Yovich & Co. Market Update - 22 May 2017

May 22, 2017 | Commentary

Changes in Market




Market Themes

  • The New Zealand market has consolidated on the gains made over the past 60 months as the index marked close to a record high. Investors are also waiting to see if the Budget, which will be released on Thursday, contains any surprises or windfalls for the market.
  • The best performer in the NZ Top 50 index has been Xero (XRO.nz) over the past month with a gain of 16.96% on the release of the annual results. Within the report was a surprise to the upside with the number of subscriptions, which is now at 1.035 million, and a steady path for the company to get a cash flow break even position.
  • A slowing growth in wage inflation in Australia has seen the Treasury look at ways to improve the tax take with income tax forecasts not meeting expectations. Part of the plan is the idea is to impose a new tax on the banks to “repair the budget”. The move on the market has been swift, with the the four falling by between 5 – 8% over the past four weeks. I feel that we have seen this before with the “Minerals Resource Rent Tax” from 2012.
  • Tech companies have looked strong in the US with Google up 11.70% and Apple up 6.68% in the previous four weeks.
  • The NZ Dollar has recovered from the recent falls against both the US Dollar and Aussie as the USD dollar weakened against most major currencies. The Kiwi has also strengthened as traders are buying ahead of the Fonterra milk price forecast announcement on Thursday. Expectations are that it will be $6.00 per kg and improving to $6.75 by the end of the season.

Investment News

Oceania Healthcare (OCA.nz)

Oceania Healthcare listed on the NZX on May 5th 2017 at a price of 79 cents and operates in the New Zealand residential aged care and retirement village sectors. The existing operators that are listed have had exceptional results over the past five years with Ryman up 171%, Summerset up 209%, MetLifecare up 183% and Arvida up 41% since listing in December 2014. The following is a summary of their business from the IPO Product Disclosure Statement:

“Oceania was formed in 2005 offering residents villas and apartments within its retirement village facilities, and also providing a full range of residential aged care services (including rest home, hospital and dementia level care) at its aged care facilities. Oceania is currently New Zealand’s third largest provider of residential aged care, and New Zealand’s sixth largest retirement village business.

Over the period from 2016 to 2026, it is estimated that between 1,170 and 1,340 additional Care Beds will be required per annum in New Zealand, meaning the aged care sector’s current capacity is expected to be 100% utilised by 2019/20.13 Further, CBRE forecasts Unit demand to increase materially in the near future and estimates the known national development pipeline to cover Unit demand out to 2024.”

Oceania at a Glance:

*2,800 Staff                                                                            *2,600 Aged Care Residents                                 

*26 Existing Facilities with Mature Operations                      *22 Facilities with Current and Planned Developments

*2 Undeveloped Sites                                                              *50 Total Sites

The following is a summary of the forecasts outlined in the PDS but updated to reflect the current market price of 84 cents.

Financials & Forecasts





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Jarrod Goodall

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