Yovich & Co. Weekly Update - 9 December 2013
Dec 9, 2013 | Commentary
This Week’s Themes
- With the holiday season on the horizon, the Australasian markets continued to sell-off.
- The New Zealand market sell-off has been instigated by International investors and funds as they lock in profits after a strong year in equities coupled with a high Kiwi dollar. The uncertainty surrounding the election next year is resulting in heavy falls in any stock that has political risk associated with it.
- A strong jobs report helped hold up the U.S. markets after a shaky start to the week.
- The New Zealand dollar surged through 90 Aussie cents last week, the highest it has been since the 2008 crisis. There have been commentators this week suggesting that the Kiwi could trade at parity for the first time since the currency floated on March 4th 1985. This expectation is based on a slowing Australian economy with low interest rates and the New Zealand economy strengthening as a result of high dairy prices, the post earthquake rebuild, and interest rates anticipated to start rising in 2014.
Goodman Property Trust (GMT.nz) – Bonds or Shares?
Goodman Property Trust is on track to issue $75 million in senior, secured fixed rate bonds this week to repay existing bank debt. The coupon is expected to be set at between 6.1% & 6.3% with a maturity of December 2020. The Standard & Poor’s rating of BBB+ appears to be fairly priced, but our view is that seven years is a long time to be locking in interest rates with interest rates expected to start rising in 2014. Our preference is for clients to buy equity over bonds as the cash return is close to 50% better, with shareholders also benefiting from any appreciation of the underlying assets and growth from development.
In November GMT announced first half 2014 distributable earnings of 50.3 million, up 22% on last years first half. GMT has been busy, announcing 10 new development projects over the past 6 months with the majority of these centred around Auckland. The most notable is the agreement to acquire the new Fonterra head office on the Viaduct Waterfront with an initial 8% cash yield and completion due in February 2016. First NZ Capital has a “Neutral” rating and $1.10 price target. The current price is 99.5 cents.
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