Stock takes: Tourism investors show appetite for adventure

Tourism stocks defied the gloomy outlook painted by the Ministry of Tourism this week. Photo / Sarah Ivey

Tourism Holdings gave the market no indication of why its shares have been rising quickly on significant volume in recent days when asked by the NZX this week.

Even after giving up 2c yesterday, at 59c they're still up 13 per cent since the start of the week.

What's more a couple of other tourism sector stocks made some good ground this week, with NZAX-listed Southern Travel bouncing 3c, or 25 per cent, off its 12-month low of 12c to 15c and New Zealand Experience gaining 3c, or almost 14 per cent, to 25c.

It's hard to reconcile this with the gloomy outlook painted by the Ministry of Tourism on Tuesday when it slashed visitor growth expectations in the wake of the global financial crisis and swine flu.

It now expects average growth of just 2.5 per cent per annum for the next seven years as opposed to its previous 4 per cent per annum forecast with the current year expected to produce an abysmal fall of 4.2 per cent.

Perhaps investors have been won over by the new "Great Kiwi Invite" television advertising campaign launched a week ago by Tourism Minister John Key.

TALKIN' BOUT A REVOLUTION
The Capital Market Development Taskforce's interim report released this week made for some interesting reading. Among challenges for our capital markets, the taskforce identified a dearth of retail investor confidence "which points to problems in financial regulation, corporate governance and financial reporting".

The taskforce also cited Morningstar's international study of the managed fund industry in which New Zealand ranked bottom out of 16 nations.

Morningstar observed that the Securities Commission was under-resourced, fund custodians were not required to be independent, and there were inadequate requirements for disclosure of portfolio holdings, fees, and portfolio managers.

"This indicates that, in at least some parts of our market, we have a long way to go to come into line with international best practice and thus cultivate preferable outcomes for investors," said the taskforce.

So what's to be done?

The taskforce will issue its final report late this year, but made a few suggestions in the interim.

They include requiring firms that sell investments to the public "to treat customers fairly".

What? That requirement doesn't exist already? Stock Takes thought those firms that clearly haven't treated their customers fairly were doing so in cavalier defiance of at least the spirit, if not the letter, of existing regulation secure in the belief that our regulators were too "under-resourced" or toothless to do much about it.

Another gem is the suggestion that financial advisers be forced to assume "fiduciary duty" on behalf of their clients.

In other words: "This means that advisers have a fundamental obligation to act in the best interests of their clients and thus hold the client's interest above their own in all matters."

For many financial advisers, particularly those who dumped client funds into ill-fated finance companies purely because of the level of commission they gained, this would be revolutionary.

COMPULSION IS THE ONLY OPTION
Stock Takes spoke to one senior finance industry figure this week who was "disappointed" with the report.

"The bulk of the report seems to say that the way we can grow our capital markets is through more regulation.

"Regulate, regulate, regulate. Where's the discussion around compulsory super or tax breaks on savings?"

At this point, Stock Takes suggested that compulsory superannuation is essentially legislating to force everyone to invest in the capital markets whether they have any faith in them or not. Nevertheless, compulsory super is clearly seen by many in the industry as a prerequisite for restoring some vigour to our markets.

Stock Takes' source suggested the taskforce's proposals for greater regulatory protection for investors could prove to be counter to its aims.

"More regulation means higher barriers to entry, fewer participants, less innovation, more cost, less volume and less activity.

"That's the risk in all of this. You sit here thinking ,'What's the point of this massive bureaucracy, why don't we just jump into bed with Australia?' and that's the very thing they're trying to prevent."

PURPLE PATCH CONTINUES
Pumpkin Patch shares have been making some respectable gains in recent weeks.

At $1.73 yesterday they have gained 15 per cent since the start of July or a whopping 123 per cent since their 78c low point at the market's February nadir.

This means Briscoe's Rod Duke, who bought a couple of big chunks of stock at $1.60 in March and June last year, is back in the money.

As Stock Takes noted last month, the children's clothing retailer's fortunes have been on the rise since it said it was cutting its losses in the United States by closing 20 of its 35 stores there, even though there would be some significant short-term costs associated with the move.

NORTHERN EXPOSURE
A month ago, Forsyth Barr managing director Neil Paviour-Smith told the Business Herald his firm planned to continue expanding aggressively in the face of an overall fall in the head count across the broking industry.

Paviour-Smith and his firm have proved as good as their word, this week announcing the opening of a further two branches, one in Whangarei and another on the North Shore.

"The broader region north of Auckland is one of the fastest-growing regions in New Zealand," he said this week.

"Establishing a permanent presence in Whangarei and the North Shore is consistent with our strategy of being present in all major areas throughout New Zealand."

Since the beginning of last year, the firm has added more than 30 private client advisers and now has over 100. Over the same period it has opened a further six branches and now has 17.

This week Paviour-Smith told Stock Takes his firm was benefiting from the fact that it had been untroubled by ownership and structural changes that other firms with overseas shareholders or partners had been dealing with.

He also pointed to the fact that the wider financial advisory industry was going through great change, including regulatory changes.

"We're not saying that life is a breeze but I think being well established, having scale, being regulated already makes the modus operandi simpler and that's been part of the pitch to new clients, that these things are not massively challenging for us, we can deal with it."

INCOMPARABLE RETURNS
Fisher Funds Management's Kingfish fund had good news for investors in its June-quarter update published recently.

The fund's net asset value was up 12.8 per cent for the quarter and up 24.3 per cent since its inception in the second quarter of 2004, compared with the NZX Mid-Cap Index's 7.2 per cent gain for the quarter and 2 per cent decline since Kingfish's inception.

But hang on a minute, says Business Herald contributor and self-appointed member of the "statistics police" Brent Sheather, Kingfish's net asset value factors in dividend payments whereas the version of the Mid-Cap index referred to by Kingfish does not.

Sheather kindly provided Stock Takes with data sourced from British company Datascreen showing the gross return for the NZ Mid-Cap index since Kingfish's inception was a far healthier looking 21 per cent.

Fisher Funds managing director Carmel Fisher told us that in spite of the somewhat misleading NZX Mid-Cap data being provided in a box on the front of the newsletter, it was provided for "interest only".

"We don't refer to it anywhere, we don't talk about our outperformance against the Mid-Cap as it's not our performance benchmark."

It does, however, have the happy effect of making Kingfish's returns look better than those that could be achieved in a passive index tracking fund that does not draw on skills of stock pickers like Fisher and her staff.

As it happens, though, Fisher tells us Fisher Funds will not be using the Mid-Cap index any more.