Weekly, Still BUY on Next DC |THL |TPM |NZK |WLD

6 September 2018

Weekly Report

Here’s your weekly update of news, analysis and research from . The full reports can be read on the
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New Stock Reports
NEXT DC (NXT:AX) BUY: Securing Storage
NEXTDC reported another record result for the 2018 financial year, as the data storage company posted revenue of $161.5m and operating earnings (EBITDA) of $62.6m which were both up +31% and +28% respectively. The growth was fuelled by strong customer growth as the demand for data storage services grows at a tremendous rate. While it was a solid result beating management’s guidance, it was not enough to meet the market’s expectations which saw the share price dip. At the bottom line, profit was down from last year as NEXTDC invests heavily into its data centre network, expanding their capacity ahead of competitors to secure data storage capacity and future growth. We reiterate our BUY rating
for medium term investors.
TOURISM HOLDINGS (THL:NZ) BUY: Thinking Global
THL shares were down as they announced an operating result which was driven by most core businesses delivering improved earnings (EBIT) over the year up +33% from last year to $63.5m. However, this was below market and management expectations. THL also announced plans to step up investment into its US TH2 joint venture which will contribute a -$15m loss next year, as they will be aspiring to become a global business eyeing out further mergers and acquisitions. On top of this, there is data suggesting demand growth could be moderating for the RV market. THL’s business is benefitting from a what we see as a multi-year tourism boom across NZ and Australia. Further, while THL’s expansion in global operations may adversely impact their near-term profit, we still see long-term growth potential. Further, any decline in the NZD directly translates positively into THL’s earnings figures. Given the recent fall in share price we see an attractive BUY entry point for medium term investors.
TPG TELECOM (TPM:AX) HOLD: Big Three
TPG shares have gone vertical after Vodafone Hutchinson Australia (VHA) and TPG agreed
on a $15 billion merger to create the nation’s third largest telecommunications company,
rivalling Telstra and Optus. The merger remains subject to various conditions. We had previously thought that there is execution risk with TPG expanding aggressively into the highly competitive mobile market, while dealing with earnings pressure on their established business. In saying that, we have favoured disruptor TPG over Telstra (the incumbent major operator). The execution risks around TPG have been largely mitigated with the merger, however we maintain our HOLD rating on the basis that it appears to us that the value of the merger is now reflected in TPG’s share price.
NZ King Salmon (NZK:NZ / NZK:AX) HOLD: Mortality Hits Harvests
NZK released record profits for their 2018 financial year, as growth in its lead North American
market and in Asia drove average sale prices up while a modest increase in volume raised
revenue by 18% from last year to $160.3m. The result would have been stronger had the
company not experienced high mortality among its salmon stocks because of high
Marlborough Sounds water temperatures – something which was already well flagged to the
market. While we like the NZK business and how it fits our dining boom investment theme,
concerns around its premium valuation (at a P/E of 23x earnings) continue to hold us back in
terms of becoming more positive. Further, NZK is facing near term headwinds of higher feed
costs and lower than expected harvest volumes.
Wellard (WLD:AX) HOLD: Back in Breach
WLD reported a turnaround in operational profit performance for the 2018 financial year as
they implemented a successful cost out program, and improved asset utilisation by shifting
their focus to chartering ships. However, the 2018 financial result was overshadowed by the
fact that WLD is once again in breach of debt covenants. We highlight key points from our
recent call with WLD’s Chairman and CFO, and discuss factors that we believe are important
in terms of assessing the viability of WLD as an ongoing business, particularly given it has
once again breach debt covenants. After assessing WLD’s net asset value and change in
strategy, we stick with our view that the business will be able to turn itself around under the
helm of new management. While WLD appear to be heading towards the right direction, we
maintain our HOLD rating given the risks and until we see further clarity around the
company’s balance sheet and debt structure, before changing our recommendation.

weekly 6 sep 18

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