New Zealand share values nudge record highs

By ELLEN READ

Buoyed by supportive economic conditions and a plentiful supply of investors' money, New Zealand share values are hovering around all-time highs.

The NZSX-50 gross index topped 2700 this week - its highest level since the index was adopted in March last year.

But even looking at other longer-running indices, values are high. For example, the capital NZSX-All index is at 908.5 - its highest since October 1997 and just below the all-time high of 921 just before the 1987 crash.

"Overall, it's been pretty good for New Zealand over the last six months with the exception of one or two stock-specific sections," said Macquaries' Arthur Lim.

He said though it was difficult to dissect the local market because it was so fragmented, basically building, construction, energy, retail and leisure and entertainment had done well. Retail had not.

Put that against a backdrop of "lean, mean" companies - the result of forced belt tightening and restructuring during the 1999-2000 recession - and it's not surprising the NZX is near all-time highs.

According to First NZ Capital strategist Jason Wong, the index showed a 10 per cent gross return for the first half of the year.

"As with global equities, the strong economy and earning environment tended to offset the negative impact of the rising interest rate environment," he said.

Outperforming sectors for him were utilities, healthcare, consumer staples and insurance. Media, banking, property and investment didn't fare so well.

Corporate activity boosted utilities, Fisher & Paykel Healthcare and Ryman Healthcare ensure good returns for the healthcare sector, the insurance sector recovery continued and consumer staples outperformed on a strong performance by Lion Nathan and the takeover activity with Wrightson, Wong said.

Lim's analysis of the past six months is that the retail sector has been the biggest disappointment - at a time when retail sales have been very strong. This is a reflection of a highly competitive market and problems with some Australian branches.

"The focused players like Michael Hill and Hallensteins have proven that if you are focused and have a strategy that works, you can do very, very well," Lim said.

"But when you've got the three biggest [in the sector] - Briscoes, The Warehouse and to some extent Restaurant Brands - not doing well it tends to overwhelm."

The energy sector - on the back of high electricity prices and higher charges - has had good performances from Contact Energy, Trustpower, Powerco and Natural Gas.

Slowing immigration is supposed to have hit the building and construction sector but Lim said this hasn't shown up in the numbers.

"It's charged off in recent times, Fletcher Building, Steel and Tube, Nuplex and the likes of Waste Management," Lim said.

Sky City, Tourism Holdings and Auckland International Airport have done well in recent months, reflecting the recovery of visitor numbers after Sars last year alongside New Zealand's continuing attraction as a tourist destination.

From here, it will become harder to find bargains in the marketplace as values have crept up.

"After a strong run, NZ equities are no longer cheap. The core market PE is trading above average, the discount to world markets is smaller than average and against bonds, equities have nudged into expensive territory for the first time in two years," First NZ's Wong said.

Lim agreed, but said on a stock- specific basis, there were still good stories out there.

Corporate activity remains a focus with Contact Energy, NGC, Powerco, Independent Newspapers, Sky Network Television, Rubicon, Tenon, Tower, and Wrightson all under the spotlight.

"Given market pricing, further initial public offerings and equity raisings can be expected," Wong said.