Yovich & Co. Weekly Update - 22 October 2012
Oct 22, 2012 | Commentary
This Week's Themes
- The New Zealand market bounced back from the small retracement last week to record the best weekly rally in over 2 years.
- The other global indices were also strong as data out of the U.S. showed that corporate earnings were robust and Moody’s retained their investment grade debt rating for Spain.
- The NASDAQ bucked the trend by retreating on weak earnings from Google. Google shares have slumped over 11% since the announcement that outlined the impact on earnings that the Motorola takeover has had.
- The Kiwi continues its slide as traders start to price in the possibility of a rates cut after the sluggish inflation figures were released.
NZ Property Sector
Falling interest rates have helped elevate returns for the sector, driven by earnrings growth and investors chasing better yields. With current expectations that the Reserve Bank of New Zealand will keep rates lower for longer, we can expect that the property sector will remain favourable. On current valuations the sector is trading at a premium but there are moves by the valuer CBRE to reduce the cap rates. Cap rates are set by the valuer and identify the required yield for a property and are likely to be reduced given the low return environment we are in at the moment. The result of this reduction in the cap rate will see valuations of the underlying properties rise.
There are a few factors that need to be considered when applying the net change in valuation given a change in the cap rate. They include gearing, management fees and the assumed move in the cap rate. When this is all considered, the companies that are trading at the largest discounts to new Net Tangible Assets are Argosy Property Limited (ARG.nz), NPT Limited (NPT.nz) & DNZ Property Fund Limited (DNZ.nz)
Gascoyne Resources (GCY.asx) announced an update to their resource estimate for the company’s Glenburgh Gold Project in the Gascoyne province of Western Australia. The drilling program has indicated that the gold is of higher grade, at a relative shallow depth and that the quantity is much larger than expected with total resources of 1,040,000 oz of gold. The final 10,000 meters of the 2012 drill program is underway, with completion expected to take 4 weeks. The feasibility study is well advanced with the following activities scheduled for the coming months:
- Environmental baseline study completion by mid October
- Mining studies.
- Mining reserve calculation.
- Tailings storage facility.
- Process plant design.
- Capital and operating cost estimates
The study is on track, with completion expected in early 2013. Since the announcement, GCY has rallied 15% to 23.5 cents but is still trading well below its all time high of 32.18 cents.
NZ Property Sector Gascoyne Resources GCY GCY.asx Weekly Update Investment Shares Bonds Market Commentary Investments DNZ Property Fund Limited DNZ DNZ.nz Argosy Property Limited Argosy ARG.nz ARG NPT Limited NPT NPT.nz