Weekly Report
Here’s your weekly update of news, analysis and research. The full reports can be read on the stock pages.
New Stock Reports
METLIFECARE (MET:NZ) BUY: Trading at a Discount
MET shares fell after its 2019 interim result, as smaller revaluation gains resulted in a
reported net profit down -57% from the same corresponding period last year. Fortunately,
their underlying result was a lot more positive, with increased sales volumes and modest
price increases boosted by strong demand, which helped raise underlying net profit after tax
by +15% from last year to $41.7m. While margins were slightly weaker than in the previous
year, and are expected to tighten over the near-term given the cooling of the New Zealand
(particularly Auckland) property market, MET are looking to increase development activity
which may help offset this while also meeting future demand.
Given the recent fall, the share price is trading well below (a 30% discount) to its net tangible
asset per share value of $6.97. We are positive on the retirement sector given the massive
tailwind of an ageing population, although there are risks such as a slowing housing market
(which we think have been largely priced in recently) and wage increases given a shortage
of labour.
NEXT DC (NXT:AX) BUY: Short Sellers Strike Back
NEXTDC shares have been treated harshly after the release of its 2019 first half result, which
looks to us like an overaction. Given NXT trades on a high valuation multiple (in terms of
current earnings) many in the market believe the stock is over-valued – NXT is one of the top
10 most shorted stocks on the ASX with about 11% of its shares being short-sold (short
sellers are essentially betting that the price of a stock will fall). Given this backdrop, big share
price reactions can occur even when news is not “that bad” and there is little room for error.
We remain positive on NXT as one of our top growth stocks in the ASX given its exposure to
the “explosion of data” investment theme.
Looking at the result itself, NXT reported a net loss after tax for the half, largely attributed to
one-offs relating to the acquisition of the property trust Asia Pacific Data Centre group.
Operationally it appeared to be a sound result with recurring revenue up +23% from the
previous period and underlying operating earnings (EBITDA) of $42.2m, up +26% from the same corresponding period last year. The result was driven by strong growth in customer numbers up +25%, who increased interconnections per customer by +7%.
ANZ BANK (ANZ:AX / ANZ:NZ) BUY: Lowering their Investor exposure
ANZ shares have recovered well after a tough 2018, coming out relatively unscathed from
the royal commission, as the market anticipated the possibility of heavy regulatory costs and
limitations being imposed on the banks. ANZ also released their 2019 first quarter lending
update which was positively received, despite growing home lending by only +1% over the
year versus the market at 4.2%. While it isn’t ideal to be growing below the market, ANZ are
shifting away from the riskier investor market and focusing more towards owner occupiers –
which is actually a higher quality segment of the market. Given the recent fall in house prices,
particularly in Sydney and Melbourne, this approach may pay-off given a lower exposure to
over-leveraged investors with interest only loans that are more prone to default risk in a falling
market, as opposed to an owner occupier with a principal and interest loan. ANZ remains our
preferred pick of the big 4 Aussie Banks.
CROWN RESORTS (CWN:AX) BUY: VIP Uncertainty
Shares in CWN fell on its 2019 interim result, with weak revenue and earnings weighed down
by soft VIP gaming. VIP numbers were down across all three casinos for Crown, due to a
slow-down in China’s economy, cracking down on conspicuous consumption, and further
regulations around money transfers for high spending visitors. This wasn’t specific to Crown
as casinos in Macau and Singapore who are reliant on Chinese VIP gamers are also feeling
the pinch. As a result, group revenue for the half was down -7.3% from last year and
normalised operating earnings fell -6.5% from last year down to $418.8m. The weak VIP
turnover was partially offset by better performance from Crown’s Melbourne property as well
as its hotel division which reported modest revenue growth across as they continue to benefit
from booming tourism into Australia – demanding luxury accommodation.
NZ REFINING (NZR:NZ) BUY (High-Risk): Dividend Cut Hurts Share Price
NZR shares fell on its 2018 full year result, despite the market being well aware of the
financial implication of the planned maintenance shutdown. NZR’s net profit after tax fell –
62% from last year to $29.6m largely due to the shut down as well as gross margins for the
year being weaker than in the previous year – causing a significant cut to its 2018 dividend.
Following the maintenance work, NZR achieved record throughput for the half as the maintenance work improves production and operational efficiencies and guided that throughput for the 2019 financial year will be a record 44 million barrels. In other news, the US dollar continues to remain relatively strong against the kiwi and has been trading close to a 3-year highs between 65 to 69 cents for almost a year – which provided a boost to 2018 profit. NZR has the potential for upside for investors with an appetite for risk, willing to make a bet on a weakening NZD (versus the USD) and assuming refining margins hold up.