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
SKYCITY ENTERTAINMENT (SKC:NZ / SKC:AX) BUY: Reiterate BUY
SKC shares have been stuck in a range around $4 as the casino operator juggles with its
struggling Darwin property and major expansion work on the Auckland and Adelaide
properties. SKC also recently announced it sold its Federal street carpark for $40m and have
made the decision to sell the struggling Darwin casino for at least A$200m as it aims to
become “asset-lighter” by divesting non-core assets. We continue to believe SKC shares are
attractively priced in a relatively expensive market, paying a 5.5% dividend yield. We also
see a continued tourism tailwind and major growth projects supporting medium term growth.
SKC reports its next results on 8th August.
XERO LIMITED (XRO:AX) BUY: 1 Million UK Subscribers?
Xero’s shares have been on a strong run, up circa +60% since the start of the year as it
posted its first positive operating earnings figures (EBITDA). Xero has recently announced it
will stop developing a payroll product in the US and will instead form a strategic alliance with
existing payroll services provider Gusto, integrating their respective platforms. This highlights
to us that the US market is proving to be a much more difficult (and competitive) market than
initially anticipated as Xero struggles to gain significant traction in the States. On the flipside,
the outlook in the UK remains strong with the digitisation of tax returns providing a tailwind
for subscriber growth, with Xero confident they will meet their new target of 1 million UK
subscribers.
RIO TINTO (RIO:AX) HOLD: Pumping Out Iron Ore
Rio Tinto released a solid production update ahead of full results to be reported next month.
Rio said that iron ore shipments had increased by 14%, as the company said operational
performance was solid across most commodities. This was a sound update from Rio,
although we do continue to prefer BHP as our top mining pick given its more diverse
commodity production base. While management are focused on delivering value to shareholders, we believe RIO’s high sensitivity to the iron ore price does make it a higher risk investment and play on the price of iron ore.
Z ENERGY LIMITED (ZEL:NZ / ZEL:AX) HOLD: Earnings Downgrade
ZEL shares fell after a difficult first quarter resulted in the fuel company downgrading earnings
guidance for the 2019 financial year. An extended shutdown at the Marsden Point oil refinery
and recent spike in crude oil prices has weakened fuel margins. However, ZEL reaffirmed
they will maintain their dividend guidance of between $0.50 to $0.55 per share. The silver
lining is the weaker margins may aid Z energy with the government’s inquiry into the pricing
strategy into the fuel industry – who believe the petrol industry is uncompetitive and fuels
margins are too high. In saying that, this was clearly a disappointing update from Z Energy,
and thinking longer term we also believe there is a huge uncertainty around the company
imposed by the potential proliferation of electric vehicles.
Johnson & Johnson (JNJ:NYSE) BUY: Beating Expectations
Shares of JNJ were higher after releasing their 2018 second quarter result which beat market
expectations marginally and achieved solid year on year growth driven by favourable
currency exchange and strong growth in the pharmaceutical sector, particularly in oncology
medication. Despite delivering two solid quarterly results which haven beaten market
expectations, some negative sentiment continues to surround the shares on the back of
litigation, with a jury ordering JNJ to pay $4.69 billion to 22 women who allege that its talc-
based products including baby powder caused them to develop cancer. We remain BUY
rated on JNJ as a solid defensive portfolio holding.