Tamsyn Parker 's Opinion

Tamsyn Parker is the NZ Herald's Money Editor

Stock Takes: Research overload

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Professor Russell Gregory-Allen discusses information with postgraduate student Sam Weir in Massey University's Albany campus trading room.
Professor Russell Gregory-Allen discusses information with postgraduate student Sam Weir in Massey University's Albany campus trading room.

RESEARCH OVERLOAD

Potential investors in Meridian Energy have plenty of reading material.

Five separate reports are now out and available free on the NZX website at nzx.com.

While each of the analysts has drilled into the offer in different ways, the general gist is that the Meridian offer seems to be a good deal in terms of producing a decent dividend yield but don't expect too much in the way of share price growth.

The biggest risks are rainfall and the potential for Labour and the Greens to get into power and introduce their proposed regulatory regime.

But the analysts have noted that the risk of this happening is low to medium given the parties have to get into power first and then make the changes which are expected to take a while and be potentially quite costly.

While the political left are keen to save consumers money they will also have to take a financial hit if the new regulatory regime is brought in because they will still be 51 per cent shareholders in potentially three of the energy companies whose value would take a hit through the change.

WORD OF WARNING

One analyst is warning investors to be wary of the view that the power companies are utilities with stable earnings.

Daniel Foote at Wellington-based TDB Advisory said analysis of the electricity generator-retailers showed each company and Meridian in particular faced a high degree of uncertainty about water inflows, other fuel prices, the regulatory regime and competitors' behaviour.

"This uncertainty translates into revenue and earnings volatility. Much of Meridian's volatility stems from its high reliance on hydro-power," he said.

Foote said that could result in the dividend payouts varying over time although the company could chose not to link its dividend with profits to smooth the payout.

Foote said company and sector-specific risks facing an investor in Meridian could be reduced by holding a diversified portfolio of shares and other assets.

"Nevertheless, it is important that investors are aware of and understand the risks facing Meridian and the industry as a whole."

FLOAT POSTPONED

A proposed property sharemarket float linked to former activist fund manager Simon Botherway has been postponed.

The deal was said to have included several assets built by New Zealand's richest private developers, the family-owned Manson TCLM.

The cornerstone asset was said to be Telecom's headquarters on Victoria St West in Auckland.

But sources close to the deal say Manson has pulled the plug on it for now because of concerns about the amount of competition for investors' dollars in the lead-up to Christmas.

The Meridian float is already under way and there has been talk of another property float and the possibility of the Government's share in Air New Zealand also being sold down.

The float may resurface next year or it's possible the assets may also be sold privately to other investors. It is understood the assets attracted quite a lot of buyer interest during the pre-float talks.

TRADING TRAINING

Massey University has launched its own trading room in a bid to train up the brokers and analysts of the future. Located at its Albany campus in Auckland, the project has been driven by expat American Professor Russell Gregory-Allen.

Gregory-Allen, a former fund manager at a US teachers' pension fund, said inspiration for the trading room came from the University of Texas' trading room where he was part of an external board of advisers.

Gregory-Allen said he hoped the set-up, which includes Bloomberg terminals, a stock market ticker and news screens, would help to provide a link between the university and business and give students the advantage of having experience heading into the tough job market. The trading room is open to all students, not just finance majors.

Gregory-Allen said the global financial crisis had affected the number of students wanting to go for financial sector jobs but numbers were beginning to pick up now.

The crisis also meant that jobs were harder to come by and having experience such as using a Bloomberg terminal was a good way to stand out from other job applicants, he said.

The university is the only one in New Zealand to have a trading room.

PHONES AND POWER

The New Zealand sharemarket is looking stretched but there are still some opportunities in the telecommunications and electricity sectors, according to Morningstar.

The research firm has expanded its best ideas list for this quarter to include Chorus, Telecom, SkyCity Entertainment Group and Mighty River Power.

It says Chorus remains undervalued despite a strong rally in its share price.

"Regulatory concerns, concerns over cost blowouts in rolling out the fibre network and risk of fixed to mobile substitutional effects on its fixed line assets are priced into the current valuation."

Morningstar is picking a positive regulatory decision on copper pricing this month which could result in a share price lift for Chorus.

It also believes Telecom is undervalued with management's turnaround strategy not yet factored into the current price.

Telecom's share price has had a volatile year. At the the start of the year it was trading around $2.21 before hitting a peak of $2.70 in May. But since then it has taken a steep dive backwards. Yesterday it closed up 2c at $2.32 - slightly above where it started the year but still down around 4 per cent compared with this time last year.

RETAIL CONTRASTS

Hallenstein Glasson needs to build greater scale in its Glassons business if it hopes to succeed in attracting more customers, says an analyst at Milford Asset Management.

In a blog note this week Victoria Harris contrasted the performance of Hallenstein Glasson and Kathmandu - two transtasman retailers which have reported financial results of late.

While net earnings were up 27 per cent at Kathmandu for the year to July 31, at Hallenstein Glasson they were down 11 per cent for the year to August 1.

Harris said Hallenstein Glasson's disappointing result was mainly due to the poor performance of its womenswear business Glassons.

Kathmandu also had an advantage in terms of its customer base.

The camping and outdoorwear retailer typically targets baby-boomer generation shoppers with disposable income while Glassons is pitched at the younger fashion-conscious customer who ismore concerned about price and style.

Harris said Kathmandu had also done a better job at increasing its scale and brand, doubling store numbers in Australia to 87 since 2009.

"Hallenstein Glasson has 30 stores in Australia and is competing at a store and online level with international retailers. Many of the latter are well-known global brands with large store networks."

Hallenstein Glasson shares closed up 2c yesterday at $4.82.

Tamsyn Parker

Tamsyn Parker is the NZ Herald's Money Editor

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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