Yovich & Co. Market Update - 11 July 2016
Jul 11, 2016 | Commentary
BREXIT is still front and centre of investors’ minds although the impact on markets outside of Europe has been rational and relatively subdued.
UK markets are actually up 5.3% since the vote and the DAX in Germany has fallen by only 4.1%. The biggest move has been in the currency where the Sterling has lost a significant 13.4% of its value over the past two weeks.
The strength of the New Zealand Market has continued and we are now sitting at new all time highs.
Resource stocks in Australia helped the All Ords pare the falls in the market earlier in the week.
US markets finished the week close to recent highs as investors were encouraged by another strong jobs report showing that 287,000 jobs were created in the last month.
The Kiwi remains extremely strong compared to the greenback and the Aussie, providing more evidence that the New Zealand economy is seen as robust despite the uncertainties in Europe.
Ardent Leisure (AAD.asx)
Ardent Leisure boasts a well-balanced portfolio of entertainment assets, including Goodlife Fitness Centres and Kingpin 10 Pin Bowling businesses in New Zealand. Their businesses are enjoying good positioning in their operating markets, although these fundamentals must be viewed against a very tough industry backdrop, with intense competition, highly cyclical discretionary spending and proliferating leisure alternatives for consumers. To its credit, management is far from sitting still. It is executing a value-based strategy to minimise business cyclicality, while pursuing growth both domestically and in the United States.
After a roller-coaster ride, shares in Ardent Leisure are now trading 20% below our (Morningstar) unchanged AUD 2.40 per share fair value estimate, presenting investors with a good opportunity. The stock is trading at fiscal 2017 enterprise/EBITDA multiple of 6.4, a P/E multiple of 11.4 while yielding 7.6% (partially franked).
ResMed targets a very large potential market opportunity. The National Heart Blood and Lung Institute estimates that 12 million Americans suffer from sleep apnoea; according to ResMed, fewer than 4 million of these are diagnosed or treated for sleep apnoea each year. By expanding the pool of diagnosed and treated sleep apnoea patients, companies that target the disorder have much to gain. ResMed's strategy involves increasing awareness of the disorder among physicians and the general population. The company is also making testing for sleep apnoea simpler with home testing devices, which expands the company's reach to patients unwilling to be treated at sleep labs.
We (Morningstar) believe the health care sector is a relatively good place to be in as spending is less discretionary. In our view, the long-term fundamentals of ResMed are intact. It is an attractively priced narrow moat-rated health care company whose shares are trading around 15% below our unchanged USD 73.00 (AUD 10.00) fair value.
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