Yovich & Co. Weekly Update - 16 July 2012

Jul 16, 2012 | Commentary

This Week's Themes

  • The New Zealand market outperformed most markets last week, led by strong gains in the Telco’s as more information about the Vodafone takeover of TelstraClear was released and buoyed investors.
  • U.S. markets rallied on Friday to end the week in positive territory as investors reacted to a strong result from JP Morgan and Chinese GDP data that was not as bad as expected.
  • European markets rallied for a sixth straight week with investors betting on further central bank stimulus.
  • The Kiwi Dollar was weaker with positive sentiment out of China and the U.S. not being enough to recover from the falls earlier in the week.
  • Chinese GDP growth came in at 7.6% for the June year. This was close to estimates and signals to the pessimists that the Chinese economy is still relatively strong. 

Company News

Z Energy Bond (ZEL030.nz) - Z Energy Limited is issuing up to $100 million in new secured senior fixed rate debt obligations. The coupon rate will be set at 6.5% and the bonds will mature on the 15th of November 2019. In our view, this is a fair rate for this type of Bond and for the maturity. The offer opens on the 18th of July with the bonds issued on the 15th of August.

Telecom Corporation of New Zealand (TEL.nz) - Vodafone New Zealand has agreed to buy TelstraClear for $840 million subject to Commerce Commission approval. The impact to Telecom is expected to be minimal in the short term. However, the deal will make Vodafone a significant player in the New Zealand market and create a genuine Duopoly. This highlights the long term risk that Telecom is facing due to competition and the open market.

Iluka Resources (ILU.asx) announced a half year gross profit of $348 million, in line with expectations. Weak demand for zircon and rutile has prompted Ilulka to slow down supply and add to inventories. This is inline with Iluka’s strategy of matching production with demand. This emphasises Iluka’s ability to control prices due to being the words largest producer of zircon and ruitle and the second largest in high grade titanium feedstocks. The downgrade has seen a sharp fall in the share price but long term prospects are still positive with expectations that the downturn is cyclical. Below is a summary of the minerals that Iluka produces and their uses:

  • Zircon: The most valuable of the heavy mineral sands. Used as an opacifier in the decorative ceramics industry. Zirconium Oxide is one if the most refractory materials known and because of its high temperature resistance it is mainly used in the ceramics and refractory industries.
  • Rutile: Composed of titanium dioxide. Because of its brilliant white pigment it is used in paints. It is also used as a refractory ceramic and in the production of titanium.

Other News

  • New Zealand CPI data for the June quarter is released on Tuesday.
  • World markets will be watching as Ben Bernanke presents his monetary policy report to Congress. It will be interesting to hear his views on the world economy and the possibility of a third round of Quantitative Easing.

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Jarrod Goodall



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weekly update investment shares bonds market commentary z energy z energy bond zel030 zel030.nz telecom corporation of new zealand telecom iluka resources iluka ilu ilu.asx tel tel.nz



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