New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Food for Thought</h2>
Feeding the Country — Essential
The production and supply of New Zealand food and beverages has been deemed an 'essential' business and is therefore exempt from the heightened domestic COVID-19 restrictions. Production disruption is expected to be limited, and whilst demand for food products is likely to remain strong, supply chain capacity will be a hurdle, both in terms of access and cost. The implications of COVID-19 on the New Zealand market will be significant, and whilst the near-term outlook is highly uncertain we are attracted to the staple nature of food production, and have a positive view on the listed Food, Beverage and Agriculture sector. Our preferred exposure is a2 Milk (ATM).
Food production is essential...
The New Zealand Government has initiated a nationwide 'lock down' and halted all non-essential business activity, from 25 March for a period of four weeks, as part of its measures to fight the spread of COVID-19. The production, processing, and supply chain of New Zealand food and beverages has been deemed 'essential' and therefore faces less disruption than other sectors. This is particularly reassuring for horticulture and viticulture companies, given the next four weeks represent the peak harvest period. COVID-19 implications are emerging daily as the situation evolves at a rapid pace. Disruption to domestic production and supply chain is likely to be limited across the sector, albeit not without its challenges. We suspect those businesses with a highly intensive labour component, such as processing, to be more impacted although mitigation efforts such as additional shifts at reduced capacity are likely to be implemented.
...Retail demand surges as&nbsp;foodservice&nbsp;collapses...
Consumption habits have fundamentally changed globally&nbsp;as the&nbsp;foodservice&nbsp;channel collapses. This is an important channel for the listed seafood companies, although we note efforts to shift product into the retail channel are underway,&nbsp;and view the staple nature of the product as more&nbsp;defensive&nbsp;over the longer term.
<ul type="disc">
<li>Domestic:&nbsp;The&nbsp;foodservice&nbsp;channel (non-essential) is due to close for the next four weeks, in contrast retail (essential) sales are surging. Those products with longer shelf lives and which offer health benefits are key beneficiaries.</li>
<li>​​​​​​​Export:&nbsp;We understand export activity has been labelled essential, with many of our major trading partners prioritising the imports of food and beverage products. Demand indicators in China appear healthy, underpinned by a recovery in activity and quality assurance associated with imported produce.</li>
</ul>
...Delivery an issue
Supply chain constraints are likely to impact the ability to sell and margin received. While food is&nbsp;essential in most countries, disruption to the global supply chain is likely to create challenges to navigate. Companies with a larger domestic base or limited exposure to air freight are expected to perform better.&nbsp;
<ul type="disc">
<li>Sea freight:&nbsp;Following recent delays due to port congestion in Asia, we now understand sea freight activity has returned to more normal levels. However, available capacity will be impacted given shipping services may be rationalised as import and export cargo for non-essential products will fall significantly.&nbsp;</li>
<li>Air freight:&nbsp;Air freight capacity has materially declined due to&nbsp;significant reductions in international passenger travel. The government's aviation package highlights air freight as a priority concern and signals state&nbsp;sponsored&nbsp;airfreight&nbsp;charters&nbsp;as a possibility. We understand freight costs have increased significantly.</li>
</ul>
Chelsea Leadbetter CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262&nbsp;
Guy Hooper guy.hooper@forsythbarr.co.nz +64 4 495 5255&nbsp;
Matt Montgomerie matt.montgomerie@forsythbarr.co.nz +64 9 368 0124

Food for Thought
Feeding the Country — Essential
The production and supply of New Zealand food and beverages has been deemed an 'essential' business and is therefore exempt from the heightened domestic COVID-19 restrictions. Production disruption is expected to be limited, and whilst demand for food products is likely to remain strong, supply chain capacity will be a hurdle, both in terms of access and cost. The implications of COVID-19 on the New Zealand market will be significant, and whilst the near-term outlook is highly uncertain we are attracted to the staple nature of food production, and have a positive view on the listed Food, Beverage and Agriculture sector. Our preferred exposure is a2 Milk (ATM).
Food production is essential...
The New Zealand Government has initiated a nationwide 'lock down' and halted all non-essential business activity, from 25 March for a period of four weeks, as part of its measures to fight the spread of COVID-19. The production, processing, and supply chain of New Zealand food and beverages has been deemed 'essential' and therefore faces less disruption than other sectors. This is particularly reassuring for horticulture and viticulture companies, given the next four weeks represent the peak harvest period. COVID-19 implications are emerging daily as the situation evolves at a rapid pace. Disruption to domestic production and supply chain is likely to be limited across the sector, albeit not without its challenges. We suspect those businesses with a highly intensive labour component, such as processing, to be more impacted although mitigation efforts such as additional shifts at reduced capacity are likely to be implemented.
...Retail demand surges as&nbsp;foodservice&nbsp;collapses...
Consumption habits have fundamentally changed globally&nbsp;as the&nbsp;foodservice&nbsp;channel collapses. This is an important channel for the listed seafood companies, although we note efforts to shift product into the retail channel are underway,&nbsp;and view the staple nature of the product as more&nbsp;defensive&nbsp;over the longer term.

Domestic:&nbsp;The&nbsp;foodservice&nbsp;channel (non-essential) is due to close for the next four weeks, in contrast retail (essential) sales are surging. Those products with longer shelf lives and which offer health benefits are key beneficiaries.
​​​​​​​Export:&nbsp;We understand export activity has been labelled essential, with many of our major trading partners prioritising the imports of food and beverage products. Demand indicators in China appear healthy, underpinned by a recovery in activity and quality assurance associated with imported produce.

...Delivery an issue
Supply chain constraints are likely to impact the ability to sell and margin received. While food is&nbsp;essential in most countries, disruption to the global supply chain is likely to create challenges to navigate. Companies with a larger domestic base or limited exposure to air freight are expected to perform better.&nbsp;

Sea freight:&nbsp;Following recent delays due to port congestion in Asia, we now understand sea freight activity has returned to more normal levels. However, available capacity will be impacted given shipping services may be rationalised as import and export cargo for non-essential products will fall significantly.&nbsp;
Air freight:&nbsp;Air freight capacity has materially declined due to&nbsp;significant reductions in international passenger travel. The government's aviation package highlights air freight as a priority concern and signals state&nbsp;sponsored&nbsp;airfreight&nbsp;charters&nbsp;as a possibility. We understand freight costs have increased significantly.

Chelsea Leadbetter CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262&nbsp;
Guy Hooper guy.hooper@forsythbarr.co.nz +64 4 495 5255&nbsp;
Matt Montgomerie matt.montgomerie@forsythbarr.co.nz +64 9 368 0124

Food for Thought: Feeding the Country — Essential

A2 Milk Co Ltd

Food for Thought: Feeding the Country — Essential