Superstar Xero a surprising omission from list for investors to add to their portfolios
Mainfreight is a popular pick for a strong performance in 2014 due to its increasing international exposure. Photo / Sarah Ivey
Air New Zealand is the most popular pick by brokers for 2014 riding on the back of strong expectations for profit growth at the national carrier.
Three out of seven brokers chose the airline, whose shares have already risen more than 25 per cent this year.
Rob Mercer, an analyst at Forsyth Barr, said Air New Zealand was heading into 2014 in great shape with earnings expected to increase from those already seen in 2013.
"Air New Zealand (is) poised to deliver several years of strong profit performance."
Mercer said the drivers behind that were improved demand, cost cutting, changes to loss-making long-haul routes and stable fuel prices.
Macquarie analyst Brad Gordon said Air New Zealand had outperformed its airline peers yet it was trading at a cheaper price.
"Air New Zealand's return on equity is around 11 per cent, Qantas is basically zero."
Gordon said that in the past Air New Zealand's value had traded at a discount because of the Government's high level of ownership.
The 20 per cent sold down by the Government in 2013 reduced the overhang issue and increased liquidity in the stock. Trade volumes had been boosted from around half a million dollars a day to around $1.5 million to $2 million.
Gordon said the nature of the New Zealand market meant Air New Zealand stood to benefit from the country's strong economic growth and flow-on effects from the Christchurch rebuild with more people travelling up and down the country.
Outside of Air New Zealand, Diligent, Chorus, Fisher & Paykel Healthcare, Contact Energy, Infratil and Mainfreight received two picks each.
Diligent, a software providers of corporate board documents, was a top performer in 2012 but this year it has struggled with governance issues and delays in restating its accounts. Its shares have fallen more than 25 per cent.
Gordon was not worried about Diligent having to restate its accounts.
"It's not entirely unusual for new software companies to go through restatements globally."
The big question mark was whether the issue had distracted management and impacted sales for the company. He would be looking closely at quarterly sales figures due out early next year.
Diligent was a top pick for brokers in 2013 but remarkably none of the brokers have picked Xero either this year or for 2014, despite its stellar performance.
Gordon believed that was down to a lack of understanding over Xero's valuation. "The last $15 the company put on really there has been no news. On the face of it it's the most expensive SAAS (software as a service) company on valuation."
Others have zeroed in on companies with strong global growth prospects.
Mark Lister, head of research at Craigs Investment Partners, said he picked Fisher & Paykel Healthcare because the business is growing strongly offshore and was well positioned to continue to deliver over the medium term. "If we see any currency weakness emerge, this would serve to enhance the investment proposition even more," he said.
Lister also picked Mainfreight for its increasing international exposure.
"Mainfreight has a strong brand and market position in Australasia but over recent years, an increasing portion of revenues and earnings have come from international operations including those in Europe and the US.
"A recovery in some of these regions, as well as any strength in the currency, would benefit Mainfreight."
Forsyth Barr's Mercer said he backed Mainfreight because it had a high marginal return on equity, it was beating peers on earnings growth and had a proactive executive team.
"Mainfreight has substantial global growth prospects."
Brokers top picks:
Macquarie Securities
Summerset Group
Diligent
Pumpkin Patch
Air New Zealand
Chorus
First NZ Capital
Fisher and Paykel Healthcare
Hellaby Holdings
Airwork Holdings
Z Energy
Contact Energy
Goldman Sachs
Trade Me
Tower
Air New Zealand
Infratil
Nuplex
Craigs Investment Partners
Fisher & Paykel Healthcare
Fletcher Building
Meridian Energy
Mainfreight
Australian Foundation Investment Company
Forsyth Barr
Air New Zealand
Contact Energy
Sky Television.
Mainfreight
Opus International Consultants
McDouall Stuart
Telecom
Diligent
Infratil
Heartland Bank
VMob
*Disclaimer - Before using the Business Herald survey to choose a broker or stocks, readers should recognise that the results are skewed by some features. The figures exclude brokers fees. Brokers are asked to choose the securities that will give the best short-term performance. If they had been asked to choose, for example, a five year term, the results might be different. The survey does not allow brokers to review choices during the year. The survey implies a one-size-fits-all approach. It takes no account of individual circumstances such as an investor's appetite for risk, need for income or tax circumstances. The views expressed do not constitute personalised financial advice and are not directed at any person. Finally, past performance is no guarantee of future performance.
Metlifecare Ltd [MET.NZ] is now an interesting little stock. It has spent many years languishing at around $2.30 due to its high ownership of shares in a small group. But now it has been released from that grip and looks like it will now florish on its own.
It all happened in July and now places the company in direct competition with Ryman Healthcare Ltd [RYM.NZX] and Summerset Group Holdings Ltd [SUM.NZX].
What do we make of the share price then ?
At $2.95 at close of business yesterday it makes this share the second cheapest and Summerset the next followed by Ryman.
Net asset backing is $3.04 for Met which makes this star, $1.10 for Summerset and $1.30 for Ryman. Clearly the leader by a long shot is Met which still hasn't reached its NTA.
As far as returns go it is only Ryman paying a paltry 2.05% that is turning over. Demand for its scrip has recently seen it shares rise to record highs.
You know me I like a bargain so if you prepared to wait a long time you might get Ryman for a steal, I think it will go down from here, but if you want get in right now you might want to consider getting in with the Met overall its the best bet.
The coming Summerset Group Holdings Ltd [SUM.NZX] IPO (read the prospectus) will be an interesting one. The aged care sector that this newly listed company will occupy is a fast growing and profitable one for companies that run the right business model and manage their clients well. As well as numerous independent aged care homes and larger privately owned chains a listed Summerset will compete with two NZX listed companies. Metlifecare Ltd [MET.NZX] and Ryman Healthcare Ltd [RYM.NZX] MET has been poorly managed and is currently undergoing a capital restructure of some kind and Ryman has had stellar revenue and profit growth since its listing almost 15 years ago. Given the promise of the sector at large, the Summerset IPO could be one of the best IPOs the NZX has seen for some years. Management at Summerset have put an IPO value on the company of $307 million of which approximately $120 million are the proceeds of the partial sell-down of approx 30% of the company and the balance is to be majority owned by present owners Quadrant Private Equity and various members of management. Shares will be $1.40 a piece. Lets take a closer look at this IPO to see how it stacks up. Summerset operate 13 villages, 1,364 retirement units, 323 care beds, have over 1,700 residents and approximately 450 staff. They have an aggressive development schedule that would close to double the size of their retirement units within five years and part of the IPO funds are to fund that expansion with the bulk of the funds raised put towards paying off debt. All good thus far with the exception of the amount of IPO funds to be used for paying off debt - why should future shareholders pay off debt from the majority 70% shareholders? Lets looks at some numbers. It is not until page 64 of this 144 page prospectus that we get the prospective and historical financials for the company, albeit once again tainted by the use primarily of pro-forma figures and the usage of "underlying profit" accounting terms to smooth figures that make comparisons from year to year difficult.
Once a darling of the NZX stockmarket, Metlifecare Ltd[MET.NZ], one of two listed retirement and elderly care village companies, the other being Ryman Healthcare [RYM.NZ], its share price now languishes at a NZ$ 4.36 close this last Friday 18 July and they announced a loss for the half year to December 31 2007 of $12.3 million. The loss has been explained by management as a result of changes from the application of International Financial Reporting Standards (IFRS). Ryman on the other hand reported a significant increase in profit for the same period. However, this must put in context with a market that is trying to do its best impression of a lead balloon being tossed from the Empire State Building. So what would be so attractive to a prospective purchaser? The fact that the sector of the economy that the MET participates in has had a history of good results and its long term future looks excellent because as we all know the elderly amongst us, save you and I, are living longer and will increasingly need and want the safety, care and security that a well managed retirement village will give them. Of course long term success is no guarantee, but Metlifecare is a well managed company with a history of good planning, focused property development, for their individual villages and good returns for shareholders and as I have said operates in a growth industry. Now there have been a couple of attempts over the last few years for a takeover of this company but bidders have been unsuccessful as there are several large shareholders and a couple of them declined to let the bidder have their way, Fisher Funds, the New Zealand fund manager but one of them. The last bid for the MET was in excess of the closing price last Friday 18 July, which was well short of a stock price high of above 9 bucks Kiwi in 2007. This brings me to another reason why this company is on my radar. In my humble opinion the current share price represents good value and aren't there heaps of them around at the moment! Net asset backing per share is $6.93, you do the math. Market conditions as they are today have cut the company's capital value by more than half, just like its listed competitor, Ryman Healthcare, which I already own. So what, the property market, which by definition Metlifecare has exposure to, is in the doldrums. That simply ain't going to last and I wouldn't be surprised if the company isn't getting its tyres kicked by larger investors looking for good companies. OK, I know Mr Market has got a bad case of the Wiggles right now and it is hard to "pick the market bottom", but if you are one of those guys who do the Rorschach chart predictions, do yourself a favour and stick this one on your slide rule. I'm putting on my watchlist and looking for a weak day(yes another one) to buy. Related Share Investor Reading Why did you buy that stock? [Ryman Healthcare] Time for retirement?
