Chris Lee & Partners Ltd

Market News 19 May 2025

Johnny Lee writes:

MAY’S reporting season has had a strong start, with fishing and aquaculture company Sanford declaring its half year results.

One of the NZX’s oldest listed companies, Sanford has enjoyed a significant share price rebound over the last six months, rising 27 percent over that time.

Last week's result saw profit more than double, from $16.2 million last year to $34 million this year. 

This supported a modest 5 cents per share dividend and a significant reduction in net debt, which fell 25 percent.

The result was driven by a strong performance from the salmon division, with both volume and margin improving in that area.

The company warned that the full year result - due in November - would not replicate this performance. 

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MANAWA also produced its full year results last week, in what will likely act as the final set of financial results for the company. Contact Energy intends to finalise its takeover of Manawa in July.

Profit fell 99 percent, following sharp declines in both wind and hydro volumes. Manawa also wrote off $6.8 million as part of the Prime Energy collapse. 

This saw net debt increase 10 percent.

The company continued its ongoing asset refurbishment programme. Several turbine replacements were completed, and the solar and wind development pipeline saw progress, although these projects will ultimately be completed by Contact.

No dividend was declared. Such a payment would have been largely irrelevant for shareholders, as the takeover price has an adjustment for dividends paid.

The company also did not issue guidance, as it now expects any guidance to be superseded by that of the new owners, once the takeover concludes in July.

Manawa released further details of the takeover this morning, including the scheme booklet and independent valuation. Shareholders now have the opportunity to vote on the takeover proposal on 18 June. With the two major shareholders already signalling their intention to accept the offer, this is unlikely to be a roadblock.

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ONE sector enjoying a modest bounce of late has been the listed property trusts.

All of our major LPTs - Property for Industry, Vital Healthcare, Argosy, Kiwi Property Group, Goodman, Stride, Investore and Precinct - have seen an increase in share price this month. 

Whether this is a blip, or the beginning of a new trend, remains to be seen. The downward trend had persisted for almost four years.

May has not seen many updates from the property sector, although Property for Industry did publish an update in late April, upgrading its dividend guidance for 2025 and increasing 2026’s guidance.

2025 will see a dividend of 8.6 cents per share, climbing to 8.80 to 8.90 next year.

Outside of the PFI news, updates have been few and far between.

However, some data points may be evident soon. Argosy reports its full year results on Wednesday. Kiwi and Goodman report next week.

Another key driver may be the Reserve Bank’s decision on 28 May.

Lower interest rates lead to both lower funding costs, and increases to the relative value of fixed lease income. 

Market expectations remain that the Reserve Bank will cut rates at next week's meeting, with some expecting a 50 point cut from 3.50 percent to 3.00 percent. 

Such a double cut would be music to the ears of the Listed Property Trusts. The sector has been calling for further rate relief for months now, and worsening economic conditions may yet lead the RBNZ to bring about such relief.

The modest share price bounce over the last few weeks among the property stocks has been encouraging to observe. The upgraded dividend from Property for Industry also shows there is growing optimism from the sector, especially within the industrial and warehousing space. With interest rate relief on the horizon, investors will be hoping the worst is now behind the property sector.

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PROPERTY for Industry is just one of many companies on our exchange that has seen growing dividends in recent times.

The electricity sector has seen increases to their dividend payouts, with Contact Energy, Mercury Energy and Meridian Energy all lifting dividends over the last twelve months. Genesis Energy elected instead to divert some of its earnings towards an expansion of its solar generation profile, which saw dividends fall last year. Already, some of this reduction has been clawed back.

Both Vector and Chorus have also lifted dividends in recent years.

Companies like Infratil, Fisher and Paykel Healthcare and Skellerup have a history of consistently lifting dividends through both ends of the economic cycle, while others like Mainfreight and EBOS have paused these increases in recent history, citing uncertainty and other factors.

Some companies have seen dividend cuts, as companies look to balance debt and expenditure. Spark is an obvious example, cutting its dividend in February and leading many to wonder whether a further cut will be announced in August. Data centres are expensive. 

Heartland is another that recently cut its dividend.

Others have suspended dividends entirely, including Sky City, Ryman Healthcare The Warehouse and Fletcher Building. With luck, these will be reinstated soon. 

Dividends are a vital component for the incomes of investors. This is particularly true in New Zealand, where many investors invest specifically for this income stream. Decisions to cut or suspend dividends are not taken lightly, and often lead to grumpy shareholders.

With a diverse range of companies due to report over the coming two weeks, expect dividends to continue to remain under the spotlight.

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TWO offers closed last week, as the EBOS capital raising and the Summerset bond offer were both finalised.

The EBOS offer closed modestly oversubscribed, receiving applications of $54 million Australian dollars, $4 million above the $50 million sought. 

The company elected to accept ALL applicants in full. This includes those who applied beyond their pro rata entitlement.

The price applied to the offer was $36.65.

The Summerset bond also closed oversubscribed. It is clear that the dearth of new bonds has resulted in significant pent-up demand from bond investors.

This may be exacerbated in the coming months with a number of maturing bonds, including some from Infratil, Meridian, Auckland Council and Wellington Airport. Additionally, Manawa bonds may be repaid early, depending on Contact Energy’s final decision following the conclusion of the takeover.

The coupon of the Summerset bond was set at 5.70 percent.

The next issue expected to occur is the Capital Note offer from Chorus. Full details on this offer are expected shortly.

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Travel

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May & 28 May am – Chris Lee

Lower Hutt – 29 May – David Colman

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

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

Chris Lee & Partners

Market News 12 May 2025

Johnny Lee writes:

ANOTHER poor update from Sky City was released to market last week, sending the shares price down 10 percent to fresh lows. The price currently sits at $1.05 per share, valuing the company at around $800 million, similar to Skellerup or Vista Group.

In February, the company published its outlook estimating earnings to land between $225 million and $245 million in August’s full year result. That estimate was a downgrade from the earlier outlook of $245 million to $265 million.

Last week's update confirmed the result would be worse than even February’s downgrade. 

The company noted that gamblers are spending less and less per visit, and increased vigilance on anti-money laundering and harm minimisation programmes was resulting in falling patronage.

In response, the company plans to focus on reducing its costs, while waiting for conditions to improve. The opening of the NZICC next February will also provide opportunities to cross-sell across the company’s portfolio, while longer-term ambitions in the online gambling space continue to evolve.

It has been a fairly miserable few years for Sky City shareholders. The share price predictably collapsed during COVID, and spent the next 18 months enjoying a bounce and almost returned to pre-COVID levels. However, the last four years have seen the company lose 60 percent of its value, following profit downgrades, battles with the regulator and general shifts in societal preferences.

This latter point will be interesting to observe should we see a return to discretionary spending levels. Sky City has a tight grip on physical gambling in New Zealand and has campaigned to the Government to ensure it has a strong presence in the developing online space. 

Only six years ago, Sky City paid two 10 cent dividends a year, had a share price near $4, and was looking to conduct a 5 percent share buy back. Now, dividends are suspended, the share price is barely above $1, and the company is looking to bounce back from a full year loss. 

It has been a remarkable and - since COVID - difficult journey for the company. Believers in a long-term recovery in the entertainment sector have not yet been rewarded, but with a share price well and truly in the doldrums, the company will be hoping to avoid any more downgrades ahead of August’s result.

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THE Commerce Commission has given the nod, and Contact Energy has been granted clearance to purchase its competitor Manawa Energy.

The clearance was undoubtedly a surprise to the market. The share price of Manawa soared after the announcement, and pending an improbable roadblock, will neatly track the Contact Energy share price until implementation.

This is because the takeover is primarily scrip based, meaning Manawa shareholders will receive Contact Energy shares for the majority of the payment. Once this has concluded, it would be fair to expect some degree of short-term selling pressure on Contact Energy – a normal reaction to scrip-based takeovers.

More announcements will come from the three listed companies involved. 

Manawa will hold a shareholder vote to approve the scheme of arrangement. This should be a formality. The majority shareholders of Manawa are Infratil and TECT, which together hold 77 percent of the listed shares. Both parties have already indicated they intend to vote in favour of the proposal.

Contact has previously notified the market of its intention to retire Manawa’s debt. The company will also be issuing a significant number of new shares to Manawa shareholders. Contact will be reviewing its capital structure and debt levels in the wake of this new, combined entity.

And lastly Infratil will see some modest change. The company will receive around $150 million dollars from the transaction, as well as a significant number of Contact Energy shares. 

The Manawa debtholders may in fact face the biggest decision of all, should Contact Energy proceed with its previously stated intention to repay all of Manawa’s listed debt. Between the MNW170, MNW180 and MNW190 bonds, much of the $375,000,000 on issue could be returning to capital markets searching for a home in July.

Perhaps a new Contact bond would be of interest to these investors.

The delisting of Manawa would also usher in a new company to the NZX 50 index. The market capitalisation of companies at this point of the index is probably near $300 - $400 million.

Investors will debate whether this takeover is good for the long-term health of our economy. The takeover received some criticism regarding the level of competition in the electricity market, and whether adding Contact’s financial grunt to Manawa’s asset base and development pipeline would be positive or a negative long-term. Regardless, the approval is final, and the takeover seems set to proceed.

Come July, Trustpower/Manawa’s story on our exchange will end, and another investment option on our exchange ends with it.

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Two new bonds

1. Summerset Group (SUM) has launched a new senior, secured bond offer with a six-year maturity. The interest rate has been set at a minimum of 5.35% per annum, with interest paid quarterly.

Summerset will be covering all transaction costs for this offer, meaning no brokerage charges apply to investors.

Summerset is one of New Zealand’s largest retirement village operators, with over $8.1 billion in total assets, including 6,671 retirement units, 1,299 care units, and more than 8,700 residents across the country. It reported a record $206.4 million in underlying profit over the past 12 months and has a significant land bank for future development.

If you would like a firm allocation, please reply with the amount you wish to invest and your CSN. 

The minimum investment is $5,000.

Applications close at 10am on Thursday, 15 May. 

Payment will be due no later than Thursday, 22 May.

Further details of the offer, including the investor presentation, are available on our website:

https://www.chrislee.co.nz/uploads//currentinvestments/sum060.pdf

Please note that Summerset may scale applications depending on demand.

If you would like a FIRM allocation for Summerset, please reply with an amount and your CSN and we will send through allocations on Thursday.

2. Chorus has launched its first Capital Note offer, adopting a structure similar to those previously used by Contact Energy and Mercury Energy.

The notes have a final maturity date of 2056 but include an optional redemption (repayment) date in 2031. Chorus is likely to repay the notes in 2031 by issuing a new Capital Note at that time and using the proceeds to refinance this offer—similar to Mercury’s replacement of its capital bonds in 2024.

The reason repayment in 2031 is likely is due to the way these notes are treated on Chorus’ balance sheet. For the first six years, the notes are treated as 50% equity, strengthening Chorus’ capital position. After 2031, this equity treatment expires, creating a clear incentive for early repayment.

Further details of the offer will be released on 19 May, including the confirmed interest rate. Current guidance suggests a minimum rate above 5.00% per annum. The offer will close on the morning of 22 May, which is also when the final rate is set.

Chorus has confirmed it will cover transaction costs, meaning no brokerage applies for investors.

Chorus is New Zealand’s national fixed-line infrastructure provider. It maintains the fibre and copper networks used by most broadband providers. It has over 70% fibre uptake in areas where fibre is available, and reported over $700 million in EBITDA for FY2024.

If you would like to register interest for Chorus, please reply with an indicative amount and your CSN. We will be in touch as soon as the full terms are released.

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Travel

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May & 28 May am – Chris Lee

Wellington – 28 May – Edward Lee

Lower Hutt – 29 May – David Colman

Napier – 9 June – Chris Lee

Tauranga – 11 June – Chris Lee

Wanganui – 11 June – David Colman

Hamilton – 12 June – Chris Lee

Christchurch – 23 and 24 June – Chris Lee

Ashburton – 25 June – Chris Lee

Timaru – 26 June – Chris LeeAuckland (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

Market News 5 May 2025

Johnny Lee writes:

AUCKLAND Airport has updated its ‘’Master Plan’’, detailing the company’s vision for the next twenty years. It was last updated in 2014.

These ‘’Master Plans’’ are designed to outline to stakeholders the company’s internal forecasts, and the company’s strategic response to this future demand. The plan provides context for future development, but does not include specific development plans or costings.

A timeframe of 22 years may extend beyond many shareholders investor horizons, but the company is expecting passenger throughput to rise from 18.6 million people to 38 million people over this timeframe. 

Such an increase will necessitate the introduction of a second runway. Originally planned for 2028, the company now anticipates this will instead be required by 2038, partly due to more efficient use of existing assets.

A new terminal asset is expected within the next five years, aiming to integrate domestic and global operations into one space.

There are also further non-aeronautical developments expected. Additional hotel space will be required over the years, to accommodate the increase in passenger numbers.

Technological advancements are also continuing to occur. The Master Plan details advancements in biometric scanning, artificial intelligence and sensor technology, which offer pathways to making the business more efficient and resilient.

All of these developments will require hundreds of millions in capital expenditure, and will result in a business with growing revenues and a growing asset base.

Auckland Airport is one of our largest listed companies, and is a mature asset and a core part of New Zealand’s infrastructure story. The world is changing, particularly around technology and demographics. Our infrastructure will need to change too, and by creating a very long term plan, Auckland Airport hopes to stay ahead of the curve.

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DELEGAT Group has published an update to market, confirming the impact of the recent tariff turmoil seen out of the United States.

Delegat is one of the country’s largest wine producers, owning brands including Oyster Bay and Barossa Valley Estate. 

Delegat is a company that many New Zealander’s own indirectly, courtesy of the listed Kingfish Fund product, run by Fisher Funds. The fund retains a relatively small exposure to the wine company.

The update came in two parts. Firstly, the company confirmed that the 2025 harvest is over, with total tonnage up 39% from last years figure, and up 5% from the 2023 figure. This comes at a time when the supply of wine remains high, while the retail price of wine remains under pressure.

However, Delegat also confirm that it has significantly reduced its forecast for the year from a midpoint of $57.5 million, to $48.5 million. Last year saw a figure of $59.7 million.

The reduced guidance was blamed on market uncertainty around the implications of tariffs, with many of the company’s US distributors opting to wind down inventory for now.

Compounding this issue is the general decline in wine consumption. While this is a global trend, the US market is particularly challenging, although Delegat’s brand strength is helping the company maintain its position in that market for now.

The company is hoping that this tariff uncertainty will be short-lived. While mixed signals continue to emerge from the US, the market has enjoyed a week of relative calm. 

The Delegat share price sank further on the news, continuing a four year slide from a peak of $15.90 to a current price around $3.80. 

Delegat has historically paid a dividend of around 20 cents per share, with the next set of financial results expected in August.

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MAINFREIGHT has published an update to market, hoping to provide some “coal face” perspective to the market amidst the ongoing uncertainty prompted by the US tariff discussions.

Mainfreight is due to report 29 May and had seen – prior to this announcement - a 22 percent decline in share price since the start of the year, equating to about $1.5 billion in market capitalisation.

Mainfreight’s update confirms that the result this month will exceed market expectations, and that trading remains unimpacted from the tariff dramas created in April.

However, the company has warned that forward bookings on the Transpacific trade route (China to US) are being reduced, and that customers are placing these bookings “on hold” until confidence and clarity is restored to the trade relationship between the two largest economies.

Trade between the US and the other locations Mainfreight manages – Europe, Australia, New Zealand, South East Asia – have seen little change. Ultimately, the US business and the Transpacific trade route make up a relatively small proportion of the overall Mainfreight business.

The announcement helped steady market nerves, with the share price rebounding 10 percent immediately after the announcement and seeing significant volume moving throughout the day. The share price remains well down for the year, but the update should help reassure investors that while the US-China route is facing an uncertain future, the rest of the business has seen far less impact. 

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EBOS Group’s capital raising closes tomorrow at 5pm.

The application process is straightforward. A dedicated website has been established through Computershare’s “Shareoffer” platform. Payment is through direct credit.

EBOS has seen its share price drift above and below the price cap on the offer - $36.65 – and it is not yet possible to know whether the adjustment mechanism will trigger, or if $36.65 will remain the offered price. 

To be clear, the company will adjust the price if the weighted volume average price of the five days up to and including 6 May (tomorrow) is lower than $36.65. The point of this mechanism is to provide investors some protection in the event of a significant price fall, which in turn gives some confidence to the company that the funds will be raised.

Ryman’s recent issue did not include this adjustment mechanism, and saw significantly lower participation, after the price fell very late in the offer period.

At time of writing, $36.65 seems to be the likely price. The on market share price has held up reasonably well, which should result in strong demand from both traders and long-term investors.

Investors can bid for up to $100,000 of stock via the offer, but the company is seeking only to raise $50 million. Eligible shareholders interested in participating in the offer should act soon.

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Chorus – New Capital Note Offer

Chorus has announced that it is considering an offer of up to $170 million of subordinated capital notes.

Further details are expected to be released during the week of 19 May 2025, with payment likely due by the end of May.

It is anticipated that Chorus will cover the transaction costs associated with the offer, meaning no brokerage would apply. This will be confirmed once the offer formally opens.

While the interest rate has not yet been disclosed, comparable securities in the market are currently trading around 5.00% per annum, so we expect the offer to be in that range.

Investors wishing to be kept informed or pencilled in for this offer should contact us now to register their interest.

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Travel

Palmerston North – 6 May – David ColmanWellington – 7 May – Edward Lee

New Plymouth – 9 May – David Colman

Nelson – 12 May – Chris Lee (FULL)

Blenheim (pm) – 13 May – Chris Lee (One appointment time available)

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May & 28 May am – Chris Lee

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

Chris Lee & Partners