Market News

Read the latest market news

Market News 25 March 2024

David Colman writes:

PGW Shareholder Meeting Request Withdrawn

PGG Wrightson Limited (PGW) released an announcement on Friday that would have come as a relief to the company’s board and many of the firm’s minority shareholders.

The company announced that it received notice from Agria (Singapore) Pte Ltd (Agria) that it has withdrawn its notice issued on 8 February 2024 requesting that a special shareholders meeting be convened to consider several proposed director changes.

PGW shareholders were facing what the New Zealand Shareholders Association (NZSA) recently described as ‘one of the worst cases of board interference by a majority shareholder in the last few years’.

Agria is a major PGW shareholder with 44.3% of the shares held and had been in the process of requesting a special meeting to consider the following:

- remove three of the four independent directors

- replace the independent directors with three ‘independent’ directors nominated by Agria

- reinstatement to the board of former PGW chair Gianglin ‘Alan’ Lai

These changes would have increased the size of the board from five to six, and of the six, two would have been representatives of Agria and three would have been independent directors nominated by Agria.

Agria is a Singapore-based large shareholder and may have goals, as a foreign owner, in contrast to New Zealand domestic interests. It should be welcome news that it will not pursue a path that would have potentially given it effective control of PGW - a company that serves New Zealand’s crucial rural sector.

I commend the NZSA for communicating the situation to shareholders and encouraging them to vote on the matter if the special meeting had been held. The NZSA is a non-profit association that advocates for the interests of investors (typically small shareholders) in New Zealand and I expect their actions influenced Agria’s decision to withdraw.

If the special meeting had eventuated it would have required a very high shareholder turnout with opposing votes to the proposed board changes to make up the numbers to defeat the 44.3% of shares Agria owns.

The PGW Board welcomed the news and has determined that preparations for the proposed special meeting will now not be needed.

The last line of the announcement seems to indicate an amicable end to the scenario concluding that ‘Agria and the PGW Board have determined that the current composition and the majority of the membership of the Board continue to have an appropriate balance of expertise, skills, and independence’.

Perhaps now the board of PGW can fully focus on restoring the company’s prospects.

PGW recently suspended dividends after many years of reasonably consistent dividend payments, and its shares traded as low as $2.05 at the time of the announcement on Friday morning (down 39% year to date and the lowest it has traded at since April 2020).

_ _ _ _ _ _ _ _ _ __ _

DAIRY giant Fonterra Co-operative Group’s full year 2024 interim results for FSF (Fonterra Shareholders Fund) unitholders included impressive profitability and an increased dividend.

The company is one of the largest dairy companies in the world and has likely contributed to the estimated 10 million cattle (many of which will be dairy cows) being farmed in New Zealand.

Unlike most dairy co-operatives/ companies around the world, that primarily produce dairy products for local consumption, Fonterra exports the vast majority (approximately 95%) of its production.

New Zealand dairy exports were approximately a third (worth over $25 billion) of NZ’s total exports of $72.8 billion to the year ended June 2023.

Interim Results highlights:

- Reported profit after tax of NZ$674 million, up 23%

- Continuing operations EBIT (Earnings Before Interest and Taxes): NZ$986 million, up 14%

- Earnings per share: 40 cents per share

- Return on capital: 13.4%, up from 8.6%

- Interim dividend of 15 cents per share, up from 10 cents per share

- Maintained forecast FY24 continuing operations earnings range of 50 to 65 cents per share

- Forecast Farmgate Milk Price range narrows to NZ$7.50 - NZ$8.10 per kgMS

- Forecast milk collections were down slightly to 1,465 million kgMS, down 1%.

CEO Miles Hurrell indicated that strong earnings performance was driven by higher margins and sales volumes in the Foodservice and Consumer channels helping to offset lower returns in Ingredients which were down from relatively high prices the year before.

Sales volumes increased by 1.3% to 1,721kMT and gross margins improved from 16.6% to 18.4%.

The Co-op remains focused on reducing costs but is experiencing increased labour costs, professional fees and is investing in IT infrastructure. 

The Australian and Fonterra Brands New Zealand businesses are to be merged from 1 May, as the two units share many similarities and integration Is intended to create scale efficiencies.

FSF’s new capital structure that has been in place for a year and was notably given as a reason by some new Co-op farmers for returning to the Co-op. The flexible shareholding options, coupled with the Co-op’s stability, have seemingly resulted in more farmers wanting to join the Co-op.

Farmers may also be seeing the benefits of being part of the Co-op given that, earlier in the financial year, $800 million was paid to farmer shareholders and unit holders following the divestment of Soprole. The sale of our DPA Brazil JV with Nestlé to Lactalis was also concluded.

A new manufacturing technology was cited as unlocking 8000 MT additional production capacity for high-value UHT cream.

FSF’s outlook for the remainder of the year included notes that global inflationary pressures are easing but there is potential for volatility if there is geopolitical instability.

The Co-op’s partnership with Kotahi (supply chain collaborator) and its diversification across markets were aspects noted that help prepare it for disruption in global supply chains or changes in demand from key importing regions.

Fonterra is a significant contributor to New Zealand’s economy and many investors will take some comfort that the Co-op has performed well over the six months to 31 January 2024.

_ _ _ _ _ _ _ _ _ _ _

Johnny Lee writes:

FISHER and Paykel Healthcare shareholders have been forewarned ahead of its result announcement in May, with the company reminding shareholders to read beyond the headline.

Fisher and Paykel provided an update to market last week, telling shareholders that its revenue and underlying cash profit result in two months would be higher than previously guided. Its share price rose around 5% following the announcement.

However, the headline result would likely see a negative impact from a devaluation of its Karaka land investment. Higher interest rates were blamed for the loss of value.

Fisher and Paykel Healthcare purchased the 105 hectare site in September 2022 for a total cost of $275 million dollars, with an intention to develop a new premises over a 40 year period, hosting some of its Research and Development team, as well as its pilot manufacturing arm.

The purchase was funded at the time with a mix of both cash and debt. Its most recent set of financial results indicated that the company had left its net cash position and now operates from a modest net debt position. One imagines this will reverse in due course.

The company will not be concerned with the negative revaluation. This is clearly a long-term asset, and while the headline result may disappoint, shareholders should focus on the revenue and cash results, rather than any temporary property revaluations.

On this front, the news is more positive. Hospital consumables have continued to grow, and recent additions to its product lines have been well received. The company maintains its ambition to double revenue every five years, as it invests along its 30-year vision.

Investing in long-term growth requires a long-term investment horizon and, as such, does not suit every investor. Fisher and Paykel’s journey – including very strong outperformance during Covid and a stark return to normality immediately after – has seen long-term shareholders well rewarded. One six-month period of property devaluation will not divert the course.

_ _ _ _ _ _ _ _ _ _ _

THE extraordinary share price performance from the American giants is continuing, with a major stock index fast approaching a new milestone.

The Dow Jones, trading at record highs, has almost reached 40,000 for the first time. The S&P 500 broke 5,000 for the first time last month.

Technology shares, in particular, are showing no fatigue despite heroic returns in 2023. Chipmaker NVIDIA has somehow doubled in value again this year, despite doubling last year as well, and is now worth several trillion dollars.

NVIDIA made the announcement last week that it was forming a relationship with artificial intelligence healthcare firm Hippocratic AI, hoping to use AI technology to help tackle the global nursing shortage. Clearly, the Artificial Intelligence boom is not yet slowing.

Locally, shareholders of the various Smartshares products, or the ASX listed equivalents, will be riding this wave at the same time. Most of these funds now trade at fresh record highs.

As the New Zealand market fights to maintain its slim positive return for the year, the US market continues to surge. The momentum from the Artificial Intelligence boom is not yet slowing, with sectors ranging from healthcare and education, to film making and pharmacology, seeing benefits from the progress made.

_ _ _ _ _ _ _ _ _ _

Travel Dates

Our advisors will be in the following locations on the dates below:

8 April – Wellington – Edward Lee

10 April – Auckland (Ellerslie) – Edward Lee

11 April – Auckland (Albany) – Edward Lee

12 April – Auckland (CBD) – Edward Lee

12 April – Lower Hutt – Fraser Hunter

18 April – Tauranga – Johnny Lee

19 April – Hamilton – Johnny Lee

Chris Lee & Partners

This emailed client newsletter is confidential and is sent only to those clients who have requested it. In requesting it, you have accepted that it will not be reproduced in part, or in total, without the expressed permission of Chris Lee & Partners Ltd. The email, as a client newsletter, has some legal privileges because it is a client newsletter.

Any member of the media receiving this newsletter is agreeing to the specific terms of it, that is not to copy, publish or distribute these pages or the content of it, without permission from the copyright owner. This work is Copyright © 2024 by Chris Lee & Partners Ltd. To enquire about copyright clearances contact: copyrightclearance@chrislee.co.nz