Chris Lee & Partners Ltd

Market News 22 April 2025

David Colman writes:

Heartland Group’s trading update on the 16 April indicated Heartland remains on track to deliver an underlying net profit after tax (NPAT) of at least $45 million for the financial year ending 30 June 2025.

Highlights for the third quarter to 31 March 2025 included:

- Net interest margin (NIM) up 28 basis points in Q3 (relative to the six-month period ended 31 December 2024 (1H2025)). Margins Improved for both Heartland Bank (New Zealand) and Heartland Bank Australia.

- Operating expenses (OPEX) in Q3 remained stable – both banks are on track to meet OPEX expectations for the six-month period ending 30 June 2025 (2H2025) and cost management programmes are in place with the intention to improve operational efficiency

The New Zealand bank has introduced more prescriptive collections and recoveries policies (announced on 18 February 2025) and this has contributed to asset quality improvement which has begun to appear in Heartland Bank’s Motor Finance portfolio.

Early recovery efforts for the Motor Finance loans written off in February 2025 have exceeded expectations. $1.9m or 49% has been recovered of the $3.9m of expected recoveries. The bank has focused more resources on addressing early stage arrears and this is reducing loans falling into arrears.

Heartland Bank New Zealand’s focus will be on its core lending portfolios (Reverse Mortgages, Rural, Motor Finance, Asset Finance).

Third quarter growth in the New Zealand bank was achieved in gross finance receivables (Receivables) in Reverse Mortgages (+14.7% to $1,192m) and Rural (Livestock Finance) (+12.7% to $266.9m) in New Zealand and Australia.

Falls in Motor Finance (-1.6% to $1,592m), Asset Finance (-20.9% to $659m) and Other lending (-21.3% to $661m) partially reflects the NZ bank’s move away from non-core lending.

Third quarter growth in the Australian Bank receivables included Reverse Mortgages (+19.7% to AU$1,884m) and Livestock Finance (+59.3% to AU$285m).

Heartland Group is working to move beyond the impairment expense announcement released in February when the substantial increase in impairments climbed from $23.9m to $49.6m and was followed by a half year NPAT of just $3.6 million for the half year ending December 2024.

HGH shares recently traded as low as $0.70 and are down approximately 25% year to date.

---

Johnny Lee writes:

Fonterra issued a minor update to the market, as it looks to advance the divestiture of Mainland Group. Mainland is the consumer business within Fonterra, owning brands like Anchor, Kapiti and Perfect Italiano.

Fonterra has been exploring both an Initial Public Offering and a private trade sale as options for the asset. Having this ‘’dual track process’’, and the ‘’behind closed doors’’ discussion surrounding the sale, helps maintain tension in pricing, as lead managers and potential buyers are set against each other to secure the sale.

Fonterra’s update was the appointment of Anne Templeman-Jones to the Chair-elect of the Risk and Audit Committee for Mainland Group’s board. This was considered a necessary step for an IPO. 

Clearly, an IPO would be preferable for capital markets in general. A business of this size would comfortably exist as one of our largest listed companies and become a rare opportunity to own major New Zealand retail brands in this sector. Ownership might also soften the blow from consumers when noting the price tag on blocks of cheese.

Fonterra warns that the next step may involve potential buyers seeking regulatory approval to acquire the business.

The sales process seems to be picking up pace amidst the tariff chaos. If the sales process concludes in an IPO, public interest is likely to be high. 

---

Tourism Holdings has published an update to the market, proving itself an early casualty of the tariff announcements from the last two weeks.

The designer, builder, renter and seller of RVs - recreational vehicles - warned that market expectations were far too optimistic, and that August’s result would fail to meet these expectations.

The share price fell over 10% immediately following the announcement.

The updated guidance comes as inbound tourism for the US continues to fall sharply. 

Unsurprisingly, tourism interest from Europe, China and Canada has been weak. For Tourism Holdings, bookings from key European markets are down around 40%.

Tourism Holdings is not yet anticipating any need to raise equity and is comfortable - at this stage - with its banking covenants. The company paid a 2.5 cent dividend earlier in the month and had 48 million in cash at year end. 

This weakness in tourism impacts industries well beyond just RV rentals.

Fewer tourists are resulting in depressed demand for oil, hotel bookings are in decline, and even US universities are raising alarm bells about student enrolments.

Tourism Holdings will be one of the few New Zealand companies directly exposed to the US tourism market. However, the update should remind investors that the effect of these tariffs is far-reaching, and the consumer response – retaliatory tariffs, travel bans and boycotts – are still developing.

---

The other piece of data that came through last week was quarterly inflation, which came in marginally stronger than the Reserve Bank’s expectation.

The 2.50 percent annual increase was driven higher by rising council rates – up 12.2 percent – and partially offset by lower petrol prices, down 2.80 percent. Oil prices have fallen significantly since March, following the various tariff announcements.

Other significant rises included housing, insurance, jewellery (the gold price is up 40 percent over the last year), dairy products and cigarettes. 

Products in decline included second-hand cars, women’s clothing and vegetables. 

The other piece of notable economic news is that the ANZ Bank is now forecasting the Official Cash Rate to fall to 2.50 percent this year, with cuts throughout the year. Previously, ANZ was aligned with the RBNZ’s forecasts of a 3 percent nadir.

Forecasting is particularly difficult against the backdrop of the behaviour from the United States. One hopes that as it becomes clearer with regards to the future of US-China relations, it will be easier to forecast the trajectory of inflation.

Complicating this further is suggestions that the current Federal Reserve Chair, Jerome Powell, is being pressured to vacate the role in favour of a more dovish – meaning lower interest rates – approach.

For now, investors can only act with the information to hand, which appears to be changing rapidly. Tariffs are currently being paused until July, with the exception of a specific tariff on Chinese imports, with the rate now as high as 245 percent on some goods. The oil price decline is providing some relief for consumers, but short-term uncertainty remains elevated.

Travel

Tauranga – 15 April – Johnny Lee (FULL)

Hamilton – 17 April – Johnny Lee

Lower Hutt – 29 April – Fraser Hunter

Auckland (Ellerslie) – 1 May – Edward Lee (FULL)

Auckland (Albany) – 2 May – Edward Lee

Palmerston North – 6 May – David Colman

Christchurch – 7 May – Johnny Lee

New Plymouth – 9 May – David Colman

Nelson – 12 May – Chris Lee

Blenheim – 13 May – Chris Lee

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

Chris Lee & Partners

Market News Monday 14 April 2025

Johnny Lee writes:

WHAT a wild week.

Beginning with a “spine of steel” and ending with “A GREAT TIME TO BUY!!!”, markets have endured significant volatility over the past week, hopefully not giving an indication as to how the remaining three and a half years will play out.

The swings were not for the faint hearted. In New Zealand, Mainfreight shareholders in particular endured a neat V shaped chart, while some of the direct US ETFs resembled nearer a W.

The majority of US tariffs are now paused - for 90 days - with the exception of China.

The dispute between the two largest economies is still ongoing, with tariffs ratcheting higher over the week and neither side seeming willing to formally communicate with the other. The latest update is seeing some specific industries - Smartphones and computers - being temporarily exempted from these rising tariffs, leading to further confusion.

Companies do not want to invest into nations or markets where the rules change daily. Investors do not want to be exposed to these markets either. 

Some of the selling seen on our market is simply fear, with investors escaping New Zealand assets and heading to cash and bonds. In particular, safe havens like the Swiss Franc and Japanese Yen appear to be seeing significant buying.

The entire affair is a reminder to investors to be conscious of their tolerance for risk and volatility. These swings have had nothing to do with individual company performance, yet billions of market capitalisation has been lost and gained over the week.

Hopefully, stability can return to markets soon.

_ _ _ _ _ _ _ _ _ _ _ _

IN amongst all the noise last week, the Reserve Bank of New Zealand cut the Official Cash Rate to 3.50 percent.

Much of the detail in the statement related to the since-paused tariffs. Indeed, many of the downside risks highlighted in the statement appear to be (temporarily?) put to bed, making the statement largely redundant.

The RBNZ has made it clear that it sees plenty of room to manoeuvre lower if necessary. With renewed volatility in global leadership, maintaining flexibility will be critical.

The next update is due on 28 May.

 _ _ _ _ _ _ _ _ _ _ _ _

 HEALTHCARE and animal care product provider EBOS Group has announced two acquisitions and a capital raising, as it looks to “bolt-on” more businesses to the conglomerate. EBOS is one of our largest companies, similar in size to Contact Energy and a2 Milk.

The two acquisitions are the final 10 percent shareholding it did not already hold in Transmedic, and 100 percent of SVS Veterinary Supplies.

SVS is a New Zealand-owned business, supplying products to veterinarians across the country.  These products range from generic consumables – gloves, syringes, catheters, bandages – to more niche items like animal dentistry products, pharmaceuticals and specialty pet food.

The acquisition is being framed as a geographical expansion of the existing Lyppard business, which operates in Australia and provides a similar range of services and products.

SVS is the largest participant in its sector, with an estimated 60 percent market share and relationships with over 500 customers, who range from veterinarian clinics to pet speciality retailers. SVS employs over 100 staff and operates from five locations across the country – two in Hamilton, and one each in Palmerston North, Wellington and Christchurch.

SVS’s current owner is John Elstob, a figure known by some in the horse racing community.

SVS is forecasting earnings of $17 million for the 2025 year. This makes the $125 million maximum price tag at an EBITDA multiple of around 7 times earnings.

Importantly, the owner and senior management team have indicated they intend to remain with the business. 

To fund the purchases, EBOS Group will be raising capital from its shareholders.

$200 million AUD has already been raised by way of a placement last week to institutional and wholesale shareholders. This was priced at $36.65 NZD equivalent, with these shares settling on Thursday.

The balance of the capital raise, being $50 million AUD, will come from retail shareholders via a share purchase plan. Retail holders are invited to apply for up to $100,000 NZD each of new shares. Although the company is only looking to raise a small amount, EBOS has reserved the right to accept oversubscriptions.

The retail component is not underwritten.

Allocations will be made pro-rata to existing holdings, if necessary. Long gone are the days of holding 100 shares across multiple entities to maximise eligibility.

The total sum of $250 million will see about $100 million added to the balance sheet after the acquisition. EBOS has a long history of these types of acquisition and is obviously looking to strengthen its liquidity at the same time.

The timing of the offer is interesting and – potentially – unfortunate for EBOS.

The offer opens on Wednesday (17 April) and closes on 6 May, a 19-day window. By then, the current price of the offer may be quite different, given the global environment. 

While the retail offer is being priced at a cap of $36.65 NZD per share, it will automatically adjust lower if the price falls in the final five days leading up to 6 May.

The spike of volatility in equity markets and share prices make this a key point. The share price of EBOS has varied from $36.50 to $39 over the past three days.

The automatic adjustment adds some insurance to the offer, barring a disastrous scenario where the price plummets on the final day. The current state of the market – with major indices fluctuating a thousand points a day – will force investors to wait until nearer the closing date.

Ryman’s recent capital raising did not include such a price adjustment.

EBOS has a long and successful history of these types of acquisitions, and its February result shows that the animal care segment is continuing to grow throughout the cycle. Veterinarians are not cheap, and with societal trends towards humanisation of pets – “pet parents” as EBOS refers to its clients - animal care is a growing market and seems resilient despite the economic downturn.

With most of our listed companies standing on the sidelines, EBOS believes it has again found an opportunity worth pursuing. Investors looking to invest further have until 6 May, and given the state of global markets, will likely use as much of that time as possible.

_ _ _ _ _ _ _ _ _ _

Travel

Christchurch – 15 April – Fraser Hunter

Ashburton – 16 April – Fraser Hunter

Timaru – 17 April – Fraser Hunter

Tauranga – 15 April – Johnny Lee (FULL)

Hamilton – 17 April – Johnny Lee

Lower Hutt – 29 April – Fraser Hunter

Auckland (Ellerslie) – 1 May – Edward Lee (FULL)

Auckland (Albany) – 2 May – Edward Lee

Palmerston North – 6 May – David Colman

Christchurch – 7 May – Johnny Lee

New Plymouth – 9 May – David Colman

Nelson – 12 May – Chris Lee

Blenheim – 13 May – Chris Lee

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

Chris Lee & Partners

Market News 7 April 2025

Johnny Lee writes:

Last Thursday marked the so-called ‘’Liberation Day’’ of the new US presidency, announcing major tariffs against almost every product from almost every country.

The exact tariff varies from country to country. Several African nations now face a tariff rate of around 50 percent, while major trading partners like China face a 34 percent tariff, Japan 24 percent and the European Union 20 percent. 

The likes of the United Kingdom, Australia and New Zealand will see only a 10 percent tariff applied.

Markets fell sharply the two days following the announcement. The Dow Jones fell 9 percent, while the S&P closed down 11 percent. The NASDAQ was off 12 percent. 

The ‘’Magnificent Seven’’ - Apple, Alphabet, Nvidia, Meta, Tesla, Amazon and Microsoft – all fell between 5 and 15 percent.

The NZX, by comparison, saw a more muted response. Our market opened down about 1 percent the day of the announcement, although there were some outliers to this.

The US ETFs – including USG in New Zealand, and FANG and NDQ in Australia – all fell around 5 percent following the announcement. 

Fisher and Paykel Healthcare, our largest listed company by some margin now, fell 6 percent within minutes of the market opening. 

Helpfully, the company made an announcement to shareholders half an hour later, providing some context for shareholders to consider.

43 percent of the company’s revenue originates from the United States. The 2025 result, which is reported next month, is likely to be virtually unimpacted by the tariff announcement. The 2026 result will see some impact, and the company expects to give an update to its financial outlook when the company reports to market in May.

CEO Lewis Graden continues to take a longer-term approach to the issue, noting that the tariffs will ‘’add to the timeframe’’ of the company’s forecasts and revenue ambitions, but ‘’long-term thinking is guiding our decision-making’’. Fisher and Paykel Healthcare was established in 1969, and will exist long after this US administration ends.

The FPH share price recovered shortly after the announcement from management.

The other pertinent point is how long these tariffs remain in place, and how other countries respond.

Already, some countries are repositioning themselves and their own trade barriers. China has announced a retaliatory 34 percent tariff. Japan and the European Union have both indicated they intend to retaliate. Canada has already begun responding. 

New Zealand has publicly stated that it does not intend to retaliate against the tariffs. 

Some, like Fisher and Paykel Healthcare, will be thinking longer-term, viewing this a temporary roadblock. Investors do not always have the luxury of thinking long-term.

Outside of listed markets, oil fell 10 percent, gold reached a new record high before falling back and even Bitcoin fell. 

Last week’s announcement from the US Government has introduced another layer of uncertainty for investors. The current administration has made it clear where its priorities lie, and businesses will need to adapt to these changes.

_ _ _ _ _ _ _ _ _ _

Kingfish Limited, one of the listed investment vehicles managed by Fisher Funds, has announced a new warrant issue for shareholders. This will mark the ninth warrant issue for Kingfish.

The new warrants will be issued to all holders of Kingfish at close of business 30 April. One warrant will be issued for every four shares held.

The warrants entitle holders to purchase additional Kingfish shares at a pre-determined price, similar to a share option. The final exercise price will vary throughout the 12-month duration of the warrant, but follows a formula, starting at $1.35, and falling as dividends are declared.

The last warrant issue – KFLWH – were initially issued at $1.37, before adjusting to a final price of $1.26 last July. In this instance, the offer was successful, as the price of Kingfish rallied sharply in the days prior to the close date before falling in the days following the issuance.

Kingfish has used warrants as a means of replenishing its capital, which also fluctuates as the company engages in buybacks.

Like many of our listed shares, Kingfish has had a poor start to the year, down around 7 percent. This is very slightly worse than the market average. Kingfish has picked a few winners – like a2 Milk and Vista Group – while Delegat Group and Infratil have underperformed so far this year, dragging down overall performance.

The new Kingfish warrants will be automatically issued to all holders on 1 May, and will be available for sale on the NZX until 24 April 2026. They will trade under the ticker KFLWI.

_ _ _ _ _ _ _ _ _ _

The New Zealand stock exchange publishes announcements to the public each weekday, providing a channel for shareholders, and those interested in financial markets, to monitor developments within our listed capital markets.

These include material or price-sensitive announcements – financial results, takeover offers, capital raisings – and more mundane announcements, such as fund value updates and daily share buyback notifications.

It is also the channel used to disclose on-market and off-market transactions deemed relevant to shareholders.

Large shareholders, for example, are required to disclose their transactions, in certain circumstances. A large shareholder, or one holding above 5 percent of a listed company, is required to disclose when they cease to be a large shareholder (perhaps selling or being diluted below 5 percent) or when their holding changes by 1 percent. 

Smaller shareholders are not required to disclose anything, in most circumstances.

Companies are required, by law, to notify the exchange when insiders trade their shares. Insiders include directors and those in senior roles within a company. 

Insiders buying shares is sometimes used as a signal by investors to gauge internal valuations of a company. Research supports this, with various studies showing a positive correlation between insiders buying shares and long-term stock outperformance.

A few of our larger companies have begun to report modest buying interest from insiders. Overseas interest, including from American giant Blackrock, has also begun to emerge.

The reverse is not always true. Insiders selling stock can be for reasons unrelated to expected performance, such as buying a house or repaying debt.

A2 Milk’s former CEO Jayne Hrdlicka raised eyebrows back in 2018 when she sold all her holdings, which she stated was to meet an upcoming tax obligation. The share price fell shortly after.

When insiders begin selling aggressively, shareholders will interpret that negatively, regardless of justification. Having ‘’skin in the game’’ gives shareholders the sense that there is alignment between their objectives and those of management (share price appreciation). 

These continuous disclosures are a necessary and useful aspect of investment analysis. With many of our listed shares in the doldrums, a number of insiders have begun picking up shares. With short-term market prices being driven by overseas fluctuations, next month's reporting season may provide an insight as to whether this confidence is founded.

_ _ _ _ _ _ _ _ _ _

The Reserve Bank’s meeting on Wednesday is shaping up to be a foregone conclusion, with economists unanimously expecting a 25 point cut.

This would reduce the Official Cash Rate from 3.75 percent to 3.50 percent. The decision will mark the first under acting Governor Christian Hawkesby.

The crucial detail will instead be the future outlook. The RBNZ has been very forthcoming of late, detailing its views on future movements in the cash rate. The previous statement included a dovish tone, stating that ‘’If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.’’ 

That was six weeks ago. Since then, the NZX has fallen 7 percent, tariffs are being added to our US exports and consumer confidence has dipped.

Anything other than a 25 point cut will be a major surprise. Attention will instead be on the outlook, and whether a change in approach is warranted.

_ _ _ _ _ _ _ _ _ _

Travel

Christchurch – 15 April – Fraser Hunter

Ashburton – 16 April – Fraser Hunter

Timaru – 17 April – Fraser Hunter

Tauranga – 15 April – Johnny Lee

Hamilton – 17 April – Johnny Lee

Lower Hutt – 29 April – Fraser Hunter

Auckland (Ellerslie) – 1 May – Edward Lee

Auckland (Albany) – 2 May – Edward Lee

Christchurch – 7 May – Johnny Lee

Nelson – 12 May – Chris Lee

Blenheim – 13 May – Chris Lee

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

Chris Lee & Partners