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
RYMAN HEALTHCARE (RYM:NZ) HOLD: Getting it Done
RYM shares are trading near all-time highs after posting a solid 2018 full year result. Ryman
reported underlying net profit after tax of $203.5m, a 14.2% jump from the previous year
driven by a 15% increase in the resale of existing units. Total asset value also grew +17% to
$5.8Bn, as RYM look to expand their land bank both in New Zealand and Victoria which is
expected to lift resident numbers by 65% to 17,500 across 48 villages. RYM is expanding
into Australia (which is an opportunity that comes with execution risk) and well positioned to
benefit an aging population tailwind. We see a couple of risks at the current juncture, namely
being a property market correction and potential immigration restrictions. At current prices
we believe there are more attractively priced opportunities in the sector and remain HOLD
rated.
CSL LIMITED (CSL:AX) BUY: Premium Price Supported by Premium Growth
Shares in pharmaceutical giant CSL broke out to new all-time highs after announcing an
upgrade on their earnings guidance for the 2018 financial year. CSL expect to deliver a net
profit after tax of approximately US$1,680m to US$1,700m, which represents a +26.7%
increase from 2017 figures. The lift in guidance was driven by a number of positive outcomes,
including positive product and geographic sales mix shift. In addition to this, CSL pointed to
a strong performance from its Seqirus influenza business following a severe northern
hemisphere influenza season and it is pleasing to see its flu business entering into
profitability. We continue to expect double-digit growth over the near term and are positive
on CSL as a solid defensive healthcare holding.
Heartland Bank (HBL:NZ) HOLD: Risks Not Fully Priced
Shares in HBL have moved higher over the last week after releasing a decent third quarter
profit result. Looking at some of the detail, HBL lifted third quarter profit +11% and said it
expects annual earnings to be at the upper end of its previously advised range of $65 million
to $68 million. HBL’s strategic priority is to focus on higher margin and at the same time
higher risk lending relative to traditional bank lending which is dominated by property
mortgages. While HBL does not fall under one of our key investment thematic views, its
indirectly fits our “dining boom” investment theme, as growth in the NZ agri space should act
as a tailwind for HBLs rural banking business. Further, we expect rates are on the rise, and
all else equal higher rates good for bank profit margins. However, given its premium valuation
and as higher risk investment proposition relative to banking peers, we maintain our HOLD
recommendation.
JAMES HARDIE (JHX:AX) BUY: European Expansion
Construction company JHX saw its shares initially react positively to a sound 2018 full year
result. The result was driven by a strong turnaround in the North American Fibre cement
business in the second half, which struggled with capacity constraints in the first half. JHX reported group sales of US$2,055m and adjusted operating earnings (EBIT) of US$397.5m, which were both up +7% and +12% respectively. The International division remained a strong performer driven by strong volume growth in Australia and the Philippines. The acquisition of Fermacell is also interesting as it allows JHX to gain a meaningful exposure into the affluent European market, and diversify JHX’s income streams. We have been supporters of JHX given its exposure to the US housing market recovery, which we see as a multi-year theme.
COCA-COLA AMATIL (CCL:AX) HOLD: Health Kick
CCL shares fell after holding an AGM where they provided a gloomy outlook particularly for
their Australian business. CCL expect further weakness to near-term Australian earnings due
to the launch of a container deposit scheme, costs of investments made to deliver medium
term earnings growth, and added pressure as a global healthy eating push continues to hit
carbonated soft drink manufacturers as consumers shift away from “unhealthy” fizzy drinks.
CCL are employing an additional $40m capital expenditure in 2018 towards their “Accelerated
Australian Growth Plan”, to expand their Richland facility and continue ongoing cost
optimisation plans. While CCL is facing headwinds, management are focussed on delivering
medium term earnings growth, and there is significant negativity being reflected in the stock
price. We continue to see CCL as an attractive option of income investors, given its dividend
yield of over 5%.