Beware the Oz effect
Covid-19 lockdown could hit NZ firms with operations across the Tasman
Analysts are eyeing New Zealand stocks with exposure to Australia amid the rising numbers of Covid-19 cases and lockdown in Victoria.
Shane Solly, portfolio manager at Harbour Asset Management, said Australia had been expected to make a quick recovery from the economic downturn caused by the initial lockdown period.
But the second Victoria shutdown would likely push out that recovery, making it tougher for New Zealand businesses with Australian arms.
One of those likely to feel some pressure will be Fletcher Building. Its financials show the construction giant generates about 35 per cent of its revenue from Australia.
Even before Covid hit, Fletcher was trying to turn around its Australian arm through cost-cutting measures and had been hoping that would bear fruit this year.
That seems unlikely now. Forsyth Barr analyst Matt Henry said Australia had been a very challenging market for Fletcher Building for a long time.
It was no secret that, despite accounting for 35 per cent of revenue, Australia was a smaller portion of the company’s earnings. “They have had plans to remedy that.”
But he said the company struggled to turn around the Australian arm even in buoyant times.
“When you have got a backdrop like what you have got now . . . it exacerbates those challenges. We anticipate those businesses will be finding it pretty tough.”
But Henry expected the New Zealand earnings would be reasonable, given how quickly the building sector had got back on track, and that was a much bigger proportion of the company’s earnings.
Victoria’s lockdown is much less strict than New Zealand’s level 4 rules, but no doubt it will restrict productivity.
Henry said everyone understood it would have an impact on business in the short term, but he was more concerned about the impact on a medium-term basis. “For us it is more about what does the outlook look like over the next few years.”
A prolonged economic downturn would have repercussions for construction. Fletcher Building shares are down 28 per cent over the past year.
Ryman’s risk
Ryman Healthcare is also facing challenges, with its Australian business solely in the state of Victoria.
It has two villages already open in Melbourne, which have been in a second lockdown since early July, despite being outside the suburbs where the virus has emerged again.
A further four sites outside Melbourne are under construction, as well as one of the open villages, and another five sites are at the proposal stage.
Ryman’s spokesman said it had been more cautious than the state rules required in locking down its two Melbourne villages and to date had had no cases of the virus.
“What we do is turn our villages into safe havens,” he said.
It has 750 residents in Melbourne compared with 11,000 in New Zealand across 34 villages.
“So Victoria is a relatively small but growing part of Ryman.”
The spokesman said its construction sites had kept building throughout the lockdowns and it had nurses on site to carry out temperature checks and was following social distancing measures.
“We are just keeping everyone safe.”
Of its 550 staff in Australia, 41 were office staff who had been working from home since March.
But the lockdown is bound to affect sales, as it will be tougher for people to sell their home and move into a village under the restrictions.
Ryman’s spokesman said its sales advisers were continuing to work with a few restrictions, and were talking to customers over Zoom.
“. . . activity continues but at a reduced level,” he said
Director departures
Two director departures have raised eyebrows this week.
Pushpay gave no reason when it announced the departure of Justine Smyth on Monday.
Smyth, who is also chair of Spark and on the board of Auckland International Airport, had been on the board less than a year.
Smyth said in an email to the Herald that her move was “just a personal decision”.
But there is concern her departure was driven by a board culture clash over suggestions the company take more of a big corporate approach.
Apparently that went down like a lead balloon.
Smyth was Pushpay’s first female director after the company received criticism for a lack of women on its board.
Finding a new director could be challenging in the current tough environment, where experience is key. “There is a shortage of people able and willing to do these roles,” one market source told Stock Takes.
In another surprising move, Alan Clarke stepped down as chairman of listed carpet maker Cavalier Corp on Wednesday and will also retire as a director after the company’s annual meeting this year.
Clarke joined the Cavalier board in November 2017 and had been chair since October 2018.
Typically, chairs will signal their departure ahead of time rather than resigning and leaving the role on the same day.
There is some suggestion Clarke may have come under pressure over the sale of Cavalier’s stake in its scouring business.
It sold its 27.5 per cent shareholding in Cavalier Wool Holdings (CWH) and a half share in a property for $13.5 million to David Ferrier’s Woolscour Holdings in September 2018.
Less than a year later, Ferrier onsold a 35 per cent stake to John Wylie’s Tanarra Capital for $32.7m.
Cavalier was facing a tough time even before Covid-19 hit.
For the six months to December it made a net loss of $1.2 million, although that was an improvement on the $10m loss for the six months to June 30, 2019.
Another growling for Tiger
Tiger Brokers has been publicly censured and fined $160,000 by the NZX’s disciplinary tribunal for breaching listing rules.
The tribunal found Tiger broke the rules by depositing clients funds in an account which was not a client fund account and for failing to comply with a direction from the NZX to cease using that account.
It is the second time it has fallen foul of a regulator this year. In April, the Financial Markets Authority issued a formal warning to Tiger for failing to have several adequate antimoney laundering protections.
The broker was given until April 17 to submit a plan to the regulator on how it would remedy the issues and has until September 30 to complete the actions or it could face enforcement.
Tiger was incorporated in New Zealand in 2015 and its parent company is listed on US tech exchange the Nasdaq.