Market News

David Colman writes:

Seeka (SEK) investors were provided a stakeholder update from the fruit-growing company, synonymous with kiwifruit production, which included a forecast of full-year earnings.

The company lifted its full-year earnings guidance from a profit before tax of between $17 million and $21 million to between $21 million and $25 million.

A clear strategy, excellent fruit quality, efficiency, and improved margins were described as factors in the upgraded guidance range, which is the second such upgrade this year.

Dividends, which have been intermittent for SEK over the last few years, have returned with a $0.10 per share dividend declared (the level of imputation is unknown, but the company plans to apply the maximum allowable).

Dividend payments will be made in January instead of in April to provide a quicker restoration of dividends to shareholders.

The company will continue to reduce debt but considers a dividend appropriate.

CEO Michael Franks described the company as having a good year.

SEK has operations in the New Zealand and Australian horticultural sectors, growing, processing, and supplying fruit locally and internationally through brands such as Zespri (International), SeekaFresh (New Zealand wholesaler), and Freshmax (Asia).

Fruits processed by SEK include varieties of avocado, kiwiberry, and kiwifruit in New Zealand, varieties of kiwifruit, pear, nashi pear, and plum in Australia, and imports of banana and pineapple from outside Australasia (imported from the Philippines and/or Ecuador).

SEK shareholders with memories of shares trading at levels above $5.00 as recently as early 2022 should be at least pleased to see SEK providing much-improved guidance and a return to paying dividends but will still be hoping for conditions to be favourable for the company’s many orchards that the processing plants and fruit exports rely on.

Seeka shares rose 10% following the announcement and are up 9% for the year.

Johnny Lee writes:

NZX Limited shareholders also enjoyed a positive update, as the company announced a near 10% uplift in its profit forecasts.

The increase was due to two main factors.

Firstly, the two major capital raisings from Auckland Airport and Fletcher Building had resulted in a spike in trading activity. The two raisings totalled around $2 billion of fresh equity.

Capital raisings such as this are often a boon to secondary market trading, as shareholders sell other holdings to fund their applications. Additional liquidity is sometimes seen afterwards too, as those accepting the offer take easy profits off the table. In both cases, the share price retained a value significantly higher than the price paid in the rights issue.

The other reason given was growth in fund management and funds under administration. Smart – formerly Smartshares – continues to grow, courtesy of both underlying performance and new money being invested into the funds.

NZX Limited shares are up 30% for the year so far, as it continues its discussion with the central Government around redesigning rules for new listings.

The Exchange has endured a dearth of new listings for many years and seen more than a handful of companies head to other exchanges, enter private ownership, or fail altogether. Ensuring that regulatory settings are still fit for purpose will be a crucial step towards enticing companies both new and old to list on our exchange.

With Manawa’s potential departure next year, improving investor choice and attracting entrepreneurs to capital markets will be a keen focus in the year ahead.

Last week’s inflation data was also good news for equity holders, with momentum growing for a 50-point reduction when the Reserve Bank meets on November 27.

After beginning the year at 5.50%, the Official Cash Rate currently sits at 4.75%, with debate now focused on whether November’s cut will be limited to 0.50%, or whether it could fall further.

A 0.75% reduction is not unprecedented – it occurred during COVID – but is not yet expected, with most economists predicting a smaller cut.

There remains one crucial data point before this decision is made: labour data is due on November 6. The unemployment rate was last recorded at 4.60%, with the Reserve Bank expecting that rate to spike to around 5.50% next year. It seems almost every day the media is reporting on redundancies and job losses, with both Kiwirail and Alliance Group reportedly making plans to reduce their workforce.

The inflation data showed a 0.6% quarterly increase and a 2.2% year-on-year increase. As usual, housing costs, council rates, and tobacco remain the main drivers, while petrol and vegetables were the main declines within the index.

Council rates have long been a topic of concern among those on fixed incomes, as it is not possible to change one’s demand. One can drive less, eat less, or consume less electricity. One cannot refuse to pay a rates bill.

The quarterly inflation data includes a ten-year history of the expenditure weights within the index. While this data is not perfect, it does provide something of a societal snapshot of where New Zealanders are spending their money, relative to other periods.

For example, in the 2020 year, expenditure on transport – particularly oil – slowed sharply as the effects of the lockdowns created a rapid shift in how New Zealanders spend and consume.

Inflation has not been even over the last ten years, and how we spend has also changed. Restaurants and ready-to-eat food have both increased in weighting, alongside cigarette products, international transport, and, of course, housing.

Spending on private transport services has diminished – the Uber effect, perhaps – as technology-based solutions entered the market. Three weeks ago, Wellington Combined Taxis entered voluntary administration, citing cashflow difficulties.

Spending on beer and wine has also declined over the last ten years. Again, this would not be news to many, as the global trend of younger people drinking less often and consuming fewer drinks is a well-known phenomenon.

These societal changes have tangible impacts on investments. The likes of a2 Milk, Delegat Wines, Restaurant Brands, Air New Zealand, and The Warehouse are all subject to these changing winds.

Last week’s weak inflation data has pointed a spotlight towards the November 27 Reserve Bank decision. A cut in interest rates seems likely, but the size of the cut will likely hinge on data – and perhaps events – occurring before then.

Travel

Chris is giving a talk to a group in Arrowtown on November 14 and would enjoy meeting individually with clients before the 3.30 pm meeting. He has some available times in the afternoon.

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

1 November – Lower Hutt – Fraser Hunter8 November – New Plymouth – David Colman13 November – Ellerslie – Edward Lee14 November – Albany – Edward Lee15 November – Auckland CBD – Edward Lee14 November – Arrowtown – Chris Lee28 November – Napier – Edward Lee29 November – Napier – Edward Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee and Partners Limited