New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2><a target="_blank">Equity Strategy</a></h2>
Coronavirus — Impacts and Consequences
The coronavirus outbreak continues to gain momentum with the number of new cases growing daily. It is nigh impossible to predict (1) the length of time it will take to contain the spread of the virus, and (2) future containment measures. Therefore, it also very difficult to forecast the ultimate financial impact on companies with direct or secondary exposure to it. Near term earnings risk exist for a wide variety of companies across the travel, tourism, freight, export and manufacturing industries. However, the coronavirus is unlikely to have a lasting impact on trade and consumer mobility, and therefore we see limited impact on long term intrinsic value of the companies exposed.
Coronavirus in numbers
There are now almost 25,000 confirmed cases of coronavirus globally according to available data, the majority of which are in China. At this stage, the outbreak appears to be contained beyond China’s borders, albeit the number of cases has been growing but remains at very low levels. The death rate is 2%–3%, which is low compared to SARS (~9.6%), but high enough to warrant the dramatic containment initiatives now in place. The path from here is uncertain, given the evolving situation.
Cities in lockdown; disruption will have an impact on supply chains
There are currently 13 Chinese cities in lockdown with a combined population of &gt;50m people. A further 10 cities (combined population of &gt;90m) have closed council controlled services. These containment measures could be widened geographically and prolonged while the virus growth rate increases. A large number of factories across the country remain closed after an extended Chinese New Year holiday.
Global markets react, but modest at this stage
Since the coronavirus started making global headlines on 20 January 2020, the S&amp;P 500 has fallen just -2% and the MSCI All Index has fallen -1%. Locally, the S&amp;P/NZX 50 is down -2% over the same period. However, companies in the travel, tourism and freight industries have fallen more markedly. The SARS episode in 2003 suggests that stocks and markets will recover lost ground once the daily number of new cases peak.
Stock implications
Tourism Holdings (THL) is the only company thus far to downgrade near term earnings as a result of the coronavirus (as well as several other issues). However, other companies are exposed and may see some impact on their near term outlooks. These include Auckland Airport (AIA), Air New Zealand (AIR), Comvita (CVT), Fonterra (FSF), Mainfreight (MFT), Napier Port (NPH), Port of Tauranga (POT), Sanford (SAN), Scales (SCL), Skellerup (SKL), Skycity (SKC), Synlait (SML), and The a2 Milk Company (ATM).<a target="_blank">&nbsp;</a>
Andy Bowley andy.bowley@forsythbarr.co.nz +64 4 495 8246&nbsp;
Andrew Harvey-Green andrew.harvey-green@forsythbarr.co.nz +64 4 495 8185&nbsp;
Chelsea Leadbetter, CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262

Equity Strategy
Coronavirus — Impacts and Consequences
The coronavirus outbreak continues to gain momentum with the number of new cases growing daily. It is nigh impossible to predict (1) the length of time it will take to contain the spread of the virus, and (2) future containment measures. Therefore, it also very difficult to forecast the ultimate financial impact on companies with direct or secondary exposure to it. Near term earnings risk exist for a wide variety of companies across the travel, tourism, freight, export and manufacturing industries. However, the coronavirus is unlikely to have a lasting impact on trade and consumer mobility, and therefore we see limited impact on long term intrinsic value of the companies exposed.
Coronavirus in numbers
There are now almost 25,000 confirmed cases of coronavirus globally according to available data, the majority of which are in China. At this stage, the outbreak appears to be contained beyond China’s borders, albeit the number of cases has been growing but remains at very low levels. The death rate is 2%–3%, which is low compared to SARS (~9.6%), but high enough to warrant the dramatic containment initiatives now in place. The path from here is uncertain, given the evolving situation.
Cities in lockdown; disruption will have an impact on supply chains
There are currently 13 Chinese cities in lockdown with a combined population of &gt;50m people. A further 10 cities (combined population of &gt;90m) have closed council controlled services. These containment measures could be widened geographically and prolonged while the virus growth rate increases. A large number of factories across the country remain closed after an extended Chinese New Year holiday.
Global markets react, but modest at this stage
Since the coronavirus started making global headlines on 20 January 2020, the S&amp;P 500 has fallen just -2% and the MSCI All Index has fallen -1%. Locally, the S&amp;P/NZX 50 is down -2% over the same period. However, companies in the travel, tourism and freight industries have fallen more markedly. The SARS episode in 2003 suggests that stocks and markets will recover lost ground once the daily number of new cases peak.
Stock implications
Tourism Holdings (THL) is the only company thus far to downgrade near term earnings as a result of the coronavirus (as well as several other issues). However, other companies are exposed and may see some impact on their near term outlooks. These include Auckland Airport (AIA), Air New Zealand (AIR), Comvita (CVT), Fonterra (FSF), Mainfreight (MFT), Napier Port (NPH), Port of Tauranga (POT), Sanford (SAN), Scales (SCL), Skellerup (SKL), Skycity (SKC), Synlait (SML), and The a2 Milk Company (ATM).&nbsp;
Andy Bowley andy.bowley@forsythbarr.co.nz +64 4 495 8246&nbsp;
Andrew Harvey-Green andrew.harvey-green@forsythbarr.co.nz +64 4 495 8185&nbsp;
Chelsea Leadbetter, CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262

Equity Strategy: Coronavirus — Impacts and Consequences

<h2>SKYCITY</h2>
Investor Day — Consistent Hand
SKYCITY’s (SKC) Investor Day provided considerable detail, largely reinforcing prior messages and priorities, and FY20 EBITDA guidance was retained (albeit with mix shifts). SKC offers a solid dividend yield, earnings growth potential post major projects (although we remain cautious on Adelaide returns); while near-term disruption and cost inflation are constraints. The NZICC fire also adds some uncertainty (which is unlikely to be resolved any time soon). NEUTRAL.
Recent trading — strength in NZ offsetting weakness in Adelaide
Prior FY20 guidance was reiterated for “some” growth in EBITDA on a base of NZ$303m — broadly consistent with our current forecasts. However, recent trading shows a mix shift — with its NZ properties ahead of expectations, while Adelaide continues to disappoint (disruption and new initiatives not driving the anticipated market share improvement) and IB turnover is down -10% (not helped by a strong comparative and win rate above theoretical).
EBITDA and cash results will remain the best measures for comparison to expectations, peers, and history in the short to medium-term as NPAT is clouded by project accounting and now — for FY20, various decisions around accounting treatment (particularly ability to capitalise costs) relating to the NZICC fire. At this stage we have not made any change to our Auckland project capex timing or associated earnings given material uncertainty on the extent of the delay.
Other key take-outs
<ul>
<li>Challenging backdrop reiterated: Economic conditions and cost inflation.</li>
<li>Adelaide — focus turning to execution: The material transformation, scale and complexity of the project is evident. Attention now turns to execution on the earnings uplift required (project EBITDA of ~A$50m; property EBITDA of ~A$75m) to meet its return hurdles (ROIC target of 9%). While the opportunity has been well articulated and we can see various areas of upside potential, Adelaide has underwhelmed over history which adds caution. SKC has noted it will take time to deliver (“3–4 years to reach potential”). Timelines and EBITDA indications appear modestly slower relative to our expectations.</li>
<li>NZICC fire — still a lot of unknowns, key near-term issue is reduced carparking: Material delay to completion is inevitable, but timing is unknown at this point. The key implications for earnings are (1) timing of hotel opening, (2) carparks (reduced capacity currently), (3) visitation / disruption. At this stage NZICC capex is unchanged and SKC appears confident in its insurance arrangements.</li>
<li>No new growth projects: A number of options are being evaluated, however, any material projects appear unlikely near-term.</li>
<li>Balance sheet in good shape: Headroom provides optionality.</li>
<li>Near-term margin pressure: From new openings (Adelaide and Auckland projects) and establishing new businesses (online). This isn’t new, albeit suggests margins will be <a target="_blank"></a>under pressure longer than we anticipated.&nbsp;</li>
</ul>
<div class="content-highlight">
Investment View
SKC has a casino monopoly and significant licence term in all its key markets. A slowing macro environment and cost inflation present near-term headwinds, while a solid dividend yield and share buyback provides share price support. NEUTRAL.&nbsp;
</div>
<a target="_blank"></a><a target="_blank">Chelsea Leadbetter, CFA</a>
<a target="_blank">chelsea.leadbetter@forsythbarr.co.nz</a>
<a target="_blank">+64 4 495 5262</a>

SKYCITY
Investor Day — Consistent Hand
SKYCITY’s (SKC) Investor Day provided considerable detail, largely reinforcing prior messages and priorities, and FY20 EBITDA guidance was retained (albeit with mix shifts). SKC offers a solid dividend yield, earnings growth potential post major projects (although we remain cautious on Adelaide returns); while near-term disruption and cost inflation are constraints. The NZICC fire also adds some uncertainty (which is unlikely to be resolved any time soon). NEUTRAL.
Recent trading — strength in NZ offsetting weakness in Adelaide
Prior FY20 guidance was reiterated for “some” growth in EBITDA on a base of NZ$303m — broadly consistent with our current forecasts. However, recent trading shows a mix shift — with its NZ properties ahead of expectations, while Adelaide continues to disappoint (disruption and new initiatives not driving the anticipated market share improvement) and IB turnover is down -10% (not helped by a strong comparative and win rate above theoretical).
EBITDA and cash results will remain the best measures for comparison to expectations, peers, and history in the short to medium-term as NPAT is clouded by project accounting and now — for FY20, various decisions around accounting treatment (particularly ability to capitalise costs) relating to the NZICC fire. At this stage we have not made any change to our Auckland project capex timing or associated earnings given material uncertainty on the extent of the delay.
Other key take-outs

Challenging backdrop reiterated: Economic conditions and cost inflation.
Adelaide — focus turning to execution: The material transformation, scale and complexity of the project is evident. Attention now turns to execution on the earnings uplift required (project EBITDA of ~A$50m; property EBITDA of ~A$75m) to meet its return hurdles (ROIC target of 9%). While the opportunity has been well articulated and we can see various areas of upside potential, Adelaide has underwhelmed over history which adds caution. SKC has noted it will take time to deliver (“3–4 years to reach potential”). Timelines and EBITDA indications appear modestly slower relative to our expectations.
NZICC fire — still a lot of unknowns, key near-term issue is reduced carparking: Material delay to completion is inevitable, but timing is unknown at this point. The key implications for earnings are (1) timing of hotel opening, (2) carparks (reduced capacity currently), (3) visitation / disruption. At this stage NZICC capex is unchanged and SKC appears confident in its insurance arrangements.
No new growth projects: A number of options are being evaluated, however, any material projects appear unlikely near-term.
Balance sheet in good shape: Headroom provides optionality.
Near-term margin pressure: From new openings (Adelaide and Auckland projects) and establishing new businesses (online). This isn’t new, albeit suggests margins will be under pressure longer than we anticipated.&nbsp;


Investment View
SKC has a casino monopoly and significant licence term in all its key markets. A slowing macro environment and cost inflation present near-term headwinds, while a solid dividend yield and share buyback provides share price support. NEUTRAL.&nbsp;

Chelsea Leadbetter, CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262

SKYCITY: Investor Day — Consistent Hand

Australia

Collins Foods Ltd. operates fast-food restaurants.  The Company operates chains of steak and chicken restaurants in Australia.

Jumbo Interactive Limited develops e-commerce and online retailing technologies. The Company also operates a web site that offers Australian lottery tickets for purchase online as well as distributes a wide range of software products.

The Star Entertainment Group Limited owns and operates casinos and hotels. The Company offers services and amenities such as gaming facilities, nightclubs, bars, restaurants, exhibition centers. The Star Entertainment Group conducts business in Australia.

Tabcorp Holdings Limited operates as a holding company. The Company, through its subsidiaries, provides gambling, gaming, wagering, and entertainment services. Tabcorp Holdings serves customers in Australia and in the United Kingdom.

Helloworld Travel Limited operates as a travel company. The Company provides corporate travel management services to corporate and government customers including booking flights, cruises, and accommodation. Helloworld Travel serves customers worldwide.

Ainsworth Game Technology Limited designs, develops and manufactures gaming machines and games combination software and other related equipment for the gaming industry in Australia. Products include the Ambassador video gaming machines, video games and Embassy Jackpot systems.

Retail Food Group Ltd is a retail food brand manager and franchiser. The Company currently manages donut stores and cafes.

Elanor Investor Group is an investment and funds management business. The Company diversifies its investments within funds management, hotels and leisure, and special situation investments.

Reef Casino Trust operates The Reef Hotel Casino Complex in Cairns, North Queensland.  The complex includes a 128-room hotel, nightclub, a conservatory, a gaming area, lounge and bar, restaurants and conference facilities.

Corporate Travel Management Ltd. offers corporate travel management services. The Company operates on a fee for service model and provides business travel advice and services; bookings; ticketing, and ancillary services; and offers travel data diagnostics and recommendations.

PLENUS Co., Ltd. sells take-out boxed meals through a franchise system as well as operates Japanese restaurants.  The Company also sells foodstuff, packaging material, and business uniforms.

LiJiang YuLong Tourism Co., Ltd. provides travel services in Lijiang, Yunnan. The Company provides cableway transportation, bus transportation, food and beverages services, and other related tourism services.

Hna-Caissa Travel Group is in the business of public transportation catering service, including airline catering and railway catering services. It also provides hotel catering services.

Ruth's Hospitality Group Inc. operates a chain of upscale steak houses. The Company's restaurants are located throughout the United States and in several international locations.

ARCLAND SERVICE CO., LTD. operates a restaurant chain based in Tokyo. The Company mainly serves pork cutlets and barbecue.

Cafe De Coral Holdings Limited, through its subsidiaries, operates quick service restaurants, fast casual dining, institutional catering and specialty restaurant chains, and food manufacturing business.

HIDAY HIDAKA Corp. operates a chain of Oriental noodle and Chinese restaurants mainly in Saitama Prefecture.  The Company produces noodles, soup, and dumplings at its own factory.

DOUTOR NICHIRES Holdings Co., Ltd is establish through merger of DOUTOR COFFEE and NIPPON RESTAURANT SYSTEM.  The Company operates a coffee shop and restaurant chain. DOUTOR NICHIRES manages all business operations, from producing and procuring coffee beans to roasting, wholesaling, and retailing.

Biglari Holdings Inc. operates as a holding company. The Company, through its subsidiaries, invests in food and insurance companies. Biglari Holdings serves clients in the State of Texas.

Hana Tour Service Inc. wholesales a variety of travel related services.  The Company provides outbound, inbound and domestic travel packages and cooperates with credit card companies and Internet shopping malls to market its services. Hana Tour Service also works as general sales agency (GSA) of overseas cruise and rail passes.

SKYCITY Entertainment Group Ltd. provides gaming and casino services. The Company offers various casinos accompanied with various bars, hotels, restaurants, and convention centers. SKYCITY Entertainment Group offers services in Australia and New Zealand.

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Skycity Entertainment (SKC AU)

Equity Strategy: Coronavirus — Impacts and Consequences

Equity Strategy Coronavirus — Impacts and Consequences The coronavirus outbreak continues to gain momentum with the number of new cases growing...

Forsyth Barr

SKYCITY: Investor Day — Consistent Hand

SKYCITY Investor Day — Consistent Hand SKYCITY’s (SKC) Investor Day provided considerable detail, largely reinforcing prior messages and...

Forsyth Barr

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