COMMENT:

The local share market has had a solid start to the year providing some welcome relief for investors after the sharp slide in global equity markets in late 2018.

The main S&P/NZX 50 index is up 4.6 per cent this month and investors are now turning their attention to earnings season which kicks off next month.

For many companies 2019 will be a crucial year as they look to expand, rebuild or consolidate in what is an increasingly active merger and acquisition environment.
Here are five companies to keep a close eye on.

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NZX Limited

Chief executive Mark Peterson has another stressful year ahead of him as pressure builds on NZX's operating performance while the market continues to shrink from takeover activity.

The business community has been concerned about a lack of new initial public offers for some time and while this has been offset to some degree by a flood of new debt capital, the onus is on NZX to broaden the product range available to investors.

December operating statistics highlighted the concern with the total value of trades down 16.6 per cent to $2.5 billion from December 2017. For the last two quarters the decline has been 21 per cent and 33 per cent respectively.

NZX has outlined a new strategy and Peterson has implemented some changes including reducing the level of off-market trading. Partnerships with overseas exchanges are yet to yield significant benefits but the key issue is getting more high quality companies to list.

"The year is really going to be all about product," Peterson told the Herald last month.

Rakon Group

Rakon shares have edged higher in recent months and the stock is up nearly 50 per cent since June when the high-tech components maker returned to profit.

Rakon has made good progress since its board refresh in 2017 and renewed focus on its core markets of telecommunications, global positioning and space and defence.

On December 12 the company announced a near doubling of working capital and said its total cash facilities totalled $15.5m, which would be needed due to an increase in forecast demand from the continuing roll out of 4G and 5G infrastructure in the telecommunications market.

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The following week Rakon said its second half performance remained on track while noting that US demand was expected to drive further growth in the defence market.
After a decade of poor returns to shareholders, Rakon still has much to prove. But the signals are getting better.

A2 Milk

As one of the market's top performers, A2 Milk gets a lot of press both here and in Australia and has hard core fans as well as naysayers.

The company has made huge strides on the back of prodigious demand for its products in Asia but does face increasing risks in some areas, including increasing competition in China from domestic infant formula manufacturers.

Citi analyst Sam Teeger has been on the cautious side for a while and in a recent report to clients he cut earnings expectations for both A2 and Bellamy's.

His report valued A2 at $10.65 and reduced forecast earnings per share by 1.7 per cent for 2019 and 5.7 per cent for 2020. A2 shares closed yesterday at $12.52.

Teeger said future share price gains may become more challenging due to increased competition and new entrants into the A2-protein category.

"We see further risk to foreign brands from changes to Chinese infant formula product standards,'' Teeger added.

A2 had a pivotal year in 2018 when it more than doubled net profit to $195.7m and achieved record market share positions across all key products in all regions.

Pushpay

Pushpay is another market darling attracting a lot of eyeballs.

The company delivered an early positive trading update on January 7 when it confirmed its cashflow and ebitda breakeven targets for the key December quarter. It also reaffirmed guidance for revenue of US$97.5m to US$100.5m for the year ending March 31, 2019 and a gross margin of more than 60%.

Pushpay, which reports its result on Feb 7, said its annualised processing volume increased from $US3.2 billion as at 30 September 2018 to over US$5 billion as at 31 December 2018.

The company provides payments and engagement services to the US faith sector.
"Given the strength of the underlying business, Pushpay is well positioned to capitalise on opportunities to accelerate growth, including potential acquisitions that add significant value to the current business," CEO and co-founder Chris Heaslip said.

Pushpay shares closed yesterday at $3.40. Craigs analyst Stephen Ridgewell rates the stock a "Buy" with a $4.51 target price.

Fletcher Building

Has the country's largest construction company turned the corner?

Investors will get a clearer picture when Fletcher reports its annual result later in February.

The company has had a horror couple of years but ended 2018 on a positive note when it revealed it had reached a deal to sell its Formica business for $1.2 billion. This was greeted positively because while the price was below analysts top end range, it was at least good news for a change.

And with a return to dividend payments on the agenda, shareholders have something to look forward to.

Fletcher may have ring fenced the losses from its B+I division but is not necessarily in the clear given the delays to big projects such as Commercial Bay and the Convention Centre in Auckland.

How those projects develop is just one part of Fletcher's future this year amid a declining market for construction.