KEY POINTS:
Those feeling gloomy about the market downturn might want to ponder just how well our market held its ground last month. The NZX-50 shed about 9 per cent. Not great, but not too bad considering the index slipped backwards on all but three days of that month.
According
to a tally by Standard & Poors, plenty of places were hit a lot harder:
* Turkey down 22.7 per cent
* China down 21.4 per cent
* Russia down 16.1 per cent
* India down 16 per cent
* Paris down 12.3 per cent
The great irony, of course, is that Wall Street indexes lost an average of just 6.9 per cent for the month. America sneezes and the rest of the world catches the cold - or so the saying goes.
I guess that's because the rest of the world doesn't have a reserve bank that will slash the cash rate and a leader who'll throw money at the economy just to avoid a recession. London also held up reasonably well - down 8.9 per cent.
CLOSER TO HOME
So the index is holding up relatively well but things aren't looking so bright for some of our top companies. Particularly after further falls in the past week.
The table of top NZX-50 performers for the year to date - so impressive last year - is a sorry-looking thing.
Top performers so far are Hallenstein Glassons - up 1.3 per cent - and The Warehouse - up .87 per cent. That's it for the companies up for the year. Third best is Air New Zealand - down 3.19 per cent.
At the other end of the scale, Rakon is worst performer - down 27 per cent after yesterday's rout.
Pumpkin Patch is down 24 per cent followed by Fisher & Paykel Healthcare, Fisher & Paykel Appliances and Fletcher Building - all down about 21 per cent.
But for anyone with cash the local market has probably never looked better.
If you are looking to build a long-term share portfolio there are bargains galore. Okay, it is unlikely that we've seen this slump hit bottom yet but with quality stocks trading at such a discount to last year it's just a matter of picking your entry point. Clearly the likes of F&P Appliances and Fletcher are exposed to Australasian and US housing downturns. But these things don't last forever.
TELECOM'S TARGET
Telecom, however, has a way to fall before it becomes a bargain. At least that's one view out of Australia following last week's half year result. Research by Aspect Huntley - a subsidiary of global giant Morningstar - indicates that Telecom would need to be trading below NZ$3.65 before it would be prepared to recommend clients start buying.
In fact, at $3.65 it would move from hold to accumulate. It wouldn't get a solid "buy" recommendation from the research team until it drops below $3.37.
Having said that, Aspect Huntley still has a fair value estimate of $4 on the stock.
They are assuming a fall in domestic fixed line revenues of 4 per cent a year for the next five years. But they note that if that annual fall was more like 10 per cent then they would adjust their fair value estimate down by 25 per cent.
They do note that Telecom is now well positioned to respond to the regulatory challenges they face but conclude that the share price will continue to struggle while operational problems persist. The modestly priced PE ratio of about 11 and the yield above 6.5 per cent are enough to justify retaining a hold recommendation. Which hopefully will offer some comfort for local investors still holding stock.
Telecom shares closed yesterday up 8c at $4.05.
HOLD OR FOLD
While there wasn't much for investors to smile about in SkyCity's $60 million write-down of its cinema business this week, one line in the notice to the NZX did raise a chuckle with a few brokers.
"If a satisfactory price and structure is not able to be achieved, the directors will consider retention of the cinema assets," the notice concludes. Well yes, good idea. If you can't sell them what else are you going to do ... give them to charity?
STILL A GOOD BET?
On a more positive note for SkyCity, at least one broker has re-assessed the company's prospects and now sees it as a good buy. Analyst Marcus Curley at Goldman Sachs JBWere says the benefits of the Auckland casino refurbishment may have been underestimated. There may now be less impact from the disruption to business caused by the building work and (based on an assessment of another similar casino) it may drive a 4 per cent increase in visitation. Despite the economic slowdown he is still picking a 3 per cent growth in gambling expenditure for the 2009 year.
Curley is also picking (conservatively, he says) the company will achieve cost reductions of $22 million in the 2008 year. That represents the low hanging fruit.
He also notes that Sky is now the cheapest Australasian gaming stock with an Enterprise value to Ebitda ratio of 8.2 compared to a peer group average of 10.5.
There's also still some material upside to be had from future M&A activity despite the lack of any offer from the latest sale process. The blow-out of global credit markets appears to have killed off the prospect of a leveraged buy-out for the time being. But credit spreads will eventually return to normal, Curley notes.
The report was written before the writedown in value of SkyCity Cinemas but, while that wasn't good, the market tends to be overreacting. So at yesterday's close of $3.99 SkyCity will no doubt look even more attractive to Curley.
Magnum Opus
ABN Amro has initiated coverage of works and engineering company Opus. Naturally enough infrastructure stocks or those with exposure to infrastructure. Its initial take is that the stock is currently undervalued.
Analyst Dick Pickering has given it a "buy" recommendation and a 12-month price target of $1.88. The shares closed at $1.60 yesterday. That's now 5c down on the price for the initial public offering last October.
Opus was formed when the Ministry of Works and Development was privatised in 1988 and its Malaysian owner, Opus International Group Plc, is retaining a majority stake. The company had produced returns of around 20 per cent over the past three to five years.
Projects include a London underground station upgrade, Vancouver's Sea-to-Sky Highway for the 2010 Winter Olympics, a roading project in Canada's Kicking Horse Canyon and the Epping to Chatswood underground rail project in Sydney.
