Week Ahead | Ryman Result

24 November 2020

Global markets were mixed again on Friday (S&P 500 Index -0.7%)  with the US market extending its weekly decline as traders weighed a conflict between the White House and Federal Reserve over emergency lending programs along with assurances that the government has plenty of room to help the economy.

COVID-19 cases continue to surge on a second wave, particularly in Europe with restrictions being re-implemented. However, markets remain resilient, partly supported by vaccine hopes. On the vaccine front, Pfizer rose after filing for emergency approval of its Covid-19 vaccine. Gilead Sciences fell after authorities advised against using its remdesivir drug to treat Covid-19.


Ryman (RYM:NZX)
RYM shares were lower on Friday as the retirement village business’s net profit was up 12.8% during the past six months, but only due to the unrealised value of its properties increasing. The more tangible underlying figure was dragged down by the firm spending $50 million to successfully protect residents and staff from the covid-19 pandemic.

While the result was not as bad as expected, due to lower operating costs and higher development margin, a key challenge for RYM remains its elevated gearing (debt levels) which grew by 24% to NZ$2.1bn, with gearing now at 46%.

No forward earnings guidance was provided given ongoing uncertainty, however the company did indicate that it is now targeting 'in the high 700s' for bed and unit delivery vs previous guidance of 900.

We continue to see Ryman as expensive (approximately 3x NTA value)  and prefer Summerset as our sector pick.



Australia & New Zealand Market Movers

The Australian market was slightly down on Friday (ASX 200 Index -0.1%) but still experienced a 3rd straight week of gains. South Australia’s one-week lockdown was scrapped after less than two days. The reversal came after it was discovered one person who contracted the virus had lied to contact tracers, leading them to believe the new outbreak was more serious than it really was.

Among the big market index movers, Commonwealth Bank (+1.4%) finished best of the big four after the Australian Prudential Regulation Authority wound back its requirement that the bank carry an extra A$1b in risk capital by A$500m.

The media is speculating BlueScope Steel could be worth as much as $25 a share, with private equity reportedly eyeing up the business ahead of major fiscal stimulus and infrastructure spending. IN other stock news, Seek has put the recent short seller attacks behind it with the online employment giant’s latest trading update pointing to a post-COVID revival for the business.
The New Zealand market sold off on Friday (NZX 50 Index -0.9%) as Ryman Healthcare’s weak half-year result took some heat out of the retirement village sector, while the soaring kiwi dollar put pressure on exporters.

The kiwi dollar has been sitting above 69 US cents for much of the past three days. The currency hasn’t held at this level since the first quarter of 2019 and is causing a headache for exporters who are seeing their margins eaten up by the exchange rate.

In terms of economic data, retail spending data showed strong growth in domestic online retail spending in October with sales up +22% year on year, with the Furniture and Hardware category particularly strong (+46%) and the Clothing, Footwear and Accessories category also strong (+17%). This bodes well for NZ retailers including Kathmandu, Briscoes Group, and Hallenstein Glasson.

Heartland Group said that it will reassess the holding value of its 8.4% stake in Harmoney following the latter's listing on the NZX and ASX at A$3.50. HGH has escrow restrictions prohibiting the sales of its shareholding, and expects a one-off increase in its Harmoney valuation to increase its reported profit.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​In a shortened trading week in the US for Thanksgiving, the re-introduction of COVID restrictions and second wave news will remain at the top of headlines.
  2. At the same time, vaccines are also front of mind with growing speculation that a vaccine will be rolled out this year.
  3. ​​​​​​In New Zealand results season continues with Kiwi Property and Goodman results today and Fisher & Paykel Healthcare due later this week.


COVID-19 cases continue to surge on a second wave, particularly in Europe with restrictions being re-implemented. However, markets remain resilient, partly supported by vaccine hopes.

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