Brokers are picking Fisher & Paykel Healthcare, Diligent and Infratil to be among the NZX's top-performing stocks in 2016. Photo / Getty Images
Brokers are picking Fisher & Paykel Healthcare, Diligent and Infratil to be among the NZX's top-performing stocks in 2016. Photo / Getty Images
Markets reporter Christopher Adams asks leading brokers for their picks for next year's winning stocks.
Brokers are picking Fisher & Paykel Healthcare, Diligent and Infratil to be among the NZX's top-performing stocks in 2016.
They are the most popular selections in the latest Business Herald Broker Picks competition, each featuring in three of the portfolios put forward by the nine firms that took part.
Otherbroker favourites this year include Chorus, Meridian Energy, Ryman Healthcare and Airwork Holdings.
And Macquarie Securities and JBWere are tipping a 2016 comeback from Sky TV, which had a poor run on the sharemarket this year (see accompanying article).
F&P Healthcare delivered a stellar performance in 2015 and Craigs Investment Partners, Macquarie and First NZ Capital are picking the company's strong run to continue.
The medical device maker has been releasing a slew of new products and Mark Lister, head of private wealth research at Craigs, said the firm was gaining share of a large and rapidly growing market.
"F&P Healthcare is a major beneficiary of a weaker New Zealand dollar, with currency hedges beginning to roll off," Lister added.
In October the company's chief executive, Mike Daniell, said there was potential for the business to be treating 30 million patients annually within 10 years, which would provide annual revenue in the region of US$1.8 billion ($2.7 billion).
That would be an almost three-fold increase on the operating revenue of around $800 million the company has given guidance for in the current financial year.
F&P Healthcare has forecast a profit in the range of $135 million to $140 million in the current financial year, up from $113.2 million a year earlier.
Meanwhile, corporate governance software developer Diligent was selected by Craigs, MSL Capital Markets and OMF.
It's the sixth year in a row that Wellington-based MSL has selected Diligent, whose shares closed at $6.10 on Thursday after gaining 16 per cent in the year to date.
"This stock continues to look really cheap," said MSL managing director Andrew McDouall.
With no debt, solid profits and close to $100 million of cash, he said Diligent must be a tempting target for "corporate activity".
MSL, formerly McDouall Stuart, was the lead manager in Diligent's 2007 initial public offering.
Lister said the software company was trading at a discount to its peers when arguably a premium was warranted.
Chorus topped off 2015 with a bang when its shares spiked to a record this month after the Commerce Commission increased the price it can charge the likes of Spark and Vodafone for access to its copper line network.
James Grigor, equity strategist at Macquarie Private Wealth New Zealand, said the regulator's announcement gave more impetus to the view that Chorus will re-commence dividend payments when it reports half-year results in February.
"We're expecting a 30c dividend," Grigor said. "We're ahead of the market and we think that if they do pay the dividend we're expecting the market will have to re-rate up to where we view the company." Macquarie has a 12-month target price of $4.70 on Chorus shares, which closed $3.80 on Thursday.
JBWere's New Zealand equity manager, Rickey Ward, said Infratil had consistently delivered returns for investors and had a "shareholder friendly" capital distribution policy.
"The company has undergone a management evolution over the past five years and recycling assets has become a key feature of its psyche," Ward said. "Betting against their ability to extract value over time has proven to be unwise."
Sky TV has fallen out of favour with many investors as it grapples with rising costs and online competition from streaming services such as Netflix.
Its shares took a hammering in October after the firm revealed annual profit would fall by up to 11 per cent.
Grigor said Macquarie believed the sharemarket response to the profit downgrade had been "disproportionate to the magnitude of what they were actually saying".
"Sky TV still has dominant market share and they've got some things ... that look like they will address customers dropping off after the [Rugby] World Cup, such as the MySky digital box swap-outs," he said.
The pay-TV operator is upgrading its set-top boxes so they can download programmes over the internet.
"It's those sorts of things that we think will stabilise earnings and then on top of that the company generates a lot of cashflow and has a very stable dividend because of it," Grigor said.
At the smaller end of the market, mobile voucher developer VMob was picked by OMF and MSL Capital.
F&P Healthcare CEO Mike Daniell. Photo / Greg Bowker
McDouall described the company as an under-appreciated stock encountering "exponential growth".
Another noteworthy pick was Macquarie's selection of Intueri Education, the private training provider which has been one of the worst-performing stocks on the NZX this year.
Its shares were decimated in the wake of the company's November 23 announcement that a regulatory review of two of its schools could impact funding and wipe up to $5 million off full-year earnings.
"2015 is probably not a year that Intueri wants to remember," Grigor said. "But our view is that management have put in place some changes within the schools that should make the regulator happy."
Macquarie, which was a joint leader manager of Intueri's 2014 sharemarket float, has a 12-month target price of $1.90 on the stock, which closed at 59c on Thursday.
Vulcan Capital also put forward an interesting selection, including craft brewer Moa Group and travel booking software developer Serko - two firms that have disappointed investors since their respective sharemarket listings in 2012 and 2014.
"Our portfolio clients are holding the likes of Chorus, Fisher & Paykel Healthcare, Ebos and Ryman, so these broker picks are for the more proactive investor with a higher risk/reward profile," said Vulcan's Brett Wilkinson. "We have also endeavoured to select stocks that receive minimal coverage by mainstream brokers."
Scales, Z help First NZ secure top result
Scales Corporation, Z Energy and Diligent helped propel First NZ Capital to the top spot in the 2015 Broker Picks results, with a 33.5 per cent overall return.
Apple exporter Scales had a lacklustre run on the market in the first few months following the firm's July 2014 float.
But its shares began lifting late last year and have soared over the course of 2015, notching up a 75.9 per cent return for First NZ.
The company, which was once part of failed finance firm South Canterbury Finance, has been trading well ahead of expectations, this month upgrading full-year operating profit guidance to between $60 million and $63 million - an up to 53 per cent increase on the forecast in its IPO prospectus.
Z Energy (58 per cent return) also had a stellar run this year, largely because of the acquisition bid the firm launched for Caltex operator Chevron NZ in June.
The deal still requires Commerce Commission approval, but if it goes ahead Z will secure a 49 per cent share of New Zealand's fuel retailing market.
Diligent, with a 22.7 per cent return, was another solid performer for First NZ.
Only four firms managed to beat the S&P/NZX 50 Index this year, which delivered a 10.8 per cent return during the competition period.
JBWere, in second place with a 23.9 per cent overall return, benefited from selecting Diligent, as well as its picks of Nuplex (67.4 per cent return), Infratil (17.3 per cent) and Meridian Energy (12.2 per cent), which compensated for the Fonterra Shareholders' Fund returning nothing.
Craigs Investment Partners, which topped the table in 2014's Broker Picks, made a good choice in Fisher & Paykel Healthcare (41.7 per cent) but suffered from its selections of Fletcher Building (-8.1 per cent) and Contact Energy (-9 per cent).
Craigs' additional choices of Mainfreight (4.4 per cent) and Metlifecare (5.3 per cent) provided below-market returns.
Meanwhile, Macquarie Securities took a hit from its selection of Intueri Education (-71.2 per cent), which undermined solid returns from its other picks of Air New Zealand (26.8 per cent), Auckland Airport (30.6 per cent), Restaurant Brands (23.4 per cent) and Vista Group (50.7 per cent).
Meanwhile, Forsyth Barr had a good run with Infratil (17.3 per cent), but the firm's overall result was dragged down by its choices of Sky TV (-20.4 per cent) and Tower (-6.6 per cent).
