is producing a sustainable and premium form of protein with exports making up 40% of sales volumes.

FNZC has the following comments in favour of an outperform recommendation and a $1.49 price target:

A beneficiary of dietary shifts towards healthier and sustainable protein: NZK is the world’s largest vertically integrated King salmon farmer accounting for more than half of New Zealand’s annual farmed salmon production and one quarter of King salmon output globally. The company produces a range of branded retail and foodservice sector products that are sold domestically and globally. King salmon, a niche product prized for its higher Omega-3 fatty acids content, is arguably the pinnacle species among salmon for its health benefits proposition.

Supportive trading environment: The recent global short supply of Atlantic salmon has been driving significant price increases over the past 18 months in the major commercial species. This should also be supportive for King salmon prices.

A NZ$1.49 Target Price is derived from the mid-case scenario of our NZ$1.09–NZ$1.62 spot Discounted Cash flow  range, rolled forward for 12 months. This captures growth opportunities from increasing production at NZK’s existing farms but includes no upside from additional consents or site swaps. The  Target Price of $1.49  implies an FY18F P/E of 17.9x.

Financials & Forecasts









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Jarrod Goodall

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