Yovich & Co. Weekly Update - 20 August 2012

Aug 20, 2012 | Commentary

This Week's Themes

  • Reporting season is now in full swing in New Zealand and Australia. Both markets were buoyed by some positive results and strong data giving markets a lift.
  • Retail sales in New Zealand were strong with a quarterly increase of 1.3%, almost twice the expected result.
  • The NASDAQ had a great week, boosted by Apple as the market starts to ramp up ahead of the release of the new iPhone. Apple is now the largest company of all time.
  • The Kiwi Dollar reversed lasts weeks losses on strong U.S data indicating upbeat consumer confidence and housing figures.
  • Implied volatility is at its lowest point since the Global Financial Crises as indicated by the VIX in Chicago. The VIX is used to gauge fear and at the current low is a signal that confidence has returned to U.S. markets.

Company News

TrustPower (TPW.nz) reported profit of $167 million, a significant increase form the profit recorded last year of $126 million. The result reflects a move to increase gearing by raising $1.1 billion in debt over the past year. They have also announced a further raising of up to $300 million in unsecured, unsubordinated bonds to fund working capital and upgrades to the grid network. TPW has paid 40 cents if dividends in 2012, equating to a net yield of 5.1% and expects that this is sustainable. 

Contact Energy (CEN.nz) announced a strong 2012 result after a few years of disappointing numbers. Profit for the year was up 27% to $190 million due, in part, to a strong performance from the wholesale division. Expectations are that CEN can afford to increase their dividend payout ratio over the next few years. The current dividend of 23 cents per share produces a net yield of 4.8%.

NZX Limited (NZX.nz) took a hit of 28% to its net profit with a fall in capital markets activity and higher expenses highlighted as reasons for the poor result. Trading activity has been relatively strong compared to the ASX and SGX showing that the market in New Zealand is still buoyant. NZX is starting to broaden their markets by further increasing offerings in the derivatives and agriculture space. The commodities market has seen strong growth in the past year and the markets division is expected to be supported by the State Asset Sales and the Fonterra Trading Amongst Farmers scheme.

Infratil (IFT.nz) posted an increase in profit of 6% to $127 million. They have indicated that they are embarking on a process to scan for new business development opportunities adjacent to their core energy and transport markets. They revealed that they have identified some interesting opportunities in New Zealand, Australia and abroad. IFT are cautious about current financial markets but have strong free cash flow and raised long term capital in the debt market to facilitate further growth.

Goodman Fielder (GFF.nz) beat low expectations when they reported a small loss last week. With increasing completion and rising commodity prices the outlook for GFF was not positive but their cost cutting project is starting to improve their bottom line. Revenue is also growing in their Asia Pacific business.

Diligent Board Member Services (DIL.nz) provided a summary of their first half operations with very strong sales growth marking a second half profit of US$1.46 million. The chairman of DIL identified “accelerating global market demand for the Diligent Boardbooks product” as the reason for the result. DIL is proving that they have a desirable product and that they can deliver it to new clients efficiently.

Pumpkin Patch (PPL.nz) announced an estimated full year profit of $10.1 million with online sales driving growth. Low bank debt and inventory levels also contributed to achieving a better than expected result. They plan to release their full results on September 27th.

AMP Office (ANO.nz) released its annual result to March 2012 with a drop in earnings of 16%, due to lower occupancy and lower rents. There a few catalysts for growth including improved occupancy, further investment driven by having a lazy balance sheet, lower funding costs as old higher interest agreements roll off and a pick up in rental contract rates. The net yield for ANO is starting to look less attractive at 5.1% after a strong rally in the share price this year.

Nuplex (NPX.nz) reported net profit after tax of $66.2 million surprised analysts to the upside. The strong bottom line was due to lower tax and interest expenses while operating earnings were in line with expectations. NPX is currently trading at a P/E ratio of 7.2 times and is relatively cheap compared to the market which is at 14.2 times. It also offers a gross yield of 8.4 percent and has obvious potential for earnings growth from recent acquisitions.

Sky City (SKC.nz) posted operating earnings of $141.4 million with the Rugby World Cup providing a boost of $4.7 million. International Business through Auckland was the highlight and catalysts for continued share price appreciation will come from the opportunities being perused in Auckland and Adelaide.

Michael Hill International (MHI.nz) achieved record sales with revenue exceeding $500 million for the first time. They also reported a 5.8% increase in profit to $36.5 million. The expansion in North America is proving to be a success with operations in the U.S and Canada reporting sales increases of 18% & 20.2% respectively. The strategy for the next year is to open 20 stores globally and to improve the performance of the Australian business. The divided has improved by 1 cent to 5.5 cents per share and equates to a net yield of 5.1%.

National Australia Bank (NAB.asx) released a disappointing trading update, missing the expected headline earnings. Earnings were AU$1.4 billion and were of low quality, with the result made up of weak revenues and lower bad debts. NAB remains the least preferred Australian Bank by the analysts at Credit Suisse.

Commonwealth Bank (CBA.asx) A record result from ASB Bank of NZ$685 million contributed to a record result by CBA with an overall profit of AU$7.1 billion. The strong result from ASB was due to increased home lending and lenders switching to higher margin, floating rates. CBA has a high dividend payout ratio of 89%, delivering a 6% net yield to shareholders.

ANZ Bank (ANZ.asx) announced a trading update outlining profit for the last 9 months of AU$4.5 billion, up 5.5% on the previous corresponding period. Margins appear to be peaking but with a P/E ratio of 10.1 times it is trading at a 6 % discount to the other Aussie Banks. The  current net dividend yield is at 5.9%. A major positive of the announcement was the expectation that costs are continuing to decline.

Other News

  • It will be another big week for result announcements next week with Cavalier (CAV.nz), EBOS (EBO.nz), Summerset (SUM.nz), Colonial Motors (CMO.nz, Fletcher Building (FBU.nz), NZ Oil & Gas (NZO.nz, Trade Me (TME.nz) Refining NZ (NZR.nz), Vector (VCT.nz) Sky TV (SKT.nz) Telecom (TEL.nz) & Vital Healthcare (VHP.nz) all reporting next week.

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About the author

Jarrod Goodall

Related Tags

Weekly Update Investment Shares Bonds Market Commentary TrustPower TPW.nz TPW Contact Energy CEN CEN.nz NZX Limited NZX.nz NZX Infratil IFT IFT.nz Goodman Fielder GFF GFF.nz Diligent Board Member Services DIL DIL.nz Pumpkin Patch PPL PPL.nz AMP Office ANO ANO.nz Nuples NPX NPX.nz Sky City SKC SKC.nz Michael Hill Michael Hill INternational MHI MHI.nz National Australia Bank NAB NAB.asx Commonwealth Bank CBA CBA.asx ANZ Bank ANZ ANZ.asx


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