“Notwithstanding the benefits private credit brings, in the form of tailored finance for companies and diversification for investors, it also embeds several vulnerabilities,” it said in May.
This week, the Australian Financial Review reported that the Reserve Bank of Australia was bracing for mounting defaults across the private credit sector and was concerned that any financial shock from the industry would be exacerbated by highly concentrated loan books in the property sector among fund managers.
Matt Goodson, managing director at Salt Funds Management, said a source of concern was the number of stocks linked to the artificial intelligence firms.
“It’s interesting globally, but it’s not really of great importance here at this stage,” Goodson said.
“A number of these funds that own that debt have seen sizeable redemptions from investors, so quite a number of these global credit funds have had to limit redemptions,” he said.
“Downunder, that sort of morphs a little bit more into the murky area of private business lending that’s often in Australia and New Zealand mezzanine property debt.
“In New Zealand, we don’t have any large funds that I am aware of that are carrying this debt at prices that are overly optimistic.”
The Reserve Bank of New Zealand, in its May financial stability report, noted that concerns have increased around private credit markets, particularly in the US.
Declining investor sentiment has contributed to an increase in withdrawals from private credit firms, the bank noted.
“Rapid growth in private credit over the past decade means any strains in the sector could reduce credit availability for firms and amplify economic downturns.
“Limited transparency and oversight makes it hard for regulators to determine the level of risk and to respond accordingly.
“While private credit appears to play a relatively modest role in New Zealand, there is a risk of contagion, given the opacity of the sector and the potential for indirect effects via tighter financial conditions abroad.”
Responses to the bank’s Managed Funds Survey indicated that New Zealand fund managers (including KiwiSaver providers, life insurers and other superannuation funds) hold only a small share of their portfolios in private credit and private equity.
Sanford upgraded
Broker Forsyth Barr has upgraded its recommendation for seafood company Sanford to “outperform” from “neutral” following a 17% sell-off since its result in May.
“Sanford is a significantly improved business compared to when CEO David Mair joined two years ago,” Forsyth Barr said.
“Over this period, it has delivered record earnings and operating cashflow, halved its debt and more than doubled its return on equity, bringing it broadly in line with its cost of equity (9.5%).”
However, with the stock trading at about nine times its 12-month forward price earnings ratio – a 45% discount to the market median – the market clearly did not believe these levels were sustainable, Forsyth Barr analysts said.
“We acknowledge that some of the improvement over the last two years reflects tailwinds from factors outside Sanford’s control (strong mussel yields, falling interest rates and stronger catch rates and pricing across wildcatch).
“However, the management-led changes have also delivered a step change in the earnings capacity of this business.”
Sanford’s strengthened balance sheet and strong free cashflow outlook also provided scope to increase distributions or invest in growth.
“We see an attractive risk-reward at current levels as the investment case shifts from business turnaround to disciplined growth and capital returns,” the broker said.
Xero sum game
Xero chief executive Sukhinder Singh Cassidy has sold all her shares in the company, which has seen some pushback across the Tasman.
A notice to the ASX said Cassidy had sold 29,608 shares at A$74 a share, netting A$2.19 million ($2.6m).
Cassidy said the sale was for tax purposes.
The Australian Financial Review said the sale unnerved investors at a time when the accounting software group’s chairman, David Thodey, was trying to win shareholder support to award her a more generous pay deal that is less dependent on Xero’s flagging share price.
The stock last traded on the ASX at around A$69.93.
Ryman to outperform
Ryman Healthcare (RYM) has delivered a mixed first-quarter trading update.
Reported resale settlements remained well below unit turnover, meaning resale inventory continues to build.
However, a 7% year-over-year increase in resale contracts during the quarter points to a meaningful acceleration in contracting activity over late May and June, Forsyth Barr said.
The improving contracting momentum is consistent with peer Summerset’s update last week and coincides with a firmer economic backdrop in recent weeks.
“We have modestly reduced our resale volume forecasts but continue to see a path for resale volumes to match turnover by the end of 2027, provided recent contracting trends are sustained.
“This should position RYM to generate positive cashflow from existing operations for the first time in at least four years.”
Forsyth Barr rated Ryman as “outperform”.
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.