Global markets were slightly higher overnight in quiet trade, as the US market was closed for a holiday.
Property markets across Australia & NZ are showing signs of stabilisation, with factors such as lower interest rates, more relaxed regulations by APRA, and a surprise Australian election outcome contributing to positivity. According to the latest Domain data, Sydney recorded a preliminary auction clearance rate of 80%, from 485 scheduled auctions, while 76% of properties from 718 scheduled auctions in Melbourne sold under the hammer. This time last year, 49% of properties sold in Sydney and 54% in Melbourne. This week also saw HSBC in NZ confirm a new offer of 3.35% for all fixed terms from one to five years. The rates are effective from today and are easily the lowest in the current mortgage market, and kicks off the Spring real estate season in an aggressive fashion.
The local focus today will be on the Reserve Bank of Australia's policy decision. One sector that has been under pressure from a weaker property market is the retirement villages, such as Metlifecare which we discuss below.
Stock in Focus: Metlifecare (MET:NZX)
MET recently released a mixed result, as smaller revaluation gains resulted in a reported net profit after tax of $39.2m, down from -68% from the same corresponding period last year. MET’s underlying result (which excludes unrealised gains on asset valuations) fared a bit better, delivered an underlying net profit after tax of $90.5m, which was up +4% from last year due to increased sales volumes and strong resale margins which was offset by higher construction costs weaken development (new sales) margins.
While margins for development (new sales) are expected to remain challenging due to the property market in Auckland and construction costs at all-time highs, MET announced a significant reduction in development activity over the near-term delaying projects until costs and margins become more favourable.
There are a few reasons why MET trades at a discount to its NTA (net tangible assets), including that it is more concentrated in Auckland where property weakness is potentially a bigger issue, and Metifecare is more of a property pure play given it doesn't provide full-on care like Ryman and Summerset. That said, its valuation discount looks overdone. believes the longer-term outlook remains robust for MET given the theme of an aging population in New Zealand as the baby boomers enter retirement.
We currently have a BUY recommendation on MET.
Members should look out for a full update on MET to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market retraced yesterday (ASX 200 Index -0.38%) as earnings revisions and a number of stocks going ex-dividend pushed the local sharemarket lower for the first session of the month. China's Caixin manufacturing PMI for August came in ahead of expectations, which saw the Resource sector outperform. A guidance rethink from Telstra on the back of NBN (National Broadband Network) Co's 2020 Corporate Plan pushed its shares lower. NBN Co announced that it expected 500,000 fewer customers to switch over to the NBN in 2019-20. While the revision meant more customers will stay on Telstra's higher margin ADSL network, it will miss out on about $300 million worth of compensation payments from the NBN. It warned the so-called "NBN headwind" would now be heaviest in 2020-21, not 2019-20.
The New Zealand market started the week higher (NZX 50 Index +0.40%) as the low interest rate outlook continues to add to the lustre of companies with reliable dividends such as Contact Energy and Meridian Energy. The New Zealand dollar is trading near four-year lows – hovering between 63 and 62 cents versus the US dollar.
3 Things Markets Will be Watching this Week
- Trade War related news-flow is likely to continue to feature in headlines.
- The Reserve Bank of Australia maker an interest rate decision on Tuesday.
- Escalating geopolitical tensions between Hong Kong & China & Brexit are also creating nervousness.
Have a Great Day,
