A year of Renaissance for the NZ sharemarket

By JIM EAGLES

The past year has been a stellar one for investors in the New Zealand sharemarket.

The brightest individual performer across the whole market was IT company Renaissance, whose recovery from the techwreck produced a remarkable gross return for its loyal shareholders of 191 per cent.

Of the heavyweights in the NZX50 the best result came from Tauranga-based TrustPower, which shrugged off the previous year's electricity crisis to achieve 96 per cent returns.

Other big gains in the top 50 came from Promina (91 per cent), benefiting from listing at the market's low point, and INL (74 per cent) and Sky Network TV (71 per cent), both boosted by takeover activity.

But the best efforts among the big companies were turned in by investment vehicle Hellaby Holdings (71 per cent) and F&P Appliances (64 per cent).

On the downside, previous insurance and retail stars Michael Hill, which cost its shareholders 17 per cent, Restaurant Brands (-19 per cent), The Warehouse (-27 per cent) and, from outside the top 50, Briscoe Group (-35 per cent) failed to deliver the expected growth despite surging retail spending.

Tower (-21 per cent) and AMP (-33 per cent) both suffered from over-ambitious and poorly managed overseas expansions.

They were, however, the exceptions. Only six companies in the top 50 failed to achieve positive gross returns.

By contrast 41 of the top 50 managed returns better than 10 per cent and an incredible 33 did better than 20 per cent.

Smaller companies produced even more spectacular results, with Renaissance, Metlifecare, Finzsoft and Wellington Drive all achieving returns of more than 100 per cent.

Over the whole market two-thirds of the companies listed achieved gross returns of over 15 per cent.

There were only nine listings during the year, most of them keeping up the good work. Finzsoft, Promina, the NZ Exchange itself, Kidicorp, Freightways and Urbus all started with gross returns over 20 per cent, and Postie Plus achieved 11 per cent.

The only dogs were Pacific Edge Biotech (-28 per cent) and 42 below (-36 per cent).

As a result of all that, the NZSX All Gross Index rose a remarkable 27 per cent during the year, with the NZX50 just behind at 26 per cent.

It was a year when world markets generally finally shrugged off the three-year bear market, with the MSCI World Index climbing 33 per cent.

But the rise of the New Zealand market had more to do with growth than mere recovery after a crash.

Rob Mercer, head of research at Forsyth Barr, said the New Zealand market had been almost unique in delivering steady and sustainable growth of around 10 per cent a year over the past few years.

A key feature of the local market, he said, had been the impressive growth in earnings.

This was best demonstrated by the ability of most companies to adopt high-dividend policies (paying out 55-75 per cent of profits) while still achieving strong organic growth (delivering earnings-per-share growth of 10 per cent a year) and reducing debt (the median debt to debt-plus-equity ratio was now at the historically low level of 30 per cent).

Mercer said that when currency was taken into account the local market had definitely been the place for New Zealand investors to be.

If returns were converted back into Kiwi dollars then over the past two years "the NZX50 increased by 24 per cent, well above Australia [-3.5 per cent], the US [-3.2 per cent] and the UK [-14 per cent]".

Mercer said it would be difficult for the New Zealand market to equal the 2003 performance in the next 12 months.

Nevertheless, the NZX50 was still likely to grow by 10 to 15 per cent during the year ahead, most of it in the first few months.

Mercer said he based this partly on a belief that strong earnings growth would continue - indeed, Forsyth Barr was upgrading its forecast from 8 per cent to 10 to 12 per cent - due to the strong domestic economy. He predicted this was likely to see some companies upgrading their profit forecasts in the first quarter of the year.

The economy would also continue to benefit from relatively low interest rates, and low inflation, as a result of the strong dollar.

Forsyth Barr is picking heavyweight Telecom to be one of the growth companies this year, after being in the middle of the pack (with returns of 25 per cent) in 2003. It believes a favourable regulatory environment will see energy companies such as Contact and Powerco do well.

Mainfreight is expected to profit from continued rationalisation in the transport industry.

And Stephen Tindall is predicted to get The Warehouse back on track.