Market News – 2 June 2025

Johnny Lee writes:

The Reserve Bank met last week, voting to reduce the Official Cash Rate from 3.50% to 3.25%.

The 25-point cut was exactly in line with market expectations. So far, the Reserve Bank has maintained its “no surprises” approach.

Clearly, certainty remains in short supply. The Reserve Bank outlined several scenarios it was considering, with much weight given to the mixed messages emerging out of the United States.

It is also keenly aware of an expected shift in household budgets over the next year. Half the current stock of mortgages are due to reprice over the next six months, with these decisions no doubt guided by homeowners’ views on the likely trajectory of interest rates in the short term.

These lower rates should support higher consumer spending, although other factors – particularly fears around employment stability – will also play a role.

Much weight was given to the uncertainty surrounding US tariff policy. As if to validate this concern, the US administration has since announced its intention to double the current tariff applied to imported steel.

Ultimately, the Reserve Bank expects these tariffs to reduce inflationary pressure in the longer term, as investment spending begins to slow. Even in New Zealand, a number of companies have reported a reluctance to invest, citing the erratic shifts in global trade rules.

For interest rates, the market still expects further cuts throughout the year. However, uncertainty – particularly from trade disruptions – appears to be the primary concern.

EBOS Group has announced that its largest shareholder, Sybos Holdings, has significantly reduced its holding in the company.

Sybos is controlled by Zuellig Group, an institutional investor focused on the pharmaceutical and healthcare industries. Sybos acquired 58.1 million shares following the EBOS takeover of Symbion (hence "Sybos") in 2013, at an effective price of $8.57 per share.

Last week’s sale saw Sybos sell over 26 million shares at $35.50, equating to around NZD $950 million, or 13% of the company. $35.50 represented approximately a $3 discount to the market price at the time, with such a discount deemed necessary to move such a large volume of stock.

Thomas Zuellig of Zuellig Group stated that his company retained a small holding – around 5% – and was selling in order to diversify its portfolio. He also confirmed that Sybos was not in possession of any inside knowledge regarding EBOS.

The share price of EBOS fell sharply after the confirmation of the trade but had a small rally shortly afterwards. Every sale requires a buyer, and the fact that buying interest totalling nearly a billion dollars valued EBOS close to market pricing should reassure investors that confidence in the company remains high.

However, it is also true that a significant degree of buying interest is now satisfied, some of which will be short-term in nature and likely to profit from these share price rallies, keeping a lid on an immediate rebound.

This is not the first time Sybos has reduced its holding, having sold 15 million shares in 2020 when the share price was nearer $22. A similar share price reaction was seen at the time.

The sale follows the $36.65 capital raising in early May, which closed modestly oversubscribed.

The recent share price activity from EBOS highlights a key risk when investing in companies with a single, large shareholder. This shareholder has sold down before, which has led to similar short-term share price impacts.

A large, sudden seller will naturally depress the market and lead to questions about why they are choosing to divest. However, Sybos has achieved a fantastic return on its investment and will retain a modest exposure to the company – for now.

The situation with EBOS contrasts with the conclusion of the Volaris holding in EROAD, which was finally sold last week.

Volaris was the Canadian subsidiary of Constellation Group, which attempted a takeover of EROAD in 2023. Volaris had purchased an 18.7% stake in EROAD to gain a foothold in the company in preparation for its takeover, before offering $1.30 per share to acquire control.

The offer was ultimately rejected, and the share price dropped to around half that amount. Volaris retained its stake in the company until last week, throwing in the towel and selling the shares back to the market.

Clearly, the company saw no value in maintaining a minority stake in a small New Zealand company over which it could exert little control. Perhaps more surprising was the market’s willingness to acquire such a large stake at around NZD $1.20.

The sale from Volaris removes the overhang and has introduced many new shareholders to EROAD’s register.

At the same time, EROAD’s financial results earlier in the week showed a profit of $1.4 million, up from last year’s loss of $800,000. The company now boasts $175 million in annualised recurring revenue, and expects this to grow to nearly $190 million next year.

It appears focused on larger (enterprise) customers, hoping these prove more resilient during difficult conditions.

The result saw the share price finally begin to ascend, climbing around 55% in the days following the announcement. At $1.47, it remains well off historical levels, but shareholders should be pleased to see positive momentum after such a long period of pessimism.

Infratil reported earnings growth in its full-year result, with EBITDAF approaching the billion-dollar mark at $939 million.

The result was driven primarily by contributions from data centre business CDC and One NZ (formerly Vodafone).

The period also included the final contribution from Manawa Energy. Future results will instead include the company’s proportional holding in Contact Energy, assuming this is retained.

Perhaps the most intriguing comment was Infratil’s intention to divest $1 billion from within its portfolio over the medium term, partly to fund incentive fees.

Infratil’s assets include CDC, Longroad, Contact Energy, One NZ, RetireAustralia, Wellington Airport, and its New Zealand medical imaging business, which operates Pacific Radiology.

CDC alone accounts for around 40% of the company’s assets.

Longer term, the company hopes to better balance its cash flows and dividends, with cash flows from its investments covering both fixed costs and dividends. Once CDC and Longroad wind down their construction programmes, this rebalance may become possible.

Infratil also hopes to accelerate the growth of its Asian renewable energy subsidiary, Gurin, with projects in the Philippines, Indonesia, South Korea, and Thailand beginning to take shape.

Until then, expect the company to continue expanding its data centre footprint and its US renewable energy programme.

Infratil Limited – 7-Year Senior Bonds 

Infratil has announced its intention to issue a new 7-year senior bond (IFT370), maturing on 16 June 2032. Infratil is an infrastructure investment company with significant holdings in digital assets, renewable energy, healthcare, and other long-term infrastructure assets. 

The interest rate has been set at 6.16% per annum, with interest paid quarterly. 

Infratil will cover the transaction costs for this offer, so clients will not be charged brokerage.

The offer consists of two parts:

Firm Offer: Open now to new and existing investors. Payment due no later than 15 June 2025.Exchange Offer: Available to holders of IFT250 bonds maturing on 15 June 2025. Bondholders may elect to exchange part or all of their maturing bonds into the new offer. Elections open on 5 June 2025 and must be submitted no later than 5:00pm on 11 June 2025.

The minimum application amount is $5,000, with increments of $1,000 thereafter.

If you would like a firm allocation of this bond, please contact us promptly with the amount you wish to invest and the CSN you would like to use. If you hold IFT250 bonds and would like to exchange them, please let us know when making your request.

Travel

Napier – 9 June – Chris Lee

Tauranga – 11 June – Chris Lee

Whanganui – 11 June – David Colman

Hamilton – 12 June – Chris Lee

Christchurch – 23 and 24 June – Chris Lee

Ashburton – 24 June (pm) – Chris Lee

Timaru – 25 June – Chris Lee

Auckland (North Shore) – 25 June – Edward Lee

Auckland (Ellerslie) – 26 June – Edward Lee

Auckland (CBD) – 27 June – Edward Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee & Partners