Yovich & Co. Weekly Update - 2 September 2013

Sep 2, 2013 | Commentary

This Week's Themes

• It was a robust week in Australasia and Asia with strong economic numbers from China bolstering local markets, while the markets around the Atlantic slumped on the possibility of military action by U.S and U.K. armed forces on Syria. The action would be in retaliation to reports that chemical weapons were used on the population in Damascus, killing 1,429 people.

• The August reporting season has come to an end with both the NZ and Aussie markets edging out slight gains with companies in general reporting better numbers than analysts expected and optimistic outlooks.

• One of the big themes from the reporting season was the number of companies increasing dividends. As I have mentioned in the past, dividend yield is going to be a big driver for share price performance in the current low interest rate environment and companies are realising this. The following companies increased their dividend pay-out: FRE, PGW, SKC, STU, MHI, PCT, EBO, CEN, AIA, TME, POT, VCT, CNU, HNZ, MRP, AIR and SKT.

• The Kiwi dollar fell against the U.S. on the uncertainly surrounding the Syrian military action but made a slight gain against the Aussie dollar.

Investment News

Air New Zealand (AIR.nz) – Added to Our Preferred List.

Air NZ reported a strong result, in line with expectations with net profit increasing 156% to $182 million. Non-passenger revenue was down but was off-set by lower operating expenses such as fuel and aircraft operations. As mentioned above, AIR was one of many companies that announced an increase to their dividend yield with a fully imputed dividend of 5 cents per share, equating to a full year payment of 8 cents, and yield of 7.7%.

First NZ Capital has assigned prudent earnings forecasts for 2015 and 2016, citing earnings next year as peak-cycle. We do not share their negative view of medium-term earnings but even taking their cautious forecasts, a long term yield of above 8% is still attractive.

The current price for AIR.nz is $1.42 and the First NZ Capital target price is $1.52. This valuation represents a 7% capital gain, 9.6% dividend yield and total gain of 16.6% over the next 12 months.


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Jarrod Goodall

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