Yovich & Co. Market Update - 4 March 2020

Mar 2, 2020 | Commentary

4 March 2020
New Zealand Equities

Market update 2020-03-04

In summary, the NZX50G had 49 companies on the downside only 1 company was on the upside.  Last week and current week has seen a lot of intra-day volatility in the markets. The NZX50G reached a low of -3.28% intra-day to close the day at -1.16% (Feb 25). The RBA dropped the OCR 25bp to 0.50% on March 3. An emergency 50bp rate cut from the Fed has sent global markets into the red further. Fed Chair Jerome Powell said the U.S. economy remains strong, but the virus outbreak will weigh on activity for some time. This is the first time since 2008 that the Fed has carried out an emergency cut. The current Fed rate is now 1.0% - 1.25%. Economists are pencilling in a 0.25pb drop in the OCR by the RBNZ this month. KiwiSaver members’ balances are also experiencing the negativity from the COVID-19 effects, especially the members in Growth funds, as these funds are weighted to the share market. Yovich & Co are advising that if clients’ goals and time frame have not changed then to stay the course. If at all concerned please contact your adviser.

Biggest movers 2020-03-04

Investment News

New Zealand Refining

Tax paid profit for FY2019 ending 31 December was down 86% at $4.2m, revenue was down 4% at $348m. Net tangible assets have decreased from $2.42 to $2.36. The Gross Refining Margin averaged USD $5.34 for the year (2018: USD $6.31 per barrel). The lower prices were due to slowdown in the global economy compounded by US sanctions on Chinese crude tanker companies, and additional refining capacity coming online earlier than expected. Managing Director,  Paul Zealand described the result as disappointing given how well the business has performed operationally, and that the confluence of market factors have resulted in an unsustainably low margin environment in the latter part of the year, which has continued into the first two months of 2020. The board prudently decided not to pay a final dividend. Current Share Price: $1.14.


Abano Healthcare Group

Has released its Notice of meeting and Scheme Booklet, which provides investors with detailed information regarding the $5.70 per share takeover offer and time frames. By now investors should have received their voting/proxy forms, with the scheme meeting to be held on March 20.  Notice of meeting and Scheme Booklet link. http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ABA/348390/316699.pdf

Current Share Price: $5.17.

Tourism Holdings

Tax paid profit for first half FY2020 ending 31 December was down 25% at $13.05m, largely impacted by the USA vehicle sales market and ongoing investment in Togo Group. The global rentals business continues to perform well, delivering revenue growth in New Zealand and Australia. No change to revenue at $207m. Net debt is 20% lower at $181m from $226m, with expected debt to be at $135m-$145m at FY2020 year end.  Net profit after tax for FY2020 is expected to be around $24m. Net tangible assets is up from $1.67 to $1.83. A gross interim dividend of 13.89 cents per share with an ex-dividend date of May 1, is payable May 11. Current Share Price: $2.50, Gross dividend yield: 12.84%, PE Ratio: 13.42, Target Price: $3.79.


NZ King Salmon

Tax paid profit for first half FY2020 ending 31 December was up 37.7% at $20.7m, revenue down by 3.9% at $84.1m due to lower sales volume (3,442 tonnes down from 3,824 tonnes in 1H19) as NZK managed demand for long term security of supply. Lower supply has produced record prices of $24.46/kg up from $22.93/kg. Water temperatures are a major factor that influence salmon survival, year to date temperatures are lower (lower temperatures reduce the mortality rate) than those seen in the past two years. An update on salmon numbers is provided to the market at the end of summer: https://www.kingsalmon.co.nz/summer-water-temps/. Net tangible assets are up from $0.86 to $0.99. A gross interim dividend of 2.78 cents per share with an ex-dividend date of March 5, is payable March 20. Current Share Price: $1.88, Gross dividend yield: 3.69%, PE Ratio: 15.30, Target Price: $2.25.


Port of Tauranga

Tax paid profit for first half FY2020 ending 31 December was down 1.4% at $48.3m. Revenue up 1.2% at $154.7m. Net tangible assets are up from $1.59 to $1.66. Container numbers increased 3.4% to 642,209 TEUs1 for the six months to December 2019. Transhipment, where cargo is transferred from one ship to another at Tauranga, increased 3.7%. This trend continues to consolidate Port of Tauranga’s position as New Zealand’s international hub port. Port of Tauranga and Tainui Group Holdings plan to form a 50:50 joint venture to develop the Ruakura Inland Port at Hamilton over the next few years.  Use of rail links between Auckland, the new inland port, and the eastern city of Tauranga could remove 60,000 truck journeys a year from roads. Net profit after tax guidance for FY2020 has been reduced from $96-$101m to $94-$99m. A gross interim dividend of 8.33 cents per share with an ex-dividend date of March 5, is payable March 20. Current Share Price: $6.53, Gross dividend yield: 3.89%, PE Ratio: 44.45.


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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