Year of the big spender

By JIM EAGLES, business editor

Free-spending Kiwis made it a great year for the retail and entertainment companies listed on the Stock Exchange last year.

Of the 10 top performers on the exchange during the year, half - Sky City Leisure, Briscoe Group, Pacific Retail, Arthur Barnett and Allied Farmers - rely on consumer spending for their profits.

Close behind were Sky City Entertainment, Michael Hill and The Warehouse whose performance was also boosted by the rip-roaring spending.

New Zealand's booming consumer confidence, which kept bubbling when the global economy remained in the dumps, helped the local Stock Exchange to be one of the best performing in the world.

Research by brokers Forsyth Barr shows that of 25 international share indices by far the best performance came from the Russian Trading Index, up 38.1 per cent.

New Zealand shares didn't equal that but they certainly matched the rest.

The NZSE's Small Companies Index produced a better return than any of the other global indices, with a gain of 6.3 per cent.

The NZSE40 Gross Index - which includes dividends - rose 0.9 per cent. The NZSE40 Capital Index was down 5.3 per cent. Not spectacular, maybe, but a safe haven in a year when most sharemarkets dived.

The best of the rest, India's Bombay Stock Exchange, had a 3.5 per cent rise. Mexico's IPC Index did relatively well, dropping just 3.8 per cent.

After that the falls were bigger. Australia's ASX200 dropped 12.1 per cent, the Toronto SE300 fell 13.9 per cent, the S&P500 was minus 23.4 per cent, London's FTSE-100 was down 24.5 per cent and the worst performance of all came from Germany's DAX, which fell a whopping 43.9 per cent.

From the perspective of a New Zealand investor the difference is accentuated by the rise in the New Zealand dollar.

Macquarie Equities investment director Arthur Lim calculates that while $100,000 invested in the NZSE would have about broken even last year, there would have been horrendous losses on the Nasdaq (down to $49,000), the Dow ($63,500), ASX ($76,000) and London ($64,400).

Furthermore, the flat performance of the NZSE overall disguises some stellar efforts by individual companies which provided rich pickings for shrewd investors.

The top local share was fabric-maker Designer Textiles, which produced a gross return for its shareholders of 161 per cent.

Christchurch businessman George Gould, who bought 24.5 per cent of the company two years ago, gained $6 million from its performance this year.

The share price, which ended the year at $1, is still a long way below its 1993 debut at $2.20, but it is also a long way above its low of 20c in October 2000.

The second best stock to have owned was the renamed cinema operator Sky City Leisure, formerly Force Corporation, which produced a 117 per cent gross return.

It is another share in recovery mode, the year-end price of $1.90 being well above the low of 80c it hit in January, but still well below the February 2000 high of $22.75. The improvement during the year shows that investors believe the Sky City management team are sorting out the company's problems.

Third on the list was Dunedin manufacturer Scott Technology, which benefited from a much improved profit as a result of a restructuring exercise and then gained several new contracts to supply international whiteware firms, ending the year with a gross return of 83 per cent.

Its biggest shareholder is Dunedin businessman Graeme Marsh, who would have made a paper profit of $4 million on his investment during the year.

Then there were those booming retail companies.

Rod Duke's Briscoe Group, a star performer following its float in 2001, turned in another stellar effort last year with a 70 per cent gross return for its shareholders, the best of any NZSE40 company. Duke would have benefited personally to the tune of $180 million from its soaring share price.

Eric Watson's Pacific Retail Group completed a controversial takeover of lingerie-maker Bendon during the year and the market obviously loved it. The company persisted with its policy of not paying dividends but the soaring share price still gave investors a 70 per cent return during the year and boosted Watson's fortune by $44 million.

Dunedin-based retailer Arthur Barnett is about to be delisted following a successful takeover by local businessmen Trevor Scott and Julian Smith. The action helped ensure it ended life as a listed company with a flourish by producing a gross return of 68 per cent for the year.

Rural services company Allied Farmers ended the year with a profit warning and a price drop. Nevertheless, the strong rural economy saw it come up with a healthy 61 per cent return for shareholders.

Utilities continued to perform well during the year with Northland Port (with a 54 per cent gross return) leading the way followed by Auckland International Airport (33 per cent), Port of Tauranga (26 per cent), Ports of Auckland (25 per cent) and South Port (21 per cent).

The tourism sector also produced its share of winners. These included NZ Experience (58 per cent), CDL Hotels (55 per cent), takeover target Shotover Jet (54 per cent), CDL-controlled Kingsgate (43 per cent) and, of course, Sky Entertainment and Auckland International Airport, both of which have a strong tourist content.

Among other top performers for the year were three of the sharemarket dogs from 2001: BIL International (53 per cent), Air New Zealand (43 per cent) and NGC Holdings (30 per cent). All three showed the benefit of new strategies and good management to bounce back into favour.

At the other end of the scale, two of the poor performers of the past year were two former sharemarket darlings: Baycorp Advantage (with a gross return of minus 72 per cent) and Sky Network Television (minus 17 per cent) both of which were punished for failing to live up to investor expectations.

If they can sort their problems out, however, they could be the shares to bounce back in the next 12 months.

Rob Mercer, head of research with Forsyth Barr, thinks both are worth watching "for a strong recovery in 2003".

The year also saw dramatic falls from grace by Tower (minus 51 per cent), AMP (minus 43 per cent) and Tranz Rail (minus 68 per cent). The jury is still out on whether they are likely to enjoy a bounce-back factor.

Several analysts are picking them as possible punts for the coming year but, as First NZ Capital research manager Barry Lindsay put it, "they are not for the faint-hearted".

Probably the biggest dog in terms of its size was Australian telecommunications giant Telstra, now the owner of TelstraClear, which had a gross loss for the year of 25 per cent.

Its New Zealand rival Telecom did much better, in spite of ending the year with a barrage of negative publicity, dropping just 3 per cent, which made it one of the better performing telecommunications stocks globally.

It was another terrible year for tech stocks such as Strathmore (minus 77 per cent), Software of Excellence (minus 62 per cent), IT Capital (minus 57 per cent), Cube Capital (minus 52 per cent), Advantage (minus 50 per cent), Blis Technology (minus 49 per cent) and Genesis (minus 48 per cent).

The worst performance came from organics producer Certified Organics, which dropped 77 per cent. Still, as the year ended it finally received the last consent needed to market its Organic Interceptor weedkiller here, so who knows?

* The Business Herald on Monday looks at Designer Textiles' recovery from near death to the NZSE's best-performed share.