Yovich & Co. Weekly Update - 10 September 2012
Sep 10, 2012 | Commentary
This Week's Themes
- The NZX 50 gross index rallied above 3700 for the first time since February 2008 as sentiment on equity markets is buoyed by the possibility of stimulus from Europe, China and the U.S.
- REINZ recorded 6,035 home sales in August which represented an increase of 16.2% year on year. Values are also up 4% on last year with the average home now worth $370,000.
- The European Central Bank (ECB) President Mario Draghi issued the statement that investors were hoping for, giving the green light to stimulus. The ECB has now got the authority to step in, without limit, to buy short term government bonds from the struggling Euro countries to shore up their funding. The statement reinforces that the ECB is absolutely committed to ensuring that the Euro zone remains intact.
- Australasian currencies were firm as the Reserve Bank of Australia remained upbeat for the Australian economy despite the downturn in the Iron Ore price and kept interest rates stable at 3.5%.
Fonterra: With the listing of Mighty River postponed, client interest has turned to investing in Fonterra and the Trading Amongst Farmers scheme. The expectation is that the scheme will be live in November and will allow non farmers to buy shares that have economic rights to the profits that Fonterra make. These shares will NOT have voting rights which will ensure that only farmers have power over the decisions that Fonterra make.
The Warehouse Group (WHS.nz) announced their full year result last week with net profit increasing to $89.8 million. The result was driven by a strategy which relies on high turnover and reduced margin. The outcome has meant that although sales have increased, operating profit is suffering with the bottom line down 14% to $65.2 million. WHS is still struggling for a clear direction and strategy in the challenging economic environment but clearly has capacity for growth.
Fortescue Metals Group (FMG.asx) has taken steps to cut capital expenditure in reaction to Iron Ore prices falling below $100 per tonne. FMG believes that the fall in the price of Iron Ore is short term but is cutting $1.6 billion in costs associated with their aggressive plans to increase production to 155 mega tonnes per annum. This prudent move has reduced the risk that FMG would not be able to complete the equity raising for these projects if the Iron Ore price remains deflated. Even under a worst case scenario with the Iron Ore price at $90 per tonne, FMG continues to make profits with an average cost price of production below $70 per tonne.
A2 Corp (ATM.nz) is a producer of milk that claims that a protein variant makes their product healthier than regular milk. They released there annual report and has doubled its profits last year, revenue increased 48% driven by Australian consumption and led to a net profit of $4.4 million. ATM is pursuing growth initiatives with significant planning in place to introduce an infant formula product into the lucrative Chinese market with production set to start in December 2012.
The RBNZ are making their Monetary Policy Statement on Thursday, expectations are that there will be no move to interest rates and that they will remain at 2.5%.
Weekly Update Investment Shares Bonds Market Commentary A2 Corp ATM ATM.nz Fonterra The Warehouse Group WHS WHS.nz Fortescue Metals Group FMG FMG.asx