Resources Rebound, Ryman Disappoints

22 May 2017

Daily Market Insights

Global markets were higher on Friday, although the US market pared gains into the close on reports by Washington Post that investigators are focusing on a current White House official as a person of interest in their probe of Russian influence on the election.

While market jitters and profit taking by investors over the potential impeachment of US President Donald Trump have eased, any deepening political troubles for Trump are likely to muddy the outlook for implementing the Republicans pro-growth policies.

Over the weekend there was renewed interest in oil, gold, iron ore and base metals which saw Resource and Energy stocks lead the market higher.  This week oil will be in the spotlight given the OPEC (Organization of the Petroleum Exporting Countries) meeting set to take place on Thursday – expectations are that a supply agreement is at the very least set to be extended.  

Closer to home, shares in Ryman Healthcare (RYM.NZ / RYM.AX) were lower as the retirement village operator’s earnings disappointed the market. An ageing population is one of our key investment themes, and expects to observe a structural pick-up in demand for aged care goods & services as the baby boomers near retirement. Retirement villages, private hospitals, aged care providers, and funeral services are all likely to observe strong growth rates as demand picks up for their services.

Stock in Focus: Ryman Healthcare (RYM.NZ / RYM.AX)

Ryman posted a record annual profit on Friday, adding to its run of 15 years of earnings growth, as the hot property market underpinned gains from resales of its occupancy rights. In saying that, the 13% gain in its underlying profit (to $178.3m) missed the company's historical average of around 15% and compared to prior management guidance of $175-185m. Ryman Healthcare managing director Simon Challies has also announced he will stand down on June 30 for health reasons.

The value of Ryman’s retirement village portfolio rose to $3.66 billion as at March 31 from $3 billion a year earlier, comprising 5958 retirement village units and 3281 residential care beds and with a land bank that can add 4025 units and 1529 care beds.

As we have discussed in the past, a large proportion of Ryman’s future growth is set to come from its expansion into Australia – with 4 villages planned to be opened in Melbourne by 2020, which comes with associated execution and development risks.

We are currently HOLD rated on Ryman. While we are positive on the retirement investment theme, Ryman shares are far from cheaply priced and expansion into Australia comes with associated risks.    

Members should look out for a full update on Ryman to be released in our weekly report.

 

Australia & New Zealand Market Movers

The Australian share market moved lower for the 3rd straight session (ASX 200 index -0.19%) as the banks remained under pressure and a bounce in iron ore futures lifted miners. In stocks specific news, Origin Energy will sell its Darling Downs pipeline network in Queensland to Chinese-controlled Jemena Gas for $392m.

 

The New Zealand market was higher on Friday (NZX 50 index +0.28%) led by Kathmandu and Air New Zealand, as improving global sentiment sparked interest in some of the larger NZX companies, although Ryman Healthcare fell after earnings disappointed investors. News that migration remained at a record high in April and short-term visitor arrivals also hit a new record also helped support Air New Zealand shares. 

 

3 Things Markets Will be Watching this Week

1.                 US political developments and whether they drive markets for another week.

2.                 Members of OPEC meet on the 25th to discuss the possibility of another oil production deal.

3.                 Minutes from the last US Federal Reserve meeting are released Thursday.

 

Have a Great Day,

Team

Global markets were higher on Friday, although the US market pared gains into the close on reports by Washington Post that investigators are focusing on a current White House official as a person of interest in their probe of Russian influence on the elec

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