Weekly Report
Here’s your weekly update of news, analysis and research from . The full reports can be read on the
stock pages.
New Stock Reports
Briscoes (BGP:NZ) HOLD: Initiation of Coverage
Briscoes is NZ’s largest listed retailer by market capitalisation and operates two major bulk
retail chains in New Zealand, Briscoes and Rebel Sports. Briscoes has been a strong
performer over the last decade, generating stable revenue growth while widening margins.
The company is well run with conservative management who have not taken on any debt and
have been focused on growing dividends.
However, the operating backdrop may be about to get a whole lot tougher for Briscoes as the
property market cycle has likely peaked in our view. Tailwinds such as strong NZ GDP
growth, a growing population, and low interest rates are likely set to reverse, and hence we
are cautious on the retail sector. In saying that, Briscoes is our top retail sector pick, and
those who are comfortable with a retail sector position may still be comfortable investing in
Briscoes which also provides investors with a dividend yield of over 5%. Given the economic
risks faced from a slowing housing market, as well as competition risks in the retail sector,
we initiate coverage on Briscoes with a HOLD.
Pushpay (PPH:NZ / PPH:AX) BUY (High-Risk): “Summer Slump”
The impact of Eliot Crowther selling down his shares was almost immediately noticed in
question time during the company’s earnings call. With most of his shares being picked up
by institutional buyers’ questions now came from places like Craigs and Goldman Sachs as
opposed to more forgiving “mom & pop” investors. The market has not reacted favourably to
the update from the company and has sold down the stock to its lows for the year. Our view
is that the market got ahead of itself in the valuation of Pushpay and most likely became
accustomed to the company exceeding its own expectations. From a quantitative
perspective Pushpay did what they said they were going to do in the quarter delivering on
their sales guidance. The company also gave guidance to the low end of the quarterly range
for the third quarter. We remain buy rated on Pushpay. Despite what has undoubtedly been
a difficult quarter with a strategy change along with key personnel and staff changes, nothing
significant has changed in terms of the long-term outlook.
RIO TINTO (RIO:AX) HOLD: Shareholders Wanting More
Rio shares had rallied into their 2018 interim result, fuelled by optimism after recently
providing a solid production update. Unfortunately for the mining giant, the market was
expecting more (and its shares fell) when it posted net profit after tax (NPAT) of US$4.4
billion, which was up +33% from last year. Higher input costs offset solid production numbers
and better commodity prices with operating earnings (EBITDA) flat on last year – indicating
the times of widening margins from easy cost reductions are likely ending.
PGG WRIGHTSON (PGW:NZ) BUY: Selling Seeds
Shares in PGW jumped after it said it has agreed to sell its seeds business to Danish
company DLF Seeds for $421 million, although the deal is subject to shareholder and
Overseas Investment Office (OIO) approval. PGW said the sale amount exceeded the book
value of PGW Seeds’ net assets, which were estimated to be $285m and signalled it may
return up to $292 million to shareholders. PGW also expect full year operating earnings
(EBITDA) to be at the top end of their previously announced guidance range of $65m to $70m
(up from 2017’s $64.5m).
Tesla (TSLA:NASDAQ) HOLD: Going Private?
Tesla shares have surged lately, on the back of recent quarterly result and then comments
by Elon Musk suggesting he wants to take Tesla private at $420 per share (which implies a
market cap of circa $71bn). The highlight of the result was the model 3 achieving the
production target of 5000/per week, with production set to steadily increase further as
demand continues to outstrip production. The market viewed this quarter as a start of a
significant turning point, signalling profitability and positive cashflow generation are likely to
be achieved in the third and fourth quarter.
