KEY POINTS:
Fisher & Paykel Healthcare is widely recognised as one of the best companies on the NZX. It has got the high margins of a tech business but the stability of a solid manufacturer. It is an established exporter and it's got a stranglehold (so to speak) on the
breathing apparatus market for sleep apnoea, one of the fastest-growing ailments in the Western world.
But it is also the NZX50's worst performer this year - down 20pc.
Its poor fortunes are dollar-related of course and F&P Health has been up-front about its impact, telling the market last year that its operating profits were likely to rise or fall by about $3.5 million for every 1c change in the kiwi against the greenback.
In the past few weeks it has been increasingly viewed as a good currency play by some investors. The theory is that the currency must come down eventually and when it does F&P Health is going to be extremely fit, lean and ready to cash in.
F&P Healthcare shares closed down 6c at $3.40 yesterday.
Wooden Spoon Race
For the record, the other worst performers of 2007 as we hit the mid-point for the year are:
* Hellaby Holdings (down 19.5%)
* Restaurant Brands (down 19%)
* Pumpkin Patch (down 13.7%)
* Sanford (down 12%)
* Tenon (down 10%).
* Mainfreight (down 8%)
* Cavalier (down 7%).
* The Warehouse (down 6.7%)* GPG (down 4 per cent).
So there you go, more counter-cyclical plays than you can shake a stick at.
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Telecom
Telecom shares have continued to drift in the past two weeks with news of a switch to the GSM mobile network and more regulatory shenanigans doing nothing to inspire confidence.
The shares closed down 8c at $4.72 yesterday, having last peaked at $4.90 on May 25.
The latest slump is hardly unusual, given the kind of range that the stock has been trading in for the past year or so, says ASB head of Securities Stephen Wright.
But, having said that, it is interesting to note that there is almost zero interest out there from private clients, he says.
"If you had to you could talk it up around dividends and some sort of capital payment," he said. "But in general the to and fro with the Government, the regulators, talk from Vodafone and Telstra and all these big players just leaves most people cold."
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Tower Of Power
As the Business Herald noted last month Tower NZ is turning out to be nothing like the dog that many predicted.
In fact it has risen another 23c since the Budget on May 17 and closed at $2.53 last night.
Earlier in the year there were takeover theories supporting the stock.
But since the KiwiSaver announcement in the Budget it seems like it may really just be a good time to be in the wealth management industry.
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Trucking On
Mainfreight was the standout stock of 2005 and 2006, delivering returns of 272 per cent over the two years.
But so far this year has been pretty average for the transport and logistics company.
In fact its share price has drifted down 8 per cent since the start of the year.
The company delivered a respectable full-year result with ebitda from ongoing operations up 21 per cent and inline with expectation, writes Marcus Curley at Goldman Sachs JBWere.
The key highlights were the migration from a turnaround story to a traditional freight-forwarding investment and a gradual move towards a major US acquisition.
The driver of Mainfreight's excellent returns has been its transformation into an international player but the rapid growth period is coming to an end.
So progress on US acquisitions is crucial.
By Curley's calculations the stock is still running well ahead of its discounted cashflow valuation.
The shares closed at $7.35 last night.
Curley's valuation is $6.90 - which he has raised from $6.55 since his last look at the stock.
That increase is down to higher forecasts for ebitda in 2008 and 2009 (up by 2 per cent and 3 per cent respectively).
The market premium mainly reflects the potential value gains from the purchase of US retail freight-forwarding operations in the next six months, he writes.
But to make up that premium and take the stock back up to the $8 mark a share, Mainfreight needs to get a good deal on the acquisition - ie, a relatively low price (an EV multiple of less than seven times ebitda) or extremely good synergies with its existing United States business CaroTrans.
So with all eyes on America, Curley is retaining his short term "market perform" and long term "hold" recommendation on the stock, despite the gap between the share price and his valuation.
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If it weren't for the Chinese, where would your gumboots be?
Fred Dagg would think it's cracker Skellerup is still making gumboots.
Shares in Skellerup took a hammering this week as the company downgraded its profit outlook and unveiled restructuring plans that included cutting as many as 100 jobs in Christchurch and divesting some business units.
They dropped 12c on Tuesday after the announcement and another 9c on Wednesday before stabilising to close at $1.03 yesterday.
It was bad news for local workers but the restructuring plan made strategic sense, said Forsyth Barr analyst John Cairns.
It was a move towards being a smarter, higher-tech, higher-margin company with some intellectual property that could be protected.
But, said Cairns, the market did not look kindly on the profit downgrade.
"What is disappointing is that the guidance for the current year has been pulled back so much. It was only relatively recently that they confirmed they were on track," he said.
Another issue clouding the outlook was its level of debt, Cairns said. The 2006 annual report noted total liabilities of $123.6 million.
While still within the range prescribed by the board, that level became more risky when the company was going through this kind of restructuring.
"So it really is a case of watch and see," he said.
Skellerup - the guardian of the great New Zealand gumboot - thankfully has no plans to sell its footwear division.
In fact having the "Red Band" brand manufactured in China may well have helped secure a New Zealand-owned future for the boots.
Meanwhile there's been no word on whether the legendary (in Christchurch at least) Skellerup Brass Band will be outsourced to China.
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Sky TV in the bin?
Despite the positive news this week that it had topped the magic 700,000 subscriber mark (although it's not really clear what's so magic about that number despite the hyperbolical press release) Sky TV shares are still stuck well below $6 - where they have been since the start of May. They closed steady at $5.62 yesterday.
There is growing nervousness among some media analysts about the possibility that Sky could feel the sting of the Government's regulatory lash. Citigroup telco and media analyst Kar Yue Yeo has downgraded his target price from $5.75 to $5.45 after assessing the risk to Sky from the upcoming broadcasting policy review.
The review will consider the distribution and acquisition of content across different platforms and the availability of premium content such as big sporting events.
"Sky's domination of sporting rights in areas like rugby mean a decision by the policymakers to regulate the level of media concentration could have some negative implications," Yeo writes.
He goes on to draw up a TAB-style chart on the odds of various decisions and a discounted cashflow share price valuation for each scenario.
In the "send-off" scenario - which he rates a 5 per cent probability - Australian-style "anti-siphoning" legislation would be introduced. This essentially restricts bidding on sporting rights to one season at a time. That would hurt Sky as it would hamper its long-term planning.
If introduced it could drop Sky's share price value down as low as $3.56, he says. But the odds of the Government doing it are also low as it would seriously damage the value of broadcasting rights for the Rugby Union.
He estimates a 20 per cent chance of a "sin bin" scenario. In this case regulators would control the level of media concentration by attaching bid conditions to certain key events.
The possibility that Sky might have to share some big events with free-to-air broadcasters would be damaging, so this scenario comes with a $4.55 valuation. Yeo gives his base case or status quo scenario odds of 65 per cent and attaches a valuation of $5.68.
Finally, he sees a 10 per cent chance of regulators opting to "play the advantage".
In this scenario regulators might tweak the current framework to include IPTV (TV over the internet) but would not adjust issues of media concentration or broadcast rights.
This would favour existing pay TV operators (namely Sky) so generates a share price valuation of $6.83.
