S&P/NZX 50 Ends in Green Territory, Four Stocks Worth Your Attention

Signs of a slowdown in the number of coronavirus-related deaths in some of the worst-hit hotspots sent NZ’s major indices soaring on 7th April 2020. The S&P/NZX 50 closed the trading session at 9,809.85, with a rise of 0.47 per cent.

The number of fresh coronavirus cases has begun to drop in the European countries, including Spain and Italy. Besides, the coronavirus-related deaths appear to be decelerating in hard-hit New York city, raising hopes that COVID-19 deaths will soon level off.

In addition to the equity market taking hope from the positive signals brewing up in relation to COVID-19 deaths, the NZD/USD also rebounded on 7th April 2020, surging to 0.60 cents at 7:08 PM GMT.

In this context, let us discuss four stocks listed on New Zealand's Exchange (NZX) that gained momentum, soaring by 5 per cent or more during the trading session on 7th April 2020:

Kathmandu Holdings Strengthening its Liquidity Position and Balance Sheet Amid COVID-19

Retail store entity, Kathmandu Holdings Limited’s (NZX:KMD) stock surged by ~6 per cent during the early trading session on 7th April 2020.

The Company’s board and management are taking decisive action to deal with the impacts of coronavirus pandemic and maintaining continuity of the business.

Moreover, the Company is taking pre-emptive steps to make sure it stays strongly capitalised with enough liquidity during the current phase of uncertainty. Against this backdrop, the Company has:

  • Executed a fully underwritten capital raising worth NZ$ 207 million.
  • Suspended its dividend until an improvement in trading conditions occur.
  • Provided a covenant waiver for the periods closing 31st July 2020 and 31st January 2021.
  • Relaxed some covenants for the period closing 31st July 2021, contingent on successful completion of equity raising of at least NZ$ 150 million.

It is worth noting that the Company observed the minimal impact of coronavirus pandemic on its 1H FY20 earnings, reported for the six months ended 31st January 2020. Below are the key highlights of the Company’s 1H FY20 results:

  • Successful completion of the Rip Curl acquisition.
  • Total sales in the outdoor segment (Oboz and Kathmandu) up by 0.4 per cent at constant exchange rates.
  • Total sales in Surf segment (Rip Curl) surged by 3.7 per cent.
  • Total group sales soared by 58.8 per cent to NZ$ 363.7 million.
  • Group Underlying EBIT rose by 46.5 per cent to NZ$ 29 million.
  • Statutory NPAT stood at NZ$ 8.1 million.

Source: Company’s 1H FY20 Presentation

Although the Company did not witness any significant impact of coronavirus pandemic on its first half earnings, it anticipates having a material adverse impact on its operations and financial performance in 2H FY20.

Fletcher Building Withdrew FY20 EBIT Guidance

Building company, Fletcher Building Limited’s (NZX:FBU) stock reached as high as NZ$ 3.56 on 7th April 2020 at 1:35 PM GMT, marking a rise of 8 per cent.

In a recent NZX update, the Company informed that it has decided to withdraw its FY20 EBIT guidance in response to coronavirus pandemic. The Company also mentioned the considerable escalation of protection measures by the NZ government and COVID-19 will have a material impact on its FY20 financial results and its operations.

Besides, the Company also decided to cancel its FY20 interim dividend, that was to be paid to 9th April 2020, pause the divestment process for the Rocla business and suspend the on-market share buyback programme.

The Company added that its businesses have continued to trade broadly in line with expectations since it announced its FY20 financial results in mid-February.

SkyCity Restructured its Management Team in Response to Coronavirus Pandemic

Gaming and entertainment company, SkyCity Entertainment Group Limited’s (NZX:SKC) stock marked a gain of ~11 per cent during the trading session on 7th April 2020.

Recently, SkyCity notified about the changes it is implementing in response to the COVID-19 to minimise the impact of the pandemic. One of the major changes outlined by the Company was restructuring of its management team, under which the role of its Chief Property Officer, Mr Peter Alexander has been made redundant effective 2nd July 2020.

Moreover, the Company has implemented significant cost saving initiatives to minimise operating costs and reduce capital expenditure. The Company has announced:

  • A reduction of NZ$ 15 million in stay-in-business capex for the remaining FY20.
  • A hold of all capital development projects in NZ except its NZICC and Horizon Hotel project, at least till its properties reopen.
  • Delay in the payments for NZICC and Horizon Hotel project as no work is possible now.
  • Elimination of all non-essential costs for the rest of FY20.
  • Executive salary cuts from 20 to 40 per cent for the remainder of FY20, that have been volunteered by the leadership team.
  • A cut of 50 per cent in Board of Directors fees for the remaining FY20.

The Company has also decided to reduce its waged staff, which will impact about 900 workers, producing labour savings of around NZ$ 50 million p.a. Besides, the Company also expects reduced business activity for the coming 12 to 18 months.

Stay United Against COVID-19, Says Synlait

Following the release of an update on COVID-19, dairy player, Synlait Milk Limited’s (NZX:SML) stock marked a rise of ~5 per cent during the day’s trading on 7th April 2020.

In its latest update, the Company reported the measures it is taking to protect its suppliers, customers and people for the foreseeable future. The Company announced that it has implemented the following steps as prevention measures against coronavirus pandemic:

  • Restricted all site access to teams vital to maintaining and running its operations.
  • Announced daily declarations as a precondition for anyone entering its sites.
  • Increased sanitation and hygienic cleaning practices across non-production workspaces.
  • Extended already in place advanced personal protection equipment controls in infant formula manufacture more broadly across sites.
  • Announced two-meter physical distancing controls across its supply chains and production processes.

It is worth pointing out that Synlait recently completed the purchase of Dairyworks Limited, which is also operating as an essential service under the NZ government’s Level 4 Alert restrictions.

Undoubtedly, COVID-19 is posing an adverse impact on the businesses of these NZX-listed entities, in some way or the other. The effectiveness of the policy measures taken by these companies and the NZ government is likely to determine the prospect of their success in sailing through this challenging phase.

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