Having successfully fended off new cases of COVID-19 for 100 days prior to this week, media reports this morning now say that 36 new cases of the virus have infiltrated New Zealand’s borders. To restrict further infections, NZ Prime Minister, Jacinda Ardern, has selectively imposed renewed short-term restrictions across the country. If case numbers continue rising, however, it is likely these restrictions will become more widespread and longer lasting. This could potentially impact the share prices of NZ-based ASX shares. So, should prospective investors be looking to buy these ASX-listed Kiwi companies if they take a dive?
2 ASX shares that could become buys
Air New Zealand Limited (ASX: AIZ)
Having reached a 52-week high of $2.94 in January of this year, the Air New Zealand share price now trades at $1.20 at the time of writing.
As one of the many businesses devastated by the pandemic, Air New Zealand reported to the market in June that it was expecting to deliver a full-year loss of $120 million for FY20. Despite this result, however, the company was optimistic in June that NZ’s scaling back of restrictions would allow it to slowly restart domestic flying operations.
This week’s news of a spike in cases will likely foil any such plans for the airline. The news was reflected by the Air New Zealand share price taking a dive on Tuesday by over 4.5%. But investors who nabbed the airline at lows of 80 cents per share in April have still done pretty well at this point, up approximately 50% at the time of writing.
Thus, if new restrictions are imposed, and Air New Zealand shares dive below the $1 mark again, could the company be too cheap to ignore?
On the one hand, the airline seems a pretty safe bet. As the national airline, if Air New Zealand did get in to any liquidity trouble, the NZ government may very well bail it out. And eventually, the company’s operations will rebound – albeit to an unknown extent.
Yet, on the flip side, three of the top brokers, Macquarie, Credit Suisse, and UBS, have all placed a ‘sell’ or ‘underperform’ rating on the airline. Some of the key risks referred to by the brokers include the high likelihood of a significant liquidity injection via debt or an imminent capital raising, the latter of which could dilute shares.
Notwithstanding this, if you’ve got the risk appetite and the shares dip below that $1 mark in the coming days, I still think Air New Zealand could be a good buy.
Skycity Entertainment Group Limited (ASX: SKC)
The Skycity share price has likewise been bludgeoned by the coronavirus pandemic, retreating from nearly $4 in January to its current price of $2.18.
The gaming and entertainment powerhouse was quick to inform the market on Wednesday about what an Alert Level 2 for the entire country and an Alert Level 3 for Auckland would mean for its business operations.
The announcement revealed that the company would be shutting its Auckland casino and entertainment facilities. The company’s Auckland hotels and other NZ casinos, however, would remain open for the time being.
It has been a wild ride for shareholders in 2020, with the Skycity share price bottoming out at $1.10 in March, which was followed by a partial recovery to its current trading levels.
Due to liquidity issues, the company also completed a $230 million equity raise, and is expected to report its full-year results for FY20 on 3 September. Only then will it be known just how large a hole the pandemic has punched in the operations of its casinos, hotels, restaurants and bars.
If the Skycity share price takes a tumble again in the coming days, I definitely think this is a company worth looking into further. With casinos in Hamilton, Auckland and tourism-rich Queenstown, as well as Australia’s Adelaide, the company has diverse market exposure and a history of paying sizeable dividends.
At the current share price, its dividend of 18 cents equates to a trailing yield of 8.3%. Whilst it may take some time to get back to these payout levels, those with a long-term investment horizon could possibly reap the benefits of another dip in the Skycity share price.
First and foremost, let’s hope our neighbours can get the pandemic under control as soon as possible, negating the need for more stringent lockdowns. If ongoing restrictions are required, however, it will be interesting to see whether these New Zealand ASX shares experience further sell offs. Both remain watchlist shares for me at this point due to the uncertainty of the NZ situation, but a further sell-off could possibly make both companies too cheap for me to ignore.
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Motley Fool contributor Toby Thomas has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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