2002 Archive
16 December
Investors seem to have their eyes fixed on their holiday plans and the market is in a typical holding pattern that is likely to last for weeks. However, this can often prove a lucrative time for investors to pick up shares during a very illiquid time by putting in low offers on good shares.
One company on the move is Tower, which has picked up on rumours (first reported by McEwen Investment Report last week) that someone may be planning a takeover bid. Media reports now point to Royal Sun Alliance as the interested party, which may make a bid as soon as Tower's shareholding cap comes off in July. Considering the performance of Tower in recent years and that of its board, plus the fact that there has been no CEO appointed yet, it could be a good thing if it does get swallowed up. Any offer is likely to be at a premium to the current share price so they are worth buying on a speculative basis.
Another company showing unusually high trading volumes is Tranz Rail Holdings. This has had a woeful time lately but more interest has been shown in the shares recently and its price has started picking up a little. This may reflect the end of the negative impact its rights issue had on the share price and the recognition by some investors that the company is likely to show earnings growth in the 2004 financial year. Considering it is trading at just 4 times forecast earnings, there doesn't appear to much downside left in the share price and these two may be worth a speculative punt.
Shares to avoid remain those with exposure to the Internet or other forms of technology. Despite massive falls in recent years, there is no guarantee that the weaker ones have bottomed - certainly investors appear nervous. Many tech companies continue to struggle and the outlook for those that aren't generating positive earnings and cashflows is bleak.
9 December
The NZSE-40 index continued to weaken over the week, with the finance sector dragging it down. This sector has weakened substantially since October, as managed funds take the full impact of the global slowdown in shares.
By contrast, leisure and tourism shares are rising and confidence remains strong in that sector. Whether it will remain so beyond the America's Cup campaign, which has given a lift to Auckland and tourists destinations beyond, remains to be seen, though.
Among the big rises of the past week was Scott Technology. This is a relatively small company, but with a big reputation in its niche area in production line technology. Investors have taken notice of some particularly bullish comments from Scott's CEO last week, when he described an export order book stretching to 2004. While a volatile ride, an investment in this company offers growth potential.
The biggest fall was recorded by Newcall, which lost value after directors announced last week that the troubled telecommunications company would no longer expand into food and beverages, as had been intended. This company continues to lurch from bad to worse and there is no sign of improvement in the near future.
2 December
The New Zealand market is holding its own, albeit at well below the psychologically significant 2000 market for the NZSE40 Index. The flattening out of the daily breadth graph coincides with a recovery in the US markets, which have rebounded strongly in the past couple of months.
The danger here, however, is that if the US recovery continues, investors will lose interest in countercyclical markets like New Zealand and start chasing the high growth shares again. That said, there are a number of attractive growth shares in Australasia that have taken such a beating in the past year they are now looking to deliver reasonable value.
Baycorp Advantage and Fisher & Paykel Healthcare are two New Zealand options, while in Australia companies like Cochlear, CSL, Institute of Drug Technology and Computershare stand out.
As investors have found, growth shares can be very volatile and while the outlook for the world economy and geopolitical environment is uncertain, there could well be a few spills as well as thrills in holding these shares. Longer-term, however, there is a good chance that these companies will provide very nicely for those investors brave or clever enough to hang on to them and ignore the day-to-day volatility.
25 November
After years of huge and rising profits, the glory days of banks may be coming to an end. Property markets appear to have peaked on both sides of the Tasman and, while no slump seems imminent, prudent investors believe that the risks for banks is mostly on the downside.
WestpacTrust (shortly to become Westpac New Zealand) has seen its price slip lately with abnormally high trading volumes. However, the latest wave of selling appears over and, given the local shares are simply a way of paying imputed dividends, the yield at current prices of around 9% gross is pretty appealing. Income-dependent investors should hang in there and take the dividends.
Another well traded share has been Baycorp Advantage. This has risen 44% from its low point after being heavily sold down several days ago following its profit warning. As mentioned last week, there is a lot to like about the company and investors who did some bottom feeding last week will be feeling very happy. While no longer such a bargain, the shares remain good buying for those willing to hang on for a couple of years.
Air New Zealand has bounced back after confirmation that Qantas will take a 22.5% stake. This may be good for the stricken airline and the government but doesn't necessarily mean shareholders are going to benefit. While the company may never go bust, there are no guarantees it will do well in the future. Meanwhile, the shares are currently trading on a forecast price earnings ratio of 15 while Qantas can be bought for less than 11. Only the brave should buy airlines at any time and that particularly applies to Air NZ at present.
18 November
Don't poke a sleeping bear with a sharp stick. That's a lesson a number of companies have learned recently as they put out sharply reduced profit forecasts and saw their prices marked down heavily by bearish investors looking for excuses to sell.
Hard on the heels of Telecom and Tower a couple of weeks ago, former market darling Baycorp Advantage lost half its value virtually overnight when it announced its full year result would show minimal growth against previous forecasts of 20%. That said, the company is now trading at a reasonable price relative to its new lower anticipated earnings per share and it has a lot of good things going for it. These include quality management, recession-resistant business in debt collection and credit reporting, market dominance of the Australasian marketplace, virtually no debt, superb cash flows and considerable growth potential. In light of these, the shares look very attractive at present - especially since there are rumours that it could be subject to a takeover at its current distressed levels.
On the reverse side of growth shares going downhill, a number of low-growth companies traditionally favoured for their dividend streams have shown excellent growth lately. King among these is carpet maker Cavalier Corporation. It was one of last week's best performers after forecasting strong earnings growth in the current financial year and a share split, which tends to boost a company's share price as some foolish investors believe they are 'cheaper' at a lower price. The good news is that the share price has only appreciated to where the company is delivering the same attractive yield as it was before, based on higher anticipated dividends next year. As a result, the shares remain fair value for yield investors.
Those who believe low prices equals cheap shares should look at our list of shares that reached a yearly low last week. All can be classed as 'penny dreadfuls' with all having declined to single digits and a couple trading at fractions of a cent. Even at these prices most look expensive.
11 November
Investor sentiment has held up remarkably well under the joint onslaught of a sharp correction in the price of Telecom and Tower after they both announced last week that earnings would be well below expectations.
Not surprisingly, both were the most active shares in both volumes and values traded. However, both have come down to levels where they seem reasonably priced, even after adding in all the possible short-term negatives. That said, Tower's ascent to the top of the list showing the biggest margin of net assets over price cannot be taken as gospel - plenty of writeoffs have been signalled for its annual result due out in December and this should narrow the gap.
Another company in which unusually high trading has taken place is Powerco. Despite its recent acquisition of United Networks, its share price has slipped steadily from $1.90 to around $1.60. This appears to be a reflection of the Commerce Commission's report into the gas industry, which favours regulating prices. While investors appear nervous of the impact of regulation on gas company prices, Powerco has stated it is not anticipating any shortfall in forecast profits. If so, its price seems pretty reasonable at present.
One company to watch is Software of Excellence. Despite its name, the company's share price has fallen by more than 50% since January and in October announced a half year loss that was worse that last year. Investors do not appear impressed by a 1:5 rights issue to help the company pay for recent acquisitions but it appears well on the way to achieving critical mass in the huge UK market and is beginning to make inroads to the US. If so, its profitability, and share price is likely to appreciate strongly. It is showing early signs of bottoming and is worth taking a position on a speculative basis if the share starts to appreciate.
4 November
While hardly bullish, a state the market is unlikely to reach for some time, the investment climate has become cautiously optimistic.
Telecom continues to gain a few cents here and there and is now 10% up on a low point achieved by the sale of a major stake by US giant Verizon. As expected, the sale has removed an overhang from the market but there is no indication that the company is on a fast track to attractive profits, although the price movement indicates Telecom's next quarterly profit to be announced next week should be positive. Investors who are waiting for the shares to recover their glory days of $9 or more shouldn't hold their breath though.
Fletcher Building has seen a lot of trading activity lately, ranking third highest traded share by volume and value last week despite it not being in the top ten largest companies. This seems to be linked to strong construction activity on both sides of the Tasman and the likely benefits to its wire division from the anti-dumping provisions introduced last week against South African fencing wire. Analysts have increased their expectations for next year's earnings (see our Online Archive service - click on the 'Information' division button on our home page) but the share price has already built this in and looks a bit rich.
Troubled debt collection company RMG seems to have been rediscovered after an extended share price fall. After losing around 75% of their value in the past six months they have begun picking up, both in trading volumes and in share price. While strictly a speculative investment, there is a good chance that the worst may be over for the company.
29 October
In the absence of news, either positive or negative, market sentiment is relatively neutral, with a slight bias towards the optimistic.
Telecom has held most of its gains of recent days and few other shares are being traded in significant volumes.
Carter Holt has seen the good news of its latest quarterly result, up 300% on last year, cancelled out by the loss of chief executive Chris Liddell who is being transferred to parent company International Paper's head office in the US. However, the outlook for Carter Holt is better than it has been for years and, based on forecasts for its 2003/04 earnings, seems very moderately priced at present.
Volumes in Natural Gas Holdings are high following its announcement of a net annual profit, following a huge loss last year, and gradual implementation of a strategy to divest retail assets in favour of becoming a transmission company. However, the good news is all priced into the company's shares and it is unlikely that a transmission company is going to be a fast grower. Also, proceeds from the sale of assets are being used to prop up the company's balance sheet as it writes down goodwill, so there will be no concrete benefit to shareholders. Given that Natural Gas shares have peaked at around $1.50 on seven separate occasions in the past five years, it might be time for investors to take profits.
Another share looking expensive is Sky City Entertainment. While an undoubtedly excellent company, its shares have risen by 36% in the past year to a price:earnings ratio (current price divided by last reported earnings per share) of 22. Since its long-term average is more like 16, the implication is that a lot of good news is already priced into the shares. A complete selldown of your stake in the company may not be warranted, but a partial taking of profits could be prudent.
22 October
Hope springs eternal in investors and sentiment has ticked up slightly in New Zealand after a week of gains in the US. However, the US market is responding to corporate results that have been better than analysts had predicted. This is not a big deal as analysts tend to become overly negative once their overly optimistic predictions are not met.
Of greater significance are leading economic indicators in the US, which are mostly gloomy. Chances are that markets will remain volatile for several months to come, not least because war with Iraq has merely been postponed rather than cancelled by UN machinations.
Despite this, the market remains robust here, supported by Telecom which has picked up several percent in value since the huge overhang in shares was removed with the sale of its stake by US cornerstone shareholder Verizon.
One company in which an unusual level of interest is currently being shown is DB Breweries. The buy has been the Accident Compensation Commission, which has taken an 8.4% stake. The share price is not likely to appreciate signfiicantly short term now that this buying frenzy is over, but DBB remains an excellent yield stock.
Another one where buying has been strong is Sky Network Television. This has been sold down strongly in since July but in recent days has shown some consistent recovery. After a 28% decline in seven weeks, it appears ripe for a short-term recovery and investors could do worse than pick some up at current levels, especially since it has a realistic chance of turning its first net profit next year.
15 October
New Zealand remains staunch in the face of market declines almost everywhere else in the world but sentiment remains less than buoyant and a quick turnaround is unlikely.
Big swings are mostly being restricted to small capitalisation companies, indicating that investors continue to sit on their hands and are likely to continue doing so for some time.
Investors should avoid banking shares for the time being. WestpacTrust in particular has taken a tumble in recent weeks after it announced a change in accounting policy that will see reported earnings decline.
Meanwhile, there is growing concern about the financial strength of many banks internationally, particularly the US and Germany and this will add to a lack of interest in all financial services companies at present. Australian banks are much more secure than their counterparts overseas because of their high exposure to residential mortgages but again the steam is going out of the property markets and this is bound to hurt earnings.
Investors in the mood for bottom feeding might wish to follow the growing interest in ailing meat group Affco and fast food company Restaurant Brands. Both are showing unusually high transaction volumes and both appear to have bottomed after recent slides, although investments in both companies should be treated as speculative.
1 October
Despite further gloom in world markets, the New Zealand market remains resilient. However, the daily breadth chart, an excellent short-term indicator of the market's direction, has turned decidedly negative (again).
Volatility is likely to remain in the market for at least the rest of the year, and probably until the US makes its long-awaited attack on Iraq. Once this is out of the way, assuming things go to plan, then a sustained recovery could be on the cards.
In the meantime, there is little in the way of serious market activity, at least since US company Verizon sold its huge stake in Telecom. This has reassured investors as it removed a large overhang in the market, and many are feeling more positive about the company, although there is no obvious reason for such enthusiasm.
As mentioned previously, there is little evidence that now is the right time to be jumping into the market. Investors should hold what they've got and stockpile cash for the inevitable turn in market sentiment.
23 September
The market can hardly be described as buoyant at present but at least it is showing some stability.
Uncertainties about world economic growth and tensions in the Middle East (again) are keeping investors on the sidelines but there are few signs of a return to the selling wave that struck the New Zealand market earlier this year.
Investors are hoping for an upturn as forecasts build for an improvement in the US economy next year and there is almost certainly going to be a significant positive impact on local equities once the government's superannuation fund starts to be invested.
Since liquidity is going to be an issue, most of those funds will have to go into NZSE40 shares, probably in line with their index weightings.
Therefore, investors could do worse that start picking up those shares on the list with the lowest price:earnings ratio. These include AMP, Axa, Fletcher Building, Kiwi Income Property Trust and Infratil.
16 September
After dipping a wing to commemorate September 11, the market has commenced its upward path. Momentum is building with the daily breadth graph upturn being reinforced by a surge in the number of companies achieving yearly highs relative to those hitting their bottoms.
This sentiment is likely to change again if and when the US attacks Iraq. The rhetoric looks to have gone so far that George W and friends will lose face if they don't proceed.
Forget the stories about George wanting to finish Dad's job and/or the threat to world peace that Saddam Hussain poses - the real reason for US spending up to $400bn on going to war is that it is worried about the stability of the highly corrupt and unpopular Saudi regime (which is supporting religious extremists and terrorist groups as a sop to popular opinion). If the US can depose Hussain and replace him with a friendly dictator, then it will gain access to the best quality and shallowest (and therefore cheapest) oil deposits in the world.
Investors should start stockpiling cash now for when the market corrects in reaction to war breaking out - possibly in November. There are bound to be some bargains about at that time for those willing to look further out.
9 September
The anniversary of September 11 seems to be weighing on investors' minds and some of the steam has gone out of the market's recovery in recent days. However, this is unlikely to be a sustained reaction, unless the US does something extreme like attack Iraq.
Takeovers are the order of the week with bids on the table for United Networks, Arthur Barnett and Shotover Jet. That plus the recent disappearance of the failed Savoy Equities means the New Zealand market is back on its path of slow decline in the number of listed companies. The imminent arrival of Turners Auctions will replace one of them but that's not enough - even though all the indications are that this float will go extremely well. Here's hoping new NZSE chief executive Mark Weldon can deliver the much hoped-for turnaround in the market's fortunes.
Interesting movements in the past week include Baycorp Advantage and Tranz Rail Holdings, both of which appear oversold after a bought of investor nerves related to their accounting methods. Baycorp is worth buying right now but potential investors in Tranz Rail should wait to see what comes out when the company announces a likely large loss later this week.
Another share to watch is Tower which has lost its chief executive after poor performances and appears to be drifting. It seems cheap relative to its asset backing but the share price has yet to bottom. Investors with a speculative frame of mind might want to buy if the share can muster a few days of consistent rises.
2 September
After a solid rebound in sentiment in recent weeks, it is not surprising that investors are taking a bit of a breather. However, there are no signs that recent gains will be lost, and there is a good chance the daily breadth chart, a useful pointer to short-term market performance, will continue its upward path.
Considerable interest is being shown at present in technology shares, which have been beaten down to a fraction of their dot com bubble levels of a couple of years ago. This is another indicator of investor enthusiasm, but these companies are all about potential rather than earnings so potential investors should tread warily.
One mainstream company attracting interest is Fletcher Building, has picked up in response to its announcement of a profit for the last financial year against a large loss the previous year. While the current year is not expected to be as robust, the company is clearly in a better position financially and makes a reasonable longer-term investment.
The same applies to Sky City Entertainment Group, which has won approval from investors for its latest result. Its strong market positioning and focus on maximising earnings from its attractive asset base, there is a good chance there will be more good news to come from the company.
A share to watch this week is Tranz Rail Holdings. Its share price is plummeting amid concerns about its financial position, credit rating and the possibility it will have to raise money in a heavily discounted rights issue. However, the company has said it is on track to achieving previously forecast profits, which makes the shares look cheap. Investors should not buy into a declining share price but might want to look for some bargain hunting on any sustained rebound.
26 August
More positive signs are emerging in the marketplace, driven by attractive earnings growth being reported by many companies.
For the first time in many weeks, the number of shares reaching a yearly high have outnumbered those hitting their lows. A number of companies are rebounding, particularly in the rural sector.
Wrightson's latest result shows no signs that it is being affected by an anticipated rural sector slowdown, which is the norm when commodity prices fall and the dollar goes up.
This has knocked on to rivals like Williams & Kettle, which has been slumping for most of the year. Even at current prices, WKL still appears on our list of companies with the lowest price:earnings multiples in the business, and is worth a long-term investment.
There are a number of companies in the market at present which have been heavily sold down but have sufficient underlying strength to prove their detractors wrong over the next couple of years. These include Tower, AMP and Fisher & Paykel Healthcare.
19 August
The New Zealand market is looking more robust by the day and the daily breadth graph above is pointing firmly towards more good news to come.
Market sentiment has been helped by a recovery in Telecom Corporations' share price. Telecom wrote off $1 billion on its troubled Australian asset AAPT but this had been anticipated by investors, who are relieved that things weren't worse and appear confident that Telecom is moving away from its growth strategy in favour of paying more dividends to investors. If so, this should see further improvement in its share price.
Meanwhile, companies we mentioned last week, Fisher & Paykel Healthcare, Fletcher Building and INL have performed well with particularly high trading in F&P. It is surprising to see this company, with its exposure to the high growth, high margin healthcare sector, trading at a lower price than sister company F&P Appliances. It seems inevitable that, once world economic and market conditions improve, its shares will appreciate beyond current levels.
A dark horse is Kingsgate, a property company with a hotel and apartment complexes in Sydney. After an extended slump its share price has begun to move strongly, yet it continues to trade at a very low price:earnings ratio. This is a company to watch. Related companies CDL Investments and CDL Hotels are also trading at humble multiples, both to earnings and asset backing, and are worth taking a speculative interest.
12 August
More shares have risen than fallen for the second week in a row, pointing to a return of buying interest and likely further rises.
However, a strong surge in share prices is unlikely given another important indicator, the number of shares hitting a 12 month low relative to those achieving a yearly high, remains strongly negative.
Market sentiment is likely to helped by consistent growth in annual earnings from the latest round of announcements. This reflects New Zealand's relatively robust economic performance over the past year, in marked comparison with much of the northern hemisphere.
Companies that have been rediscovered but are still likely to have some way to go are Fisher & Paykel Healthcare, Fletcher Building and INL.
5 August
Has the market bottomed?
After an exceptional eight-week decline in the daily breadth graph (which measures the number of shares falling relative to those rising) has shown a slight upturn.
While New Zealand has shown remarkable resilience in the face of weakness in world share markets, it is hard to believe that we can sustain further declines. Unfortunately the short-term outlook is not good, although it is comforting to note that US investors are getting attention for their sudden interest in dividend-paying companies.
Dividends show that a company has more money than it needs and therefore give investors a little more faith in the quality of the accounts than those that don't.
As we have mentioned before, New Zealand is an exceptional place to invest at present because our shares on average deliver higher dividends than any other developed market in the world. The fact that they don't grow much is no longer a big issue in these difficult times.
Check out our top 10 list of high dividend payers and dig in. We particularly like NZ Refining, Hallensteins and the property trusts.
29 July
Volatility is the name of the game on world share markets at present. Big losses one day are often being made up in the next trading session, only to be lost again the following day.
In New Zealand, the NZSE40 Capital Index has broken through the psychologically important 2000 level but as yet shows no signs of entering the blue funk afflicting its international counterparts. This is despite the traditional election uncertainties, slumping exchange rate and forecasts for poor commodity returns for the foreseeable future which is highly likely to lead to a slowing economy next year.
Major capitalisation shares are holding up well, although Telecom has caught the volatility bug somewhat. As mentioned in recent weeks, high quality companies delivering good dividend yields are proving more resilient than most and this looks set to continue for the foreseeable future.
Companies that are trading at particularly high yields at present and that are worth buying and holding through the market ups and downs include NZ Refining, Hallensteins, Kiwi Income Property Trust Colonial First Property Trust.
22 July
The pendulum of investor opinion in world markets has swung from irrational exuberance through to concern and is beginning to enter irrational fear.
There is likely to be nervousness for some time and the big questions is whether market declines are a precursor to economic recession as they were in the late 1920s. There appears little evidence of that, with signals coming out of most economies looking reasonably positive.
At times like this, investors need to focus on the underlying earnings of companies and the ability of those businesses to continue generating profits and operating cash flow. Conservative industries like utilities, resources, food and financial services (especially banks with a high exposure to house mortgages) fit into this category and should continue to do moderately well despite what is happening to share prices.
New Zealand market is not such a bad place to be at present because our earnings multiples are low compared to overseas and our dividend yields are better. That means investors with a longer term perspective can do well by buying companies for income and sit on them while the market has its fall and inevitable rebound, then take advantage of capital gains later.
Those with cash reserves should sit on them for a while longer yet, shares will become even cheaper soon.
Latest (click here)
| 
