13 July 2020 Week Ahead | Argosy – Initiation of Coverage

13 July 2020

Global markets were higher on Friday, as US stocks rose (S&P 500 Index +1.0%) and the Nasdaq posted its sixth record closing high in seven days as a positive analysis on Gilead Sciences antiviral drug to treat COVID-19 soothed investor worries over a record rise in coronavirus cases in the United States. 

Looking ahead this week, the focus will be on 2nd quarter US earnings season with JPMorgan, Bank of Amercia, Citi, Morgan Stanley, Goldman, Microsoft, Netflix and eBay all scheduled to release earnings.

Argosy Property (ARG:NZX)

Argosy property limited (ARG) is one of the more diverse New Zealand property trusts listed on the NZX, holding 59 industrial, office and large format retail properties with a property portfolio value of $1.87 billion.

We view Argosy favourably over its peers largely on valuation grounds as it still trades below its net tangible asset per share value, compared to it is Industrial and Office concentrated peers which are at a premium. The discount is due to its retail exposure, which is expected to be sold down to only represent 10% of the total portfolio. The market currently favours industrial and office property (which is expected to be 90% of Argosy portfolio after a sell-down of major retail property) which have done well and are expected to remain relatively resilient in a weaker ‘post covid-19’ economy.

Given cashflow stability expected from the majority of its portfolio (Industrial and Office) ARG is able to pay out an attractive dividend of 5.4%. We see medium-term upside potential from a significant office development in the pipeline set to be completed by 2021.
Due to its valuation and attractive dividend we initiate coverage on Argosy Property with a BUY rating.
Australia & New Zealand Market Movers

The Australian market sold off on Friday (ASX 200 Index -0.6%) after a rally in technology stocks petered out. The ASX 200 information technology index has still more than doubled, up 104% since its low on March 23. Year to date the ASX Tech index is up +23%, while the broader ASX all-ords index is down -10%. Energy was the worst-performing sector on the benchmark index on Friday and the major mining stocks were mostly lower. 
There has been a big win for Star Entertainment with the Queensland government announcing it will suspend its Gold Coast tourism hub venture, which for now, will allow Star to maintain its monopoly casino on the Gold Coast without having to commit funds in return for the promised exclusivity.

The New Zealand market was lower on Friday (NZX 50 Index -0.4%) as energy stocks declined for a second day following the announcement Rio Tinto’s New Zealand aluminium smelter will close.
Contact and Meridian have borne the brunt of selling being most exposed short-term, to a lesser degree Mercury and Genesis. Standard & Poor downgraded Meridian's credit rating outlook to BBB+/negative from BBB+/stable to reflect the “challenging operating environment” in the two to three years following the closure of the smelter in 2021.
The other big stock news involved Chorus, which dropped -8% after the Commerce Commission announced it is considering changes to its approach to valuing the financial loss asset. While the market likely over-reacted, the announcement highlights the uncertainty that exists around regulatory outcomes. 
Finally, Metlifecare said it has entered into a new scheme of arrangement with Swedish company EQT to buy all its shares for $6 each, a dollar less than the earlier deal EQT had repudiated, but only four of the company's six directors are supporting the offer.

 

3 Things Markets Will be Watching this Week

  1. ​​​​Covid-19 newsflow around a second wave and re-opening of economies remains top of mind.
  2. A huge week ahead for earnings in the US with JPMorgan, BofA, Citi, Morgan Stanley, Goldman, Microsoft, Netflix and eBay all scheduled to release earnings.
  3. Locally, Australia’s employment data will be released along with the latest inflation and Net Migration data in NZ.
Global markets were higher on Friday, as US stocks rose (S&P 500 Index +1.0%) and the Nasdaq posted its sixth record closing high in seven days as a positive analysis on Gilead Sciences antiviral drug to treat COVID-19 soothed investor worries over a reco

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