Chris Lee & Partners Ltd

Market News 31 March 2025

Johnny Lee writes:

Contact Energy’s takeover of Manawa Energy has been delayed once again, with the Commerce Commission indicating it requires yet another 6 weeks to make its decision. The new decision date is 9 May.

This is not the first deadline extension. The decision was initially expected back in November, before being delayed to December, then March.

The price of Manawa had lagged the takeover value for some time, suggesting most were growing pessimistic regarding the chances of this progressing. 

Hopefully, 9 May will provide certainty for shareholders.

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Meridian Energy has confirmed it intends to push ahead with the Ruakaka Solar and Battery farm, with the project expected to be completed within two years.

The solar farm will include 250,000 panels, producing around 230GWh per year, equivalent to about half the needs of Northland’s homes. The battery storage system, located next to the site, is expected to be fully operational this year.

The Ruakaka Energy Park follows a number of announcements from Meridian, including consent for its new Mt Munro wind farm in Eketahuna and a joint venture to build the Rahui Solar Farm at Rangitaiki. The company intends to invest $3 billion in new development over the next five years, with a billion earmarked for projects this year alone. 

Contact Energy, by contrast, had another setback after the consent application for its Southland Wind Farm was declined. Contact Energy intends to appeal the decision.

The panel was not satisfied that adverse effects on indigenous vegetation were properly accounted for, and could not be adequately offset.

This comes a month after the Bledisloe North Wharf extension, submitted by Port of Auckland, was rejected due to the lack of detail in its Little Penguin Management Plan. Port of Auckland later resubmitted further details on its plan to relocate the Korora. 

The electricity sector is investing significantly into electricity generation and plans to invest further still. Navigating the consent process is part of this and is introducing challenges for some. 

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Argosy has published its investor update, providing an update to shareholders on the current market conditions, its latest development updates, and a brief insight to the company’s internal outlook.

Conditions are improving. Falling interest rates are having the desired effect on asset prices, with Argosy noting that capital values are beginning to improve. Occupancy lease enquiry is improving and another new lease has been signed. 

The strategy of pivoting more of the portfolio from commercial towards industrial continues. The portfolio is currently 52% industrial, with hopes to move this to 60% over the coming years. Part of this shift will come about from the development of the Mt Richmond site, which is already subject to a ten year lease agreement. 

The focus on sustainability remains. The Mt Richmond site will include a range of measures to ensure it qualifies for the 6-star rating, including solar panels, water management tools, smart LED lighting and low carbon concrete. Argosy will also purchase carbon credits to account for the emissions generated from the construction. 

Dividends were discussed. In recent years, the company has occasionally paid dividends outside of its policy band – 85% to 100% of Adjusted Funds From Operations – in order to maintain dividend levels for its unitholders. Rental growth should bring this back into the band, while the reintroduction of the dividend reinvestment plan should reduce the cash spend of the dividend.

Overall, the outlook was modestly positive. The company is enjoying low levels of arrears and is replacing lost tenants with higher value rental levels. The company sees no need to adjust its dividend for now, and is hopeful that it can continue to provide the same level of income to its unitholders going forward.

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New Zealand mid-cap Smartpay has received two competing, indicative takeover offers, as corporate merger and acquisition (M&A) activity continues to ramp up.

Neither proposal is unconditional, with both described as being in the preliminary stage. One of the two offers, from Tyro in Australia, was priced at a value equivalent to around $1 per share

This marks the fifth takeover offer of the year, following offers on Millennium Copthorne, IkeGPS, New Zealand Windfarms and Marsden Maritime Holdings. 

Smartpay operate many of our nations EFTPOS devices, leasing and servicing these products to shops all around our country. Virtually every owner of an EFTPOS or credit card has interacted with one of its products over time. Across New Zealand and Australia, the company services over 50,000 such terminals to around 40,000 merchants. 

The company was previously known as Cube Capital, before entering the payments solution sector in 2006 following a reverse takeover and then renaming itself to Smartpay Holdings. 

Revenue has been growing for many years, with some periods of modest profitability. Smartpay has used these profits to reduce bank debt, but is yet to pay a dividend. Its market capitalisation of $200 million puts it alongside the likes of E-ROAD or Michael Hill.

The share price has endured lengthy periods of underperformance, but its decline over the last two years has clearly caught the eye of its peers.

It has been an exciting start to the year for many of our small and mid cap stocks. It is clear that many are being priced (or perhaps mispriced) at levels that are attracting the eyes of overseas investors. 

For Smartpay investors, it is now a waiting game. If the indicative offers advance beyond the preliminary stage, into formal offers for the company, the board will then provide more details to shareholders.

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We visited the site of the Santana Minerals’ Cromwell gold mine last week, as the company gears up for its next stage of development.

The mining permit application has now been lodged. This is a separate process from the resource consent. The resource consent for the project is not yet lodged.

The next year will be one of enormous change for Santana, should the consent be approved. The company will transform from a few dozen employees to a few hundred, with the company hoping to source this growth from nearby towns.

The town of Cromwell will transform, too. The introduction of new, well paying jobs will be a boon to the service sector of Cromwell.

It is clear that the people at Santana care deeply about the area. Community drop-in sessions are occurring regularly – one is scheduled for tonight – and the feedback is shaping the process going forward.

It is also apparent that the team understands the broader implications for mining throughout New Zealand. Santana’s success – both economic and environmental – will do much to foster confidence in the sector, both for investors and the public at large. 

Our sincere gratitude to Damian, Polly, Alex, Paul and the rest of the team at Santana for hosting our group.

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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

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

Chris Lee & Partners

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Market News – 24 March 2025

David Colman writes:

Recessions are defined as two quarters of negative Gross Domestic Product (GDP) growth.

Two consecutive quarters of negative GDP growth occurred in the quarters ending June (-1.1%) and September (-1.1%) last year, so New Zealand for the middle part of the year can be categorised as having been in recession. Many people in New Zealand would have correctly felt that this was the case during those months.

A rise in GDP of 0.7% for the December 2024 quarter brings that technical definition of the recession to an end, but New Zealand’s annual GDP growth rate has been falling steadily since mid-2023 and the recent quarterly growth is not close to making up for the negative growth in the two quarters before it.

Measured annually, GDP has fallen from a growth rate of 4% for the year to June 2023 to minus 0.5% in the latest data (the year to December 2024), so I wouldn’t be reaching for a celebratory bottle of champagne just yet.

The longer measure of annual growth at -0.5% is the first negative annual growth figure since March 2021, which was influenced greatly by the impact of the deeply disruptive COVID-19 pandemic.

All the above measures are describing events in the past, and the recent quarterly growth in GDP hardly indicates that the economy is heading towards ‘rock star’ status.

It is gratifying to have a positive quarterly growth figure, and in addition to easing inflation data and wide forecasts of lower interest rates, it suggests New Zealand may be eking out a rocky recovery.

Perhaps one day New Zealand economic data releases will be more frequent, but for now the next GDP growth data will be for the quarter ended March 2025 and is scheduled for release to patiently waiting recipients in late June.

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New Zealand King Salmon – Trading Update

Last Monday, the Board of New Zealand King Salmon (dual-listed on the NZX and ASX under the code NZK) announced that it is experiencing unexpectedly high levels of sea farm mortality (stock loss), coupled with lower than anticipated growth rates (smaller stock).

The elevated mortality occurred after 31 January 2025, so will not impact the full year 2025 guidance of $26 million to $30 million on a pro-forma operating EBITDA (earnings before interest, taxes, depreciation, and amortisation) basis.

Higher mortality in the summer months is not unusual, but this season’s level will impact harvest volumes for full year 2026. It will impact NZK’s full year 2026 harvest and profitability.

The company emphasised that mortality levels are significantly lower than the mortality events which the company endured during the summer months of late 2022 and early 2023.

Estimates for the full year 2026 harvest are now between 5,900 and 6,300 metric tonnes G&G (gilled and gutted), with a pro-forma operating EBITDA range likely to be between $15 million and $24 million.

NZK’s year-end results are scheduled for Thursday 27 March 2025 and should include further FY26 guidance.

Salmon farming is estimated to produce about 70% of the salmon consumed globally.

Prolonged elevated water temperature, which increases stress and reduces the salmon’s resistance to bacteria and other pathogens, was one of the main contributors to the mortality rates.

Recent changes to the farming model are intended to help mitigate some of the summer mortality risk by avoiding holding fish at warmer sites over summer. There are also ongoing plans to invest in improved fish health outcomes such as thermotolerance, vaccine development and diets.

NZK is not alone in facing mortality events. Internationally, millions of salmon die prematurely each year, with major mortality events occurring in salmon farming operations in countries such as Norway, the UK, Canada, and others.

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Fonterra Interim Results

On Thursday, Fonterra Co-operative Group Ltd (FCG/FSF) announced interim results showing it has maintained momentum to deliver strong full year 2025 earnings.

Highlights of the results were as follows:

Operating profit: NZ$1,107 million, up 16%Profit after tax: NZ$729 million, up 8%Earnings per share: 44 cents per share, up 10%Return on capital: 10.2%, down from 13.4%Interim dividend (fully imputed): 22 cents per shareForecast Farmgate Milk Price range narrowed to NZ$9.70–$10.30 per kgMSForecast milk collections: 1,510 million kgMS, up 2.7%FY25 full year forecast earnings range: 55–75 cents per share

The increase in half-year profit, earnings per share and dividend was achieved alongside a 2024/25 season forecast Farmgate Milk Price midpoint of $10.00 per kgMS, which is an historically high level.

CEO Miles Hurrell noted the company is focusing on driving value, which includes delivering strong financial performance while achieving the highest sustainable Farmgate Milk Price.

The company’s strategy includes ongoing projects to unlock manufacturing production capacity for its ingredients and foodservice channels.

Site work is underway at Studholme for high-value protein capacity and at Edendale for a new UHT cream plant.

Investment to future-proof its operations and supply chain network includes work to be completed on a new Whareroa coolstore and plans for decarbonisation projects, with the intention of securing energy supply and reducing the Co-op’s emissions at Clandeboye, Edendale, Edgecumbe and Whareroa.

Other initiatives announced included new funding for farmers with lower emissions milk, and an expansion of the Fixed Milk Price programme that farmers can use to get more certainty around the Farmgate Milk Price.

The company continues to see good demand for its products and continues to work on optimising its product portfolio in line with market conditions.

Milk collections for the year are forecast to increase by 2.7% compared to this time last year to 1,510 million kgMS, following favourable pasture growth across most of New Zealand earlier in the season, although many parts of the country are currently experiencing very dry conditions.

Fonterra’s ingredients channel performance saw sales volume down 3.9%, but operating profit was up $229 million to $696 million due to better margins and an improved product mix.

The foodservice channel had sales volume growth of 8.3% this half, with gross margins in the second quarter significantly up on the first quarter, with pricing adjusting to the higher milk price.

Foodservice operating profit for the half was $230 million, compared to the record high of $342 million in FY24 when input costs were much lower.

Consumer channel volumes were up 8.5%, with some margin growth despite the higher Farmgate Milk Price, largely maintaining operating profit at $173 million.

The IT & Digital transformation project, which is a generational replacement of the Co-op’s Enterprise Resource Planning software, is progressing well, remains on budget, and is expected to cost $450 million to $500 million across six years. Annual expenditure reaches its peak in FY25 at $130 million.

Fonterra’s FY25 full year forecast earnings range of 55 to 75 cents per share is described as reflecting the underlying strength of its core business and consumer channel resilience.

The forecast earnings range does not include any deduction for forecast costs associated with the Consumer divestment. The company still appears to consider the sale, or IPO, of its global Consumer and associated businesses as in the best interests of the co-op.

Should an IPO proceed, the new company will be called Mainland Group and would incorporate many iconic brands such as its namesake (Mainland is a leading cheese brand in Australasia), Anchor, Fernleaf, Bega, and Fresh n Fruity.

The Fonterra Board will consider the nature of the underlying earnings, and whether it is appropriate to include any costs associated with asset sales in the financial year, before determining the full year dividend for FY25.

Fonterra Shareholders’ Fund Units (FSF) last traded at $5.80 (the highest price since 2018) and are up over 56% compared to a year ago.

The New Zealand dairy industry benefits greatly from the country’s temperate climate, suitable soil and flat plains, which are accommodative for grazing stock, with approximately 40% of the country’s land area being grasslands and pasture (the majority used for agriculture).

The dairy industry is estimated to contribute over 3% to New Zealand’s GDP.

New Zealand’s pasture systems, including those employed by thousands of Fonterra’s supplier farmers, are some of the most productive in the world.

The recent performance of Fonterra has been admirable, and the company, which covers close to 90% of the country’s milk production, is a significant contributor to the domestic economy.

Over 95% of the huge volumes of milk from millions of New Zealand dairy cows, fed mainly on grass, will end up overseas.

Fonterra’s exports represent approximately 25% of total New Zealand exports.

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Listed dairy company Synlait (a fraction of the size of the Fonterra co-operative) released its half-year results this morning.

Highlights of the results were as follows:

EBITDA was $63.1 million, up 217%.NPAT was $4.8 million, up 105%.Net debt was $391.9 million, down 29%.Revenue was $916.8 million, up 16%.Gross profit was $87.0 million, up 99%.Forecast base milk price for the 2024/2025 season is $10.00 per kgMS, with additional premium payments available to suppliers without a cease notice, taking the total forecast average milk payment for Synlait suppliers to $10.48 per kgMS.

The company described its immediate priorities (for the second half of the financial year) as:

Showcasing Synlait’s on-farm offeringDelivering for existing and new customersFurther uplifting operational and cost efficiency

The company is looking to continue focusing on doing the fundamentals well, with plans to deliver a significant improvement in overall EBITDA performance compared to the prior year.

Expectations, however, are that the second half of FY25 will be slower than the first half while Synlait faces:

risks related to milk stream returns and foreign exchangeongoing operational and cost improvements

SML is targeting a closing net debt balance of $250 million to $300 million, and a net senior debt to EBITDA ratio of below 2.5x in FY25, to better position the company for its bank refinancing process in the second half.

Its South Island milk supply update emphasised its on-farm offering, and continuing efforts to strengthen the company’s milk supply is a key priority.

SML forecast its milk supply for the next financial year (FY26) as very comfortable and advised that the majority of its South Island farmer suppliers are not under cease — a significant improvement in the company’s position compared to late last year.

SML noted that a trend of reversal of ceases has gained momentum, likely helped by the company’s return to profitability. It expects the number of withdrawals will increase further ahead of 31 March 2025 (the final date for farmers to remove their cease if they wish to access all the new, secured milk premiums).

The number of farmers that confirmed they are exercising their option to leave SML for another processor were noted as minimal, and interest from potential new farmer suppliers has exceeded expectations, with new farmer suppliers expected to be recruited in the coming seasons based on the strength of its on-farm offering.

These results illustrate just how much last year’s long-overdue support from Bright Dairy and A2 Milk has helped improve the company’s outlook.

Bright Dairy provided a $130 million shareholder loan in July 2024 and scooped up $185 million worth of shares (A2 Milk bought $32 million worth) in October 2024.

These funds allowed the company to repay debt, including the $180 million worth of bonds (SML010), and allayed fears that the company was being left to fail by its major shareholders.

If I was to play devil’s advocate, I might describe the major shareholders’ 11th-hour timing of support last year as exploitative.

Bright Dairy and A2 Milk were able to wait and see the share price tumble on-market — influenced by doubts relating to their support, inability to sell the consumer brands business, concerns regarding supplier farmers, a growing debt burden, and a seemingly contentious relationship with A2 Milk (the exclusive manufacturing and supply rights dispute required to be resolved through arbitration) — before swooping in to buy shares at historically low levels.

Bright Dairy picked up 308 million SML shares at $0.60 and A2 Milk picked up 76 million shares at $0.43 on 20 August 2024 — respectively 100% and 43% premiums to the market price at the time, described as the last undisturbed price before the equity raise. Many would have viewed the price as having already been disturbed by other factors.

In April 2023, Synlait released its FY23 guidance and I wonder why it was not considering an equity raise as part of the capital strategy review at the time. The closing price before that announcement was $2.14 (20 April 2023), falling to $1.56 when the company came out of halt.

CEO Grant Watson resigned after less than three years in the role, shortly after the troubled times (Synlait in theory was on the brink of collapse) described above. On 24 January 2022, when the former CEO joined Synlait, the share price was $3.44. On his last day as CEO, the shares closed at $0.40 (a fall of over 88%) on 21 October 2024.

The company is currently led by Tim Carter as Acting Chief Executive Officer. He had been CEO of Dairyworks (a business purchased by Synlait Milk in 2018).

Tim Carter previously held senior roles at Fonterra, including Director, Sales Fonterra Brands NZ; Director, Sales Fonterra Australia; General Manager, Foodservice and Route Fonterra Brands; and General Manager, Sales Tip Top Ice Cream.

Investment Opportunity

Wellington International Airport (WIA) has announced plans to issue a new senior bond with a maturity of 6 years.

The interest rate will have a minimum rate of 4.95% P.A.

The minimum investment will be 10,000 bonds.

WIA will not cover transaction costs, meaning brokerage charges will apply. 

If you would like a FIRM allocation, please contact us.

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Travel

Lower Hutt – 25 March – David Colman

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 – 1 May – Edward Lee

Auckland – 2 May – Edward Lee

Christchurch – 7 May – Johnny Lee

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

David Colman

Chris Lee & Partners

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Market News 17 March 2025

David Colman writes:

The prevalence of ‘For Lease’ signs along main streets in cities and towns globally is clear evidence of the difficulties faced by traditional retail businesses.

Brands established before the internet such as Walgreens (founded in 1901) have struggled to adapt over the course of many years.

Walgreens, perhaps not a well-known brand in New Zealand, is a company that has more than 300,000 employees and 12,500 retail pharmacy locations in the Americas and Europe.

If you visit the United States it is hard not to encounter the stores.

New Zealanders who have grown up in a country with a penchant for tomato sauce will likely find the Walgreens logo appears similar to the Wattie’s logo from a distance.

On my travels to the US I noted that the stores resemble a combination of a traditional pharmacy and a small supermarket as many outlets sell health related products in addition to snack foods, liquor, tobacco items, and other items you wouldn’t associate with a healthy lifestyle.

Walgreens losing its position in the Dow Jones Industrial Average to Amazon last week clearly illustrates the declining fortunes of traditional retail and the dominance of e-commerce.

Amazon was one of just a few e-commerce firms to survive the 2001 dot-com bubble and in line with its founder Jeff Bezo’s mantra of ‘get big fast’ has since become a multi-trillion dollar e-commerce colossus and more.

Walgreens in the meantime did embrace the e-commerce space and tried to innovate and as early as 1999 it offered online pharmacy services through walgreens.com

Walgreens also pursued growth and rapidly expanded its retail footprint from 3,000 stores in 2000 to over 8,000 stores by 2012.

It merged with Alliance Boots, a major UK and European wholesale and retail pharmacy group, in 2014 to expand its reach globally.

This is where the Walgreens Historical Highlights webpage ends.

The Walgreens’ website doesn’t describe the ill-fated partnership with Theranos that involved Walgreens stores having a designated area to perform blood tests that were fraudulent.

The diminutive ‘Edison’ machines pitched to Walgreens by Theranos CEO Elizabeth Holmes were touted as being able to perform over 95% of conventional laboratory blood tests from a single prick of blood and deliver results within half an hour.

Such a game-changing machine was considered impossible by top haematologists, and indeed it was.

The machines were installed at Walgreens and Theranos branded ‘wellness’ centres to much fanfare and at great cost 

Holmes’ powers of persuasion must have been considerable aided by her presupposition that the Walgreen’s executives were gripped by the fear of missing out (FOMO).

Walgreens, seemingly influenced by Silicon Valley venture capitalists at the time, incredibly did not even test the technology before embarking on this risky initiative due to fears that Theranos would partner with a competing firm such as CVS.

John Carreyrou’s book ‘Bad Blood’ is a worthwhile read for those interested in the rise and fall of Theranos. The book was published in 2018, the same year Walgreens joined the Dow Jones Industrial Average, displacing General Electric (an original Dow Jones constituent in 1896).

Since that date Walgreens has lost more than 80% of its value, as recently as 2018 the company had a market capitalisation of US$64 billion. Market cap fell below US$8 billion in late 2024.

The company leaves publicly traded markets (having been listed for close to 100 years) facing increasing financial pressure with a loss of US$3 billion in the fourth quarter of 2024 and debts of over US$9 billion.

New owners, private equity firm Sycamore Partners now owns the sprawling global retail pharmacy group and likely plans store closures and the selling off of business assets within the group in the pursuit of profitability.

Walgreens is not unique in the global retail sector with inflation over the last few years having a pervasive impact across the modern world. Consumer behaviour has changed swiftly, price increases have outpaced wage growth reducing spending and shopping has become increasingly online and frequently skipping local businesses.

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Walgreens is an example of a company that has struggled with international pressure on the retail sector which has also been felt by New Zealand listed retailers Hallenstein Glasson Holdings (HLG), KMD Brands (KMD), The Warehouse Group (WHS) and Briscoes Group (BGP).

Each of which have had varying degrees of success or failure managing economic conditions.

The Briscoes Group which owns and operates the Briscoes Homeware and Rebel Sports stores appears to have handled difficult conditions reasonably well as revealed in its full year results to 26 January 2025 released on Wednesday which included the following highlights:

- Total sales of $791.5 million (99.94% of last year’s record sales)

- Gross profit margin 40.37% (down from 42.4%) 

- Online sales as mix of total Group sales 19.69%, (up 6.25% from 18.72% in 2024)

- Total costs up 1.11% on last year

- $58.2 million capital expenditure made during the period

- Strategic initiatives remain on track and to budget

- Net profit after tax (NPAT1.) $68.0 million excluding a one-off tax adjustment of $7.4 million

The results were largely in line with the January trading update that forecast NPAT of greater than $66 million excluding the one-off tax adjustment.

A final dividend of 10 cents per share (cps) will be paid on 27 March 2025 which will be fully imputed and, bringing the total dividend for the year to 22.5 cps (down from 29cps in the prior year). 

The Company’s dividend policy is to pay out at least 60% of NPAT when calculated on a full-year basis. This year’s total dividend is lower than in recent years and represents a payout ratio of 83% of reported NPAT or 74% excluding the one-off tax adjustment.

Rod Duke, Group Managing Director, described achieving full year sales at 99.94% of the previous year’s record as a terrific achievement and noted the gross margin percentage decline for the period from 42.40% to 40.37% was required to drive sales.

The company expects margin pressure to continue, due to a weaker New Zealand dollar, but has plans to:

- target lower levels of clearance product

- introduce deeper analysis of promotion planning and monitoring

- implement a new merchandise planning tool (Impact Analytics)

Overhead costs were only 1.11% higher than the previous year despite a 6% wage rate increase for in-store hourly-paid staff and substantial increases for power, occupancy, warehousing and IT.

The company’s nearly 7% holding in KMD Brands (formerly Kathmandu) provided no dividends during the year compared to $2.9 million (pre-tax) the year before.

The company’s balance sheet includes cash and bank balances of $142.4 million and no term debt as of 26 January 2025.

The lion’s share of the $58.2 million of capital investment made by the Group was related to the $40.0 million spent to purchase land and make preliminary payments for the construction of, and automation contracts for, the new distribution centre project in South Auckland.

The project included the implementation during the first half of the year of a new Warehouse management System called Manhattan enabling the team to upskill before transitioning to the new facility when it becomes operational towards the end of 2026.

A further $10 million was spent on the roll-out of electronic labelling with spending on store refurbishments, store essential expenditure and enhancements to system software and hardware making up the rest.

The company plans to continue to rejuvenate stores for both Briscoes Homeware and Rebel Sport with new formats intended to revitalise aesthetically and promote how the stores can provide value to customers.

Looking forward the company’s management are being careful not to underestimate just how tough trading will continue to be with the first half expected to be especially challenging and they forecast second half profitability will exceed that produced for the first half.

The company forecasts an economic recovery to gradually emerge as the year progresses, assisting it to achieve a similar year on year level of profitability.

Group Chair Dame Rosanne Meo noted that the company sees benefits from its ongoing initiatives with longer term growth potential over the next three to four years.

She acknowledged the outstanding work done by the entire Briscoe Group team and described it as weathering the most challenging retail environment seen for many years.

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Dairy giant Fonterra Co-operative Group last Monday increased its FY25 full year earnings guidance meaningfully from 40 to 60 cents per share to 55 to 75 cents per share. FY24 earnings were 67 cents per share.

CEO Miles Hurrell commented that the Co-op is delivering strong earnings performance alongside a $10.00 per kgMS forecast Farmgate Milk Price midpoint (an historically high level), described as a great outcome for farmer shareholders.

The company has finalised preparation of its interim results, and after it reviewed the balance of the year ahead, confirmed an upgrade in its full year forecast earnings range largely driven by its core Ingredients business and the steady volume and margin growth of its consumer business.

Fonterra’s dividend policy is 60% to 80% of full year earnings, with up to 50% of the full year dividend to be paid as an interim dividend (2024 included an interim dividend of 15cps and final dividend of 40cps).

Fonterra will release its full year 2025 interim results later this week (on Thursday 20 March 2025) and will confirm its interim dividend on that date.

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Australasian retirement village operator, Ryman Healthcare Limited (RYM) completed the retail entitlement offer component of its 1 for 3.05 pro-rata accelerated non-renounceable entitlement offer last week.

The company raised a total of $1 billion with $720 million raised via the earlier Placement and Institutional Entitlement Offer, and $280 million under the Retail Entitlement Offer at $3.05 per share.

To put the sum raised by Ryman into perspective any listed company with a market capitalisation of $1 billion would comfortably be included in the NZ50G.

Despite only a 42% uptake by eligible retail shareholders, suggesting limited enthusiasm compared to underwriters, Ryman nonetheless described the Retail Entitlement Offer as well-supported in current market conditions.

Eligible retail shareholders subscribed for approximately $119 million of new shares including approximately $11 million of oversubscriptions.

Approximately $160 million of shares not subscribed by retail investors was allocated to underwriters and sub-underwriters, including existing institutional shareholders. These shareholders will likely be disappointed, as the new shares closed on Friday at $2.91—4.6% lower than the $3.05 entitlement price and significantly below the theoretical ex-rights price of $3.90.

The capital raising leaves Ryman with an improved financial position and the company will have to continue to be resilient in the current market climate and beyond.

CEO Naomi James described the funds raised as providing the platform required to achieve an improved level of performance and return to growth as market conditions recover.

New shares allocated under the retail offer commenced trading today.

The significant change in RYM’s balance sheet could be part of an investors considerations in relation to their retirement industry exposure and we welcome advised clients to contact us regarding this aspect of their portfolio.

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It has been impossible to miss the drama on Wall Street unfold this year with the S&P500 falling over 8%, to about 5,640 points, from its record close of 6,144 points on 19 February this year.

To add greater context the S&P500 was about half the size, around 2,700 points in March 2020, 5 years ago.

In dollar terms the combined market capitalisation of all the constituents of the S&P500 has fallen by approximately US$5 trillion in less than a month.

The former ‘Magnificent Seven’ has become the ‘Super Six’ (Tesla has lost its trillion dollar valuation and its magnificent status) and after many years of positive performance have performed as follows year to date:

- Apple (Mkt cap of US$3.2T) down 12.5%

- Amazon (Mkt cap of US$2.1T) down 10%

- Microsoft (Mkt cap of US$2.9T) down 7%

- Alphabet Inc Class C (Mkt cap of US$2T) down 12%

- Meta Platforms (Mkt cap of US$1.5T) up 1.4%

- Nvidia (Mkt cap of US$3.0T) down 12%

- Tesla (Mkt cap of US$0.78T) down 34%

The Cboe VIX Index, a leading indicator of volatility expectations (sometimes referred to as a ‘fear guage’), has climbed to levels not seen in months on concerns over a potential US recession which could push uncertainty higher.

If recession fears lead to spending cuts by consumers and corporates, these sentiment-driven actions could accelerate the onset of a recession.

US markets tend to be internationally influential and the disruption to the global economy in the form of US originated tariffs, retaliatory tariffs, government redundancies, soaring sovereign debt levels, a decline in consumer confidence, and ongoing conflicts represent major challenges.

Advised clients are encouraged to contact us to discuss how they might adjust their investment policies based on their tolerance for risk, investment horizon, and other factors when facing increased potential for high volatility for certain investments under current conditions.

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Investment Opportunity

Wellington International Airport (WIA) has announced plans to issue a new senior bond with a maturity of 6 years.

The interest rate has not yet been confirmed, however, based on WIA’s BBB credit rating, we anticipate it will be approximately 5.00%.

The expected minimum investment will be 10,000 bonds.

WIA is unlikely to cover transaction costs, meaning brokerage charges may apply. This will be confirmed next week.

To register preliminary interest, please reply with your indicative amount and CSN. We will contact you next week with additional details.

Travel

Wellington – 19 March – Edward LeeLower Hutt – 25 March – David ColmanChristchurch – 15 April – Fraser HunterAshburton – 16 April – Fraser Hunter

Timaru – 17 April – Fraser HunterTauranga – 15 April – Johnny LeeHamilton – 17 April – Johnny LeeAuckland – 1 May – Edward LeeAuckland – 2 May – Edward LeeChristchurch – 7 May – Johnny Lee

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

Chris Lee & Partners Ltd

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Market News 10 March 2025

Johnny Lee writes:

THE Warehouse Group has provided a trading update, likely its last before publishing its formal results on 21 March.

The update further disappointed the market. Warehouse shares fell below $1 following the news, reaching 91 cents before recovering to 94.

The company continues to experience economic headwinds and faces intense competition, which is placing pressure on margins. Sales for the half were down 1.6%. The company expects the second half of the year to see another loss.

In line with its peers, The Warehouse is expecting the economy’s headwinds to ease later this year, with the retail sector still hoping consumers will react positively to falling headline inflation and the lower interest rates that should coincide. The expectation is that consumer optimism will rise over the medium term, leading to more spending at the retail level. 

This is broadly supported by consumer confidence data. The Roy Morgan Consumer Confidence survey, which polls New Zealanders each month, showed that while most New Zealanders are pessimistic about the year ahead, a slim majority are optimistic about the next five years. For now, very few are planning major household purchases.

While consumers are closing their wallets, another growing issue facing our retailers is where New Zealanders are choosing to shop, with an increasing number of consumers electing to spend online – and offshore. 

NZ Post’s recent eCommerce data showed New Zealanders’ online spending reached new records, with transactions now exceeding even the heights achieved during COVID. However, we spend less per transaction on average, particularly when shopping overseas.

Much of this was attributed to the popularity of the Chinese e-Commerce giants, like Temu and Shien. A survey last year claimed as many as one in four New Zealanders regularly use these companies, eschewing local retailers in order to save costs.

Temu does not yet turn a profit, with the company instead trying to capture market share and put pressure on overseas competitors. The company also spends billions on advertising, from Facebook to the Superbowl, in order to raise awareness of its services.

For our local retailers, like The Warehouse, the competition simply compounds the pressure of a difficult trading environment. Consumers are spending less, and the competition from overseas seems quite content to sell items below cost to fight for this discretionary dollar.

Several strategies have been attempted over the years – marketing drives to support local business, debates about the quality of overseas products, arguments about the ethics of overseas supply chains and even the environmental impact of low-cost overseas products. For now, consumers seem to be flocking to these cheaper, international sites.

Not all within the retail sector are seeing a plunging share price. Hallenstein Glasson continues to hold its ground, outperforming the market so far. Hallenstein is now considerably larger than The Warehouse (by market capitalisation) and is near record highs.

The Warehouse update disappointed the market and signalled that the tough headwinds the company detailed in the September result have not yet passed. Hope remains that lower interest rates will spur a recovery later this year. Time will tell.

In the meantime, structural issues around competition and consumer habits continue to evolve. Some within the retail sector will be relying on their balance sheets, as they wait for conditions to improve.

Our major retailers report throughout March and should provide a good litmus test on the strength of our consumer sector. Briscoes reports on Wednesday, The Warehouse on 21 March, Kathmandu on 26 March and Hallenstein on 28 March. 

 _ _ _ _ _ _ _ _ _ _

Reserve Bank Governor Adrian Orr has resigned after seven years in the role.

The Governor of the Reserve Bank is rarely a popular man, as the figurehead of the Monetary Policy Committee. The MPC determines our official cash rate, indirectly controlling the cost of debt and the return on savings.

Screeds will be written about Orr over time, much like his predecessors Brash, Bollard and Wheeler. Orr presided over the COVID crisis – when the OCR was cut from 1.75% to 0.25% - to the post-COVID inflation era, when the rate was gradually lifted from 0.25% to 5.50%. It currently sits at 3.75%.

Orr leaves at the end of March. During the interim period, Deputy Governor Christian Hawkesby will act as Governor. Come April 1, Nicola Willis may appoint a temporary Governor for a period of up to six months, while a permanent Governor is determined.

A dramatic shift in approach is unlikely. Markets value stability and predictability, which is often in short supply in the current environment.

_ _ _ _ _ _ _ _ _ _ _

Indeed, volatility remains heightened after last week's whipsaw of announcements, as investors try to make head or tail of US leadership and policy direction.

As an example, General Motors – the US automotive manufacturer – rose 4%, fell 11%, rose 9% then fell 2% over the course of the last week. 

Much of this volatility is being driven by uncertainty around tariffs. Canada, Mexico, China and the United States seem to be stuck in a pattern of escalation, lifting the costs of importing foreign products into their respective markets as retaliation for earlier decisions. 

Further comments between Chinese and American officials regarding trade wars also disrupted markets.

The latest position is that tariffs are being placed across various US allies but are temporarily delayed. This position has shifted several times over the past month.

All of this led to some investors moving away from shares and back to cash and bonds, a normal reaction when uncertainty spikes. The VIX index, which measures volatility expectations, rose 30% in a 24-hour span last week.

These market ructions would be felt heavily by holders of the popular US ETFs, such as USG and FANG. Owners of these instruments should be bracing for more short-term volatility.

Complicating this further is the political ramifications of this dispute, particularly in Canada. A Canadian election is due this year, and polls have shifted sharply as this dispute has raged on.

Our sharemarket performance will continue to take its lead from overseas markets. The US is a major trading partner of ours, and US interests own significant shareholdings across our equity and debt markets.

As these disputes play out, our market will continue to react, and volatility will continue to rise.

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

Travel

Wellington – 19 March – Edward LeeLower Hutt – 25 March – David Colman

Auckland – Ellerslie – 28 March – Edward Lee

Christchurch – 15 April – Fraser Hunter

Ashburton – 16 April – Fraser Hunter

Timaru – 17 April – Fraser Hunter

Tauranga – 15 April – Johnny Lee

Hamilton – 17 April – Johnny LeeAuckland – Ellerslie – 1 May – Edward LeeAuckland – Albany – 2 May – Edward LeeChristchurch – 7 May – Johnny Lee

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

Chris Lee & Partners

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Market News – 3 March 2025

Johnny Lee writes:

REPORTING season continues to keep investors on their collective toes, with a number of announcements across both large and small-cap stocks last week.

Corporate results have been disappointing. After a flat start to the year, the index is now down 4% year-to-date. A number of our largest companies have missed the mark and continue to pin their hopes on an interest-rate-driven recovery.

Even those companies that have seen share price bounces have largely done so by exceeding very low expectations.

One bright spot has been a2 Milk, which is now up 40% for the year.

In a month of wild swings, Ryman – which does not report in the February cycle – managed to steal the spotlight after announcing another large capital raising from its shareholders, as it looks to significantly deleverage its balance sheet.

Ryman intends to raise a billion dollars from shareholders at a price of $3.05 per share. This comes just two years after the company asked for $900 million from its shareholders at a price of $5 per share. Like the 2023 issue, the new funds will be used to retire debt. Gearing will decline from 37.3% to 23.1% following the raise. Interest-bearing debt will fall from $2.56 billion to $1.59 billion.

The capital raising is fully underwritten. Shareholders are not obligated to participate, and most will be keenly watching the share price as we near the closing date (10 March) to determine whether the offer is worth considering. It never makes sense to pay $2 for a $1 coin.

The offer is comprised of two parts.

Firstly, there was an institutional placement raising $313 million. This offer has already been completed and saw 77% participation from these existing holders.

The bulk of the funds, however, will be raised from retail holders. $688 million is being raised from retail shareholders at the price of $3.05. There is no mechanism for price adjustment – $3.05 is the fixed price.

Because the offer is underwritten, Ryman will not be unduly concerned with the subsequent fall in the share price. The funds will be raised regardless, with the underwriters and sub-underwriters bearing the loss. This is the risk taken when underwriting offers.

Retiring 40% of the company’s debt is aimed at providing more flexibility moving forward. The company clearly highlights that the current market conditions are very difficult, with the housing market stalling and poor sales. Ryman is hoping the equity raise will give it time for a market recovery and space from its lenders.

Shareholders, so far, have been less forgiving. Many will be re-evaluating whether their investment horizon aligns with a long-term recovery. Ryman is targeting business improvements over the next 3 to 5 years, with an eye toward a “return to disciplined growth.”

The capital raising from Ryman Healthcare has sent the share price tumbling and raised concerns among shareholders. It is the second capital raising in two years and is priced at a significant discount to that issue.

The offer closes next Monday, 10 March.

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ANOTHER listed company has announced it has received a takeover offer.

Marsden Maritime Holdings has approached its largest shareholders with a buyout proposal, which they have accepted at a price of $5.60. The price represents a 70% increase to the pre-offer price and a return to early 2023 levels.

MMH is the holding company created to own half of Northport, as well as some adjacent land and a nearby marina.

The takeover was announced by the other half-owner of Northport, Port of Tauranga, which is part of a consortium leading the offer, alongside the Northland Regional Council and Ngapuhi Investment Fund.

A special shareholders meeting is scheduled for May to bid for shareholder approval. If approved, the offer is planned to conclude in June of this year.

_______

ANOTHER listed company has announced it is entering receivership.

Greenfern Industries has ended its three-and-a-half-year stint on our exchange after raising millions from shareholders via crowdfunding. The company once claimed a market capitalisation in the tens of millions and managed to raise money from shareholders as recently as 2022.

Greenfern described itself as a biotechnology company operating within the medicinal cannabis field.

Greenfern’s receivership follows that of Cannasouth in March 2024. Cannasouth followed a similar path: the company raised millions from retail shareholders, reached a significantly higher valuation, and later collapsed into receivership.

The receivership announcement from Greenfern follows the chair and CEO resigning late on Monday afternoon. The board stated at the time that it was searching for a replacement but announced the next morning that instead, receivers had been appointed pursuant to the security agreement with its recently acquired lender, Emdex Limited.

In December 2024, Greenfern announced it had secured a $200,000 loan from Emdex Limited, a company owned entirely by Edward Mckee Wright.

The previous chief executive of Greenfern, Dan Casey, resigned in August. The former chair, Brent King, resigned in October 2022.

Shareholders will not be hopeful of a return following the receivership. Historically, receivership has not been a successful vehicle for value recovery in this sector.

The medicinal cannabis companies have been nothing short of a disaster for retail investors.

The sole survivor among the listed cannabis-related companies is Rua Bioscience. Shareholders of Rua have seen a similar share price track so far but will be hoping to avoid the same fate as Greenfern and Cannasouth.

While Greenfern’s decline will not necessarily come as a surprise to industry veterans, it serves as a reminder of the risks involved when investing in newer companies, especially via crowdfunding. Many of these companies have returned cap in hand to their shareholders shortly after listing, only to be turned away.

Having strong, confident shareholders with deep pockets – and the support of the capital markets industry – makes a significant difference during challenging periods.

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New Issues

PROPERTY for Industry Limited (PFI) is offering a 5.5-year senior secured fixed-rate bond.

Full details of the offer are now available on our website.

PFI is an industrial property investment company in New Zealand, managing a $2.1 billion portfolio of high-quality industrial properties.

The company has a track record of stability, with an occupancy rate of 99.9% and a weighted average lease term of 5.67 years.

PFI has delivered steady earnings growth, supported by rental increases, strategic developments, and a disciplined capital management approach.

The interest rate for these secured bonds will be set on Thursday, with a minimum rate of 5.15% per annum. Based on current market conditions, we anticipate it to be approximately 5.30% per annum, though it cannot be lower than 5.15%.

PFI will cover the transaction costs for this offer. Therefore, brokerage will not be charged to clients.

If you would like a firm allocation for this bond, please contact us promptly with the amount you wish to invest and the CSN you plan to use.

The issue is due to close this Thursday, 6 March, at 10am.

Payment must be received no later than 12 March.

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Travel

Napier - Mission Estate - 6 March - Edward Lee

Havelock North – Porters Hotel - 7 March - Edward Lee

Christchurch – 12 March – Johnny Lee

Wellington – 19 March – Edward Lee

Lower Hutt – 25 March – David Colman

Auckland – 28 March – Edward Lee

Fraser – 14 April – Christchurch

Ashburton – 14 April - Ashburton

Tauranga – 15 April – Johnny Lee

Hamilton – 17 April – Johnny Lee

Auckland – 1 May – Edward Lee

Auckland – 2 May – Edward Lee

Christchurch – 7 May – Johnny Lee

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

Johnny Lee

Chris Lee & Partners Ltd

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