Tamsyn Parker 's Opinion

Tamsyn Parker is the NZ Herald Assistant Business Editor

Stock Takes: Partnership potential

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Photo / NZ Herald
Photo / NZ Herald

Dunedin-based diagnostic testing company Pacific Edge is attracting the attention of market watchers after a rapid rise in its share price in recent weeks.

The stock was trading at 21c at the start of last month but has more than doubled since.

Some of the rise could have been attributable to this week's announcement that it has completed work on its US-based laboratory on schedule and is now seeking regulatory approval for the building.

But there is also speculation it could be in talks to sign a joint-venture partnership with Harvard University.

Chief executive David Darling said he couldn't comment but doubted a joint venture would have any significant impact on its share price.

Darling said he believed the share price rise was driven by retail brokers buying in after getting a better understanding of the business.

"They hunt in packs, you know. Once one guy starts they all follow," he joked to Stock Takes.

The company has been meeting its milestones and had a very good turnout at its annual general meeting, according to Darling. He said the firm had outgrown its boardroom for AGMs but would not be considering moving them to either Auckland or Wellington because of the increased cost to shareholders.

He believed investors who were interested would make the trip to Dunedin.

The company had a share price query from the NZX last month and was placed on a trading halt.

Typically the NZX just posts the query and requests an answer back from the company. Darling said there appeared to be no clear reason for the halt and it did not have anything to announce. The company kept its shareholders well-informed of any significant changes.

Pacific Edge shares closed up 1c at 44c yesterday.

FOREIGN VIEW
It's always interesting to see what overseas fund managers make of the New Zealand sharemarket. Local managers have done well out of the strongly performing NZX in the past year but London-based manager Michael Kerley doesn't see that many opportunities.

The only stock his £304 million ($596 million) Henderson Far East Income investment trust owns is Telecom. "There are interesting companies here in New Zealand but the liquidity is not great," he told Stock Takes on a visit to the country this week.

Kerley said Fletcher Building was an option but he questioned whether the company had hit the bottom of the construction cycle and said he felt it was still too risky at the moment.

The investment trust, which has 15 to 20 per cent of its money invested in New Zealand and Australia, has held shares in Sky City Entertainment Group in the past but Kerley said he had been put off by New Zealand's regulation of gambling.

Kerley has also cast his eye towards the upcoming listing of the Fonterra Shareholders Fund. Kerley said he liked Fonterra as a business but was not particularly keen on the structure of the new fund. "Liquidity will also be an issue for us."

The fund is expected to attract $500 million in investment.

LOCAL VIEW
Tower's head of equities, Richard Stubbs, says the New Zealand market has been a very good place to be over the past 18 months, especially when compared to Australia.

Stubbs told journalists at the investment manager's quarterly briefing on Wednesday that the NZX50 had beaten the ASX200 by 18 per cent since April last year.

But he is now seeing opportunities across the ditch in the industrial sector. "We think there are now pockets of value starting to show up."

Stubbs said he would not be going near any commodity-based companies and he continued to feel cautious about banks.

"Banks face increased margin pressure as a result of the shrinking credit market."

Stubbs said he would be switching some of Tower's money from New Zealand to Australia although that may not mean selling down any stakes in listed companies here just yet.

Ongoing inflows of money from KiwiSaver mean Tower can just redirect some of its new cash.

The move marks a change in tack for the local manager who has been very bullish on the New Zealand market for some time.

LOOKING UP
Morningstar analyst Nachi Moghe says Contact Energy is in a good position to grow its earnings despite weak electricity prices.

The power company held its AGM in Auckland this week and is talking about ways to give its shareholders a bonus return.

The company is expecting to have excess cash on its balance sheet after reducing its capital expenditure programme.

Nachi said Contact could consider lifting its dividend payment. Based on a share price of $5.35, its predicted 2013 financial year dividend yield equates to 4.3 per cent - not especially high compared to some other large stocks on the NZX.

Moghe is predicting Contact's earnings will grow by 30 per cent over the next three years but said the only "fly in the ointment" for the industry and Contact could be the closure of the Tiwai Point aluminium smelter.

Tiwai takes up 10 to 15 per cent of New Zealand's electricity generation. Tiwai owner Rio Tinto is in discussions with Meridian over its electricity contract. Contact's share price rose 10c yesterday to $5.41.

MEET AND GREET
As we head into New Zealand's main AGM season, head of research at Craigs Investment Partners, Mark Lister, is predicting it could be a more interesting time for investors than the average year.

Lister said more companies than usual had chosen not to give specific earnings guidance this year but now they have had longer to see where things are going there could be more information.

"While we expect most corporates to remain relatively cautious ... when it comes to guidance, the upcoming earnings and AGM season may hold slightly more market-moving news than usual.

"Market expectations remain relatively subdued, particularly in Australia, so simply reiterating previous earnings guidance could provide some support for some companies."

Auckland Airport, Port of Tauranga and Freightways are some of the majors with meetings next week.

Lister says Skellerup, Fisher & Paykel Healthcare, Cavalier, Pharmacybrands and Delegats have potential for positive news, but expects Hellaby, Chorus and Nuplex to be more cautious.

- 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.

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