Are Bargain Hunters Out In Open For Key Opportunities – CNU, THL,KMD, MHJ

  • Mar 30, 2020 NZDT
  • Team Kalkine
Are Bargain Hunters Out In Open For Key Opportunities – CNU, THL,KMD, MHJ

The current battle against the novel coronavirus has pushed markets to take a downward trajectory in the last two weeks as sceptical investors expect economic damage from social distancing to significantly impact the economic growth and corporate profits for extended periods of time.

On 25 March 2020, the New Zealand Prime Minister declared a national emergency to combat the coronavirus outbreak with the number of coronavirus cases rising to 205 and now nearly 368. Consequently, the country went into a strict lockdown at midnight.

Further, the New Zealand government declared closure of all museums, restaurants, cafes, gyms, cinemas, pools, bars, playgrounds and every non-essential services where the public could assemble. At the same time, basic services like supermarkets, doctors, pharmacies, service stations and access to essential banking services are open in the country.

In line with the steps being taken by global central banks, the Reserve Bank of New Zealand has also cut rates as much as it can to cushion the economy and facilitate the issue of more government bonds as economy survives through the ongoing crisis.

The stock markets are continuing to drop as Covid-19 cases expand rapidly around the world and measures to contain the spread of the virus further lowered expectations for economic activity. The S&P/NZX 50 Index, measuring the performance of the 50 largest eligible stocks, has given up more than nearly 20% in the last one month. Besides, bonds across global markets dropped in the last few days as investor demand for liquidity pushed prices lower.

At this backdrop, the stock quotations in global equity markets usually become quite cheap and bargain hunters trickle in to grab these opportunities to reap the gain as the markets eventually recover, as has been the case since the still fall in S&P/NZX 50 index to levels of 8498 on 23 March 2020. The index has bounced handsomely by 13% from the lows to currently trade at 9,661.

Let’s look at some of the stocks with low prices drawing the attention of investors at this time.

Chorus Ltd (NZE: CNU)

Chorus Limited is one of the largest fixed line telecommunications network operator in New Zealand and plans to deploy approximately 20,000 km of fibre for the UFB and Rural Broadband Initiatives by 2020 which would compliment its current fibre and copper network that serves about 1.8 million connections today.

The current market cap of Chorus stands at around NZD 2.9 billion. On 30 March 2020, the CNU stock settled the day’s trading at NZD 6.730, up by 2.75% having generated a YTD return of 5.99%.

The Company announced to have suspended any non-essential field activities such as subdivision build, proactive pole replacement, non-essential network relocation and others to provide support to the Government in containing the spread and eliminating any risks related to Covid-19. Meanwhile Chorus’ EBITDA guidance for FY20 remains the same. This should come as a huge relief for its investors as across various sectors companies are announcing guidance suspension.

The company has also indicated that its fixed line network is very well positioned to serve the expected increase in bandwidth demands as people now work and learn from home.  With the ensuing social distancing, many are subjected to working from home, the demand for the companies services would not be impacted or rather see an uptick as against other sector products/ services. 

It comes as no surprise that, Chorus has been a pleasant outlier amongst the listed entities, as it has delivered a positive YTD returns of ~6% and just 12% away from multi year highs. The stock as on 30 March 2020 closing is trading at a gross dividend yield of 4.9%, and a PE of 54.

Tourism Holdings Limited (NZE: THL)

Tourism Holdings Limited operates as a premier tourism company in New Zealand while it is also rents out and sells holiday vehicles in Australia and New Zealand under the brand names Maui, Britz, Mighty, KEA Australia and Motek. Overseas, it owns and operates the Road Bear RV Rentals and Sales brand in the United States.

The market cap of Tourism Holdings stands at around NZD 159 million. On 30 March 2020, the THL stock settled the day’s trade 10% lower at NZD 1.080 having delivered a negative Year-to-date return of -65%.

Dividend Go Dry, Company Slashes Costs

On 20 March 2020, the Company announced to have cancelled its interim dividend (FY20) of 10 cents per share that was declared on 28 February 2020 amidst the heightened uncertainty associated with the Covid-19 pandemic and also the resulting travel containment measures.

THL informed that it has around NZD 109 million of headroom currently available in its banking facilities while net tangible assets are at NZD 1.83 per share as at 31 December 2019.

Nevertheless, the Company is implementing other measures to curb its expenditure and mitigate the impact being felt on the business through – 50% reduction in directors’ fees for the coming four months, reduction in the salary of CEO by 30% for the next four months cancellation of all uncommitted fleet capital expenditure, reduction in committed fleet expenditure wherever possible and other feasible cutbacks.

The COVID-19 unfolding has been unprecedented and companies catering to the travel sector are deeply impacted.  THL has seen its stock price crash by a massive 86% from its recent highs. The Company is trading at a very low PE multiple of 6.4, and a gross dividend yield of 27%, however readers must be cautious as stated above the Company has cut its dividend and the dividend yield would adjust accordingly. However,  the bargain hunters would be tempted to further study this company and make a calculated call.

Kathmandu Holdings Limited (NZX: KMD)

A Certified B Corp, Kathmandu Holdings Limited was established in 1987 in New Zealand and specialises in development and provision of quality clothing and equipment for travel and adventure.

The market capitalisation of Kathmandu Holdings is nearly NZD 300 million. The KMD stock is currently priced at NZD 1.020 and last traded on 30 March 2020. It has generated a negative Year-to-date return of -74%.

Company on the toes

Recently on 27 March 2020, Kathmandu Group announced that the it continues to monitor the rapidly changing business impact of COVID-19 on a daily basis across its main trading markets. At the same time, the Group is also working across geographies and business operations to pre-emptively manage the situation and help the government in containment of the virus. The Group also emphasised that the health and safety of its employees, customers and the broader community is currently their top priority.

COVID-19 bear run has hammered travel related stocks, and KMD has not been spared either, the stock has plummeted by 51% from its recent high. However, on 30 March 2020, the stock is up 18.6%. It is currently trading at an attractive PE multiple of 3.540, and gross dividend yield of 24%, however, the readers should closely monitor of the Company could hold its previous dividend payout levels, considering the black swan even that the company is currently addressing. The bargain hunters would start nibbling and making calculated moves.

Michael Hill International Limited (NZX: MHJ)

Michael Hill New Zealand Limited, established in 1979, is engaged in the manufacturing, wholesale, and distribution of jewellery inlcuding rings, bracelets, watches and other items across New Zealand, Australia, Canada, and the United States.

With a market cap of around NZD 93 million, the MHJ stock settled the day’s trading flat on 30 March 2020 at NZD 0.240. The stock has generated a negative Year-to-date return of -65%.

Dividends See Axe?

The current economic slowdown and operations restrictions has prompted the company to postpone payment of its interim dividend until 30 September 2020. The change in schedule is - Ex-date: 12 March 2020; Record date: 13 March 2020 and Payment date: 30 September 2020.

As Michael Hill New Zealand continued to monitor its situation, the Company announced suspension of its New Zealand Store network on 23 March 2020 for an indefinite period of time, effective the same day.

MHJ shares have been hammered by the bears and trading at a discount of 65% from the 52-week highs. The stock is trading at a low PE multiple of 5.4 and a gross dividend yield of 6.4%. We must wait and watch the stance taken by the Company in September this year with regards to the dividend payment.

Bottom Line

While, everything that goes down in a bear market may not come up but for many attractive equities, investors are seeing prices that they saw many years ago. Investors seeking value stocks could flock to such stocks as they are now relatively cheaper as against beginning of what may be called as a historical year 2020. However, investors must take into cognisance the impact of COVID-19 pandemic on the respective businesses before making a decision.

   
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