Tamsyn Parker 's Opinion

Tamsyn Parker is the NZ Herald Assistant Business Editor

Stocktakes: Sky Dive for SkyCity

2 comments
Investors will be watching how Fletcher Building, which reports on Wednesday, is tracking in the Christchurch rebuild. Photo / APN
Investors will be watching how Fletcher Building, which reports on Wednesday, is tracking in the Christchurch rebuild. Photo / APN

SKY DIVE

It's been a mixed bag of results for the start of the reporting season. Bellweather stock Freightways kicked off the week with a no-surprises performance while rural supplies company PGG Wrightson managed to sail through a huge write-down without any negative impacts on its share price.

The big disappointment has been SkyCity Entertainment Group. SkyCity's shares plummeted 4.6 per cent or 19c in opening trading on Wednesday morning after it revealed a $5.1 million drop in net profits.

The business has huge potential with expansion projects ahead for its Adelaide casino as well as the planned convention centre in Auckland but has been a perennial disappointment for many investors with results falling short of analyst expectations for several years.

SkyCity has blamed the hot summer for keeping punters away and the drought in the Waikato for keeping people out of its Hamilton casino but questions are being asked about whether it will be able to handle its pipeline of projects.

Some are also wondering whether there has been too much staff turnover at senior management level.

But Morningstar analyst Nachi Moghe kept his accumulate recommendation for the stock and reckons the firm's growth trajectory will accelerate in years to come because of its $350 million Adelaide programme.

Moghe is picking Adelaide's earnings to more than double over the next five to six years. SkyCity shares closed up 2c on $3.95 yesterday.

MAIN EVENT

Next week is the big one for the New Zealand sharemarket with top stock Fletcher Building due to report on Wednesday and number two, Telecom out next Friday.

Contact Energy, Auckland Airport, Sky TV and Trade Me are also expected to come out with their financials.

Fletcher Building is said to be the one to watch with all eyes on how the firm is tracking in the Christchurch re-build and in the slower economic conditions in Australia.

One market source said Fletcher Building management had been active in the market reminding people about how tough it is out there and there had been several analyst downgrades.

Broking firm First NZ Capital downgraded its recommendation on the stock from outperform to neutral last week, dropping its 12-month target price from $9.40 to $9.20.

Analyst Kar Yue Yeo said in a note he was downgrading the stock because consensus views were expecting too much of the company.

Yeo revised his earnings forecasts for the company based on expectations of a slower building recovery in Australia and higher exchange rate between the New Zealand and Australian dollars.

Yeo said he expected a pre-abnormal net profit of $316 million ($302 million including abnormals) for the company's result next week.

Fletcher Building shares closed up 5c yesterday at $8.29.

MOA EXPLAINING

Moa management can expect some tough questions at its annual meeting on Tuesday after the stock's share price plummeted this week after its sales warning.

Just four months into its financial year the boutique brewery has warned it will miss its full-year sales target by 30 per cent largely because of a shortfall in the New Zealand market where it is negotiating a new distribution model.

Market players are worried the group will have challenges expanding its business overseas if it can't get its home country business model right.

Chief executive Geoff Ross, whose investment business The Business Bakery is the main backer of Moa, has labelled the forecast as "outrageously disappointing".

Investors will be looking for clear reassurances the business can get its distribution sorted and quickly.

Moa shares were trading at $1.20 before the update and have fallen as low as 85c since the news.

Yesterday they closed down 1c on 84c.

SILVER LINING

Craigs Investment Partners has told its clients not to take any drastic action over the Fonterra milk scandal.

In its monthly report the firm said it was monitoring the situation closely and only recommended selling units in the Fonterra Shareholders' Fund if they were bought above $6.75.

But it has also prepared scenarios should the worst come to bear. Craigs said should New Zealand's reputation for high-quality food suffer more significantly then the prospect of an interest rate rise would reduce and economic growth expectations would also reduce.

"Our currency would come under further pressure and the international component of portfolios should benefit. Investors should ensure they have an exposure to good quality international assets."

It is recommending Fisher & Paykel Healthcare and Delegat's as good domestic stocks that would be well insulated from the situation and could benefit if the New Zealand dollar fell.

"We would also see defensive high-yield stocks such as DNZ, Argosy Property, Vector and Sky TV benefit, especially if expectations regarding interest rate rises reduce."

Units in the Fonterra Shareholders' Fund had recovered somewhat last week touching $7.19 but have since fallen below $7. Yesterday they closed up 3c on $6.93.

LOW MOVE

Fonterra bond holders have not only had the milk scandal to digest but were also targeted by a low-ball offer this week.

Washington Securities has made an offer to buy the bonds at 80c a piece. They were last valued at over $1.

Fonterra has $950 million worth of bonds listed on the exchange in two separate tranches. The first $800 million tranche is repayable in March 2015 while the second smaller amount is due to mature in March 2016.

Both have relatively high yields at 7.75 per cent and 6.83 per cent respectively.

Fonterra has warned bondholders to seek independent advice and check the most recent valuation on the stock market before making any decisions to sell.

DOLLAR DEALING

An annual survey of New Zealand fund managers has revealed the currency and its impact on investments has grown in importance over the last two years.

BNZ's FX Survey of 38 funds found 86 per cent rank currency as an important issue compared to 79 per cent in 2011.

However, 76 per cent believe no one can predict with any certainty where the New Zealand dollar will be at in a year's time. Just over half (54 per cent) expect the NZ dollar to have fallen against the US dollar over the next year compared to its current rate but most (92 per cent) agree it will still be at a historically high level.

Reserve Bank of New Zealand (RBNZ) data shows there has been a movement to own more local assets in recent years. In March 2013 New Zealand superannuation funds invested 58 per cent in offshore assets and 42 per cent in domestic assets.

Two years ago, the split was 62 per cent offshore and 38 per cent domestic. According to the BNZ, combining the RBNZ data with its survey data reveals funds had an average 19.6 per cent exposure to foreign currency this year, which was lower than the 20.7 per cent in 2011.

"If on average over the last decade New Zealand funds had held a 20 per cent exposure to foreign currency, then cumulatively they'd have forgone an additional 1 per cent of return per annum," the report notes.

- NZ Herald

Tamsyn Parker

Tamsyn Parker is the NZ Herald Assistant Business Editor

Tamsyn Parker is the NZ Herald Assistant Business Editor. A business journalist for ten years, she has worked in the UK and NZ for the New Zealand Herald, the National Business Review and a specialist publication on investment products for financial advisors. She writes the Stock Takes column on investing in NZ and is passionate about helping readers learn more about money and investment.

Read more by Tamsyn Parker

Have your say

We aim to have healthy debate. But we won't publish comments that abuse others. View commenting guidelines.

1200 characters left

Sort by
  • Oldest

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_a1 at 19 Apr 2014 17:29:02 Processing Time: 429ms