This year among the brokers Fisher & Paykel seems to be the winner. Where were they in the early part of this decade when they were trading @ 1.80? Just wondering. The rest can be put in the same category. And keep this in mind:
Pick these stocks on dips in their share prices - they ALL have dips. AND - do your own research - lots of it. It makes things interesting as well. Next year could be another one like we have already had - some dips but mostly up - or it could - drop but be mostly down. Whatever it is it will provide opportunities for all of us to make money. Share Investor's 2017 Stock Picks
Blue chip and small cap stocks lead the list of expected market performers for the coming year
F&P Healthcare is expecting 17pc increase in growth in the coming year. Photo / Greg Bowker
Some undervalued "blue chip" companies and a selection of small cap stocks dominate our broker picks for the year ahead.
Fisher & Paykel Healthcare gets the tick from four firms -- Forsyth Barr; Hamilton Hindin Greene; First NZ Capital; JBWere -- making it the most popular choice in an unusually diverse field.
Despite being perennial favourite the stock underperformed in 2015, but there appears to be a strong view that it now represents good value.
"[F&P] has come back significantly from all time share price highs, having reached a mid-year high of $10.90," says Hamilton Hindin Greene's James Smalley.
"We believe this has been on the back of concerns regarding litigation with competitors and a potential negative impact on their sales into the US. We see some headwinds due to production facilities being based in Mexico, and the incoming Trump administration signalling an increase in protectionist policies."
But, he says, the sell-off is an opportunity, given the short-term nature of the issues, to buy in to a quality business.
Rickey Ward, of JBwere agrees.
"F&P Healthcare is a genuine growth company with a track of record delivering strong earnings improvement from offshore avenues.
"We do not see this changing, with earnings growth approaching 17 per cent this coming calendar year," he says.
"Potential taxation concerns around Mexican manufacturing following President-elect Trump's success have been exaggerated."
Another mature company, seen as undervalued given it retains strong growth potential, is transport and logistics group Mainfreight.
It is picked by three brokers: Craigs Investment Partners; Hobson Wealth Management and JBWere.
"It's is a well-managed business with global growth options. Leveraged to robust economic growth," says Craigs Investment Partners head of research Mark Lister.
"Mainfreight should be well-insulated from increasing interest rates and has a very strong market position in New Zealand, which should continue to benefit from strong local growth, but it also offers some international exposure given is growing operation in Europe, the US and Asia."
JBWere's Ward notes: "Trading on 20 times earnings means they might appear expensive, but good companies tend to, and MFT is a good company."
From there several stocks feature twice in the 2017 picks.
Contact Energy also merits three picks, from JBWere, Craigs and First NZ.
"Contact has lagged its peers in recent years, so it looks like the value play in the sector," says Lister. "It has the potential to increase its dividend payout, and the retail strategy could bear fruit in 2017.
We also like the idea of hedging our bets a little, by including one yield stock.
Mark Lister, Craigs Investment Partners
"While rising interest rates could be a headwind for companies in the utilities sector generally, we see a number of company-specific reasons why Contact could still deliver reasonable returns.
"We also like the idea of hedging our bets a little, by including one yield stock."
Craigs and Hobson both pick Restaurant Brands, very much with an eye on its growth potential following a major investment in Hawaii.
Restaurant Brands has offered US$105 million ($151m) to buy Pacific Island Restaurants, the largest fast-food operator in Hawaii and the sole Taco Bell and Pizza Hut franchisee in Hawaii, Guam, and Saipan.
"Restaurant Brands has a solid track record, capable management and offers stable earnings," says Lister. "The core New Zealand KFC franchise will see free cash flow steadily increase in the coming years, enabling the company to invest in growth areas like KFC Australia and Carl's Jr."
Another other stock picked by two brokers was dairy company Synlait; picked by MSL very much in growth mode and more indicative of the smaller cap stocks in the game this year.
The company has a market cap of $100m and won best growth strategy at the Deloitte Top 200 awards. It has invested heavily in the past and is well positioned to cash in on China's demand for infant formula.
The Fonterra Shareholders fund is a favourite of Craigs and JBWere.
"We continue to see underlying operational improvement in FSF. A change in compositional mix, with a management team committed to addressing inefficiency, has seen tighter controls on costs and capital expenditure, leading to margin expansion," says Ward.
Lister notes that rising dairy prices represent a headwind in some respects "however, the business transformation is well underway and recent operating results have been impressive, the company is reducing its cost base and improving efficiency, while the period of heavy investment has come to an end.
"We believe these factors are yet to be reflected in the share price, which offers attractive value," he says.
Beyond these four the brokers have cast the net wide.
Other stocks that fit the mould of "blue chips on sale" might include Auckland International Airport , picked by MSL Capital Management; Tourism Holdings and Infratil picked by Forsyth Barr; Contact Energy picked by Craigs and JBWere.
Hamilton Hindin Green has a number of similarly high quality NZ companies that look like good value at the moment, says Smalley.
It also included Chorus, Genesis Energy and Ryman Healthcare with Opus international as its wild card.
"It's about buying quality businesses when they are on sale," Smalley says.
Education group Evolve rounds out the stocks to receive multiple picks.
Ward says his team see Evolve as well placed to benefit from further government moves to support mothers in the workforce and notes the trend has similarities to the retirement sector several years ago.
"Acquisitions, developments and cost-out initiatives will see strong near-term earnings growth from a roll up growth opportunity," he says.
Beyond these companies there are plenty of small cap stocks and less familiar names in the mix this year.
MSL picks Green Cross Health, a small player it has chosen for a second year in a row, in what managing director Andrew McDouall describes as "a hot sector benefiting from an aging population, regulation and industry structure changes."
Vulcan Capital is picking natural healthcare products company Promisia Integrative as well as cancer diagnostics company Pacific Edge and NZ Salmon.
I've been meaning to write this for a while - about 3 years but some else got in the way.
Many readers, and all of my critics, which is just about all of you, jostled me because of my position and views about Restaurant Brands.
Well I turned out to be wrong and you (the critics) turned out to be more wrong than us all because many YEARS down the track - you know tortoise vs hare kind of thing, long vs short term thinking RBD turned out to be a winner.
SORRY, Russell Creedy.
And I put money on it, 60000 shares over 3 years. Then I sold it in 2001.
Now they are selling for nearly 4 bucks.
With dividends that went over my purchase price many times over.
They would be worth well over $200000 today and returning nearly 40 per cent. I was buying the company at its lowest price, 55c.
Only one person had the fortitude to stand out from the rest and he's rich by now.
As a company its run very well and I still eat there, KFC, its not yet back in the good ole days but its getting there.
It shows you that a company, run by the right person with clear, consistent goals can be run very well for the long - term with increases in productivity.
As an aside, DONT listen to others, DO your own research, and ignore advice that you get.
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.
Lets jump across the ditch for a while to look at the impending IPO of Collins Foods, the franchisee of YUM! Brands Inc [YUM]that operates the 119 store KFC chain in Queensland and the 85 unit Sizzler business. The best way to compare the merits or otherwise of this IPO is to make a comparison with the NZ franchisee of KFC, Pizza Hut and Starbucks in New Zealand, Restaurant Brands Ltd [RBD.NZX]. The latest figures that we have for Collins Foods is in their prospectus and for Restaurant Brands their 2011 Annual Report, although we will look at the 1998 Annual Report for RBD to get a comparison between the two companies at the time of their respective IPOs. Not all figures and ratios are available for Collins Foods. The Stats Restaurant Brands - Compiled from 1998 & 2011 Annual Reports
1997
2011
Net Profit
11.1
25.1
Sales
216.8
324.4
EPS
13.1
24.6
Net Debt
58
29.5
Net Cashflow
18.3
40.5
Store Numbers
124
208
NTA per share
37.4
PE Ratio
9.64
Market Cap
235
Div Yield
7.08
Net Margin
7.48
* Figures in NZ dollars Collins Foods - Compiled from 2011 Prospectus
1997
2011
Net Profit
22.8
Sales
410.8
EPS
Net Debt - Proforma
123.7
Net Debt - Audited
228
Net Cashflow
15.4
Store Numbers
202
NTA per share
PE Ratio
Market Cap
232.5
Div Yield
6.4
Net Margin
*Figures in Australian dollars The most interesting part of this IPO is that of the $232.5 million raised $105 million will be used to pay down the $228 million debt mountain that has accrued under the ownership of Pacific Equity Partners, so shareholders are basically paying back the banks by buying shares. The RBD IPO had shares valued at $NZ 2.20 each with roughly a $200 million market cap, while the Collins Foods IPO has a $2.50 IPO share price with a market cap of around $AU230 million. While the RBD IPO and subsequent performance of the company foundered for many years and failed to meet IPO expectations the company is now in relative health and has grown over the last 3-4 years. Collins Foods is laden with debt and has had a very patchy last few years in terms of sales and profit. When comparing the two companies one can clearly see the value in RBD over Collins Foods. Better profit on less sales, indicating far better margins and less debt on the books. Investors would be far better off buying RBD shares than Collins Foods and it will be interesting to watch what happens across the tasman with Collins now that it is listed and RBD managment have indicated that they are still interested in expanding there given the right opportunities. Avoid. Collins Foods Prospectus
