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
TOURISM HOLDINGS (THL:NZ) BUY: Remain BUY Rated
THL shares have taken a hit after posting a -23% decline in first-half profit and trimming the top end of its guidance for annual earnings. However, the profit decline was on the back of increased investment into the TH2 joint venture which was previously announced and should have come as no surprise. Overall the core business continues to perform well despite weak vehicle sales within the US, offsetting solid performance from the Australian and New Zealand businesses, resulting in group revenue falling -1% from the previous period to $207.3m. Despite the lower net profit, THL announced their 2019 dividend is likely to remain flat from 2018, as they choose to pay an attractive dividend to shareholders. THL have also trimmed their 2019 full year earnings guidance slightly – to adjust for the near weakness in RV sales in the US market, although THL continue to remain upbeat given they see this as largely cyclical and there are no long-term concerns with their ability to adjust capital expenditure accordingly. We continue to see THL as a business set to benefit from a multi-year tourism boom tailwind across New Zealand and Australia, and a beneficiary of any NZD weakness.
INVOCARE LIMITED (IVC:AX) BUY: Meeting Future Demand
Funeral services company InvoCare saw its shares surge higher after difficult 2018. The recent jump came after its 2018 full year result, as despite reporting a -22.1% fall in operating earnings due to weak trading condition for most of the year, the market appeared please with management’s upbeat outlook for the 2019 financial year – with trading conditions improving and heading towards market normalisation. Given Invocare’s recent acquisitions and heavy investment in rejuvenating existing sites they are well equipped with the capacity and facilities to meet growing demand and expand market share. Our long-term investment thesis remains intact as we believe IVC is set to benefit from favourable demographics of an aging population.
NZ King Salmon (NZK:NZ / NZK:AX) HOLD: To Deeper Waters?
NZK shares rebounded on its 2019 first half result. While the -21% decline in net profit after tax came as no surprise – as it was outlined earlier, the market was pleased management maintained their previous earnings guidance and that harvest volumes would remain flat for the 2019 financial year, and growth would recommence its healthy growth trajectory from 2020. Part of the weak result was that higher water temperatures have acted as a headwind, increasing Salmon mortality rates. The government is not making it easy NZK move into deep water farms, so there is an element of regulatory and climate risk to consider. Despite a -13% decrease in sales volume NZK managed to keep revenue for the half flat from last year at $87.7m, this was underpinned by increasing demand, improved pricing mix, strong export
market expansion particularly King Ora and a favourable exchange rate. While we like the NZK business and how it fits our dining boom investment theme, concerns around its premium valuation continue to hold us back in terms of becoming more positive, especially given the government driven uncertainty.
EBOS GROUP (EBO:NZ / EBO:AX) BUY: Healthy Prospects
EBO shares slipped slightly on its 2019 first half result after its reported net profit after tax fell -4% from last year to A$67m, being negatively impacted by one-off costs. Operationally it performed well, after stripping the one-off costs net profit grew +4% driven by strong performance from its animal care segment. EBOS lifted its interim dividend by +4.5% from last year to 34.5 cents per share. Management expect modest growth to continue through the remainder of the 2019 financial year, while a significant boost will be realised next year with the commencement of their supply agreement with Chemist Warehouse at the start of 2020 financial year.
BANK OF QUEENSLAND (BOQ:AX) HOLD: Surprise Downgrade
Bank of Queensland’s share price slumped after announcing it expects its net profit after tax for the first half of 2019 financial year to fall -10% from last year to $165m to $170m. This was due to higher funding costs, price competition for new loans, lower fee income and increased regulatory costs. The market is well aware of the headwinds facing the Australian banking industry, particularly against its core interest income. But the update surprised the market with the downgrade being largely driven by weakness in non-interest incomes – which might have been viewed as a more being stable revenue stream to offset weakness in the lending market. The headwinds impacting BOQ in 2019 financial year are unlikely to ease in the medium-term, for both interest income and non-interest income segments. At the current
juncture, BOQ offers an attractive dividend yield of over 7%. However, this could be cut further if the above headwinds persist.