Yovich & Co. Market Update - 18 November 2019

Nov 19, 2019 | Commentary

Market News

 

 

In summary, last week saw the NZX50 with 26 companies on the downside, 21 companies on the upside and 3 unchanged. The Global Dairy Trade auction results will be out later this week with expectations that prices will rise. The latest REINZ house price inflation data highlights improving year on year price momentum in NZ (ex-Auckland).  Auckland is still seeing low single digit price declines. The market is continuing to see days to sell property in Auckland fall, now ~37days, while volumes have remained relatively flat. The Reserve Bank of New Zealand left the OCR unchanged at 1%, a surprise to most economists. The reason for leaving the OCR unchanged is due to low unemployment, and inflation is still below the midpoint of 2% but within the range of 1-3%.

 

Investment News

New Zealand Equities

Mercury Energy

Has committed to the construction of the remaining 27 consented wind turbines at Turitea, adding to the 33 turbines under construction, with a joint cost of $464m between 2020 and 2021. This will create New Zealand’s largest wind farm at 222MW, producing 840GWh annually, enough to power 375,000 EVs. The first section that is expected to start this summer is estimated to cost $208m which will come from existing debt facilities. Current: PE Ratio; 18.81, Share price; $4.93, Gross yield; 4.37%.

Abano Healthcare Group

Has announced that it has entered into a Scheme Implementation Agreement under which Adams NZ Bidco Limited (”Bidco”) will acquire 100% of the fully paid shares in Abano Healthcare Group Limited for $5.70 per share, by way of a scheme of arrangement. The share price reacted positively to this news and is currently trading at $5.45 per share. Some investors have taken the risk off the table by selling down now, while others are willing to accept the uncertainty and await the approval of the regulator boards, to receive the full $5.70 per share. The interim dividend which Abano usually pays in the new year will be suspended and will not be paid if the Scheme is completed. Current: PE Ratio; 18.57, Share price; $5.41.

Infratil

Invests in infrastructure businesses that provide essential services to communities, and individuals. Shareholders receive good risk-adjusted returns if the businesses deliver high-quality service, are efficient, and risks are well managed. Infratil’s half year tax paid profit ending 30 September 2019, was down 17% at $88.1m while revenue was up 9% at $802.4m. During the six months ended 30 September 2019 Infratil invested $1.4 billion which included the 49% acquisition of Vodafone NZ (‘Vodafone’) for $1,029 million. The remaining $332.6 million was invested in Infratil’s existing businesses, including significant projects developed by Tilt Renewables and further expansion of CDC Data Centres. Current: PE Ratio; 42.1, Share price; $4.87, Gross yield; 4.26.

  

New Zealand Oil & Gas

The Overseas Investment Office (OIO) has granted consent to O.G. Oil & Gas (Singapore) Pte. Ltd. (OGOG) acquiring up to 100% of the shares in New Zealand Oil & Gas. But on the same note the approval which needs 75% of minority shareholder approval was not passed. As the scheme has not been approved by the required majority of votes cast, it cannot move forward to court approval. It is anticipated that the scheme implementation agreement with OGOG will be terminated and the scheme will not proceed. This result has negatively impacted the share price which is now trading at $0.61 off the highs of $0.72. Current: Share price; $0.61.

Mainfreight

Is a specialist freight forwarding and distribution business, with interests also in managed warehousing, transportation of hazardous substances, air & ocean international freight, full truckload freight and Global Supply Chain Logistics. Based in Auckland and operating globally (Australia, USA, Europe and Asia) Mainfreight’s first half FY2020 results showed that revenue was up 4.9% at $1.5b, EBITDA up 62.9% at $176.4m and tax paid profit up 6.2% at $59.13m. The effect of the USA trade tariffs, Hong Kong disruptions and network expansion costs into South Korea and Spain, has driven revenue down in the Asia sector by 10.8% to $35.9m. A gross interim dividend of 34.72 cents per share (ex div 5 December) is an 13.6% increase on last year’s interim dividend payment. Gearing ratio has increased to 17.5%, previously 13.5% bringing total debt to $187.73m an increase of $57.25m. Current: PE Ratio; 29.98, Share price; $41.99, Gross yield; 1.95%.

Sanford

Holds the second largest fishing quota in New Zealand at 19% and operates 37 vessels and 7 processing sites. Sanford also owns and operates Greenshell Mussels and Big Glory Bay farms in NZ. Tax paid profit for FY19 was down 1% at $41.7m, revenue up 8% at $558m. Debt gearing is down 3% to 23.6%. Gross dividend is unchanged at 31.94 cents per share. Salmon sale volumes were up 16% and sales revenue up 23% due to sales penetration in the NZ and USA markets.  Part of Sanford’s strategic strategy is to move beyond food and offer health products “Sea To Me”, through a $20m+ investment of a Sanford Marine Extracts Facility in Blenheim due to open December 2020. Current: PE Ratio; 16.50, Share price; $7.35, Gross yield; 4.35%.

Kiwi Property Group

Is the largest listed property company on the New Zealand Stock Exchange and is a member of the S&P/NZX 20 Index. Kiwi Property Group own and manage a $3.3 billion portfolio of real estate, comprising some of New Zealand’s best mixed-use, retail and office buildings. First half FY2020 results show that total rental growth was 4.6%. Net rental income was down marginally from last year to $89.6m, due to the sale of North City. Tax paid profit was down 23.8% at $36.7m, weighted average cost of debt (WACD) is down 0.28% at 4.52%, while gearing increased 1.8% to 32.8% (still in the target band of 25-35%). Net asset backing increased 2 cents per share when compared to previous corresponding period $1.43. An interim gross dividend of 4.425 up from 4.425 cents per share. Ex-dividend date 3 December and payable 10 December 2019. Current: PE Ratio; 16.34, Share price; $1.58, Gross yield; 5.67%.  

 

Disclaimer: This publication has been prepared for your general information. While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken for any errors or omissions. This publication does not constitute financial or insurance product advice. It may not be relevant to individual circumstances. 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. You should seek professional advice before taking any action in relation to the matters dealt within this publication. No part of this publication may be reproduced without prior written permission from our company. Disclosure statements relating to the financial advisers associated with this newsletter are available on request and free of charge.

 

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Nathanael McDonald



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Weekly Update Investment Shares Bonds Investment Strategy Investment Advice Share Advice Share Investment Investing in Shares Sanford Limited SAN.nz Kiwi Property Group Ltd KPG.nz Mainfreight MFT.nz New Zealand Oil & Gas Limited NZO.nz Infratil IFT.nz Abano Healthcare ABA.nz Mercury NZ Limited MCY.nz



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