Purchased Chorus (CNU), Sold GPT Group (GPT), reduced Macquarie (MQG) and National Bank (NAB)
Recent changes to the Australian Equity Income Portfolio
Purchased Chrous Limited (CNU) Chorus Ltd is New Zealand’s major wholesale telecommunications infrastructure provider to telephone and broadband service retailers. It owns most of the country’s telephone lines and exchanges and is responsible for building ~70% of the Ultra-Fast Broadband (UFB) network, due for completion in 2022. In 2011 Chorus was demerged from Spark, the privatised Telecom NZ, to participate in the UFB project. It is now the largest owner and manager of the open access internet network, with more than 1.5m broadband connections. The company’s product portfolio encompasses a range of wholesale broadband, data and voice services across a mix of regulated, contracted, and commercial products. Declining connections for copper services are offset by growing broadband connections and increasing data usage on the UFB network. While there remains an element of regulatory uncertainty for the post 2022 period, the company’s capex will step down considerably and it will transition to a dividend policy based on a pay-out range of free cash flow. This should result in a step up in the annual dividend into FY23-24, with sustainable modest growth beyond. In the current environment of extremely low interest rates and heightened earnings uncertainty, Chorus exhibits a low risk profile and a 4.1% dividend yield with potentially an improving growth profile into the mid-2020’s. Sold GPT Group (GPT) We have sold GPT Limited (GPT) as both earnings quality and balance sheet liquidity will face unprecedented pressure through the economic shock of the temporary closure of many parts of the economy due to the coronavirus. Recent changes to the Blended & Australian Equity Income Portfolios Reduced Macquarie Group (MQG) & National Australia Bank (NAB) We are reducing the portfolios’ direct exposure to credit and financial markets by lowering the holdings of Macquarie Group (capital markets) and National Australia Bank. Until there are clearer signs that financial volatility is subsiding and there is evidence that virus containment measures are beginning to work, our preference is to continue to be defensively positioned. Since we do not think those conditions have been met yet our preference is to hold a higher cash weighting and greater exposure to essential services industries, such as consumer staples, healthcare and telecommunications.