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
SUMMERSET (SUM:NZ / SNZ:AX) HOLD: Initiation of Coverage
SUM is one of New Zealand’s largest retirement villages and aged care providers, its portfolio
consists of 3,278 retirement units ranging from villas, townhouses, self-service apartments
and 806 care beds, which combined serve over 4700 residents.
Summerset’s share price has been on a strong run since becoming public in 2011 and SUM
has benefited from two major tailwinds; 1) the ageing population and 2) strong property price
inflation, which saw underlying profit increase at an annual compound rate of 47% per annum
to $81.7m for the 2017 financial year. While achieving substantial growth, we believe the
share price has gotten ahead of itself to an extent and overvalues SUM’s growth potential
over the near term. We expect demand for retirement villages to remain strong, although a
weakening in the property market will likely slow down profit growth. As a result, we will initiate
coverage on Summerset as a HOLD.
HEALTHSCOPE (HSO:AX) BUY: Multiple Buyers
Shares in HSO have surged after receiving a conditional takeover offer. Interestingly, soon
after HSO shares traded above the offer price (generally shares would trade slightly below
an offer price to represent risk around the offer proceeding and time value of money)
indicating the market expects another takeover bid. Subsequently, NorthWest Healthcare
Properties REIT announced it has acquired a strategic interest of 10% in HSO as they are
interested in the real estate portfolio. Patient investors may wish to hold out, as even if a
takeover does not go through we continue to see value in HSO over the medium term.
Investors with a more short-term view may want to sell out or trim down their holdings, as
there is a chance that a takeover does not eventuate and more recent buyers are likely sitting
on a healthy gain.
WESTPAC (WBC:AX / WBC:NZ) HOLD: Solid Result but the Riskier Bank
WBC shares were higher following the release of their interim financial results. Wider profit
margins and lower charges for bad debt helped Westpac notch a first-half cash profit of $4.25
billion, an increase of 6%. As with the rest of the big banks, the news came as relief given
the sector has been under pressure following the royal commission into sector practices. It
was a solid result and WBC offers an attractive dividend yield, however this is not enough for
us change our HOLD recommendation. We believe WBC’s mortgage book quality and the
higher level of scrutiny imposed from the royal commission compared to ANZ means we
continue to prefer the latter as our pick of the Big 4 Aussie Banks.
Z ENERGY (ZEL:NZ / ZEL:AX) HOLD: Long Term Thinking
ZEL shares were higher as it delivered annual earnings for the 2018 financial year which
were within its lowered guidance. With profits rising the government is looking more closely
at pricing strategy in the fuel sector. ZEL expects to pay a 2019 dividend of between 50 cents and 55 cents if it hits the midpoint of its earnings guidance. ZEL are ambitious with their
growth plans as they aim to create a robust supply chain and establish greater market share.
This seems promising over the near term especially with their attractive new dividend
scheme. However thinking longer term, there is huge uncertainty imposed by electric vehicles
– we maintain our HOLD rating.
TESLA (TSLA:Nasdaq) HOLD: “Boring Bonehead Questions are not Cool. Next”
Tesla’s shares have been volatile, with an annoyed Elon Musk who refused to answer analyst
questions during their 2018 first quarter earnings call causing Tesla’s share price to fall post
the call. Soon after Elon defended himself and vowed to ‘burn’ short sellers purchasing
another $9.85m worth of Tesla shares, which saw the share price bounce back to recover
losses made last week. Summarising the result, first quarter sales were $3.41 billion, up
+26% year on year however increased Model 3 production meant Tesla delivered their largest
quarterly loss of $710m. Tesla, who have yet to deliver a profit, believe once they can produce
5000 Model 3 per week they will be able to deliver a quarterly profit which is expected by the
third quarter of this year.
