- Investors are identifying value stocks that have shown resilience during the pandemic and may provide higher market returns in long term or when the economy rebounds.
- The A2 Milk Company has shown significant resilience during FY20, with revenues increasing by almost 33% backed by increased consumer demand during the pandemic.
- Tourism Holding Limited significantly reduced its debt and has planned to operate domestically in New Zealand for the remaining of the year, retaining its capabilities to meet demand as soon as international travel movements restart effectively.
- New Zealand King Salmon anticipates favourable outlook for its business and anticipates receiving approval relating to Blue Endeavour to farm in the Cook Strait by the year-end.
The existing environment of high uncertainty and volatility has presented various risks to the investors, prompting them to rethink their investing strategy. Investors have been keeping a close watch over the market developments and are eyeing investments that will fetch them high returns during the current unprecedented times.
Investing in value stocks is considered a wise option to gain maximum returns on investment as the investor intends to put his/her money in the stocks that are traded at a value lower than their intrinsic value. A bigger difference between the existing stock price and the intrinsic value demonstrates more margin of safety for the investors but does not necessarily translate to complete security for the investment. This is because not every value stock is able to make a successful growth in its business.
On that backdrop, let us discuss three NZX listed stocks - ATM, NZK, and THL.
The A2 Milk Company Remains Resilient During COVID-19
New Zealand based infant formula Company, The A2 Milk Company Limited (NZX:ATM), provides dairy products in New Zealand, Australia, China and the US. Over the year, the Company has made significant improvements in revenue as well as earning through robust performances in all crucial product segments, and throughout all key markets.
Growing Resilience of ATM’s Business (Source: 2020 Annual Report)
Despite the challenges stemming from the COVID-19 global pandemic, the performance of ATM remained robust, with the business demonstrating significant resilience in the second half of the year ended June 2020. Revenues grew by 32.8% with the US market recording 91.2% YOY growth in milk sales. Moreover, ATM’s resilience was fuelled by the continuously strengthening levels of consumer demand.
Surprisingly, the Company believes that the COVID-19 had a favourable impact on the Company’s revenue and earnings coupled with the positive impacts from foreign exchange movements.
Notably, the balance sheet of ATM remained strong with a robust cash position, reflecting growth in revenue and earnings. A strong balance sheet remains pivotal for further execution of ATM’s growth strategy and prospective contribution towards manufacturing.
The inventories were higher during the FY20 as compared to the previous year, indicating Company’s growing business and keeping a safety buffer amid the uncertain environment dominated by COVID-19.
The Company has further maintained progress on delivering upon its strategic initiatives throughout the year and remains dedicated to a concentrated approach to pursuing its strategic growth priorities, including:
- Boost growth from current products in primary markets
- Expand product portfolio in key markets
- Grow in further focussed markets
Moving ahead, the Company expects solid revenue growth for FY2021 supported by its progressive investment in marketing and organisational capability, despite the uncertainties like change in consumer behaviour in key markets, as well as stakeholders in the supply chain.
Tourism Holdings Limited In A Favourable Starting Position For FY21
New Zealand based premier tourism Company, Tourism Holdings Limited (NZX:THL) expects to operate in a domestic-only environment for the majority of FY21 due to the uncertainty surrounding COVID-19.
However, the Company expects to retain its major capabilities and the ability to effectively meet demand as soon as international travel movements begin again. Moreover, the Company’s response to the COVID-19 has positioned the Company in a favourable starting place to encounter the conditions in the local-only market anticipated during FY21.
Interesting Read: A Brief About Value Investing and Recent Equity Raising Amid Uncertainty
With a focus on reducing debt, the Company has bolstered its balance sheet by cutting costs by ~40% since March 2020. The Company projects to continue reducing the same in FY21.
On the funding front, THL entered into a binding term sheet with its banking partners concerning funding arrangements, including commitments to provide debt funding of approximately $225 million.
Moving ahead, the Company intends to expand its domestic market in New Zealand, Australia, as well as the United States, expects to stay cash flow positive during the course of FY21, primarily supported by vehicle sales.
For the financial year ended 30 June 2020, THL expects an underlying net profit after tax of $17.5 – $19 million and the results are expected to be declared on 18 September 2020.
New Zealand King Salmon Anticipates Favourable Outlook for the Business
World’s largest aquaculture producer of the premium King salmon species, New Zealand King Salmon Investment Limit (NZX:NZK) has been engaged in growing and selling salmon for over 30 years. During the COVID-19, the business continued to operate throughout Level 4 as well as Level 3 restrictions as an essential business.
During FY20 ended 30 June 2020, NZK delivered a resilient performance, notwithstanding the challenges of COVID-19 and a decline in harvest volume. Despite recording a 50% dip in sales revenue, all 550 staff members remain employed, thanks to the Government’s wage subsidy aid.
The Company believes that the upcoming times are favourable for the business as well as the industry despite the challenging times. The Government’s Aquaculture strategy recognises the prospect for the industry to expand from its existing $625 million to $3 billion in 2035.
In addition, the Company’s application for Blue Endeavour to farm in the Cook Strait has been proceedings smoothly, and a hearing is anticipated by the end of the year. The Company expects confirmation by mid CY2021 about the application and harvest is anticipated in Q4 of CY2023 if a positive outcome is achieved.
The approval of the application shall lay a significant economic impact on the region by delivering 300 jobs to the Top of the South.
On its way ahead, the Company believes that it is prudent to maintain higher levels of inventory and to ensure enough cash availability amid the uncertainty caused by the COVID-19.