Yovich & Co. Market Update - 5 October 2020

Oct 4, 2020 | Commentary

5 October 2020

New Zealand Equities

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Market update 2020-10-05

 

In summary, last week the NZ50G saw 16 companies on the downside, 2 remained unchanged and 32 on the upside. The NZ50G had a rollercoaster ride in September, riding the coat tails of the near record highs in mid-August and early September. The result was mainly from a2Milk and Fisher & Paykel Healthcare. Towards the end of September investors started taking profits and due to economic uncertainty the NZ50G closed 1.59% lower, albeit the rolling 12-month return is up 7.54% and has increased 2.22% for the calendar year. The news that the current government will negotiate a deal to keep Tiwai smelter open to June 2025 has seen the Gentaliers share price claw back some of its losses in late September. The tech stocks drove the American indices up in August and early September, while the sell-off from investors mid-September meant the S&P 500 closed down 3.92%. The ANZ-Roy Morgan NZ Consumer Confidence Index was unchanged at 100 in September; this is under its historical average of around 120 and is at 2009 levels. Consumers’ perceptions of their current financial situation fell 3 points to negative 2, its third consecutive fall. The wage subsidy scheme has been key for supporting housing incomes but is starting to roll off.

Biggest movers 2020-10-05

Investment News

Fonterra

Has announced it is to sell its China farms for a total of NZ$555m after successfully developing the farms alongside local partners. Inner Mongolia Natural Dairy Co. Ltd, a subsidiary of China Youran Dairy Group Limited (Youran), has agreed to purchase Fonterra’s two farming-hubs in Ying and Yutian for $513 million. Separately, Fonterra has agreed to sell its 85 per cent interest in its Hangu farm to Beijing Sanyuan Venture Capital Co, (Sanyuan), for NZ$42m. Completion of the sales, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to occur within this financial year. Fonterra expects to use the cash proceeds from the two transactions to pay down debt, as part of its previously announced overall debt reduction programme.
Current Share Price: $4.01, EPS: $0.42, PE ratio: 9.42, Gross dividend yield: 1.2%.

Rua Bioscience

Is a New Zealand pharmaceutical company that is aiming to be a leading producer of cannabinoid derived medicines. The Company was established in 2017 in part to support local economic development in Te Tairāwhiti (East Coast) region and is a pioneer in the New Zealand medicinal cannabis sector. Rua is planning an initial public offering (IPO), the IPO is offering 40m shares (28% of outstanding shares when listed) at 50 cents per share. Offer opens 5 October and closes 16 October, shares list on the NZX Main Board 22 October. IPO Price: $0.50.

Oceania Healthcare

Operates in the New Zealand residential aged care and retirement village sectors. Oceania is currently New Zealand's third largest provider of residential aged care, and New Zealand's sixth largest retirement village business. Oceania has a development pipeline of 714 care suites and 1,048 units. Currently the repositioning from care bed to care suites (replaces older aged care facilities with new assets which deliver better density and yield) has disrupted the aged care earnings, EBITDA/bed in 1H20 at $8.4k to $8.8k in 2H2020. Research shows that EBITDA/bed could grow to $14k once pipeline is completed. Oceania is expected to deliver 200-300 units and care suites per annum over the coming five years, with a near-term sales pivot to high-value Auckland location in FY22. Oceania is currently offering a new 7-year secured fixed rate bond with a minimum interest (coupon) rate of 2.3%. Closing date is 9 October. Click here to view PDS. Current Share Price: $1.19, Gross dividend yield: 2.94%, Target price: $1.30, Rating: Outperform.

Serko

Is Australasia's leading online travel booking and expense management company for businesses. An integrated Online Booking Tool used by administrators and travellers to book flights, accommodation and car hire from the broadest possible set of travel providers. The Online Booking Tool ensures that travel bookings comply with corporate travel management policy without limiting the user’s choice of travel provider. Serko has announced that they are to undertake an equity raise of $55m via a $45m placement to institutional investors and a $10m share purchase plan that will allow shareholders to purchase up to NZ$50,000 worth of shares. This offer is open to investors holding shares as at 30 September 2020. The floor price is set at $4.35 at 3.50% discount to close price as of October 2020.   Current Share Price: $4.77, Target price: $4.40, Rating: Neutral.

Metlifecare

Shareholders in Metlifecare Limited have voted in favour of the Scheme of Arrangement (Scheme) under which all shares in the Company will be acquired by Asia Pacific Village Group Limited (APVG). The Scheme is subject to receipt of a ‘no objection statement’ from the Takeovers Panel and final orders of the High Court, with these conditions expected to be satisfied by mid-October 2020, and satisfaction of other customary completion conditions. If the Scheme receives the final approvals, it is anticipated that the Scheme will be implemented, and shareholders will be paid NZ$6 per share on or around 29 October 2020.
Current Share Price: $5.97, Takeover price: $6.

Air New Zealand

Expects to raise capital before the middle of 2021 and has tapped a loan from the New Zealand government to survive a financial crunch caused by the coronavirus pandemic. The airline has borrowed NZ$110m since August from a government credit facility that has a limit of NZ$900m. The airline expects its monthly cash losses to average between NZ$65 million and NZ$85m. It said it would continue to incrementally tap the government loan. The new Trans-Tasman bubble agreement is expected to open Australia to New Zealanders without quarantine from October 16, to those who have not been in a designated Covid-19 hotspot in the past 14-days. Kiwis will be able to travel to NSW and Northern Territory initially. Australians are not yet allowed to travel to New Zealand and Kiwis who do cross the Tasman will have to quarantine upon return. Air NZ’s share price surged 7.2 percent to $1.49 in the last 45 minutes of trading, with 3.3 million shares changing hands. The company is still down 50 percent year to date.
Current Share Price: $1.48.

NZ Refining

Finalises plans for simplified refinery operations in 2021. The final proposal is to operate the refinery in 2021 under the current Processing Agreement, which will enable it to extend cash neutral operations in a low-margin environment at the Fee Floor. The Company has also progressed import terminal discussions with customers. These discussions are ongoing and any decision to proceed with a conversion to an import terminal will ultimately be a decision voted on by non-customer shareholders. Current Share Price: $0.62.

 

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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