Although the sharemarket had held up quite well, Solly said recent jitters over the banking sector in the US and Europe had highlighted the perils of high levels of indebtedness - whether it was among governments or corporates.
“We have to be mindful that our current account deficit is elevated and generally higher than others.
“If we combine that bank stress with where we are, we have to be a bit wary,” Solly said.
A worsening current account shortfall would mean higher debt servicing costs and a weaker NZ dollar, Solly said.
“It has the potential to reduce the attractiveness of the New Zealand market, but we have actually done pretty well.”
NZRL branches out
Country landlord NZ Rural Land has gone off the grass and into trees with the $63 million purchase of a forest estate in the Manawatū-Whanganui region.
The estate is to be leased to New Zealand Forest Leasing (NZFL) - one of the country’s biggest forest owners and forest lessees - for a 20-year term, with the first year’s payment being about $5m. The lease then has annual CPI-linked rental adjustments.
The purchase has been funded using a combination of debt and equity. Debt has been provided through a $25.2m increase in borrowing from Rabobank.
The equity component has been funded from NZL’s recent accelerated renounceable entitlement offer and from the proceeds of a $12m convertible note issued to an entity associated with NZFL.
NZ Rural Land director Richard Milsom said tougher rules on foreign investment in forestry had lessened competition for forestry assets, which helped make the property more attractive. A positive long-term outlook for timber and carbon also influenced the purchase.
This is NZ Rural Land’s first foray into forestry. Until now, it has been invested in South Island pastoral land - about 12,000 hectares.
About half of that is in dairy and the other half is in cropping, farm support and beef and lamb.
“When we set up NZ Rural Land, the intention was always to be a diversified owner of rural land in New Zealand,” Milsom told Stock Takes.
“We have bought a number of pastoral farms to date because they offered the best rate of return, in our view.
“With changes in both foreign buying and in the outlook for both carbon and timber, the risk-adjusted returns in forestry are looking quite attractive at the moment, so that has spurred us to focus on this area.”
Milsom said NZ Rural Land will look at other possible forest acquisitions on a deal-by-deal basis.
“The overriding thesis is that New Zealand has got a structural and sustainable advantage in a bunch of rural land types,” he said.
“What we look at doing is lining up a really high-quality tenant, a high-quality asset, and an attractive purchase price.
“The landscape has become easier because it’s become more difficult for foreigners to buy forests, which has reduced competition in the market, and the outlook is attractive.”
The forest asset is in hill country - class five and above. The estate comprises five individual properties with a total area of about 2400 hectares.
Scott steps up
Shares in Scott Technology have stepped up since it reported a strong first-half result last week.
The automated systems provider, which is big in the meat processing sector, released a strong result, with revenue of $127m, up 11 per cent.
Despite inflationary and supply chain pressures, group margin expanded from 22 per cent to 26 per cent, which flowed through to normalised Ebitda of $14.6m and a net profit of $7.8m (up 66 per cent).
Scott’s three core segments (meat, mining and materials handling and logistics) collectively grew revenue by 18 per cent and now represent 92 per cent of group margin.
“Against a challenging global backdrop, this result re-affirms our positive outlook as management executes its strategic plan,” brokers Forsyth Barr said.
“Given the trends indicated in this result, all being part of Scott’s ‘Scott 2025′ strategy push, we lift our full-year 2023 revenues and update longer-term margin estimates,” it said.
Argosy revalues
Argosy Property has recorded a full-year portfolio revaluation loss of $146.4 million, a 6.4 per cent decrease on book value.
Of the decrease, $23.5m was recognised in the September 30, 2022 interim result.
The company’s office portfolio declined by $78.9m or 8.9 per cent, and large-format retail declined by $18.5m or 8.2 per cent.
The portfolio is 10.8 per cent under-rented, excluding market rent on developments.
Based on the provisional revaluation, Argosy’s adjusted net tanglible assets would be approximately $1.57 per share compared to $1.74 at March 31, 2022.
“Unlike other cyclical softening periods, the market is benefiting from increased rentals as the capitalisation rates ease,” Argosy said.
“The impact of the softer cap rates was partially offset in many instances by increases in market rents. In some instances, value added by increased lease terms has mitigated value declines.”
Shares in Argosy last traded at $1.12.
