Chris Lee & Partners Ltd

Market News 25 March 2024

David Colman writes:

PGW Shareholder Meeting Request Withdrawn

PGG Wrightson Limited (PGW) released an announcement on Friday that would have come as a relief to the company’s board and many of the firm’s minority shareholders.

The company announced that it received notice from Agria (Singapore) Pte Ltd (Agria) that it has withdrawn its notice issued on 8 February 2024 requesting that a special shareholders meeting be convened to consider several proposed director changes.

PGW shareholders were facing what the New Zealand Shareholders Association (NZSA) recently described as ‘one of the worst cases of board interference by a majority shareholder in the last few years’.

Agria is a major PGW shareholder with 44.3% of the shares held and had been in the process of requesting a special meeting to consider the following:

- remove three of the four independent directors

- replace the independent directors with three ‘independent’ directors nominated by Agria

- reinstatement to the board of former PGW chair Gianglin ‘Alan’ Lai

These changes would have increased the size of the board from five to six, and of the six, two would have been representatives of Agria and three would have been independent directors nominated by Agria.

Agria is a Singapore-based large shareholder and may have goals, as a foreign owner, in contrast to New Zealand domestic interests. It should be welcome news that it will not pursue a path that would have potentially given it effective control of PGW - a company that serves New Zealand’s crucial rural sector.

I commend the NZSA for communicating the situation to shareholders and encouraging them to vote on the matter if the special meeting had been held. The NZSA is a non-profit association that advocates for the interests of investors (typically small shareholders) in New Zealand and I expect their actions influenced Agria’s decision to withdraw.

If the special meeting had eventuated it would have required a very high shareholder turnout with opposing votes to the proposed board changes to make up the numbers to defeat the 44.3% of shares Agria owns.

The PGW Board welcomed the news and has determined that preparations for the proposed special meeting will now not be needed.

The last line of the announcement seems to indicate an amicable end to the scenario concluding that ‘Agria and the PGW Board have determined that the current composition and the majority of the membership of the Board continue to have an appropriate balance of expertise, skills, and independence’.

Perhaps now the board of PGW can fully focus on restoring the company’s prospects.

PGW recently suspended dividends after many years of reasonably consistent dividend payments, and its shares traded as low as $2.05 at the time of the announcement on Friday morning (down 39% year to date and the lowest it has traded at since April 2020).

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DAIRY giant Fonterra Co-operative Group’s full year 2024 interim results for FSF (Fonterra Shareholders Fund) unitholders included impressive profitability and an increased dividend.

The company is one of the largest dairy companies in the world and has likely contributed to the estimated 10 million cattle (many of which will be dairy cows) being farmed in New Zealand.

Unlike most dairy co-operatives/ companies around the world, that primarily produce dairy products for local consumption, Fonterra exports the vast majority (approximately 95%) of its production.

New Zealand dairy exports were approximately a third (worth over $25 billion) of NZ’s total exports of $72.8 billion to the year ended June 2023.

Interim Results highlights:

- Reported profit after tax of NZ$674 million, up 23%

- Continuing operations EBIT (Earnings Before Interest and Taxes): NZ$986 million, up 14%

- Earnings per share: 40 cents per share

- Return on capital: 13.4%, up from 8.6%

- Interim dividend of 15 cents per share, up from 10 cents per share

- Maintained forecast FY24 continuing operations earnings range of 50 to 65 cents per share

- Forecast Farmgate Milk Price range narrows to NZ$7.50 - NZ$8.10 per kgMS

- Forecast milk collections were down slightly to 1,465 million kgMS, down 1%.

CEO Miles Hurrell indicated that strong earnings performance was driven by higher margins and sales volumes in the Foodservice and Consumer channels helping to offset lower returns in Ingredients which were down from relatively high prices the year before.

Sales volumes increased by 1.3% to 1,721kMT and gross margins improved from 16.6% to 18.4%.

The Co-op remains focused on reducing costs but is experiencing increased labour costs, professional fees and is investing in IT infrastructure. 

The Australian and Fonterra Brands New Zealand businesses are to be merged from 1 May, as the two units share many similarities and integration Is intended to create scale efficiencies.

FSF’s new capital structure that has been in place for a year and was notably given as a reason by some new Co-op farmers for returning to the Co-op. The flexible shareholding options, coupled with the Co-op’s stability, have seemingly resulted in more farmers wanting to join the Co-op.

Farmers may also be seeing the benefits of being part of the Co-op given that, earlier in the financial year, $800 million was paid to farmer shareholders and unit holders following the divestment of Soprole. The sale of our DPA Brazil JV with Nestlé to Lactalis was also concluded.

A new manufacturing technology was cited as unlocking 8000 MT additional production capacity for high-value UHT cream.

FSF’s outlook for the remainder of the year included notes that global inflationary pressures are easing but there is potential for volatility if there is geopolitical instability.

The Co-op’s partnership with Kotahi (supply chain collaborator) and its diversification across markets were aspects noted that help prepare it for disruption in global supply chains or changes in demand from key importing regions.

Fonterra is a significant contributor to New Zealand’s economy and many investors will take some comfort that the Co-op has performed well over the six months to 31 January 2024.

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Johnny Lee writes:

FISHER and Paykel Healthcare shareholders have been forewarned ahead of its result announcement in May, with the company reminding shareholders to read beyond the headline.

Fisher and Paykel provided an update to market last week, telling shareholders that its revenue and underlying cash profit result in two months would be higher than previously guided. Its share price rose around 5% following the announcement.

However, the headline result would likely see a negative impact from a devaluation of its Karaka land investment. Higher interest rates were blamed for the loss of value.

Fisher and Paykel Healthcare purchased the 105 hectare site in September 2022 for a total cost of $275 million dollars, with an intention to develop a new premises over a 40 year period, hosting some of its Research and Development team, as well as its pilot manufacturing arm.

The purchase was funded at the time with a mix of both cash and debt. Its most recent set of financial results indicated that the company had left its net cash position and now operates from a modest net debt position. One imagines this will reverse in due course.

The company will not be concerned with the negative revaluation. This is clearly a long-term asset, and while the headline result may disappoint, shareholders should focus on the revenue and cash results, rather than any temporary property revaluations.

On this front, the news is more positive. Hospital consumables have continued to grow, and recent additions to its product lines have been well received. The company maintains its ambition to double revenue every five years, as it invests along its 30-year vision.

Investing in long-term growth requires a long-term investment horizon and, as such, does not suit every investor. Fisher and Paykel’s journey – including very strong outperformance during Covid and a stark return to normality immediately after – has seen long-term shareholders well rewarded. One six-month period of property devaluation will not divert the course.

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THE extraordinary share price performance from the American giants is continuing, with a major stock index fast approaching a new milestone.

The Dow Jones, trading at record highs, has almost reached 40,000 for the first time. The S&P 500 broke 5,000 for the first time last month.

Technology shares, in particular, are showing no fatigue despite heroic returns in 2023. Chipmaker NVIDIA has somehow doubled in value again this year, despite doubling last year as well, and is now worth several trillion dollars.

NVIDIA made the announcement last week that it was forming a relationship with artificial intelligence healthcare firm Hippocratic AI, hoping to use AI technology to help tackle the global nursing shortage. Clearly, the Artificial Intelligence boom is not yet slowing.

Locally, shareholders of the various Smartshares products, or the ASX listed equivalents, will be riding this wave at the same time. Most of these funds now trade at fresh record highs.

As the New Zealand market fights to maintain its slim positive return for the year, the US market continues to surge. The momentum from the Artificial Intelligence boom is not yet slowing, with sectors ranging from healthcare and education, to film making and pharmacology, seeing benefits from the progress made.

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Travel Dates

Our advisors will be in the following locations on the dates below:

8 April – Wellington – Edward Lee

10 April – Auckland (Ellerslie) – Edward Lee

11 April – Auckland (Albany) – Edward Lee

12 April – Auckland (CBD) – Edward Lee

12 April – Lower Hutt – Fraser Hunter

18 April – Tauranga – Johnny Lee

19 April – Hamilton – Johnny Lee

Chris Lee & Partners

Market News 18 March 2024

David Colman writes:

Briscoe Group Limited (dual listed on the NZX and ASX under the code: BGP) is the first of many retailers to release results this March.

The well-established homewares and sporting goods company which has over 2,000 employees released its results for the full year ended 28 January 2024.

The company achieved group sales of $791.9. million (up from 785.8 million)

Positive growth was eked out with the Homeware segment up 0.54% and Sporting Goods +1.17% 

The gross profit margin was 42.40% down 174 basis points, which is symptomatic of an ongoing economic downturn, with margin pressure expected to continue.

Online sales as a percentage of total group sales fell very slightly to 18.72% from 18.97%

Net profit after tax (NPAT) was $84.2 million (down from $88.4million for FY2023)

 A final Dividend was declared of 16.5 cps bringing the total dividend for the year to 29cps (+3.57%). The final dividend will be paid on 27 March 2024.

Rod Duke, the company’s longstanding Managing Director, noted his team were delighted to have produced another year of record sales against a macro retail environment which has seen many retailers struggling to hold their ground.

He noted the significance that the Group was able to grow sales across both the first and second halves as well as in both homeware and sporting goods.

Local and international supply chains were described as having returned to a more normal, reliable, and cost-effective level of service compared to the disruption of recent years allowing tighter levels of inventory.

BGP’s balance sheet includes cash and bank balances of $175.4 million as at 28 January 2024 and no term debt.

$15.1 million of capital investment throughout the year included $4.3 million on the fit-out of new and refurbished stores with $5.6 million spent to purchase the existing Timaru Briscoes.

The remainder was spent on technology including online platform, system software, and hardware, and on security initiatives including upgraded alarms, camera systems, stronger roller shutters and concrete bollards.A new Rebel Sport store was opened in Ashburton during April coinciding with the relocation of the town’s Briscoes store.

A wide range of store upgrades were completed with the intention of modernizing the look and feel of the stores.

The ongoing expansion of new products to be available online to be shipped direct from suppliers to customers, and the roll-out of electronic shelf labelling, are expected to help grow profitability.

A new distribution centre in South Auckland is progressing and a new warehouse management system is being implemented. In February the company signed a Letter of Intent for the purchase of land and the building of a new warehousing facility at Drury in South Auckland which is projected to require expenditure, inclusive of land and building construction, of at least $100 million across the next 3 financial years.

Looking forward, the company’s management remains cautious regarding the retail environment with ongoing uncertainty in relation to economic conditions, customer sentiment and cost pressures.

KMD Group (formerly Kathmandu which was a takeover target of Briscoes back in 2015) is the next listed retailer to announce, with results expected tomorrow, and Briscoes received $2.1 million (after tax) of dividends from its 6.75% of KMD shares so will be keen to see the KMD release alongside other shareholders.

KMD provided guidance in February that the group’s underlying first half 2024 EBITDA (earnings before interest, tax, depreciation, and amortisation) are expected to be in the range of $14 million to $16 million.

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The South Port New Zealand (SPN) Interim Report for the period ended 31 December 2023 revealed that reduced volumes across most of the port’s key commodities and inflationary pressure on costs impacted financial performance in the first half of its financial year.

Net profit after tax (NPAT) for the first six months of FY2024 was $3.0 million (down from FY2023 of $5.2 million)

Inflationary pressures on labour and materials, substantially higher insurance costs, and increased finance costs on additional debt, weighed on the company’s balance sheet.

South Port estimates that its full-year earnings should fall in the range of $8.0 million to $8.5 million (down from FY2023 of $11.7 million)

Total cargo activity was 1,488,000 tonnes compared with 1,732,000 tonnes in the prior year interim period. A decrease of 14%.

There were increases registered in cement (+14,000) and timber (+17,000), however other cargoes were negatively impacted with woodchips (-72,000), logs (-68,000), alumina (-43,000), stock food (-39,000) and fertiliser (-37,000) in comparison to the prior half year.

Container volumes showed signs of recovery with 21,000 Twenty-foot equivalent units (TEU) handled through the terminal up from FY2023 of 18,000 TEU).

The cold store operation performed well with increased volumes of meat products being handled, longer dwell times, and reduced overheads compared with the same period last year.

An interim dividend of 7.50 cps was paid for the half-year ending 31 December 2023.

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Synlait Milk (SML) announced on Wednesday that is has joined Nestlé in a unique three-way partnership with its farmer suppliers to help fund innovative on-farm emissions reduction tools.

Intentions of the partnership will be on-farm solutions that improve efficiency such as:

- effluent management systems

- emissions-friendly feed options

- advanced soil testing

- alternative fertilisers

- tree planting.

Anticipated funding is planned to be split three ways between Nestlé, Synlait and its farmer suppliers over a seven-year period.

Patricia Stroup, Global Chief Procurement Officer of Nestlé, who has a dairy industry history, described these kinds of partnerships which bring Nestlé together with farmers and processors, as instrumental in all appliable parties reaching their greenhouse gas emission targets.

The fact that dairy is the single biggest ingredient that Nestlé uses by volume, and its largest source of Scope 3 greenhouse gas emissions, accounting for around 21% of its total emissions has driven the global food and beverage giant to collaborate more with its suppliers (such as SML) and related farmers.

SML CEO Grant Watson, probably glad to be sharing news that was more cheery than recent releases, commented that ‘the partnership aims to reduce the cost of implementation and accelerate farmer adoption of emissions reduction tools. It’s leveraging technologies that are available in market right now and will expand over time to include emerging technologies as they become available. This kind of partnership also opens potential new opportunities to work together in other areas, and we look forward to a long and fruitful partnership with Nestlé.’

There was no indication if Synlait, a $155 million NZ dairy company which has struggled in recent years, and household name Nestlé, which is headquartered in Switzerland with a market cap of US$100 billion, have any other dealings ahead.

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There remain views that inflation will ease and subsequently interest rates will also ease at some unknown point in future, but last week’s inflation reports from the USA that were above economists’ expectations and an oil price that has moved higher since the start of the year should be factored into investors’ inflation and interest rate expectations and their wider ramifications.

Banks have recently lowered interest rates available on term deposits, but this might be simply a small, limited adjustment in line with bank funding and lending arrangements and should not be seen as a sign that a trend of lower interest rates has begun.

Central banks are due to provide valuable information and data for those trying to get a read on how interest rates may look in the months ahead with central banks in Japan, Australia and the USA all meeting this week.

The Bank of Japan (BOJ) meet today and tomorrow and may end (or at least look at ending) the negative interest rate era which the land of the rising sun began in 2016.

The Reserve Bank of Australia (RBA) also meet today and tomorrow and provide will provide an OCR announcement widely expected to include no change.

The US Federal Reserve has meetings scheduled for Tuesday and Wednesday again with expectations of rates remaining the same.

The RBNZ releases an OCR update on 10 April, and New Zealand inflation data for the quarter ending March 2024 will be updated on 17 April.

The many local and global variables that drive inflation are continuing to prove that they are difficult to control or adjust for.

Central banks and the investment community appear mostly stuck waiting for rates at current settings to have the desired effect of reining in rising prices.

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The conveyor belt of new issues, spanning senior bonds, subordinated bonds, and perpetual preference shares from a range of issuers, seems to be taking a break this week, with no new issues at the moment.

We thank our clients who took part in last week’s new issue of Meridian Energy Green bonds (MEL070), setting its interest rate at 5.40%, fixed until 21 March 2030.

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Travel Dates

Our advisors will be in the following locations on the dates below:

20 March – Christchurch – Johnny Lee (full)

21 March – Napier – Edward Lee (full)

22 March – Napier – Edward Lee (full)

25 March – Palmerston North – David Colman

10 April – Auckland (Ellerslie) – Edward Lee

11 April – Auckland (Albany) – Edward Lee

12 April – Auckland (CBD) – Edward Lee

18 April – Tauranga – Johnny Lee

19 April – Hamilton – Johnny Lee

Chris Lee & Partners Ltd

Market News 11 March 2024

David Colman writes:

A lack of confidence in local growth companies appears to be driving demand for well established companies such as those involved in the domestic electricity market typically targeted by income investors.

Both Mercury Energy (MCY) and Meridian Energy (MEL) share prices have risen well above the index average for the year to date (the NZ50G is up 1.65%) continuing a recent trend for the companies that began in November 2023.

MCY closed on Friday at $7.10 (up 50c or 7.58% year to date) and is due to pay a gross interim dividend of 12.9c on 2 April (trades Ex-dividend on 13 March).

MEL closed on Friday at $5.96 (up 52c or 9.56% year to date) and is trading Ex-dividend with payment of a gross dividend of 8.06c on 26 March.

In late 2020 to early 2021 an international green fund drove up the market price for Meridian and Contact Energy (both targeted by the same fund) and seemed to influence the sector as a whole including the Mercury share price.

If we ignore this anomalous period, Mercury and Meridian are trading at historically high levels and may concern some shareholders that they might have become overvalued.

Buyers at these levels are accepting market prices that indicate gross dividend yields of approximately 4.32% for MCY and approximately 3.97% for MEL with any future capital gains dependent on underlying demand for electricity.

New Zealand’s total electricity consumption over the last decade based on actual sales has barely changed although there has been a fall in industrial use balanced by a rise in residential demand.

MCY has a P/E (price to earnings) ratio of 200 times and MEL has a P/E ratio of 180 which are both high when compared to industry peers Contact Energy (CEN) with a P/E of 22, Manawa Energy (MNW) with a P/E of 12 and Genesis Energy (GNE also 51% government owned) with a P/E of 30.

A high P/E ratio for a company in comparison to its peers tends to lead to two awkwardly, disparate interpretations that either the shares are overvalued or that earnings are expected to grow but unfortunately P/Es are not always a reliable indicator of either.

Looking at the net tangible assets (NTA) for each company shows that each has a share price exceeding its NTA with one exception being Manawa Energy (MNW) which last traded at $4.17 and has an NTA of $4.20 (half year ended 30 September 2023).

CEN last traded (using Friday’s closing prices) $8.20 (NTA $2.73), GNE last traded $2.49 (NTA $1.95), MCY last traded $7.10 (NTA $3.36), MEL last traded $5.96 (NTA $2.18).

P/E ratios and NTA values can be useful tools to compare similar companies but shouldn’t necessarily warrant investment behaviour. Future earnings growth, or lack thereof, and increases/decreases in net asset values will influence the figures and other factors determine market prices.

Investors that purchased Meridian and Mercury shares when they were partially sold by the government (which still owns 51% of both companies) now sit on a sizable capital gain and have enjoyed a steady stream of dividends.

Expectations that these cash-flow-positive businesses can maintain dividends over the long term shouldn’t stop investors potentially exploring other options.

For a risk-adverse income investor it is hard to ignore that many senior bonds offer interest rates that exceed the dividend yield of the same company’s shares. 

Meridian will almost certainly join this list again (it already has bonds in this category) as it issues bonds this week that would be expected to offer an interest rate well above its dividend yield.

Clients who hold shares in Mercury or Meridian Energy should contact us to discuss your investment.

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PGG Wrightson (PGW) shareholders are facing what the New Zealand Shareholders Association (NZSA) has described as ‘one of the worst cases of board interference by a majority shareholder in the last few years’.

The situation that the NZSA refers to relates to Agria (a substantial PGW shareholder based in Singapore that holds 44.3% of the PGW shares) requesting a special meeting to consider the following:

- remove three of the four independent directors

- replace the independent directors with three ‘independent’ directors nominated by Agria

- reinstatement to the board of former PGW chair Gianglin ‘Alan’ Lai

These changes would increase the size of the board from five to six.

Of the six, two would be representatives of Agria and three would be independent directors nominated by Agria.

PGW shareholders are encouraged to read communication from the NZSA who also have a blog post dedicated to the situation.

I share the NZSA’s view that Agria, a large Singapore based shareholder, should not be permitted to have effective control of a long-standing New Zealand rural services company.

The NZSA is a non-profit association that advocates for the interests of investors in New Zealand investments and can be nominated to vote by proxy on the issue at hand.

If the special meeting eventuates, which seems very likely, it would require almost every shareholder opposed to the proposed board changes to vote to make up the numbers to defeat the 44.3% of shares that Agria owns.

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Metro Performance Glass (MPG) has provided a trading update and guidance on its anticipated results for the full year 2024 which are not due to be released until May.

The company produces a range of glass products for the construction industry such as double-glazed windows but has struggled for many years. 

The MPG CEO Simon Mander referenced a soft residential building sector in the second half of last year and a weak start to this year.

The company has ceased processing glass at its Wellington factory, closed an Auckland regional branch, and reduced the number of employees by 10% during the year.

Australian Glass Group (AGG), which is part of MPG, is still targeted to be sold to reduce debt. Controversially, some shareholders are not convinced selling the better performing AGG business is logical. An update on the sale process is expected before the May full year results. AGG appears to have been a resilient part of MPG of late due to Australian construction code changes which have increased residential double-glazing demand in an otherwise soft sector more broadly.  

Outlook for the company includes familiar themes including high inflation and interest rates but note this downward pressure is somewhat offset by underlying housing demand driven by immigration.

Glass demand in New Zealand is expected to be flat for at least the next 12 months.

MPG (EBIT) earnings before interest and tax before significant items are forecast to be in the range of $7million to $8million (down from $11.8million in FY23). Net debt is expected to be close to $55million (down from $60million in FY23).

Metroglass is in the process of working with its banking syndicate as banking facilities mature in October. The company anticipates that the banks involved will remain supportive with the company enacts plans with the intention of reducing debt and increasing profitability. Plans that include relaxation of financial covenants.

Looking back MPG originally listed on the NZSX in 2014 at a price per share of $1.70 but now trades just above 10c.

As recently as July last year the company was subject to a non-binding indicative offer at 18c, from a consortium comprised of two major shareholders, which the board rejected on the basis that they deemed the proposal significantly undervalued MPG and was not in the best interests of the company and its shareholders.

Cost cutting at the firm has reduced staff numbers including at the board level with the reduction of board members from 6 to 4 with Peter Griffiths (Chair) and Jenn Bestwick retiring.

The remaining MPG board is particularly fresh with 3 of the board members having joined in the last 4 months.

These board members face considerable challenges including a building industry in an almost stalemate situation with strong evidence that more building is desperately required but, at the same time, building is unaffordable (or unprofitable) for too many.

I wonder how the new board would evaluate a similar offer to the one made last year if it was to be made today?

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After a flurry of company results in February, there is now a wait until we see more results announcements later this month.

A fairly comprehensive evaluation of listed retailers will be possible with Briscoes (BGP) , Kathmandu (KMD) , The Warehouse Group (WHS) and Hallenstein Glasson (HLG) all providing either half year or full year results later this month.

Recent announcements from these companies indicate that the retail environment has been very difficult in recent months.

A struggling retail sector can be typically seen as more evidence, not that more is needed, that inflation pressure and higher interest rates have impacted a significant and seemingly growing proportion of the population (especially those with debt such as mortgages, car finance, credit cards, etc.).

Other notable upcoming results involve dairy giant Fonterra and dairy dwarf Synlait Milk with the latter curiously delaying results by a week from 25 March to 2 April.

The New Zealand dairy industry is reliant on overseas demand for dairy products such as whole milk powder (New Zealand is the world’s largest exporter of whole milk powder), skim milk powder, butter, cheese and infant formula with China being a major importer of these goods.

Chinese economic weakness, global inflation, interest rate increases, and broader demographic trends such as many countries experiencing low birth rates seem likely to challenge the NZ dairy export market. 

New Zealand consumers only buy approximately 5% of the dairy products produced locally so it is important exporting companies, and our government, keep trading channels open.

Hopefully, our Prime Minister being delayed by a faulty NZDF aircraft on his way to an important ASEAN summit, where many representatives of the countries that could buy New Zealand’s dairy products are gathered, doesn’t contribute negatively to the industry’s, and our nation’s, economic issues.

Synlait Milk results will provide an update regarding how the board and management have progressed the company’s much needed deleveraging.

It is a delicate time for the Synlait business.

It has assets for sale and a substantial amount of debt due for repayment while it contends with arbitration with major customer and shareholder A2 Milk in relation to an exclusivity agreement.

A net loss is expected for Synlait in the range of $17million to $21million based on its 12 February update.

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Last week’s new issues of Spark Finance bonds (SPF590 and SPF600) and ANZ NZ Perpetual Preference Shares (ANBHD) were well supported by the investment community, with Meridian Energy next (details below).

The ANZ Bank set its dividend rate at 7.60% for 6-years. It will pay dividends quarterly. Payment is due no later than 15 March. If you are interested in an allocation of the ANZ, please contact us. 

Thank you to our clients who participated in these issues.

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New Issue

Meridian Energy Limited (Meridian) confirmed it is making an offer of up to $200 million (with the ability to accept oversubscriptions of up to an additional $100 million) of 6-year fixed rate senior green bonds.

The offer opens today and is expected to close at 10am on Thursday 14 March before the interest rate is set. Based on underlying rates and the indicative margin range the interest rate could be in the vicinity of 5.30%.

Meridian has a Credit Rating from S&P Global Ratings of BBB+ (stable outlook) with the Green Bonds expected to be assigned an Issue Credit Rating of BBB+.

Meridian has confirmed that it will not cover the transaction costs for this offer. Accordingly, brokerage will be charged.

The proceeds of the offer will partially be used to refinance Meridian’s $150 million green bonds (MEL040) which mature and will be repaid on the 20 March 2024 The issue date of the new Green Bonds will be after this date.

If you would like an allocation of this bond, please contact us no later than 10am, 14 March with an amount and CSN. We have uploaded the investment documents to our website.

Travel Dates

Our advisors will be in the following locations on the dates below:

20 March – Christchurch – Johnny Lee (FULL)

21 March – Napier – Edward Lee

22 March – Napier – Edward Lee

25 March – Palmerston North – David Colman

10 April – Auckland (Ellerslie) – Edward Lee

11 April – Auckland (Albany) – Edward Lee

12 April – Auckland (CBD) – Edward Lee

18 April – Tauranga – Johnny Lee

19 April – Hamilton – Johnny Lee

David Colman

Chris Lee & Partners Ltd

Market News 4 March 2024

Johnny Lee writes:

The final week of reporting season is completed, profits (and losses!) have been declared, dividends are on their way and even a takeover has been announced.

Despite expectations that a number of companies would need to raise capital, no major company announced plans for a rights issue during the period. A few companies - including Synlait Milk - report in late March.

Overall, while there were some exceptions, a number of companies reported falling profits and saw accompanying share price declines. Many companies lowered their guidance for the next reporting period, fearing a weaker period ahead.

The cyclical companies - retail, construction - seem to be struggling more than the utilities, with Chorus posting a result broadly in line with market expectations.

Chorus also announced yet another increase to its dividend and affirmed it intends to further lift the full year dividend in August. A rising dividend was expected by shareholders, but the company will be mindful of several hefty Crown loan repayments due over the next decade.

The dividend remains unimputed, however some level of imputation will likely return in future years. 

CEO JB Rousselot is leaving after almost five years in the role, handing the reins over to COO Mark Aue. The last five years have included significant challenges, and has seen a number of senior leaders leave their posts. Aue’s background includes a stint as CEO of 2Degrees.

Chorus sharpened its attacks on wireless broadband, in what is clearly going to be something of a battleground going forward. Spark’s report to market showed a similar intent to control the narrative around this topic.

The telecommunication providers are seeking to cut out the middleman (Chorus), while Chorus argues that fibre is a superior product in terms of speed and reliability. Regardless of one’s stance on this, both total fibre connections and Spark’s wireless connections grew over the period – so for now, there is room for both products. 

At the same time, Chorus’s promotion of its higher speed Hyperfibre product is part of a strategy to ensure the company maintains a lead over the wireless competition.

Chorus’s result saw revenue and profit almost indistinguishable from last year. Its dividend increased, as previously indicated. And while a new CEO is coming next month, Chorus’s role as a defensive utility stock seems unlikely to change.

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Sky Network Television’s result will have pleased shareholders, especially those who took the punt during COVID when Sky TV was in dire straits.

Revenue is up, profit is up, the dividend is up, and the three-year targets remain on track.

The three-year target includes an aspiration to double its 2023 dividend from 15 cents to 30 cents. This year, it is forecasting an increase from 15 to 17.5 cents, with the full year dividend in August expected to rise from 9 cents to 10.5 cents.

The company also announced a plan to buy back $15 million worth of shares (roughly 4% of issued capital) for cancellation. As at reporting date, Sky TV had a cash balance of around $47 million.

Across the business, advertising revenue saw growth, with the Rugby World Cup tournament spurring advertisers to re-engage with Sky TV. This may seem to be a one-off, but Sky will be encouraged to see that the sector is alive and spending for media companies demonstrating value. Indeed, Sky made the choice to include an advertisement in the investor presentation itself.

The Sky Box product saw a very modest decline in revenue, with disconnections continuing to outpace new activations, while inflation adjustments to Sky’s various packages have seem to be broadly accepted by customers. 

Revenue from Sky Sport Now, its sport streaming service, saw a similar lift during the Rugby World Cup. Meanwhile, its Neon streaming platform saw a modest decline in revenue, blamed on the writer’s strike in Hollywood leading to a decline in new content.

Broadband growth continued, although total numbers remain low compared to both the overall market, and its own internal customer base.

Overall, Sky TV continues to lift its dividends, supported by relatively stable revenue and earnings. Its cash balance is healthy, with some of it being used to support a new share buyback scheme. Its goal to double its dividend from 15 cents per share to 30 cents per share by 2026 is on track. If successful – this would see a gross yield of near 15%.

Its challenge is to ensure that the one-off gains seen during major sporting events can be maintained, while winning back customers lost during the period. While its goals are more aspirational than formal guidance, shareholders will be pleased with the progress so far.

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The Reserve Bank has made its first Monetary Policy Statement of the year, and the reaction in the interest rate market has been significant.

Swap rates have fallen sharply, with at least two cuts now expected by the market this year. 

The Reserve Bank, for its part, left the Official Cash Rate at 5.50%, with high immigration numbers putting pressure on one side, and a weak global economy - particularly in China - releasing pressure on the other.

The committee at the Reserve Bank made the comment that ‘’The OCR needs to remain at a restrictive level for a sustained period of time ‘’, dashing any hopes of a short term cut. 

GDP data, due on the 21st, may provide the next clue as to where interest rates are going. For now, the Reserve Bank seems comfortable with the current settings.

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Kiwi Property Group has made two brief announcements to market.

The first was confirming a deal with Australian ‘’flexible accommodation provider’’, Urban Rest, to rent 12% of its new build-to-rent properties.

This agreement will remove some risk from the project, guaranteeing income for three years with an option to extend by a further two years. 

The second announcement was confirmation that Kiwi Property Group has entered into negotiations to sell the Vero Centre in Auckland, at an undisclosed but ‘’modest’’ discount to book value.

Asset sales and capital recycling has formed a part of Kiwi’s strategy for some time now, and unitholders can expect Kiwi to continue focusing its energy and time towards its Sylvia Park and Drury projects.

A further announcement will be forthcoming with specifics around the sale, if it progresses.

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Investment Opportunities

ANZ Bank New Zealand Preference Shares

ANZ has announced it intends to issue a new Perpetual Preference Share (PPS), redeemable after 6 years (2030), with an anticipated rate to be set above 7.50% per annum (paid quarterly).

Holders of the ANBHA, ANBHB or ANBHC instruments will be familiar with this structure. The ANZ retains the right (but not the obligation) to repay the principal amount on redemption date. 

ANBHA and ANBHB have both already repaid, with ANBHC able to be redeemed in 2028. As they are listed on the NZDX, investors also have liquidity on the secondary market so do not have to wait until 

this date if they wished to sell.

A presentation and investment document can be found on our website (under current investments).

The ANZ Bank has also confirmed that it will pay the transaction costs for this offer, accordingly, no brokerage will be charged.

The offer closes at 10am on Friday 8 March, with payment due no later than 15 March.

Investors interested in an allocation of this new offer should contact us urgently as we are expecting heavy demand for this investment.

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Travel Dates

Our advisors will be in the following locations on the dates below:

20 March – Christchurch – Johnny Lee

21 March – Napier – Edward Lee

22 March – Napier – Edward Lee

25 March – Palmerston North – David Colman

10 April – Auckland (Ellerslie) – Edward Lee

11 April – Auckland (Albany) – Edward Lee

12 April – Auckland (CBD) – Edward Lee

18 April – Tauranga – Johnny Lee

19 April – Hamilton – Johnny Lee

Chris Lee & Partners Ltd