Yovich & Co. Weekly Update - 26 August 2013
Aug 26, 2013 | Commentary
This Week's Themes
• The NZX closed the week slightly higher as reporting season continues to reveal mixed corporate earnings. The big winners for the week were Skellerup (SKL.nz) and Fletcher Building (FBU.nz) with both companies reporting net profits above expectations.
• Z Energy made its debut on the NZX on Monday, first trading at $3.73 up from the $3.50 IPO price. ZEL closed the week at $3.77, it is early days but that equates to a 7.7% increase on the IPO price.
• Improving manufacturing data out of China helped the Australian All Ordinaries to edge out a gain for the week.
• U.S. markets were mixed with the Dow Jones index down for the third straight week as investors wait for more guidance from the Fed Reserve regarding the tapering of stimulus. Yet the NASDAQ posted a strong week as Tech stocks such as Microsoft and Yahoo announced robust reports.
• The Kiwi Dollar was lower against both the Aussie and US Dollars with Graeme Wheeler continuing the rhetoric in his latest comments that the local currency is over valued.
Fortescue Metals (FMG.asx) – 2013 Result: Beating Expectations
FMG delivered a result and dividend payment ahead of the market's estimates and everything is on track for the increase in production to 155Mtpa production by 2015. With current production in 2013 of 80.9Mtpa this represents a noteworthy increase. The announcement delivered solid underlying earnings of US$1.706 billion and was 15% above First NZ Capital's estimates with the majority of the gains made on FX and the capitalisation of interest. With the improved result came a significantly higher dividend at 10 cents per share which is a key driver of share price appreciation in the current low interest rate environment.
The potential TPI (The Pilbara Infrastructure ltd.) sell-down process is on-going but looking unlikely. The sell down was seen as essential for FMG when Iron Ore prices plunged but with the recovery in Iron Ore and a devaluation of the Aussie dollar, FMG has been able to be resolute as to the terms that they will accept for the sale of such an important piece of railway infrastructure.
First NZ Capital has an outperform rating and $6.00 price target with the current price sitting at $4.41. FMG is our preferred exposure to the recovering Iron Ore price.