Yovich & Co. Weekly Update - 30 September 2013

Sep 30, 2013 | Commentary

This Week's Themes

• The local market stretched to another record high, helped by a big jump in Kathmandu after they announced an increase to net profit of 27%.

• The rally in Iron Ore has helped bolster the market across the Tasman. The sport price for Iron Ore is above $130 a tonne for the first time since April.

• U.S. markets fell as the U.S. government reaches another fiscal deadline and a threat that the government will "shutdown". We have experienced similar stalemates before and each time there has been a resolution, although it hasn't stopped the markets from retreating from relative highs.

• The U.S. Dollar strengthened as traders took risk off as the uncertainty of the U.S. fiscal position weighed on the markets.

Investment News

Z Energy (ZEL.nz) – Initial Research Coverage.

First NZ Capital has initiated research coverage with an Outperform rating and $4.07 price target, current price is $3.86. They identify the following highlights as catalysts for further share price appreciation:

  1. Upside to prospectus: Driven by fuel margins and less discounting intensity, we expect ZEL to beat prospectus forecasts. As with any IPO, we expect much focus on the maiden results (FY14 announced May 2014).

  2. Game-changing transaction more likely: We believe that the listing of ZEL has made a NZ fuel merger more likely. ZEL offers a clear reference point for valuation and it is uniquely positioned to seize any opportunity. Such a deal is binary. Depending on the acquirer it could be the most positive or negative catalyst possible. We explore the potential and rationale for any transaction and likely considerations for the competition authority.

  3. "Rationality" likely to improve further: We analyse NZ and global fuel markets. We see further upside for ZEL's key variable, the fuel margin.

Overall, ZEL has an attractive dividend yield, coupled with the potential to continue to grow earnings. Catalyst-wise, we see upside to prospectus earnings, and the potential for ZEL to execute a game-changing merger over coming years.

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Jarrod Goodall



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