Money Editor for NZ Herald

Stock Takes: Political bets in energy sector

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SkyCity Entertainment Group is among the companies which could be affected adversely by the strength of the kiwi dollar against the aussie.
SkyCity Entertainment Group is among the companies which could be affected adversely by the strength of the kiwi dollar against the aussie.

The outcome of this year's election is still a major unknown but one analyst has already started factoring it into his recommendations for the energy sector.

Labour has promised to strip $500 million worth in earnings from the sector if it wins as part of a major shake-up in how the electricity sector is regulated.

Craigs Investment Partners analyst Grant Swanepoel has calculated that Meridian Energy and Mighty River Power would be more exposed to the Labour change than Contact Energy and TrustPower and has picked Contact as his most preferred power stock heading into the vote.

"Our top pick is Contact as it offers the best risk-adjusted exposure given its portfolio conditions."

Swanepoel believes Meridian is the riskiest, and notes that stock should only be bought by those with a higher risk appetite. He predicts a 59 per cent upside in Meridian's value should National win but a 20 per cent downside if Labour does.

Swanepoel has a buy rating and a $5.75 price target on Contact, whose shares closed down 5c yesterday at $5.15.

Tech boom

It's been a very strong start to the year for listed tech companies, despite little in the way of major news coming out of the sector.

As of market close on Wednesday, the NZX's SciTech index had risen 24.8 per cent since the end of last year. That compares with just a 3 per cent increase by the NZX 50 gross index.

Wynyard Group has been the standout performer, with shares rising from $1.16 on the last day of trading in 2013 to a high of $3.17 on January 22 after it announced several new deals.

Its share price has since fallen back, with some investors likely to have used the rally to take some profits.

Forsyth Barr analyst Blair Galpin has a reduce recommendation on the stock with a 12-month target price of $1.95. Galpin notes the stock is highly attractive due to its long-term growth potential but is also highly speculative.

"Wynyard remains a speculative stock hence we recommend some profit-taking for those in before the latest price rise. Our 12-month valuation recognises the short time Wynyard has operated as a stand-alone company and the uncertainty around the long-term value of contracts it is acquiring."

Galpin also does a quick comparison with in-favour stock Xero, noting that if Wynyard were valued in the same way as Xero its shares would be potentially worth $4.47 a share. Wynyard obviously has a long way to go before it catches up with Xero but it will be one to watch this year.

New listings

The strength in the tech sector is also spurring talk of more listings from technology companies. Corporate travel booking software group Serko is one said to be considering a float, as is Auckland software firm Wherescape.

Wherescape was founded in 2002 by Michael Whitehead and Wayne Richmond. It develops data warehousing products that allow organisations to store, organise and access large volumes of information.

The question will be whether any tech floats decide to slip in ahead of the Government's last cab off the rank for asset sales, power company Genesis Energy. Genesis is expected to list in the first half of this year and market players expect it sooner rather than later, to allow politicians to get on with electioneering.

Earning season

Market players are expecting a positive earnings season for New Zealand-listed companies as the economy continues to pick up.

But there are some concerns about those with large Australian businesses, given the strength of the New Zealand dollar against the aussie of late.

Fletcher Building, SkyCity Entertainment Group and Ebos have been mentioned as ones to watch given their exposure to the Australian market.

Mark Lister, head of research at Craigs Investment Partners, said some companies had already signalled some earnings impact from the high dollar at last year's round of annual meetings but it would be an issue closely watched by investors.

Investors may also want to know how companies are hedged for currency in the future given the kiwi is expected to continue showing strength.

Reporting season is due to kick off from mid-February with SkyCity the first major player to report its half-year result on February 12.

Few confessions

One signal that it will be mainly good news to emerge from companies is the lack of pre-reporting season profit downgrades in what is typically know as confession season.

Hallenstein Glasson, The Warehouse Group and tapmaker Methven are among the few to have come out with any profit warnings. Shares in Methven fell yesterday after the company said it experienced softer than expected trading in December and January in Australasia, partly because of key customer stock reduction programmes.

But it's still expecting to make a profit either at the same level or up to 10 per cent higher on last year.

Methven shares closed down 6c at $1.36 yesterday.

Lister said the fact that there hadn't been many downgrades was a good sign, although results could still disappoint if they fell below expectations.

Tough sell

The warnings from Hallenstein Glasson and The Warehouse Group show it's pretty tough out there in retail land despite signs that consumers are starting to open their wallets again.

However, some retailers seem to prevail regardless of the climate, with Briscoe Group forecasting a 9 per cent rise in its annual profit yesterday.

Milford Asset Management fund manager Mark Warminger said Briscoe appeared to have cornered a niche in the homeware market and was doing well out of clever promoting.

Warminger said both Briscoe and Kathmandu were playing into a similar theme, targeting baby boomer customers with time and money on their hands.

Briscoe Group closed unchanged yesterday at $2.37, although its shares remain down over the last year.

Harbour builds

Wellington-based fund manager Harbour Asset Management has snapped up Mint's former head of equities, Shane Solly.

Solly left Mint at the end of last year after seven years with the boutique Auckland firm and is to join Harbour in March.

Harbour chief executive Andrew Bascand said Solly's appointment would bring the firm's team to 13 and he didn't rule out hiring more staff if the right people came along.

Harbour was set up in 2010 with backing from broker First NZ Capital after international asset manager AllianceBernstein pulled out of New Zealand leaving its local investment team looking for new jobs.

The firm has benefited from the growth of KiwiSaver. While it doesn't offer a direct retail scheme it manages six mandates for other KiwiSaver providers.

Solly will be based out of Harbour's Auckland office. Bascand said Solly's arrival would coincide with the launch of a new concentrated equities fund. A second wholesale listed property fund would also be launched in the next few months.

Team expansion

In another new appointment, Macquarie Private Wealth has hired an equity strategist. Frank Braden joined the firm early this month after moving to New Zealand.

Originally from the United States, Braden has most recently worked in London as a senior equity analyst at S&P Capital IQ. Before that he worked as an equity analyst for the same company in New York.

At Macquarie, Braden will be responsible for leading its equity-based investment strategy for its wealth management advisers.

- NZ Herald

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Money Editor for NZ Herald

Tamsyn Parker is the NZ Herald's Money 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 is passionate about helping readers learn more about to make their money work for them.

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