New Zealand and Aus
Channel Infrastructure reported good earnings; management signalled unchanged FY23F guidance of $82-89M EBITDA. Tax loss pool grew to $507M – useful to draw upon. The key catalyst here is the surge in travel & continued use of diesel – we’ve seen mega earnings from Air NZ and across the ditch from Qantas – CHI estimate jet fuel use is ~70% of pre-Pandemic use, so there’s plenty more room to go. CHI trades at 10x EV/EBITDA vs. infrastructure peers like IFT (13x) and POT (23x). We upgrade to buy below $1.50 – see it as a good value infrastructure asset in a market where its peers command rich valuations.
Summerset showed why it’s our favourite retirement pick – beat on earnings and revenue expectations whilst capex increased +$150m. Est. 650 units delivered for FY23. Management retained dividend and guided towards growing the dividend going forward – compare this to Ryman’s disastrous result and see which one you like better! Retain buy.
Pushpay will hold a meeting for shareholders to vote on the proposed takeover from BGH Capital/Sixth Street this Friday. A number of major shareholders (ACC 6.2%, ANZ 2.8%, Nikko Asset Mgmt 1.4% and Fisher Funds 1.5%) have voiced they will vote against the takeover stating the offer undervalues Pushpay. The group controls ~11.9%, with 19.9% required to block the transaction. It will be interesting to see how this plays out.
Are we looking at 6% terminal rates?
We have a cautious slant on equities – readers of this Monday newsletter will know that we’ve been writing how entrenched “sticky” employment creates a headache for the Fed. The S&P’s -2.5% slide last week is a sign that gravity is slowly coming back to markets. Like we keep saying – more needs to be done – take a look at US Services PMI – it’s actually growing, well ahead of expectations. This feeds into data we’re seeing elsewhere — spending isn’t going down, it’s just shifting. And the Fed is playing a game of chicken trying to solve a very sticky, very entrenched economic situation. Goldman Sachs, Pimco and UBS all estimate the terminal rate to be +5.5%, whilst Deutsche Bank estimate +5.75%. It’s worth asking – what does 6% look like?
Finishing today’s email with a quote from Buffett’s latest letter, published over the weekend:
Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers. Please note particularly that we own publicly-traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.
It’s always refreshing to hear from Buffett. It’s how we view stocks at BBR, too; we’re interested in owning businesses over the long term. It’s why we’ve had Infratil in our NZ Model Portfolio forever — a good business at a good price is still the best way to invest. Buffett has hardly strayed from that view for the last 50+ years, though it’s worth noting that where arbitrage opportunity appears, the Oracle isn’t above taking advantage of that, too. Here’s Buffett on the subject of arbitrage: “Give a man a fish and you will feed him for a day. Teach a man to arbitrage and you will feed him forever”
Our model portfolios contain both – we’ve talked a lot about Manchester United, which sits at 4% in our US Model Portfolio. That’s arbitrage (and over in our NZ Model Portfolio we’ve got Pushpay). The Glazers want to get rid of the club, and very deep pocketed bidders would like to buy it. Other companies in the US model portfolio are “own forevers” – companies like Mastercard and Visa make a tiny percentage every time you buy a latte, pay for your Spotify subscription, and almost anything else you can think of; companies like Google (Alphabet) continue to gush money in spite of “AI”. Over in the Australian model portfolio, companies like CSL do the same thing. The last year in markets has been a ride; it’s good to take a look back at what you own.
What Markets will be Watching this Week
Monday
Earnings from Lynas, Invocare, TPG telecom, Woodside Energy and Downer
Tuesday
Earnings From Restuarant Brands Heartland Group
Wednesday
Australian CPI data
Australian GDP
Meridian Energy Result
Thursday
US Manufacturing PMI (Producer Inflation) data
Eurozone Inflation data
Eurozone Unemployment data
Friday
Pushpay shares will vote on the proposed takeover from BGH Capital/Sixth Street.
Japan CPI (Inflation) Data