With 2013 arriving tomorrow, business editor Dene
Mackenzie asked Forsyth Barr and Craigs Investment Partners
brokers for their top share picks for the coming year.
The New Zealand equity market performed well in 2012, the NZX
50 gross index up 23% for the year to date. Forsyth Barr
brokers Peter Young, Haley Van Leeuwen and Tom Bliss remained
cautiously optimistic but said near-term earnings risk, both
locally and globally, remained a key challenge. Their target
gross return for the market in 2013 was back at the 10% to
''Our top five picks have been selected to represent a
combination of defensive, growth and value investment
attributes,'' they said.
Craigs brokers Peter McIntyre, Chris Timms and Greg Easton
believed the outlook for shares in 2013 was positive.
''The New Zealand market is offering a dividend yield of
close to 6%, far better than other investment options. This
alone will probably see our market well supported over 2013.
While the economy may remain sluggish, earnings growth for
the NZX 50 is forecast to be close to 10%.''
Those factors combined should be enough to see New Zealand
post another positive year of returns, although the return
might be in the 7% to 10% range, rather than the 20%-plus
seen in 2012, the Craigs brokers said.
Mainfreight: Mainfreight had set out to methodically
build a global freight logistics business and its acquisition
of Wim Bosman gave the company a solid footprint in Europe.
Mainfreight had all the attributes Forsyth Barr looked for in
a company. It had a high marginal return on equity, through
leveraging organic growth from its existing earnings;
earnings growth was outpacing the market and its peers; the
executive team was proactive and had proved to be highly
responsive to changes in market conditions; and the company
had substantial growth prospects.
PGG Wrightson: PGG Wrightson had made progress in
improving the underlying operating performances of its core
rural services businesses. Its proprietary seed business
remained in a strong position with a competitive advantage in
its significant research and development facilities. The
company remained focused on reducing its debt through the
final monetisation of its loan portfolio and targeting
working capital. Assuming no further drastic climatic
condition issues in Australia and New Zealand, PGG Wrightson
was well positioned to achieve solid earnings growth over the
Ryman Healthcare: Ryman continued to deliver a
high-quality product that was enjoying increased demand given
the compelling demographics in its favour. It had scale,
in-house expertise and development pipelines to capitalise on
the demand and was a recognised market leader. Ryman was a
leading New Zealand-focused success story with a solid growth
Skellerup: Global market conditions remained
uncertain. However, Skellerup's business model was proactive
in seeking to drive operational improvements across the
business units and the pursuit of new product development in
close association with customers.
SkyCity Entertainment: While SkyCity was well placed
for medium-term operational upsides from improvements at its
Auckland casino and the underlying economic conditions, the
operating environment remained subdued. There were
encouraging signs at the key Auckland property during 2012,
in particular for the Auckland gaming machines and the
international business. SkyCity was a strong generator of
free cash flow, had a sound balance sheet and had potential
to leverage its large Auckland precinct further with the New
Zealand International Convention Centre project.
Fisher & Paykel Healthcare: Although a perennial
underperformer over recent years, it looked like the company
had finally turned the corner of late. FPH recently upgraded
earnings guidance on a surge in revenue for its latest masks,
revealing a strong catalyst for earnings growth and
share-price performance over the next 12 months. Despite the
expectation for the New Zealand dollar to remain high in
2013, FPH was one exporter that could still increase profits
in that environment.
Sky Television: The company had high cash flows, paid
a regular dividend of more than 7% a year and might announce
further special dividends like the one just seen. In the past
year, the New Zealand market had gone up 24%. Sky TV had not
moved at all, making it look reasonable value compared with
many other stocks.
Ryman Healthcare: The best-performing stock on the New
Zealand market over just about any period, having delivered
31% per annum for the past decade, Ryman had consistently
increased its earnings and dividend while never going back to
shareholders to ask for extra capital. The company had
outstanding quality and the business remained well-supported
by the ageing population and growing demand for healthcare
Diligent Board Member Services: A market leader in a
very exciting segment, Diligent had an excellent product and
significant global opportunities ahead for growth. The
company had quickly moved from a loss-making position a few
years ago to generating strong profits. It had $25 million of
cash on its balance sheet and there was the prospect of a
dividend in 2013, which would be a strong signal for the
company's earnings sustainability.
Templeton Emerging Markets: Templeton was an
investment trust that invested in emerging markets such as
China, Brazil, Indonesia and Thailand. The developing world
had a growth outlook far superior to that of the indebted
Western nations and with positive signs emerging from China
of late, 2013 could be a strong year for investors in those
parts of the world. The New Zealand market had a great year
in 2012 and, while it looked stable, there might be better
opportunities offshore during the next 12 months.