Yovich & Co. Market Update - 30 September 2019
Oct 1, 2019 | Commentary
In summary, last week saw the NZX50 with 22 companies on the downside, 24 companies on the upside and 4 unchanged. The NZD was stronger against both the AUD and USD 0.57% and 0.60% respectively. The Reserve Bank kept the OCR at 1% as employment rate remains close to its maximum sustainable level but consumer price inflation remains below the 2% target mid-point at 1.75%. Factors affecting inflation are; domestic demand (which is expected to grow), slowing of global growth due to geopolitical tensions remaining elevated, fiscal spending and government policies and regulations.
New Zealand Equities
Develops technology-based solutions to modernize paper-based road tax systems. Eroad has four main product solutions; regulatory compliance, fleet management, driver management and road safety. The success of the electronic logging device and the electronic distance recorder that replaces mechanical hub odometers (Ehubo) has driven Eroad to be the leader in telematics services in New Zealand’s heavy vehicle sector. Eroad has a 94.4% loyal customer asset retention rate generating recurring revenue. To reach the target of 250,000 subscribers for FY20, growth will be in the form of organic and acquisitions if opportunities arise. Share Price: $3.00.
Announced that it has executed a binding agreement for the acquisition of assets, brands and business of 40Forty Foods Limited, (trading under Super Cubes brand) for $726,000, plus an earn-out subject to performance milestones. Super Cubes is a premium Australian consumer lifestyle health and wellness brand - the first of its kind in the marketplace. Within 12 months Super Cubes realised sales of $650,000. In the two months to date in the FY20 year, Super Cubes has achieved 40% of FY19’s full year result. The transaction is to be funded via existing cash reserves. Keytone Dairy also announced a second Walmart China order worth approximately NZD$870,000, combining both orders to a value of approximately NZD$1m; these two orders represent 40% of Keytone’s prior full year revenue. Share Price: $0.49.
Mineral resource and ore reserve statement highlights.
• Updated Thunderbird Ore Reserve increased by 68 million tonnes or 10% to 748 million tonnes @ 11.2% heavy mineral (HM)
• Thunderbird Ore Reserve contains high in-situ zircon grades of 1.02% in the Proved Category
• Dampier Mineral Resource increased to 3.36 billion tonnes @ 6.8% HM with the addition of the maiden Night Train Inferred Mineral Resource
• Eneabba Project Mineral Resources unchanged at 193 million tonnes @ 3.0% HM
• McCalls Project Mineral Resources unchanged at 5.8 billion tonnes @ 1.4% HM
Bruce McFadzean said “It is tremendous to be growing our Mineral Resource and Ore Reserve Inventory at a time when mature deposits globally are in depletion and showing evidence of declining grade and product quality.” Share Price: $0.41.
Net loss after tax of $605m compared to a $195m loss in FY18, capital expenditure down 30% at $600m. The Fonterra board has signalled a change in direction from volume to value. This is to be achieved through five strategic areas; Core Dairy, Food Service, Paediatrics, Sports & Active, Medical & Ageing. As part of the review Fonterra has agreed to the sale of its 50% share of DFE Pharma for NZD $633m, to CVC Strategic Opportunities II, a fund managed by CVC Capital Partners. The cash from this sale, along with proceeds from other asset sales across the year, equate to over $1b for debt reduction. “This puts us on the right footing to deliver our new strategy and a sustainable lift in our performance” said Mr Hurrell. Share Price: $3.48.
South Port NZ
Is the southernmost commercial port in New Zealand, located at Bluff and operating on a year round, 24 hour basis. After tax profit for the full year 30 June was up 1.3% at $9.79m, backed by a 2% increase in cargo flows. Bulk cargo equates to 87% of all volumes imported or exported. Operating revenue up 7.3% at $44.03m and earnings per share up 1.4% at 37.3 cents. The relationship with Mediterranean Container Shipping Company has seen a record container through put of 48,000 TEU (20 foot equivalent unit), an increase of 25% on FY18. Increased infrastructure expenditure will be a feature for coming years with the focus in the next twelve months being placed on the Access Bridge, wharves and electrical infrastructure. Share Price: $7.70, Dividend Yield: 4.69%.
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