Yovich & Co. Weekly Update - 4 May 2015
May 4, 2015 | Commentary
This Week’s Themes
The Reserve Bank was the main focus for the market last week when they made a dovish toned announcement for the first time in the past 12 months. The possibility of falling interest rates gave yield stocks a lift. The OCR has now been kept at 3.5% since July 2014.
Financial stocks dragged the Aussie market lower, with a 110 point loss on Wednesday marking the single biggest move downwards for the year. In the resource sector, there was positive news as the Iron Ore price touched $60 a tonne for the first time since 6th March.
Underwhelming economic data released in the U.S. showed that GDP growth was barely positive in the first quarter. On the other side of the ledger, record low jobless claims could not pull the market out of the red for the week.
Since almost touching parity, the NZD has ground lower with the possibility of interest rate cuts in New Zealand reducing the benefit of the interest rate differential between the two countries.
Energy Sector Review
Since the election result last year, the energy sector stocks have been the best performing companies on the NZX as regulation risk was removed and investors swarmed to buy the strong yields offered by the sector. More recently the share prices have fallen back to more realistic levels. Below is a summary of each of the listed Energy Generators:
Mighty River Power (MRP.nz)
Mighty River Power is heading towards 100% renewable energy as they close down their gas-fired Southdown plant in December. From 2016, MRP will be relying on either Geothermal or Hydro Power stations. The bonus shares that investors have waited for 24 months to receive will be allocated on 21st May. Current share price is $2.91, 12 month target $2.97 and current forecasted gross yield in 2015 of 8.9%.
Contact Energy (CEN.nz)
The announcement that CEN were not going to pay a special dividend, and instead look to invest internationally, disappointed investors. The ratings downgrade of Contact’s largest shareholder, Origin Energy, has also kept sentiment negative for CEN. Current share price is $5.55, 12 month target of 6.62 and current forecasted gross yield in 2015 of 6.5%.
Meridian Energy (MEL.nz)
The second payment of 50 cents for the Meridian instalment receipts is due, starting on May 6th and must be paid by the May 15th if you wish to remain a shareholder. Notification of this from Computershare should be received shortly. Meridian is the other Generator to rely entirely on 100% renewable energy sources at this time. Current share price is $2.37, 12 month target of $2.25 and current forecasted gross yield in 2015 of 8.2%.
Genesis Energy (GNE.nz)
Genesis Energy downgraded its earnings guidance last week to $330-$345 million in the year to 30 June 2015, down from the prospectus estimate of $363 million. The bonus shares were issued a few weeks ago and along with this negative news, the share price has taken a large hit and is currently trading at $1.92. At this level the gross dividend 11.5%. The 12 month target is $2.06.
TPW has the best margins in the sector and its investment in the Snowtown windfarm in Australia has created significant value. Current share price is $7.87, 12 month target of $8.21 and current forecasted gross yield in 2015 of 6.6%.
Weekly Update Investment Shares Bonds Market Commentary Mighty River Power MRP.nz Contact Energy CEN.nz Meridian Energy MEL.nz Genesis Energy GNE.nz TrustPower TPW.nz