NZ firms could be ripe for picking in 2019
Cashed-up private equity investors were very active buying New Zealand companies last year and are expected to remain on the hunt in 2019.
Apax’s $2.56 billion offer for Trade Me is still to be finalised with a vote due in April amid other regulatory approvals but industry players widely expect the deal to go ahead.
Restaurant Brands shareholders have until March 12 to accept the $881 million bid for up to 75 per cent in the Kiwi company being made by Mexican investment company Finaccess.
Slade Robertson, managing director of Devon Funds Management says he expects merger and acquisition activity to remain at an elevated level this year.
“This will be driven by the very low levels of interest rates globally and by the significant levels of liquidity that exist across the private equity networks,” he told Stock Takes this week.
There is plenty of talk around the markets on which company could be the next potential target.
Fletcher Building has already attracted speculation with its beaten up share price prompting some to suggest it could be open to a takeover.
But another company which is being talked about is Z Energy.
Out of favour
Z Energy has been a bit unloved by the sharemarket in recent times.
In November, the share price hit $5.18 — its lowest point since May 2015 — after suffering a 21 per cent decline in first-half earnings and announcing a dividend that was five cents less than investors were expecting.
The stock has bounced back a little since then, trading at $5.80 yesterday.
Despite being out of favour with investors, Craigs Investment Partners has retained a “buy” recommendation on the stock, based on its assessment of Z’s earnings prospects.
“We have raised our 2019 ebitda forecast from $414m to $429m and dividend from 34c to 40c,” Craigs research analyst Grant Swanepoel said in an industry update.
Z Energy suffered a poor performance in the first half because of margin compression and oil-driven negative accounting impacts, forcing management to downgrade the company’s ebitda guidance to a range of $400-435m.
“Since then the oil price has fallen, reversing the accounting impacts and easing the pressure on retail margins,” Swanepoel said. “While we have reduced our target price from $7.42 to $6.69 to reflect lower expected industry margins over time, due to upside to our target price we keep a ‘buy’. Since last guidance, the metrics have improved,” he said.
He noted that since the November guidance, the Brent oil price has fallen 35 per cent.
The retail margin has also been far stronger than anticipated — a $6m improvement on prior expectations.
This has been partially offset by the recent fall in refining margins, hence a lower Refining NZ rebate and dividend, Swanepoel said. Refining NZ is 15.4 per cent owned by Z Energy.
Swanepoel told Stock Takes it was difficult for Z Energy to manage investors’ expectations given the wild swings in oil prices over the last few months.
“The organic performance of the business is improving again,” he said.
Among the downside risks to its valuation and estimates, Craigs said an increase in competition could leading to lower sector margins being achieved.
A Government-ordered review of the fuel prices could also damage industry margins.
Z Energy is expected to issue an operational update over the next week or two.
Talent tussle
It seems it is not only on the investment front that fund managers are battling it out — but also for talent.
Salt Funds Management has signed up Kirsty Campbell to its board as an independent chair, scooping her from rival Simplicity.
Campbell had been on the board of Simplicity since July 2016 but resigned at the end of last year, two weeks after she joined the Salt board.
Simplicity managing director Sam Stubbs said Campbell, who was previously head of supervision at the
Financial Markets Authority, had held roles with both fund managers for a while.
“And it was fine as long as we stayed a KiwiSaver manager when they weren’t one. But as Simplicity has expanded into non-KiwiSaver funds, the competitive issue has come to the fore and it’s appropriate that Kirsty has to choose where to be.”
Stubbs said on top of that, directors at Simplicity worked on a pro bono basis so it was natural they tended to rotate more than paid directorships.
“So we’re very sad Kirsty has left, but totally understand why and she remains a great friend of Simplicity.”
Salt Fund Management managing director Matt Goodson said Campbell had been the independent chair of its compliance committee for some time and had been “brilliant”. Campbell is the first independent board chair Salt will have. Goodson said it had always taken the view that any independent director would need to be able to question its decisions while also moving in the same direction.
“We are obviously very pleased to have her on board,” he said.