Yovich & Co. Weekly Update - 29 June 2015

Jun 29, 2015 | Commentary

Changes in Market

 

 

 

This Week’s Themes

  • Global stock markets continue to fall after 3 weeks of negative sentiment surrounding the Greek bailout.

  • Over the weekend the Greek government rejected the terms of the latest bailout package which has spooked global markets and plunged Greece into financial distress after the share market was closed and limits placed on cash withdrawals to avoid a run on the banks.

  • The instability of the Greek economy is a well known issue and it makes up only 1.25% of the GDP of the Eurozone.

  • Other bear market commentators have also noted that a technical bear market has formed in China. These commentators fail to acknowledge that the market is still above the level it was in April of this year.

  • My conclusion is that for the foreseeable future we can have increased volatility in the markets and this is going to present an opportunity for savvy investors.

  • Locally we have seen the defensive stocks such as Mighty River Power and Meridian Energy get sold off as international investors take risk off the table. Both of these stocks are well off from their highs and forecasted gross dividend yields ae now around 10%.

  • The NZD has fallen to a 5 year low against the USD.

Investment News

The New Zealand Refining Company (NZR.nz) – The Stars are Aligning.

New Zealand’s only Oil Refinery has had a very hard few years with it all coming to a head last year as the NZD hit record highs against the USD and the Singapore Gross margin turned negative. Coupled with this, was the capital cost of the CCR Project and the reporting of a loss for the full year in 2013. Since then, the main variables that determine the profitability of the refinery have improved with the following points indicating a period of much improved financial performance:

  • Expectations are for the GRM to be around $8.50 mark per barrel. Medium term expectations for the Asian Refinery margins remain strong for the foreseeable future.

  • The NZD trading below $0.70 USD is well below previous forecasts.

  • The CCR project is coming to a conclusion and will free up cash to reinstate a dividend. Refer to the below forecasts for the forecasted dividends over the next few years.

First NZ Capital have an outperform rating for NZR over the next 12 months. Their target price has been increased to $3.51 and with the current share price at around $2.80 there is plenty of upside from here. I expect that the next catalyst for a move upwards in the share price will be the announcement of their first dividend since September 2013.

Financials & Forecasts


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Jarrod Goodall



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