Global markets were higher on Friday (US S&P 500 Index +1.3%), rebounding from the biggest rout in 12 weeks as dip-buyers emerged for companies that bore the brunt of Thursday’s selling.
Earlier Friday, the World Health Organization said the risk of a second wave of coronavirus is present for any country exiting lockdowns. States and cities might have to resume shutdowns if cases surge dramatically, top officials at the US Centers for Disease Control and Prevention said. There are growing risks in some Southern Republican stronghold states, which have moved early in terms of relaxing restrictions. Arizona and Oklahoma were among US states to report record one-day increases in new coronavirus cases, a month after easing restrictions.
A second infection wave remains a key risk for global markets. Also over the weekend, Beijing has shut down a major seafood and produce market and locked down several nearby residential complexes after 53 people tested positive for Coronavirus in the city. Nearly all of the 53 people had worked or shopped at the market, which is said to supply 90% of Beijing’s fruit and vegetables and employ more than 10,000 people.
While global markets snapped back sharply last week on profit-taking, NZ and Australasian markets did not sell-off as hard. We continue to believe Australasia provides a relative safe-haven, primarily given how well both countries have controlled covid-19.
Ryman Healthcare (RYM:NZX)
RYM shares pulled back heavily during the initial covid-19 sell-off, given the inherent health risks to its citizens as well as the economic impact of a slow down in the local economy and fall property prices. Fortunately, RYM has managed to avoid the health risk as they shut sales and visitation early, with a number of other measures to ensure resident and employee safety through this challenging times. Its shares quickly recovered as covid-19 cases started to diminish, and with measures in place to mitigate economic damage from covid-19 and a prolonged lockdown.
Ryman managed to deliver a solid result for the 2020 financial year given the circumstances, thanks to record number of unit sales despite being closed for part of the busiest month of the year (March) and improving margins, with helped lift underlying profit after tax +6% to $242m. Understandably, Ryman incurred a fair value loss against its investment property of -$70.9m, $173m lower than the gain made last year due to valuation assumptions impacted by covid-19.
Ryman continues to keep growing, expanding their build rate expanding their business while acquiring new sites to add to their land bank. We continue to remain upbeat on Rymans’s underlying business with a more neutral view on property prices (expecting prices to remain more or less flat limiting earnings growth). We maintain our HOLD recommendation given RYM’s ‘rich’ valuation trading at 2.8x Net Tangible Asset, (especially without a property market tailwind) and continue to prefer its peer MetlifeCare as an exposure towards the retirement sector – which trades at a much lower NTA multiple.