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.
With the following companies announcing their profit results this week, with Freightways Ltd [FRE.NZX] kicking off the week at 10.00am this morning. Investors will not only be looking for some decent results but as usual and more keenly will be looking at indicators from management as to where they may be heading in 2011.
Australia and New Zealand Banking Group Limited [ANZ.NZX]
Full Year
20/08/2010
I will be paying interest to FRE and SKC especially as they are major parts of the Share Investor Portfolio but also looking closely at NZR, POT and CEN. The Freightways result is a good bell-weather for the wider economy, POT will indicate how exports are doing, the NZR result will give shareholders there an indicator of whether that company has or will make it out of their recent slump in fortunes. The CEN result will be indicative of wholesale power prices and their impact on the consumer and the SKC one will outline a number of issues currently on the horizon for the company. Related Full list of coming results - NZX Market Diary Recent Share Investor Reading
94 NZX listed New Zealand companies have a full list of available company Annual Reports for download and it is free and easy to do so.
From Abano Healthcare to Zintel Group Ltd and everything else in between, there are all available Annual Reports, some interim and even prospectus where available.
If you are after additional reports that you cant find or have some to fill in the gaps please contact Darren here, or leave a link of message here at the bottom of this post.
In this series of posts I am going to be looking at stocks listed on the NZX in relation to their returns to shareholders over the life of their listing -what shareholders would now see in their back pockets if they had invested in the company IPO. The calculation of returns includes dividends and tax credits.
New Zealand Stock Exchange Ltd [NZX.NZ] has beena very good investment for those who have been shareholders since its listed in June 2003 at $3.60.
With $1.70c in net dividends and 30% more in tax credits (see chart abovefor adjust figures) plus a 2:1 share split issue in 2006 and a 4:1 in 2009 gives NZX a slightly more than 400% return (see chart below for the share price percentage gain against the average of all NZX indexes - does not include dividends and tax credits in its calculation) over the 7 year listing of NZX gives an approximate annual net return of just under 57 %.
The aim of this series of charts is to show the divergence - up or down - of the selected individual stock price away from the NZX 50 Index. The chart is a 1 year look to give some relevant background to any recent (two to three months) share price movements.
I will look at The New Zealand Stock Exchange Ltd [NZX.NZ] this week. I have included it as a chart of the week is because of the spectacular drop in shareprice over the last 3 months - almost 25% - and a big drop of 12% over June, where it has gone from $1.65 to trade today at an 52 week low of $1.46 last Friday at market close.
The company isn't being well managed, with poor regulatory restraint and tainted by a high level of insider trading and the share price reflects that but if you were thinking of buying NZX shares now would be the time to put it on your watchlist.
The NZX average of all indexes has been up by 5% over the last 3 months and by comparison NZX shares have dropped 25% below April's NZX average.
Buy on further weakness - today could see a good drop due to further weakness in the DOW.
On 20 October 1987 the news of share market falls on Wall street sparked a dramatic day of selling on the New Zealand market. The NZ market lost 60% of its value and has yet to recover 1987 pre-crash levels, while our cousin across the ditch, lost 42%.
Share prices reached an all-time high on 18 September 1987. The exchange had 309 listed companies, far more than ever before. From 1982, when the international bull market began, the New Zealand market rose about 600% (compared with 250% in the US and 400% in Australia). Spooked by a dramatic fall on Wall Street, the New Zealand stock market collapsed on 20 October, which became known as ‘Black Tuesday.’ Share values dropped by $5.7 billion – 4.3% – in four hours, as thousands of investors fled the market. Values halved over the next 10 months. In the following years, New Zealand’s recovery lagged far behind those of its chief trading partners. By 1993 only 140 companies remained listed.
Most broking firms drastically downsized and many fell over. To survive, many companies merged or were taken over – some by overseas firms. This boosted their capital and attracted more off-shore investors. By 1996 over half of New Zealand broking firms had overseas connections.
The NZX is now a much better run institution than it once was, but many of the same people from 20 years ago remain and many of the same ideas of short term gains continue to live in the minds of brokers and company analysts.
Monopolies are only good for one party, the monopoly itself.
The NZX , the arbiter of The New Zealand Stock Exchange [NZX.NZ], is one of those parties and boy what a party the NZX , its broker shareholders and institutional investors have been having for many years.
The party has been good for the NZX and its members and mates but the hangover remains for mum and dad investors and the regulation of NZX listed companies as a whole.
The NZX , its shareholder members who are brokers and those close to them, have always been favoured over mum and dad on the street. Price sensitive information flows to the favoured come first and fast and breaking of rules by broker members/shareholders have always been hand slaps rather than anything concrete that would forbid any further breaches of their own NZX rules.
This has two effects. Enriching brokers at the expense of mum and dad shareholders and leaving those same mum and dad investors dubious about investing in the stockmarket in the first place.
The New Zealand Stockmarket has suffered this malaise for many years and it shows especially in its poor performance on the whole since the stockmarket crash of the late 1980s.
Investors would rather buy housing than invest in something that they trust. They simply don't trust the stockmarket and the NZX its mates and their shenanigans are the reason for this.
Why would you spend good money on something you cant trust because some parties have advantages over others?
The irony here as well, is that the NZX is supposed to be an unbiased stockmarket regulator that doesnt favour anyone, not the least of which would be its own listed company NZX , which is itself listed on its own stock exchange.
The antidote to this stockmarket sickness and bias?
Either have a completely independent stockmarket regulator or allow competition in this area.
We know that competition helps provide better service, cheaper prices and a more level playing field for consumers and the same would be true of the stockmarket sector.
I have been arguing for ten years now that surely in this Internet age investors who want to buy and sell shares could be matched together more efficiently and with more expicit fairness other than other dealing with a monopoly like the NZX.
Much like peer to peer downloading, intermediaries could easily be set up to get together willing buyers and sellers with oversight by a third independent party. Even buying shares directly from the company you want to be invested in would be more appropriate. Why have a third party clipping the ticket (your stockbroker) when investing directly you could remove that cost.
Stockmarket investors in New Zealand deserve to have a fairer, more independent way of investing in NZX listed companies. The current system is simply not working in an appropriate and explicit way.
Until then expect continued mediocre performance from the stockmarket.
In an announcement sneaked out after market close on Friday 12 February (the day traditionally used by companies to hopefully hide embarrassing and bad news) The New Zealand Stock Exchange Ltd [NZX.NZ] has indicated that it has had to write down the value of a "performance payment" from the sale of its carbon registry, TZ1 last year.
Curiously the NZX valued this payment at $ US 37.1 million (seems quite arbitrary considering there is no set "value" for a "carbon credit") but have now decided to write this down to another arbitrary figure of US$21.4 million.
So, the NZX have been winners and losers in the carbon credit lark. They sold to some poor sucker at the height of the scam and lost out by missing on a performance bonus.
An interesting finish to the NZX release today:
In spite of tough operating conditions, the TZ1 registry business continues to lead the field in customer acquisition worldwide. As such it is very well-placed to benefit when the carbon agenda, and corporate willingness to commit voluntary spend in this field, return.The past 12 months was a planned, intensive growth phase for the carbon registry business, and that growth has been slowed by macro headwinds. NZX remains confident around the long-term success of the this business.
They admit that the carbon trading business is an "agenda", it is indeed one of those, a political one used by people like the folk at NZX to make money from thin air but they say they are also confident that the business will be a long-term winner.
I would have to argue again that this statement seems a little confusing because they sold TZ1 in the first place and it also looks to be collapsing into itself in a heap of smelly shareholder losing red ink on the NZX balance sheet.
I have to say, in terms of disclosure by the NZX and Mark Weldon, to be this sneaky about releasing this information, it sets a very poor example for the listed companies that it manages on behalf of shareholders and goes to show when you mess with an "investment" that is based on fraud and when you don't understand that investment, you can quickly come unraveled.
NZX shareholders are the big losers here and there will be more losses to come as carbon trading continues to unravel.
Further to my piece on insider trading of Sky City Entertainment Group [SKC.NZ] shares last week and a convenient waiver given by the NZX for Contact Energy Ltd's [CEN.NZ] David Baldwin to get rewarded for stuffing up, it appears that the NZX is relenting to pressure from the bearded one, Bruce Sheppard from the NZ Shareholders Association, to get market announcements, previously delayed to the poor and downtrodden like you and me, now available.
Those market participants who have had NZX terminals in their offices have been using this information to trade before it is available to us, of course this is highly illegal but as Bruce has pointed out, nobody has been prosecuted by NZX, the market regulator, let alone a case of insider trading taken before.
This delay has always confused me because the advantages this gives users of this information means millions of dollars in their pockets - am I a naive idiot?
It is one of those hangovers from a regulated market that has been held onto with great gusto but other relics of a bygone age still give the advantages to the big boys.
The granting of waivers to break NZX rules, lack of clear separation of the day to day running of the New Zealand Stockmarket and its regulation and the reluctance to piss off mates by prosecuting clear breaches of insider trading rules and other market hanky panky by brokers and insiders really needs to be scrutinized closely by Government stockmarket regulators the Securities Commission because the NZX ain't going to do it.
Sadly this is unlikely to happen in any sort of expedient manner, so it is up to people like you, me and stockmarket advocates like Bruce Sheppard to keep the pressure on Mark Weldon and his mates down there in Wellington.
Of course the thing that would keep the NZX a little more honest would be a little healthy competition, and as I pointed out some ten or so years ago, why couldn't a website be set up for stockmarket investors to directly buy and sell shares without a middleman getting involved?
I'm sure others with the tech savviness that I don't have would be able to pull off such a thing.
A great little opportunity for someone to have a go.
Lets ask a number of important questions to give the NZX some sort of customer rating.
Do they look after all their customers?
The answer would have to be a clear no.
Why so?
Well the NZX in all its infinite wisdom gift their larger customers with preferential treatment simply because of the financial/old-schoolboy/business connections between those larger customers and with the NZX itself, that is, it is in the NZX' best interests for example give their mates in the same industry as them advantages over smaller shareholders in recent capital raising's; the likes of Kiwi Income Property Trust [KIP.NZ], Fletcher Building [FBU.NZ], Freightways Ltd [FRE.NZ], and Nuplex [NPX.NZ] because of the backscratching and arse licking that has to go on in the financial industry to make the wheels turn in New Zealand simply because of its small size.
One day the favour will be returned you see. Its wrong but it is true but it happens constantly.
Retail customers-small investors like you and me-are clearly shafted.
Are market rules broken to advantage the "big boys" ?
Well yes they are.
Back to the recent capital raising's, we had the NZX waiver several NZX rules to allow companies to buy preferential shares on preferential terms without consulting smaller shareholders who would have their shareholdings diluted through the issue of more shares.
To add insult to injury any offer made to smaller shareholders to buy shares was not on a pro-rata basis and capped at a set dollar rate, to be scaled down depending on demand.
The little guy gets it again.
But wait there is more.
Access to live market news data is unfairly distributed because unless you are lucky enough to have an NZX terminal you get the market news 20 minutes after the big boys get it.
Boy us retail investors are really on the back foot there.
Does the NZX take rule breaking seriously enough?
In my opinion the answer would have to be a big fat NO.
In my 11 years of market watching I have seen stock prices either dramatically rise or fall days before good or bad news about a company is finally revealed to the little guy. Its out there, an individual insider or some broker is trading on it and big money is made.
Surely it would be easy to find the culprit?
Well, yes it would but little detailed investigation is done into this by the NZX except the usual question to the company concerned about "whether you were aware of any company news that would have affected the company share prices, etc. etc.."
The NZX has access to trading records and irregularities in trading could be hauled up for question.
What does all this do Darren?
Well clearly it puts retail investors at a large disadvantage when it comes to investing in the New Zealand stockmarket.
Rules are broken and there are few consequences, favouritism to insiders is rife and ignored when it should be discouraged and in the vain hope that someone might be found guilty of any shenanigans there are usually very light consequences.
No wonder then retail investors or "Mum and Dad" if you like have deserted the NZX in droves for finance companies, term investments, residential housing and ultimately overseas stockmarkets, when you have different rules for different customers then those given the short end of the stick are simply going to go elsewhere.
Mark Weldon was charged with improving such things in our capital markets when he started as the boss of the NZX early this century but he has failed to halt the decline in New Zealanders investing in the NZX and ultimately Kiwi businesses and for that he should be soundly ashamed.
The announcement last week by Mark Weldon, CEO of the NZX, that they are going to sell their flash new carbon trading registry business TZ1 Registry to Markit, a global financial information services company, leaves the financial world more than just a little perplexed.
Mark has been banging on about his registry and how much potential for business and I guess profit that this new registry will have.
Then why sell the golden goose?
That is where Weldon either becomes the cleverest man in the world for flogging off this dead horse to a poor sucker, in this case Markit, or the biggest hypocrite New Zealand business has ever seen for turning his back on a growth opportunity akin to the second coming of the tulip bulb craze of the 1600s.
Most sensible people know that this carbon trading lark is based on a lie and eventually it will all come crashing down on itself and that is where Mark becomes a clever little bastard-ditching a no-hoper before it becomes a worthless millstone .
Payment will be made in Markit shares, currently worth around $NZ 60 million, so unfortunately this exposes the NZX to losses further down the line when carbon trading fails.
Lets hope Mark will be smart enough to see that coming and jump ship before that happens.
Mark Weldon's hypocrisy is clearly evident because he has fully backed this TZ1 carbon trading venture with all the rhetoric, pomp and circumstance and the so-called "science" that backs it up and is now leaving the registry services part of it behind.
NZX is left with the relatively insignificant TZ1 carbon trading division.
Prospective and current investors in the New Zealand Stock Exchange [NZX.NZ] will be left wondering, does Mark Weldon believe in the carbon trading business or is he just taking advantage of the ignorant and blind?
If you are one of those nervous nellies you probably shouldn't be reading this blog because I haven't lost interest in the stockmarket as some havein the NZX.
In fact I am more interested than when the market was going up over the last 5 years-it is more exciting when there are bargains to be had!
Most of the big overseas investors have retrenched and sold while the NZ dollar was higher and most Mum and Dad investors seem to have sat on their shares and the NZX is now operating on a mere trickle of volume where wild swings and achy hearts are the order of the day.
We only have die-hards like myself making the odd trade and during some days in November there were as few as 2000 trades .
We all know that the New Zealand Stockmarket operates on small volumes by comparison to overseas markets, but the very low volumes traded over the last month or so are an indicator that those that are left in the market want to stay and conversely those that have left are not ready to take what they see as risk and get back into a market they presumably think has further to fall.
They are probably right.
Watch though when things in the economy start to improve and news media releases are of a more positive nature the volume of shares traded will begin trending up and that is when a sustained improvement in the market is likely.
Until then the current trickle of trades on the NZX is largely a lack of interest rather than any sort of market meltdown, as is the case with the current high volumes traded on the NYSE .
Keep a look out for any significant and sustained volume increases for a more meaningful indication of the mood of the market.
Looking at charts for the beginning my Long vs Short series I got a bit sidetracked-but still related- as you can on the internet and found to my horror that the chart for the NZSX50 index for the last 10 years(above) looks like the kind of chart that would plot the course of the Hindenburg shortly before it crashed.
To be fair the New Zealand stockmarket pretty much reflects the sad performance of the Dow Jones index when you compare the 5 year chart (below) but when you look back a further 5 years that is when things look as ugly as Paris Hilton having it off with her shihtzu.
The NZSX50 is currently at early 2005 levels and only has 800 points further to fall to get back to 1999 levels. It has lost 750 points in the last 3 months, so it is not beyond the bounds that our index will be having a flashback hangover early 2009 inspired by New Years Eve 1999.
"...creating product that is impossible to comprehend..." Mark Weldon-Newstalk ZB , 17 Sept 2008
Mark was talking about the current market turmoil and some of the dodgy financial instruments that have led to its current shake-up.
Unfortunately for us though Mark and his NZX are putting together financial products that are even harder to comprehend than sub-prime related instruments.
He is helping develop a carbon trading platform that will make the current mess look like a walk in Central Park, during daylight hours.
