Retirement – Metlifecare to Summerset | Meridian Jumps

11 August 2020

Global markets were mostly higher overnight (S&P 500 Index +0.6%) with technology stocks once again leading the charge. Investors awaited a new fiscal aid package to prop up the economy, with data showing a staggering 31.3 million Americans were receiving unemployment checks in mid-July.

It has been quiet in terms of stock specific newsflow across our Australian and New Zealand coverage as we head into earnings season locally. We will release full updates this weekend, but we are shifting our top retirement sector pick to Summerset (as Metlifecare is close to its takeover price and Ryman is too expensive, in our view).

Metlifecare (MET:NZX)

Metlifecare (MET) shares have bounced back as they received another takeover offer at a lower price of $6.00 per share – in light of economic uncertainty created by covid-19. This means MET can avoid potentially costly and lengthy legal action against EQT over their decision to terminate the original $7.00 per share takeover offer. 

With MET’s share price now rebounding again we would advise shareholders to take profit now on the slim chance the deal falls through. There would be no reason for new shareholders to enter a position at this stage and we downgrade MET to a SELL rating. 

We believe the longer-term outlook remains robust for MET and its attractive valuation prior to the second takeover offer is the reason why EQT came back with a second offer. 

While the retirement sector does have a solid medium term outlook, we find it hard to find a retirement village operator with suitable risk/reward given current valuations as major operators trade well above NTA – however we see Summerset as the best in terms of relative valuation and outlook. 

Australia & New Zealand Market Movers

The Australian market rallied yesterday (ASX 200 +0.7%) as strong gains from the major miners helped propel the local market, with iron ore prices extending their advance, buoyed by higher Chinese steel prices with demand sentiment remaining firm. The energy sector also helped drive gains as the price of oil hit a five-month high.

Nick Scali shares soared 14% after the retailer reported a strong increase first-half profit and forecasting profits for the December half to jump 50% to 60%.
On the flipside, ResMed shares dropped -7% despite reporting double-digit growth in sales and profit given its string run and high market expectations. Its core sleep apnoea business had significant double-digit declines in new patient diagnosis across all markets however, as lockdowns disrupted sales.

The New Zealand market was a touch higher on Thursday (NZX 50 Index +0.1%) as rumours of negotiations to delay closing the Tiwai Point aluminium smelter pushed Contact Energy and Meridian Energy higher. Exporters A2 Milk and Fisher & Paykel Healthcare fell.

Meridian has been in talks with smelter owner Rio Tinto to try to extend the scheduled closure of the aluminium smelter beyond August next year and allow for a more orderly exit of the country’s biggest electricity consumer. There were media reports smelter staff had said the fourth potline would be operating in September potentially exciting investors who saw it as a signal the smelter may remain open for a more staged exit. This would allow Meridian more time to come up with a more profitable transition plan in terms of finding a new customer locally and/or using new transmission infrastructure to supply the power to Canterbury and/or the North Island. 

Global markets were mostly higher overnight (S&P 500 Index +0.6%) with technology stocks once again leading the charge.

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