Expectations for F&P Appliances strengthen

Assembly line at Fisher & Paykel appliances factory. Photo / Glenn Jeffrey

Market expectations for Fisher & Paykel Appliances are getting stronger despite the dollar hitting post float highs putting pressure on many local manufacturers.

The announcement of a full-year net profit of $33.5 million late last month, compared with a loss of $83.3 million in the earlier financial year, helped its share price rally almost 20 per cent to a 12-month high of 65c on June 3.

Analysts upgraded their recommendations on the firm's stock following the result.

The company has come a long way from early 2009 when it was mired in $500 million of debt - the result of restructuring its international manufacturing operations during the onset of the global financial crisis.

Its net debt had reduced to $100 million by March 31.

The New Zealand dollar hit a post-float high of about US83c against the greenback during Friday before falling back to US82.46c later in the day.

Chief executive Stuart Broadhurst has said the kiwi's strength against the greenback was generally not causing too much of a headwind for the firm.

In some ways it was a benefit, he said, as the company bought a lot of componentry in US dollars.

First NZ Capital analyst Greg Main upgraded his recommendation on the stock from neutral to outperform.

"It's not going to be a quick bounce back ... but if you've got a two-year investment horizon, I think you'd do all right out of it."

But Main said a key issue for the company was the risk of a "hiccup" occurring in the Australian market, which F&P Appliances relied on for a large portion of its earnings.

Forsyth Barr analyst Andrew Harvey-Green, who upgraded his recommendation on the stock from accumulate to buy, said some of the most positive news delivered in the full-year result was the improvement in product quality, which had reduced warranty costs by $6 million.

Gross margins in the second half of the 2011 financial year had been the strongest since the firm began reporting them in 2007, he added.

In his research note, however, Harvey-Green emphasised that F&P Appliances was a high-risk stock.

"But we believe the upside risk potential more than compensates for the downside risk," he said.

Craigs Investment Partners analyst Dennis Lee, who left his recommendation unchanged at hold, said F&P Appliances' business model had become more robust under the leadership of Broadhurst, who took the helm in late 2009. "The worst is probably behind [the company] but the outlook is still very challenging."

F&P Appliances has announced a deal to supply componentry to China's Haier - the home goods maker that bought a 20 per cent stake in the company when it was laden with debt in early 2009 - which would generate revenues of between $20 million and $35 million annually.

"That could potentially lead to something bigger but it won't be in the short term," Lee said.

Meanwhile, F&P Appliances announced on Friday that director Gary Paykel had agreed to defer his retirement by 12 months.

The company said two unexpected board changes meant Paykel's understanding of the company's operations, products and its key markets would provide an essential overlap of experience and stability as the succession plan progresses.