Investing highlights & lowlights — February 2016
02 March, 2016
February was a busy month for our investment team with a large number of companies across our portfolios reporting their latest results.
- Results from Auckland International Airport (AIA) and EBOS were the pick of our New Zealand portfolio. The buoyant New Zealand tourism market has seen AIA again upgrade earnings guidance for the full year. More airlines, flying more often and with bigger planes is driving record profits for the airport and the outlook is for this to continue. EBOS, a bit of a quiet achiever in recent times, reported another double-digit earnings increase for the half year which attracted attention from investors who drove the share price up a healthy 16%. On the flipside, although Freightways recorded a very satisfactory result for the half year ended December 2015, the company was more cautious in its outlook statements following a slower December-January period.
- Our Australian companies came through the February reporting season very well. All but two of our holdings reported growth in earnings, with ten companies reporting exceptional growth of 25% or more. Our largest portfolio holding, Ramsay Healthcare, had over recent months become the subject of negative speculation as investors feared cost-saving efforts on the part of medical insurers would negatively impact hospitals. In a show of strength, Ramsay Healthcare reported 24% growth in earnings and raised its full year guidance. Ansell suffered a combination of some management mistakes and an adverse currency environment, resulting in a disappointing result. Crucially, we are of the view that Ansell is a good company suffering a bad time, and so we continue to own it.
- On the international front, French based company Zodiac was our worst performing investment in February and we made the decision to exit our holding following a second profit warning in three months. Zodiac is a dominant player in the aircraft seats and cabin equipment industry; an industry with good growth prospects. Following the profit warning late last year we felt that the worst was behind the company. However, a further downgrade in February and subsequent discussions with the company gave us no confidence that management
are on top of the issues and about to turn things around. This is a very disappointing development given the good growth dynamics in the industry.
- Our Property & Infrastructure portfolio posted pleasing performance during the month, driven partly by a recovery in the share prices of Union Pacific and Aurizon following a period of poor performance, but also reflective of heightened investor demand for safe-haven investments. During the month we exited our position in ITC Holdings following the announcement that it will be acquired by Fortis with a large portion of the deal funded through issuance of Fortis stock. Our view is that ITC is a superior investment and becoming shareholders of Fortis is not our preference at this stage.
- On the fixed interest front, there remains a divergence in behaviour and performance across the market. After a tough end to 2015, corporate bonds have staged a mild recovery which has benefited many of our holdings. Central Bank decisions (Japan's negative interest rate surprise and a highly anticipated ramp up in QE from the European Central Bank next week) are again driving investors into the sovereign bond market which has lifted the value of our holdings in US Treasuries and UK Gilts to new highs. Our holdings in bonds issued by banks and other financial institutions remain weak in the face of lower interest rate expectations, greater regulation, and concerns the economic cycle might be turning for the worse. The good news is that these factors are unlikely to be severe enough to throw into question these institutions' ability to pay their debts.