Stockbrokers go to the dogs

By ELLEN READ

Tranz Rail and Sky Television - companies whose falling share prices made them two of the dogs of last year - are the most popular picks among brokers asked to nominate the shares with the best prospects for the year ahead.

Five of the 10 broking firms in the Business Herald's annual survey of brokers' picks included the railway and pay television companies in their selections.

Close behind are Auckland International Airport, Sky City Entertainment and Fletcher Building, each chosen by four firms.

Beyond the top four companies, the choices get more diverse; three brokers like the look of Fisher & Paykel Appliances and Contact Energy, two favour Michael Hill, Skellmax and The Warehouse, and a record 15 companies receive just one nomination each.

The brokers' faith in Tranz Rail stems from their belief that the share will perform strongly if the company lives up to management forecasts. Last year's successful equity raising has also convinced some brokers that the cloud of negativity hanging over Tranz Rail could be about to lift.

As for Sky Television, after five years on the stock exchange the company is finally planning to make its maiden profit as a listed company.

That is expected in the second half of its 2003-04 financial year (that is, the first six months of next year). The stronger local currency is also lowering the cost of buying overseas programmes - another good reason for a higher share price.

Last year's darling, Fletcher Building, remains in favour; earnings are growing strongly and the outlook is for record profits, supported by low interest rates and a backlog of construction activity.

Sky City Entertainment's core operation - gambling - is performing strongly and a planned expansion to the Auckland casino this year is also seen as boosting the share price.

Brokers who opted for Auckland International Airport say it has an outstanding long-term outlook, with earnings expected to grow by more than 10 per cent a year, and should perform strongly this year now that the Auckland City Council has sold part of its shareholding.

Direct Broking is again taking more risk than it would typically suggest for real-life investors, saying that some of its picks have been oversold, so the potential rewards are higher, but so are the dangers.

As expected, many other firms have taken a cautious, even conservative, approach.

"We have picked quality companies (with sustained high profit margins) in structurally favourable industries (with barriers to competitor entry, long-term industry growth) with proven management (who manage in the shareholders' interest) and which are available at a discount to value," says JBWere strategist Campbell Millar.

Bet you never knew it was so simple.