Yovich & Co. Market Update - 29 August 2016

Aug 29, 2016 | Commentary

Changes In Market 

 

  

Market Themes

  • The march upwards has been relentless for New Zealand Equities as the market continued to make fresh highs throughout August as we headed into the reporting season.

  • Some highlights so  far from the reporting season include:
    • EBOS Group reported a slight beat on its FY16 result. Earnings (EBITDA) were up 14.6% on FY15 to $225.3 million while net profit was up 19.9% to $127.0 million.
    • Air NZ reported on Friday a normalised net profit of $599 million, up 74.6% on FY15. The positive feature was a 25 cent per share special dividend.
    • Port of Tauranga share price has been well supported by the announcement of a plan to pay $140 million to shareholders through the payment of special dividends over the next four years.
  • The reporting season has not been as positive over the Tasman with some big companies such as Wesfamers and Blackmores disappointing investors. Despite this the market has edged a slight positive gain over the past four weeks.

  • U.S. shares have traded softer with further validation on Friday after Federal Reserve chair Janet Yellen's highly anticipated speech confirmed a rate hike is likely in the months ahead.

  • The cut in interest rates in Australia on August 2nd to 1.50% and expectations that the rate could fall as low as 1.00% over the next year helped the Kiwi move above 95 Aussie cents.

Investment News

Metro Performance Glass (MPG.nz)

Last week MPG had their Annual Shareholders Meeting, reporting a 10% increase in revenues for the year and Net Profit after Tax increasing to $20.5 million. Their outlook for the next 12 months remains positive for the following reasons:

  • Further recovery in the NZ building cycle should benefit MPG. Additionally, product price increases achieved in late FY16A, market share gain and cost savings from investment in automation of processing facilities should lift MPG earnings in FY17F. In the long term, the retrofitting of existing homes with Double Glazing Units offers significant potential upside, assuming MPG can successfully expand its existing Double Glazing Units retrofit service (Metrofit).

  • MPG’s acquisition of the Australia Glass Group (AGG) (with operations in Victoria and New South Wales) was purchased on a relatively attractive 5.4x EV/EBITDA 12-month trailing multiple. AGG generates annual sales of circa A$45 million (~NZ$48 million) and earnings before interest, tax, depreciation and amortisation (EBITDA) of circa A$8 million.

  • Double glazing penetration is gathering significant momentum in cooler climates like Victoria and Tasmania, which we currently estimated to account for 30-50% of windows in new construction. In New Zealand the penetration is estimated at over 90% which indicates that there are significant growth opportunities in the cool climate regions in Australia.

MPG is on our preferred list of investments and our favourite exposure in the construction sector. First NZ Capital has a NZ$2.30 Target Price (previously NZ$2.20) and is based on a small discount against their NZ$2.45 12-month Discounted Cash Flow based valuation.

 Financials & Forecasts

 

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Jarrod Goodall



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