Telecom's share price took a dive this week on news that its main rival Vodafone may buy TelstraClear off its Australian parent Telstra.
Shares fell 4.1 per cent to $2.43 on Tuesday but have since bounced back slightly to $2.47. But one fund manager reckons Telecom is still overvalued.
Harbour Asset Management wrote that Telecom was now trading well above the consensus of analyst-discounted cash flow valuations and price targets. "According to UBS, Telecom is trading at a 30 per cent premium to global telcos on a price to cash flow basis."
Telecom has been particularly attractive to local and foreign investors because of its high dividend yield but Harbour reckons that trend may soon be coming to an end.
"We think that global buying from yield investors or those attracted to the buy-back may dissipate. This is because, despite a significant focus on cost-out, it is hard to see Telecom growing profit in the next five years as the roll-out of the ultra-fast broadband provides significant competition. High yield alone may not sustain investor interest."
Harbour noted that the potential Vodafone deal also highlighted competitive risks for Telecom.
Shares in Telecom closed up 2.5c at $2.50 yesterday.
Boardroom technology provider Diligent and online accountancy software developer Xero will make it into the NZX50 on June 18, bumping Rakon and Steel & Tube Holdings out of the index.
Both Diligent and Xero have been market darlings of late. The move up the ranks reflects investors' desire to put their money behind strong revenue growth rather than after-tax profits.
Xero increased its revenue 107 per cent to $19.7 million in the year to March 31 but increased its net loss by 5 per cent to $7.9 million.
While Diligent's revenue was up 116 per cent to $18 million it only made a net profit of $2.16 million in the year to December 31, which was also the first time it made an operating profit.
Xero has a market cap of $453 million while Diligent's is $286 million.
Shares in both companies rose yesterday with Xero closing on $4.30 and Diligent on $3.49.
Rakon and Steel & Tube Holdings both had falls in their share prices with Rakon closing on 48c and Steel & Tube on $2.06.
ON THE UP
Shares in resin manufacturer Nuplex Industries have soared this week after the company reassured investors that its earnings would be in line, although at the bottom end, of guidance given in February.
Investors had appeared to be getting nervous with the share price plummeting in May from $2.74 at the start of the month to just $2.29. They have bounced back since the guidance and closed on $2.42 yesterday.
In light of the share-price drop Morningstar has upgraded its recommendation to a buy, putting the fair value at $3.65. A report from the analysts said commentary from the company had been in line with its expectations with earnings before interest tax, depreciation and amortisation flat and like-for-like ebitda down 10 per cent before acquisitions.
Morningstar said while growth in Nuplex's principal geographic markets remained benign there was good scope for improvement from rationalisation and restructuring as well as acquisition opportunities in developed markets and expansion in emerging Asia.
"The shares will suit investors with a reasonably high appetite for risk," the note said.
VARIETY ON BOARDS
The NZX has received 33 submissions to its proposed diversity rules for listed companies.
The NZX wants members to disclose the gender composition of their boards and senior management teams and provide information on their diversity policies.
The proposed changes would follow in the footsteps of the Australian Securities Exchange. A spokeswoman for the NZX said an initial read of submissions showed they were broadly supportive although submitters had made a range of suggestions as to how best to frame the requirements within the structure of the NZX rules.
The NZX's market supervision team will work through the submissions before forming a view. Any changes would need Financial Markets Authority approval.
Even the stock exchange won't escape a levy to fund regulator Financial Markets Authority. The Commerce Minister on Wednesday released a list of levies showing all exchanges, including the NZX, will have to pay $20,000 a year to the FMA.
Public issuers, and anyone who trades in futures, derivatives, foreign exchange, interest rate and index trading instruments will have to pay $2000 a year.
Quite a few small companies dabble in forex trading so it will be interesting to see how the FMA ensures it gets its money.
The big banks - with assets of more than $50 billion - will have to stump up $350,000 a year. That adds up to about 11 per cent of the $16 million the levy will raise. The big four are unhappy, as they see themselves as well regulated by the Reserve Bank and generally above the kind of finance company carry-on that preceded the formation of the FMA.
The Bankers' Association has called the levy structure disappointing, but it is hardly likely to be cause of the week with the general public and the Government knows it.
IN THE MONEY
Private equity investor Maui Capital has finished its capital raising on a high. Its Aqua fund closed oversubscribed last week.
Managing director Paul Chrystall said they stopped marketing in the last week and had to turn away some bigger investors because they were already at the limit of $250 million.
He estimated a high number were reinvestors.
Chrystall said it was hard to set a limit but the firm believed if they raised too much it ended up distorting investment decisions.
The company is looking into two possible investments but Chrystall said it would likely take around two to three years to fully invest the money.
GROWING THE PIE
Takapuna-based fund manager PIE Funds is growing and has hired a new client manager. PIE Funds managing director Mike Taylor said he had appointed Thom Bentley to handle its rapidly growing client base.
PIE Funds earlier this year took a minority stake in candle and beauty products retailer Ecoya.
Devon Funds Management will also add a new member to its team at the end of the month. Expat Kiwi Tama Willis will join the firm and manage Devon's Australian Fund. Willis returns home from Singapore where he managed the natural resources investments for Singapore's sovereign wealth fund.
The withdrawal of Continental Airlines from a planned Auckland-Houston route clears the way for Air New Zealand to be the first to use the new Boeing 787 on regular flights from here.
Air New Zealand is due to take delivery of the first of its Dreamliners around the middle of 2014 and says it will initially use them on its bread-and-butter routes across the Tasman, the Pacific and Japan.
Continental was to have flown the route from this summer. Qantas offshoot Jetstar says its 787s, due next year, will be used on its Australian domestic and longhaul services. Whether the Continental decision will be a game-changer for Air New Zealand is uncertain.
One analyst said given the tough environment the airline was operating in, it would be "less bad" than if the US airline had not ditched its plan.By Tamsyn Parker Email Tamsyn