Weekly Report
Here’s your weekly update of news, analysis and research from . The full reports can be read on the
stock pages.
BHP BILLITON (BHP:AX) BUY: Rising Dividend
BHP released their 2018 interim result which benefitted from stronger commodity prices, that offset
increasing cost of production and unfavourable foreign exchange movements. Operating earnings of (EBITDA) US$11.2Bn were up +15% from last year. However, reported profit fell -37% from last year to US$2.0Bn due to the US tax reform charges and costs associated with the Samarco dam incident. BHP continue to create shareholder value increasing their dividend and have a new investment target of +20% return on capital employed. We continue to favour BHP’s business over other miners as a medium-term investment – given BHP is highly diversified by region and commodity type. BHP continues to show what it is capable of when commodity prices recover as a low cost and efficient mining company.
TOURISM HOLDINGS (THL:NZ) BUY: RV Expansion
The THL share price has continued its strong run after doubling 2018 first half profit to $22.8m. The result was driven by the acquisition of US campervan rental and sale business, El Monte. THL also announced it will be entering into a 50:50 joint venture with the world’s largest RV manufacturer Thor Industries, to develop a single platform TH2 to connect a wide range of services in the growing market for RVs. The joint venture will initially trade at a loss but is expected to be incremental to THL’s 2020 target of $50m net profit after tax.
THL’s business is benefitting from a tourism boom across New Zealand and Australia, a theme we see as a
multi-year tailwind. Given recent developments we believe there is still room for further growth and remain BUY rated.
RYMAN HEALTHCARE (RYM:NZ) HOLD: Village Tour
Jeremy went on a tour of the Bert Sutcliffe Retirement Village in Birkenhead on the North Shore in Auckland the other day. He was impressed by the demonstration of the myRyman application, an inhouse CRM software that helps manage the operations of the village. RYM also remain confident in their expansion into Melbourne, Australia, which has so far been conservative. A risk that was highlighted to us is that with a new government, any changes to immigration policy could potentially have negative implications for the aged care sector (foreign workers make up around one-third of the workforce across the aged care sector). While we have a positive view towards the retirement sector given our investment thematic of an ageing population, we are somewhat cautious given RYM’s relatively high valuation.
TPG TELECOM (TPM:AX) HOLD: Headwinds Offsetting Growth
TPM shares have had a tough 2018. The market was unimpressed when TPM upgraded 2018 full year
underlying operating earnings guidance slightly, following a more or less flat 2018 first half result. Weakening gross profits were experienced across most business segments, particularly from voice, which offset marginal growth in the corporate segment and significant cost savings that were made due to the integration of the iiNet acquisition. While we prefer TPM to the likes of Telstra given their aggressive growth plans, headwinds around TPM’s core (Voice and Broadband) business means we maintain our HOLD rating on TPM. There is execution risk with TPM expanding aggressively into the highly competitive mobile market, while dealing with earnings pressure from their established business.
AUSTRALIAN AGRICULTURAL CO (AAC:AX) HOLD (Was High-Risk Buy): Downgrade to HOLD
AAC shares have been on a downward trajectory as the struggle with macro factors impacting their transition from a simple livestock company to a branded beef business. As a result, AAC has been removed from the ASX200 earlier this year, which resulted in further selling from funds. Shares in AAC fell further after releasing
a weak market update around their 2018 full year result, with AAC expecting a statutory earnings loss of
between -$30m to -$40m. The result was impacted by increased competitive dynamics in certain (beef)
markets, a higher Australian dollar, higher input prices in the later stages of the supply chain and an elevated cattle price environment for Livingstone Beef. We were hopeful on AAC’s transition to becoming an integrated beef seller where it could benefit from value add opportunities and capitalise on the ‘dining boom’ thematic. However, due to macro factors remaining against them and now that AAC is considering shifting most their business back to more stable cattle sales (which are lower risk), we see less potential upside and change our recommendation to a HOLD.