Rising interest in raising capital
The big question for many market watchers: Will Air NZ be the next?
Capital raisings have continued apace this week, with Sky Network Television completing its $157m capital raising and honey products company Comvita looking to raise $50m.
But analysts are also pointing to the need for loss-making Air New Zealand to potentially raise capital to shore up its balance sheet, given its ongoing cash burn.
Forsyth Barr’s Andy Bowley said in a note this week that gearing for the airline was at the top end of management’s 45 to 55 per cent target band in June 2019 and this position will have been exacerbated by Covid19’s impact on demand.
“In light of the severe demand implications of Covid-19 we believe a capital raise is likely to provide liquidity and protect the balance sheet.”
Fat Prophets analyst Greg Smith said he wouldn’t be surprised to see a capital raise from the airline.
“I think it would be reasonably well supported, although that always comes down to the discount,” Smith said.
So far, Z Energy’s $350m capital raise is the largest to take place on the New Zealand sharemarket this year.
Smith said he would expect an Air NZ raise to be at least that or somewhat higher, given the airline was burning through about $100m in cash a month at the moment.
“It would have to be a sizeable raise. It would probably trump what we have already seen,” he predicted.
Bowley, who has a underperform rating on the stock, is forecasting an after-tax loss of $115.9m in its 2020 financial year followed by an aftertax loss of $91.7m for 2021, with a return to profit in 2022.
He has a target price of $1 on the stock and a risk rating of high.
Lockdown godsend
The lockdown has been tough for churchgoers, who have been unable to attend services in person, but appears to have been a boon for digital church donation firm PushPay.
Shares in the NZX-listed company hit a high of $7.42 on May 21 and it is now the best performing stock in the NZX 50 so far this year, topping the performances of alternative milk supplier a2 Milk and Fisher & Paykel Healthcare.
The company’s share price has more than exceeded at least one analyst’s target price.
Jarden analysts Wassim Kisirwani and Wilson Wong upgraded Pushpay’s rating to outperform earlier this month with a target price of $6.54 — up from $4.53 on the back of a strong result.
On May 6 Pushpay said it expected its rapid pace of growth to continue, forecasting earnings before interest, tax, depreciation, amortisation and foreign exchange movements (Ebitdaf) of between US$48 million ($79m) and US$52m in the March 2021 year.
It reported Ebitdaf of $25.1m for the year to March 2020, with revenue up 33 per cent.
With lockdowns now easing, one of the risks it faces is whether digital giving will continue to grow.
The analysts noted key risks were a decline in the US giving market, fee compression and slowing growth in revenue from new customers.
The Jarden analysts estimated a 7 per cent decline in total giving in the US market and a partial reversion to non-digital giving as churches reopen for physical attendance, but said: “We believe the assumption of a reversion in digital giving rates is conservative, providing scope for PPH [Pushpay Holdings] to exceed guidance and our revised forecasts.”
For now, it’s a stock which is continuing to give growth to its shareholders in a tough market.
Market bounce not equal
While the NZX 50 index is now down less than 5 per cent since the start of this year, it’s only a small handful of stocks that are pulling it up.
A2 Milk and Fisher & Paykel make up such a large part of the index that their positive returns lift the index as a whole.
But as Mark Lister, head of private wealth research at Craigs Investment Partners, noted the other day, the average share price movement has been down around 19.5 per cent.
Scraping down at the bottom of the performers are Sky TV, Kathmandu and Gentrack.
Outside of Pushpay, a2 and F&P, positive returns have come from Chorus, Spark, the NZX, Goodman Property Trust and Vector.
Sanford dives
Shares in New Zealand’s biggest and oldest seafood company, Sanford, took a dive after the company reported a 17 per cent decline in first half earnings.
The stock dropped by 44c or 6 per cent to $6.94 after reporting that its net profit came to $19m. Earnings before interest and tax came to $23.2m, down 29 per cent.
Sanford has a diverse range of interests across fishing and aquaculture. In recent years it has made a strategic shift into higher value products such as greenshell mussel powders and high-end branded salmon.
The company’s first-half results in its fishing division suffered because of a shortfall in catch volumes for toothfish, caused in part by weather, it said.
Pricing for this species was also softer globally, following the impact of Covid-19.
Coronavirus impacts were also felt in other areas of the business, particularly towards the end of the reporting period.
Chief executive Volker Kuntzsch said that, while the overall interim result was below expectations, there was clear strength in salmon and greenshell mussels, demonstrating the benefits of Sanford’s transition into a more diverse company.
He said food service channels have been severely hit by Covid-19 but domestic retail sales have been holding up well.
I think [An Air NZ capital raise] would be reasonably well supported, although that always comes down to the discount.
Greg Smith, Fat Prophets