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.
2013 has been another great year for stocks rising almost 15% to roughly 4700 on the index so forget about what might happen and suspend belief for a nanosecond and take a squiz at what I have for you. The stock picking monkey has been very busy this year with a few surprises. This year the monkey had a really hard go at it but managed to get through quite a few interesting picks. This year I have picked stocks based on nothing except value of the stock based on where I think it will go. Please keep in mind dear readers that the picks are my own and they reflect my investment philosophy and not necessarily anyone else's. This year I have sold some stocks, PPL, HLG, MHI, BGR and others, because I had to - My ex-wife said so - and some of them had run their natural course, about $110,000.00. My picks are primarily based on a long-term view, regardless of the current short to medium term market turmoil and economic uncertainty, I pick a down year for 2014. NB: Since I think most of my portfolio consist of the best stocks on the New Zealand market, I found it difficult to pick stocks outside my realm of self interest. This year I will give you the individual number of shares I have of each stock. [RYM.NZX] Ryman Healthcare has got to be the pick of the bunch. One that I have held for at least 6 years I bought this one for $1.97 and it has returned at least 400%. I have 5000. This had another record year this year of a 22% profit lift on last year of $58.5m. It is looking good for the short to medium term but could face some hurdles when its housing stock needs modernizing because it is the company that owns the stock. The big thing of recent weeks is the fact that their foray into Australia looks to have gone better than planned and they are going into the second stage of this development. They are also looking at another site. This is not a stock that I'm currently buying but new investors could not find a better stock to get into. Id climb into this one with gay abandon, especially if the Oz experience mirror ours and we find that out in March/April 2004. [MFT.NZX] Mainfreight Ltd is only the second stock of mine that I deem is worth another glance in 2014. Mainfreight has had an up and down year in respect of results with Novembers report indicating a profit up 7.7% at $29.87m but some warnings about various divisions struggling next year. I am however picking a stellar year for Mainfreight, with revenue up on last year and profits up at least 10% on most divisions. Why do I say this? Simply because of the way Mainfreight is designed for individual success, I am picking 2014 for Mainfreight to finally get things together and for that individual stuff to combine and really make things hot in 2014. Buy on anything close to $10, with a view to long term gains. [FPH.NZX] Fisher & Paykel Healthcare Ltd is a stock that I have picked for each stock pick series and here the reason why, well several reasons why it should be in your portfolio picks for next year. This years profit result, announced mid November was a record at NZ$303.9 million, 14% above the prior comparable period as a result of strong revenue growth in the company’s two major product groups and that is set to continue next year. The revenue is growing and set to grow further in 2014 and set to double in 5 years - it grew around 15% this year and is set to outstrip that in 2014. Our dollar certainly cannot stay where it is for 2014, it is set for a big re-ratng because of interest rate hikes. The product range is huge for 2014, and plenty of funds will be used to produce more for the new year. Get in at under $4.00. [SKC.NZX] Sky City Entertainment Group Ltd has had a good 2013, with a FY 2013 profit at the hands of an excellent CEO who was able to win the Govts (national and local) over their plans for a convention centre and a number of strategies planned and executed to produce pleasing results for shareholders. The share price of the company has not however tracked its increased fortunes and has been trading in 2013 from $3.50 to just over $4.50. It has also won the Govt over in Adelaide with a major revamp of that particular centre. with lower taxes as part of the deal. This and the fact that all of their assets are competition free mean this one is probably the buy of all my picks this year. Its had a profit downgrade on the 17th of December but these things happen it will shine again - spectacularly . At $3.60 this share is cheap, get it while you can. [CNU.NZX] Chorus Ltd. This may seem an anathema to my usual picks and it is, it is purely a spectator play because I see it as very cheap at $1.45 and worth releasing at about $2.20-$2.30. Most notably its asset backing is $1.21, so that leaves 24c for intangibles and that looks very cheap at that price. No matter what the larger market may say about the dividends - and if they come at all watch for another rise - they will come again soon, and any way your not going to be in long enough to know or care about those. Get them while you can. [HLG.NZ] Hallensteins Glassons Ltd used to be a company I held for about 5 years until my wife considered it surplus to my requirements any way I made about an additional $4000 from a $2500 outlay. Considered that this had had its day. But wait bad news and its time to go sniffing again. Hallenstein Glassons has warned investors it expects its first-half net profit to fall by 20 per cent compared to last year. The NZX-listed clothing retailer said it expected to post a net profit of $8 million for the six months ending February 1, a decrease from last year's interim net profit of $10.4m. There has been the talk of international competition from various websites, tax free, and they may have a point, but this has happened before and Hallensteins has aways managed to counter this and get back margins. I have done this before with this share and have held it overnight and have held long term, either way you will get your money back. Buy up to $4.50. [HNZ.NZX] Heartland Bank New Zealand Ltd has been a bank only since last December and its shares were trading last week at around 85c, what they are trading at now, below their net tangible asset value of 85.2c. Assuming the assets are valued accurately, the shares are therefore relatively cheap. Profitability is low, sure, but it is improving. In the coming year, it is expecting net profit of $34m to $37m. As a new bank, Heartland has been given more onerous capital requirements by the Reserve Bank than the established players. Its tier-one capital ratio - basically the equity as a percentage of risk-weighted assets - must exceed 12 per cent, while the requirement for ANZ and Westpac is 6 per cent. They all exceed the minimum by some distance, but Heartland naturally has a little less headroom. Its tier-one capital ratio at balance date was 14.8 per cent, providing a buffer of 2.8 percentage points over the minimum. You would do well to get them below $1, get them while you can. [SUM.NZX] Summerset Group Holdings Ltd has a strong development pipeline for future growth. Five villages are currently under construction, including the recently acquired site in Dunedin. Summerset also has three quality land sites in Karaka, Katikati and Hobsonville and is continually evaluating new sites to support the development of further villages based on what is the sheer demand for units. In 2012, 160 retirement units were completed at four of Summerset’s developing sites –Hastings, Nelson, Dunedin and Warkworth. Summerset now have 1,646 retirement units and 327 care beds. The company has also purchased two new sites in Auckland: 7.6 hectares of waterfront land in Hobsonville and a prime 3.9 hectare site at Ellerslie. These sites bring their land bank to 1,400 retirement units and more than 400 care beds. The one in Hobsonville should be a cracker, pure waterfront, prime position, plenty of land for decent sized footprint. This should do what [RYM.NZX] &[MET.NZ] have done and defy all expectations and take off depending on what they all do come reporting season. Get them while you can. Nasdaq
YUM! Brands Inc [YUM.NASDAQ] A pick from 2010, 2011,2012, & 2013 Yum ! Brands Inc has consistently grown each and every year and achieved a 40000 th store opening for 2013 and with more tasty growth to come in 2014 and beyond from China & India still make this company a Finger Lickin proposition. It will never be cheaper. China is the BIG growth story for 2014. Conclusion& Outlook for 2014 2014 will be an interesting year for stocks, will they do what they did in 2013, unlikely. What we will have to wait and see is what the USA will do with unwinding there debt - will they,wont they - how China reacts to that and how Europe will do has a major effect on that. As an investor, you must simply find value in the companies you invest in. Its out there, you just have to do a little research yourself. You may not find this approach pleasing, if you don't find a broker and put your money with him or her. These are my picks. *Just an added footnote. Please feel free to post your own stock picks for 2014. The only requirement is that you say why and declare any financial interest. Post them below at the bottom of this piece or click here. Disclosure : I own SKC, FPH, MFT, RYM, CNU, HLG, SUM shares in the Share Investor Portfolio. Share Investor's Annual Stock Picks Share Investor's 2013 Stock Picks Share Investor's 2012 Stock Picks Share Investor's 2011 Stock Picks Share Investor's 2010 Stock Picks Share Investor's 2009 Stock Picks Share Investor's 2008 Stock picks Broker Picks Brokers 2013 Stock Picks Brokers 2012 Stock Picks Brokers 2011 Stock Picks
More stockpicks in which you can slavishly salivate over in 2013. Most of them not disclosed. Stockbrokers' stated optimism for the year ahead on local and global sharemarkets is subject to a pretty big proviso: no more global financial crises please.
The catch-phrases of the past few years - the "credit crunch", "the GFC", "euro woes", the debt ceiling - have settled and equities markets could be looking at a second year without catastrophe.
It's not a lofty goal, but JB Were investment strategy group adviser Bernard Doyle says investors can take heart from relative stability, even if growth in their returns isn't spectacular.
"It won't be a blockbuster year for growth but it could be a year where for consecutive years... you haven't had some extreme bouts of risk events or worry about like a European collapse or markets teetering on the abyss again.
"If we get two years in a row where markets aren't concerned about existential threats - threats to the financial system - that will be the biggest achievement."
But there is already a problem on the horizon. The powerhouse United States economy is running out of financial road and heading for a "fiscal cliff".
At the bottom of that particular canyon lies Greek-style austerity measures which would equate to more than 5 per cent of the United States' GDP and lead to an almost certain recession.
However, the American political divide would have to grow to Grand Canyon proportions for a disagreement on government budget policy to push the country into such serious economic repercussions.
On the plus side, China has managed to manoeuvre its economic levers appropriately to avoid the mistakes of the Western economies, said MSL Capital Markets' Peter Elenio.
"Chinese authorities worked so hard to try and take the air out of their economy, to try and learn from Western mistakes, including everything from trying to keep inflation down and making sure that banks didn't lend too much.
"They do actually have the ability to turn the tap on again and I think we're seeing signs of that now."
However Doyle said the New Zealand sharemarket had actually benefited from the recent global stability concerns, as investors looked for off-the-radar equities with high yields, which New Zealand companies specialise in.
Investors were happy to buy cheap then, but will be looking for tangible earnings growth from those companies in the new year, he warned.
"It won't be a 20 per cent [return] year, but we could have a 10 to 15 per cent year quite possibly."
What follows are market leaders' top picks for 2013.
FIRST NZ CAPITAL, ROB BODE, HEAD OF RESEARCH
1. Diligent Board Member Services (DIL): At the intersection of two of the most important mega-trends in computing, namely "software as a service" and the iPad. In 2013 we believe Diligent will demonstrate its ability to generate substantial free cashflow while maintaining high growth rates at the top line.
2. Summerset Group (SUM): Underpinned by ageing population, which will only amplify in coming years as baby-boomers start to retire. We see a busy year in 2013 as Summerset proves that it can achieve much higher build rates across multiple villages.
3. PGG Wrightson (PGW): After an extensive period of restructuring, the outlook for PGW appears to be improving finally. Our enthusiasm is due to growth in rural merchandise sales and anticipated recovery in Australian seed sales, partially offset by weaker livestock revenue and real estate commission. Combined with an improving debt position, we expect the company to resume dividend payments in 2013.
4. Sky Television (SKT): Expected to be a solid performer in the year ahead as focus turns to earnings growth resuming in FY14 following a flat FY13 result. While it is a maturing business model, the recent special dividend highlights SKT's strong cashflow generation.
5. Kathmandu (KMD): Continues to enjoy decent same-store sales growth, highlighting ongoing strength in its sector, which should translate into higher earnings now that new systems and distribution centres have been bedded down. KMD share price to earnings multiple (10 times) is still undemanding, and with good execution could exceed current earnings estimates.
1. Goodman Fielder (GFF): With a dividend yield in excess of 4.5 and 6 per cent growth, GFF could be priced at up to a 40 per cent premium to market price to earnings ratio [pe] multiples.
2. Oceania Gold (OGC): We forecast gold production reaching 320,000 ounces in 2013 and 350,000-plus ounces by 2014, up from 230,000 in 2012. At the same time, we expect cash costs to fall almost 40 per cent to average below $650 per ounce once [Philippines-based gold copper project] Didipio is in full production. We continue to believe that the significant production growth will be the catalyst leading to a re-rating for the stock.
3. Pumpkin Patch (PPL): with FY13 shaping up as a year of consolidation, PPL appears well positioned to deliver strong medium-term earnings-per-share [EPS] growth, enjoy the flexibility of not being handicapped by out-of-the-money hedges, rebuild the Pumpkin Patch brand, expand Charlie & Me, reduce working capital commitments and pay an appealing dividend.
4. Ryman Healthcare (RYM): has a unique needs-based model (ie aged-care-heavy), and remains the market leader in a sector with both favourable economics and attractive long-term growth driven by demographics.
5. Restaurant Brands (RBD): offers an appealing blend of solid dividend and share-price growth as it leverages its core capabilities, firstly with the introduction of Carl's Jr, and potentially in the future with other, complementary brands.
JB WERE [NZ], BERNARD DOYLE, INVESTMENT STRATEGY GROUP
1. Fletcher Building (FBU): The stock price has improved a long way from $6 to above $8. We know we're in a housing recovery, not just in Christchurch but also Auckland. The Australian housing market could be on the cusp of recovery. Earnings growth forecast is 15 per cent in 2013, 30 per cent in 2014.
2. Infratil (IFT): The underlying businesses are attractive, but they're not being recognised by the market. We have been quite impressed by earnings growth coming out of some of the underlying businesses - Energy Australia and Z Energy. That makes the stock quite attractive.
3. SkyCity (SKC): The stock price has lagged behind others around it that have moved strongly higher. We think there's valuation support for the company. There are potential catalysts for growth with the Auckland convention centre and potential for expansion of its Australian operations, including $375m investment in Adelaide. It's languished a little bit but we like the quality of the business, we're happy to be patient.
4. Guiness Peat Group (GPG): We still see the intrinsic value of the underlying assets as discounted, and as the company continues to wind up its investments, the gap between underlying value and the market's pricing will narrow. The stock has the most emotional baggage of any in the NZ market. There are a lot of disappointed investors, rightly so. To own that stock, you'd have to be happy to own Coats, its biggest underlying business, and so most likely the one you will be left with.
5. New Zealand Oil & Gas (NZOG): The management of cash resources of the company has improved markedly, and it's now paying an impressive yield. There's good discipline around its exploration plans. We like having a little bit of oil in the mix, anyway, because if I was looking into 2013 and asking what could go badly wrong, there's still Iran sitting out there with nuclear ambitions.
FORSYTH BARR, ROB MERCER, HEAD OF RESEARCH
1. Mainfreight (MFT): The firm has set out to methodically build a global freight logistics business and its acquisition of Wim Bosman for € 110 million has given MFT a solid footprint into Europe. MFT has a high marginal return on equity through leveraging organic growth from its existing network and earnings growth outpacing the market and its peers. The executive team is proactive and has proven to be highly responsive to changes in market conditions, and it has substantial global growth prospects.
2. PGG Wrightson (PGW): This company has made progress in improving the underlying operating performances of its core rural-services businesses. Its proprietary seed business remains in a strong position with a competitive advantage in its significant research and development facilities. It is focused on reducing debt through the monetisation of its loan portfolio and targeting working capital. Assuming no further drastic climatic condition issues in Australia and New Zealand, we believe PGW is well positioned to achieve solid earnings growth over the medium term.
3. Ryman (RYM): Compelling demographics mean this business continues to deliver a high-quality product that is enjoying increased demand. It has the scale, in-house expertise and development pipeline to capitalise on this demand and is a recognised market leader.
4. SkyCity (SKC): is very well placed for medium-term operational upside from improvements to its Auckland casino and the underlying economic conditions, but the operating environment remains subdued. Encouraging signs at the key Auckland property over the full-year 2012, in particular for the Auckland gaming machines and international business. A strong generator of free cashflow, a sound balance sheet and potential further leverage from the NZ International Convention Centre.
5. Skellerup (SKL): Its model is proactive, seeking to drive operational improvements and the pursuit of new product development in close association with customers.
PETER ELENIO, MSL CAPITAL MARKETS, FINANCIAL ADVISER
1. A2 Corporation (ATM): has experienced strong revenue growth in 2012 with growing appreciation of the health benefits of its products. We expect the ambitious growth strategy and investment over the last two years in expanding into the UK and other key markets will start to show results in the coming year. We anticipate that A2 will be included in the NZX 50 during the next year attracting greater investor interest.
2. Diligent Board Member Services (DIL): One of the real growth stocks of the last three years, it has a global leading position in the provision of software portal services to major corporates. Continues to benefit from margin expansion and increasing compliance requirements imposed by regulatory authorities. Sales penetration in Europe and Asia is expected to drive revenue growth. Diligent is also developing a dividend policy.
3. Skellerup (SKL): Strong dividend yield and focused management has led us to believe that this stock will continue to benefit from greater institutional interest.
4. NZX: 2013 looks very encouraging for listing fees and other revenue streams that NZX should benefit from. The Government's plans for the partial sell-down of some of the state-owned assets and the pipeline of other expected IPOs should drive improved performance. The focus of the new management team on forming strong relationships with all market participants is expected to see benefits.
5. Tower (TWR): Continues to perform well and margin expansion is expected to continue with a lower level of claims in a number of its divisions. The sale of GPG's stake could create the prospect of corporate activity.
Disclosure: Elenio owns shares in Diligent and A2.
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.
