Chris Lee & Partners Ltd

Market News 9 June 2025

Johnny Lee writes:

New Zealand small cap Pacific Edge has announced its financial results and a capital raising, as the company seeks to raise $20 million from shareholders to accelerate its growth strategy. This includes increased investment in clinical evidence generation, aiming to provide more robust justification for the use of its products by healthcare providers.

This figure was later increased to $21 million, following demand from institutional shareholders. The market capitalisation of the company prior to this new issuance was barely $80 million.

The $21 million raising is being completed in two parts, with $16 million allotted to institutional shareholders and $5 million set aside for retail shareholders.

The funds will be added to the nearly $20 million cash already on the company’s books, which should provide approximately 12 months of breathing space.

Pacific Edge elected to price this issue at a premium to market, with the offer priced at 10 cents per share, compared to around 8.2 cents at the time of the announcement. Typically, capital raisings are conducted at a discount to encourage participation.

Pacific Edge did this after consulting with institutional backers, who expressed support at that pricing. The share price has since rallied and now trades close to 10 cents per share.

The timing of the issue is also unusual.

While the institutional placement has already taken place, it has not yet been approved by shareholders, with this approval not being sought until late July. Allotment is expected in August. Retail shareholders will be invited to participate at the same 10 cents per share, also in August. These dates remain subject to change.

For Pacific Edge, the $16 million provides confidence in committing to its longer-term plans, particularly when the short-term picture – clouded by uncertainty around Medicare coverage – remains highly uncertain.

For retail shareholders, it remains business as usual for now. In August, shareholders can expect a request from the company seeking $5 million – again subject to change – at 10 cents per share. Given current global volatility, it is pointless to speculate whether this price will represent fair value.

Outside of the capital raising, the company also reported its financial results.

Revenue fell 8% to $21.8 million. The loss widened to $29.9 million. Net cash fell from $50.3 million to $22.6 million (as at March end).

The major issue remains the loss of Medicare coverage, which took effect in late April.

The company is now focused on regaining coverage for some products, and obtaining coverage for its newer range. It is also seeking to grow revenues in the non-Medicare space, where it has had modest success.

The coming 12 months will be busy, with several reconsideration requests under review. If these are successful, and Medicare coverage resumes, shareholders would expect much greater certainty around cashflows and profitability. If not, a pivot in strategy may be required.

It has been a long and difficult journey for Pacific Edge shareholders. Receiving yet another invitation to inject capital will be neither welcome nor unexpected. Retail investors have another two months to decide whether 10 cents represents fair value, and whether to commit further funds to a company once again trading near record lows.

Fisher & Paykel Healthcare’s record result has sent its share price higher, with strong growth across all key metrics.

Revenue grew 16%, net profit rose 43%, and the dividend increased by a further 0.5 cents per share.

The company has returned to a healthy net cash position, with over $200 million now on the balance sheet.

Tariffs remain an unresolved issue, unlikely to be clarified during the current US presidential term. Fisher & Paykel has included a potential tariff impact in its 2026 guidance, but notes that this is based on numerous assumptions about how tariffs will be applied.

In reality, it is impossible to forecast this accurately, as the rules appear to change week by week.

New Zealand ownership of Fisher & Paykel Healthcare has now been eclipsed, with Australian ownership (36%) exceeding local ownership (34%). The company is dual listed, and Australian market volume has been steadily growing for years.

Fisher & Paykel remains New Zealand’s largest listed company by market capitalisation.

Outlook remains strong, with a full year result expected in November in the range of $390 to $440 million. The company hopes its continued investment in Research & Development, patent expansion, and evidence-based healthcare will support a continuation of its historically strong performance.

Fisher & Paykel remains one of our best-performing companies and has been an immensely successful long-term investment. It is cash-rich, profitable, and pursuing a credible long-term growth strategy, while investing in better outcomes for patients globally.

Mainfreight’s result also pleased investors, with another increase in both revenue and net profit.

The dividend was unchanged.

Revenue grew 11%, and net profit rose 31%.

Mainfreight also operates in a net cash position, with approximately $14 million on hand.

The company continues to invest in growth, with around half a billion earmarked for capital expenditure over the next two years.

Across divisions, all three core products – transport, warehousing, and air & ocean – saw revenue growth. Demand for logistics remains strong, particularly towards the second half of the year.

By region, Australia continues to lead with strong gains in revenue and profit. Europe also recorded modest growth. Asia and the US continue to lag. New Zealand, once its largest market, saw profit before tax decline 10%.

Outlook remains positive, with the company expecting a soft start to the year – shaped by short trading weeks and tariff uncertainty – to give way to a stronger second half as improvements are made.

The company is taking a prudent approach to the current environment: moderating capital expenditure, managing overheads and labour costs, and focusing investment in areas likely to provide the best opportunities for long-term growth.

Bond issues

Infratil confirmed that its 7-year senior bond, will have a fixed interest rate of 6.16% per annum. This was set slightly higher than the minimum interest rate, with Infratil covering the transaction costs (resulting in no brokerage payable by clients).

Clients who would like this bond should urgently contact us for an allocation.

Payment will be due no later than Friday, 13 June. 

Travel

Whanganui – 11 June – David Colman

Wellington – 18 June – Edward Lee

Auckland (North Shore) – 25 June – Edward Lee

Auckland (Ellerslie) – 26 June – Edward Lee

Auckland (CBD) – 27 June – Edward Lee

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

Chris Lee & Partners

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Market News – 2 June 2025

Johnny Lee writes:

The Reserve Bank met last week, voting to reduce the Official Cash Rate from 3.50% to 3.25%.

The 25-point cut was exactly in line with market expectations. So far, the Reserve Bank has maintained its “no surprises” approach.

Clearly, certainty remains in short supply. The Reserve Bank outlined several scenarios it was considering, with much weight given to the mixed messages emerging out of the United States.

It is also keenly aware of an expected shift in household budgets over the next year. Half the current stock of mortgages are due to reprice over the next six months, with these decisions no doubt guided by homeowners’ views on the likely trajectory of interest rates in the short term.

These lower rates should support higher consumer spending, although other factors – particularly fears around employment stability – will also play a role.

Much weight was given to the uncertainty surrounding US tariff policy. As if to validate this concern, the US administration has since announced its intention to double the current tariff applied to imported steel.

Ultimately, the Reserve Bank expects these tariffs to reduce inflationary pressure in the longer term, as investment spending begins to slow. Even in New Zealand, a number of companies have reported a reluctance to invest, citing the erratic shifts in global trade rules.

For interest rates, the market still expects further cuts throughout the year. However, uncertainty – particularly from trade disruptions – appears to be the primary concern.

EBOS Group has announced that its largest shareholder, Sybos Holdings, has significantly reduced its holding in the company.

Sybos is controlled by Zuellig Group, an institutional investor focused on the pharmaceutical and healthcare industries. Sybos acquired 58.1 million shares following the EBOS takeover of Symbion (hence "Sybos") in 2013, at an effective price of $8.57 per share.

Last week’s sale saw Sybos sell over 26 million shares at $35.50, equating to around NZD $950 million, or 13% of the company. $35.50 represented approximately a $3 discount to the market price at the time, with such a discount deemed necessary to move such a large volume of stock.

Thomas Zuellig of Zuellig Group stated that his company retained a small holding – around 5% – and was selling in order to diversify its portfolio. He also confirmed that Sybos was not in possession of any inside knowledge regarding EBOS.

The share price of EBOS fell sharply after the confirmation of the trade but had a small rally shortly afterwards. Every sale requires a buyer, and the fact that buying interest totalling nearly a billion dollars valued EBOS close to market pricing should reassure investors that confidence in the company remains high.

However, it is also true that a significant degree of buying interest is now satisfied, some of which will be short-term in nature and likely to profit from these share price rallies, keeping a lid on an immediate rebound.

This is not the first time Sybos has reduced its holding, having sold 15 million shares in 2020 when the share price was nearer $22. A similar share price reaction was seen at the time.

The sale follows the $36.65 capital raising in early May, which closed modestly oversubscribed.

The recent share price activity from EBOS highlights a key risk when investing in companies with a single, large shareholder. This shareholder has sold down before, which has led to similar short-term share price impacts.

A large, sudden seller will naturally depress the market and lead to questions about why they are choosing to divest. However, Sybos has achieved a fantastic return on its investment and will retain a modest exposure to the company – for now.

The situation with EBOS contrasts with the conclusion of the Volaris holding in EROAD, which was finally sold last week.

Volaris was the Canadian subsidiary of Constellation Group, which attempted a takeover of EROAD in 2023. Volaris had purchased an 18.7% stake in EROAD to gain a foothold in the company in preparation for its takeover, before offering $1.30 per share to acquire control.

The offer was ultimately rejected, and the share price dropped to around half that amount. Volaris retained its stake in the company until last week, throwing in the towel and selling the shares back to the market.

Clearly, the company saw no value in maintaining a minority stake in a small New Zealand company over which it could exert little control. Perhaps more surprising was the market’s willingness to acquire such a large stake at around NZD $1.20.

The sale from Volaris removes the overhang and has introduced many new shareholders to EROAD’s register.

At the same time, EROAD’s financial results earlier in the week showed a profit of $1.4 million, up from last year’s loss of $800,000. The company now boasts $175 million in annualised recurring revenue, and expects this to grow to nearly $190 million next year.

It appears focused on larger (enterprise) customers, hoping these prove more resilient during difficult conditions.

The result saw the share price finally begin to ascend, climbing around 55% in the days following the announcement. At $1.47, it remains well off historical levels, but shareholders should be pleased to see positive momentum after such a long period of pessimism.

Infratil reported earnings growth in its full-year result, with EBITDAF approaching the billion-dollar mark at $939 million.

The result was driven primarily by contributions from data centre business CDC and One NZ (formerly Vodafone).

The period also included the final contribution from Manawa Energy. Future results will instead include the company’s proportional holding in Contact Energy, assuming this is retained.

Perhaps the most intriguing comment was Infratil’s intention to divest $1 billion from within its portfolio over the medium term, partly to fund incentive fees.

Infratil’s assets include CDC, Longroad, Contact Energy, One NZ, RetireAustralia, Wellington Airport, and its New Zealand medical imaging business, which operates Pacific Radiology.

CDC alone accounts for around 40% of the company’s assets.

Longer term, the company hopes to better balance its cash flows and dividends, with cash flows from its investments covering both fixed costs and dividends. Once CDC and Longroad wind down their construction programmes, this rebalance may become possible.

Infratil also hopes to accelerate the growth of its Asian renewable energy subsidiary, Gurin, with projects in the Philippines, Indonesia, South Korea, and Thailand beginning to take shape.

Until then, expect the company to continue expanding its data centre footprint and its US renewable energy programme.

Infratil Limited – 7-Year Senior Bonds 

Infratil has announced its intention to issue a new 7-year senior bond (IFT370), maturing on 16 June 2032. Infratil is an infrastructure investment company with significant holdings in digital assets, renewable energy, healthcare, and other long-term infrastructure assets. 

The interest rate has been set at 6.16% per annum, with interest paid quarterly. 

Infratil will cover the transaction costs for this offer, so clients will not be charged brokerage.

The offer consists of two parts:

Firm Offer: Open now to new and existing investors. Payment due no later than 15 June 2025.Exchange Offer: Available to holders of IFT250 bonds maturing on 15 June 2025. Bondholders may elect to exchange part or all of their maturing bonds into the new offer. Elections open on 5 June 2025 and must be submitted no later than 5:00pm on 11 June 2025.

The minimum application amount is $5,000, with increments of $1,000 thereafter.

If you would like a firm allocation of this bond, please contact us promptly with the amount you wish to invest and the CSN you would like to use. If you hold IFT250 bonds and would like to exchange them, please let us know when making your request.

Travel

Napier – 9 June – Chris Lee

Tauranga – 11 June – Chris Lee

Whanganui – 11 June – David Colman

Hamilton – 12 June – Chris Lee

Christchurch – 23 and 24 June – Chris Lee

Ashburton – 24 June (pm) – Chris Lee

Timaru – 25 June – Chris Lee

Auckland (North Shore) – 25 June – Edward Lee

Auckland (Ellerslie) – 26 June – Edward Lee

Auckland (CBD) – 27 June – Edward Lee

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

Chris Lee & Partners

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