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View Full Version : ZEL - The 2 Billion dollar asset reallocation question ?



Beagle
04-04-2022, 10:10 AM
I think this question deserves its own thread as its shaping up as a major factor for the market this quarter. I started a conversation in the retail thread about this, (copy and paste of initial thoughts below), but lets centralize our thoughts in here.

Where will ZEL investors reallocate the proceeds of the Ampol takeover funds to ?
What are the index change implications ? i.e. (Who will gain entry to the NZX 50 to replace ZEL ?)
What are the implications for all the money invested in index tracking funds ?

A few initial thoughts but please, lets all chip in here and share our idea's because I am not pretending for one minute I have the answers. What do you think of my key assumption highlighted below, makes sense or is there a more plausible theory you'd like others to consider ?
Copy of earlier post follows:-

1. ZEL will exit the NZX50, probably before the end of this quarter to be replaced by the next most eligible candidate. Immediate index effect on the incoming candidate. I am not sure which company is the next most eligible candidate but WHS and HLG are in the running with that order (WHS then HLG) being the more to slightly less likely outcome. Its possible there is a more eligible candidate, I would certainly not rule that out.

2. My understanding is all the weightings in the index get adjusted at the time of ZEL exiting the index, (I recall how this worked when XRO delisted and went to the ASX), and there was a substantial uptick on a lot of stocks in the NZX50) so probably at the time of this index change index tracking funds have to re-weight their holdings. Certainly by the following quarterly index adjustment, (third Friday of the third month of each quarter, next one is 17 June.

3. I think there's also a MSCI index reweighting coming in May, don't ask me how that's going to effect things, I don't know.

As well as index changes and index tracking funds changes being one thing the other is where is that ~ $2 Billion going to be reinvested ?
WOW that's the really big question. I think most investors in ZEL were investing as an income stock as it was always well known its in a sunset industry so nobody realistically expected growth. So income investors would probably be looking to shift to other stocks which would enable them to replace that lost income...I think its reasonable to draw that conclusion so that begs the question of which stocks might they buy that have high and solid level's of income ?

Four prime candidates spring to mind
WHS - Already clearly articulated why that's the best income stock on the NZX, forecast gross yield 10.8%
HGH - Recent acquisition in Australia boost income potential going forward and has a great history of steadily rising dividends. I think they can pay ~ 14 cps in FY23 fully imputed so that's 19.44 cps gross and on $2.28 that a gross prospective yield of 8.5% which should grow steadily over the years ahead
TRA - I am expecting good things from Turners and 24 cps fully imputed in dividends next year so that's 24 / 0.72 = 33.33 cps gross and on $4.11 that's 8.1% gross paid quarterly.
GNE - Also has interests in oil and gas so some might feel affinity for it coming out of ZEL, gross yield, my forecast for FY23 ~ 8%

Disc - I have significant positions in all 4 stocks mentioned.

Muse
04-04-2022, 10:19 AM
I already chucked my 2 cents in on this on another thread

but the $2bn headline blew me away. I had forgotten what a big beast Z is (once upon a time even bigger).

that is a lot of dough to flow

winner69
04-04-2022, 10:21 AM
Where did your Z cash go when you cashed out early on.

Think mine went to STU

Beagle
04-04-2022, 10:28 AM
Where did your Z cash go when you cashed out early on.

Think mine went to STU

Sorry mate, selling at $6+ was a while ago and I have forgotten.

What about the higher yielding REIT's, will they come in for some attention ?
ARG 4.7% fully tax paid PIE yield, worth ~ 7% gross to 33% taxpayers and 7.7% gross to 39% taxpayers (Disc - modest holding)
KPG 4.8% PIE yield, gross figures slightly higher than those shown above. (Disc: No holding)

Rawz
04-04-2022, 10:28 AM
Would a fair chunk of the ZEL shares now belong to those hedge funds that buy into companies that are very close to being taken over but not 100%.. Buy hundreds of millions to make a couple of cents on the dollar.. once the takeover has occurred the fund moves to the next one.. overseas?

Maybe a heap of the money doesn't end up back into the NZX.. just a thought I had

Muse
04-04-2022, 10:30 AM
Would a fair chunk of the ZEL shares now belong to those hedge funds that buy into companies that are very close to being taken over but not 100%.. Buy hundreds of millions to make a couple of cents on the dollar.. once the takeover has occurred the fund moves to the next one.. overseas?

Maybe a heap of the money doesn't end up back into the NZX.. just a thought I had

excellent point

Beagle
04-04-2022, 10:32 AM
Yes fair comment. A percentage of funds will certainly be held by the overseas arbitrage players.

winner69
04-04-2022, 10:44 AM
Nobody ever worked out where the Metlife cash went too ….didn’t seem to stay in retirement sector

Grimy
26-04-2022, 04:56 PM
A couple of weeks before holders have some cash to spend. 10th May.

Beagle
26-04-2022, 05:13 PM
Who replaces ZEL in the NZX50 ? WHS ?

see weed
27-04-2022, 10:55 AM
My picks for reallocation....GNE 6% yld, HLG 7% yld, PGW 7% yld, SPK 5% yld, STU 5.75% yld, TPW 5.2% yld and WHS 8.3% yld. I hold all these and a couple of other power companies all good for reallocation.

Beagle
27-04-2022, 11:07 AM
Who replaces ZEL in the NZX50 ? WHS ?

Posted yesterday afternoon. Bingo !!! :t_up:

You have the index inclusion effect and then the $2 Billion dollar reinvestment effect when ZEL takeover proceeds are paid out on 10 May.
Happy days for WHS shareholders !

see weed
27-04-2022, 01:44 PM
Posted yesterday afternoon. Bingo !!! :t_up:

You have the index inclusion effect and then the $2 Billion dollar reinvestment effect when ZEL takeover proceeds are paid out on 10 May.
Happy days for WHS shareholders !
Good on you Beagle congrats to you. And the yld is still over 8%. I bought an extra 40k just to get the div in Feb/March and haven't sold any since. This could quite easy get back to $4 in no time:).

Beagle
27-04-2022, 03:22 PM
Good on you Beagle congrats to you. And the yld is still over 8%. I bought an extra 40k just to get the div in Feb/March and haven't sold any since. This could quite easy get back to $4 in no time:).

Thanks mate and I agree 100% ! :t_up:

Its really good to see you doing well out of it too.

see weed
03-05-2022, 12:53 PM
One week to go Beagle. WHS still well over 8% yld and could get another little boost next week if all the Zers looking for high yield. I am stocking up on another company at the moment and will let you know which one it is when I have had my full.;)

JohnnyTheHorse
03-05-2022, 01:39 PM
One week to go Beagle. WHS still well over 8% yld and could get another little boost next week if all the Zers looking for high yield. I am stocking up on another company at the moment and will let you know which one it is when I have had my full.;)

I hope you're chasing the SKT capital return... Mistatea needs to keep the price up to keep his missus happy!!

Be interesting to see what impact there is on things. Usually don't notice much / anything with these things as arb funds have purchased so many. A lot might move to Ampol as sector exposure?

Waikaka
03-05-2022, 01:42 PM
My money from ZEL is lined up to go into:

GNE:NZX
SPK:NZX
CNU:NZX
SAN:NZX
AMP:ASX

Bought in two tranches in March and June 2020. 4.73% dividends over that time and 10.21% capital gain after brokerage.

I voted against selling.