Stock Takes
A closer look at the markets by Tamsyn Parker

Stock takes: Bad news first

Fletcher Building chief executive Jonathan Ling. Photo / Steven McNicholl
Fletcher Building chief executive Jonathan Ling. Photo / Steven McNicholl

Fletcher Building got the bad news out of the way before the multitudes arrived. Usually, New Zealand's biggest listed company waits till its November crowd-pleaser AGM to say, with somewhat relentless monotony and in long ponderous sentences, that it is on target to meet the consensus of analysts' forecasts for the current financial year's trading results.

Translation: "We'll hit the mid-point, somewhat south of what the fanatically pro-FBU analysts have predicted but well north of what the gloomily critical boffins guessed at."

Not this year. Fletcher came out this week with its own gloomy news of an earnings growth stall, wiping more than half a billion dollars off its own sharemarket value.

What surprised was how the company is not poised for a big bottom-line boost after chief executive Jonathan Ling led the $1 billion Crane Group takeover.

But as one wise old Fletcher boss once remarked, it takes time to get big benefits from takeovers. (He was actually talking about Formica, but we've moved on.) Fletcher's shareholder calendar shows a dividend payment date next week and the AGM on November 16.

We're expecting this year's AGM to be the usual crowd pleaser, now the bad news is done and dusted.

Fletcher shares closed down a further 25c yesterday at $6.67.


They sit at opposite ends of the investment spectrum.

First, there is France's Michelin, the world's biggest tyre maker, with a market capitalisation of €9.9 billion ($17.2 billion).

Then there is the New Zealand market minnow, Dunedin-based Scott Technology (with a market cap $50.2 million), which specialises in making automated production line equipment.

Their connection? Tower Investments bought shares in them both in the September quarter.

Tower Investments chief executive Sam Stubbs said this week that market turmoil in Europe had meant stocks like Michelin had not been rationally priced.

"If you are a long-term investor, this is a good time to invest," he said at the fund manager's quarterly investment review.

By Tower Investments' reckoning, Michelin, which ranks at 411 in Fortune magazine's global top 500, is priced at just 0.8 times its book value, with a dividend yield of 4.7 per cent.

At the other end of the scale, Tower Investments had taken an 8 per cent stake in Scott largely because increased investment inflows, courtesy of KiwiSaver, meant it could take a long-term position in the stock.

The attraction of Scott was that its share price was at 1.3 times its book value, with a dividend yield of 4.8 per cent, a strong balance sheet and no debt, Tower Investments' equities manager, Stephen Bennie, said.

"This business has flown under the radar," Bennie said. "It's not covered by the brokers and it's not well-understood."

Scott Technology shares last traded steady at $1.50.


Auckland's Pathfinder Asset Management has launched a set of global equity funds that enable investors to protect themselves against movements in the volatile New Zealand dollar.

Chairman Sandy Maier said the Pathfinder World Equity Funds were unique, as they provided cost-efficient and diversified access to international stocks, while giving each investor the ability to select a currency hedging ratio that suited their taste for risk.

"The funds are designed for investors who want to choose their preferred exposure to the currency matching their risk appetite and currency outlook," he said.

Investors may choose to protect their investment from the volatility of kiwi dollar movements by implementing a 100 per cent hedge, or they can opt for a lower hedging ratio.

"This provides a tool for investors who want the flexibility of having currency exposure at some point of their investment timeframe while removing currency exposure at other times," Maier said.


Medical technology manufacturer and exporter Fisher & Paykel Healthcare, whose profits have been hit by a strong New Zealand dollar, has seen an almost 19 per cent increase in its share price since mid-September.

Investors could be taking some reassurance from the fact the kiwi dollar is now trading well below the US88.43c post-float record it reached in August.

The New Zealand dollar fell below US75c for the first time since March last week, but has since gained ground and closed at US79.30c at 5pm yesterday.

One strategist has been picking the kiwi to fall as low as US71c over the coming weeks and months, provided the European debt crisis continues to spook investors into selling risky assets like our currency.

F&P Healthcare reported a full-year profit of $52.5 million in May, a 26 per cent reduction on the prior year's result.

The company partly attributed the fall to unfavourable exchange rate movements.

F&P Healthcare shares, which have shed around 20 per cent of their value this year, closed down 3c at $2.54 last night.


Shares in Cavalier Corporation have tumbled more than 12 per cent since a union revealed last Friday that the Auckland-based carpet manufacturer was cutting 42 jobs from its workforce.

That number includes 22 positions at Onehunga's Norman Ellison Carpets, which is 70 per cent-owned by the listed firm. But it took until Wednesday for Cavalier to issue a notice to the NZX advising that sales volume of broadloom carpet and carpet tiles for the first quarter to September 30 had dropped by about 20 per cent on the previous year.

"The concerns and uncertainties emanating from the financial crisis in Europe have seen the deferral of a large number of major commercial projects, particularly in Australia, but also in New Zealand," the company said.

Cavalier also said it had shelved a planned issue of shares under its dividend reinvestment plan. Instead, the whole of the final dividend due on October 14 would be paid in cash, the firm said.

Shares closed down 5c at $2.70.

- NZ Herald

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