Investors in the New Zealand sharemarket needed to remain
''stock selective'' with the market seen as fairly valued,
Morningstar analyst Nachi Moghe says.
Companies in Morningstar's New Zealand coverage were trading
at 1.04 times fair value estimates.
Hold recommendations dominated the coverage, representing 76%
''There are no buy or sell recommendations but we have seven
reduce recommendations. Given market valuations, we have just
one best idea - Telecom.''
Telecom seemed undervalued with management's turnaround
strategy not factored into the current share price, Mr Moghe
said. Telecom closed on Friday at $2.70.
''We think the strategy will work and initial signs are
Market share was stabilising in fixed broadband and there was
evidence of subscriber growth in mobile.
The company was expected to continue an aggressive pricing
strategy to maintain momentum in the mobile market.
Mobile made up 33% of retail revenue and was a key asset for
future growth. Increased smartphone penetration and demand
for data was likely to boost average spend per customer, he
The recent sale of the Australian business AAPT had cleaned
up the group structure and reduced operating risk.
In terms of competitive position, a new entrant into New
Zealand telecommunications would have to content with three
existing mobile players in a small market, Mr Moghe said.
Energy was the most expensive listed sector in New Zealand.
Z Energy and New Zealand Oil and Gas were trading well above
fair value estimates.
The healthcare sector was also expensive, trading at 1.1
times fair value with investors overpaying for a positive
earnings track, he said. Fisher and Paykel Healthcare looked
The transport sector still looked overvalued as did building
materials companies with Fletcher Building the most expensive
stock in Morningstar's New Zealand coverage.
Electricity companies had recovered since March, with most
stocks now trading close to fair value estimates as the
market became more comfortable the ruling National-led
Government would be re-elected on September 20, Mr Moghe
Mighty River Power and TrustPower were the cheapest stocks
trading at 0.94 times and 0.95 times fair value estimates
''We view the consumer discretionary sector as trading close
to fair value. The sector is a mixed bag and while we have no
best ideas, SkyCity Entertainment, The Warehouse Group and
Trade Me Group all look reasonable value, trading at modest
discounts to fair value.''
SkyCity Entertainment was the cheapest and offered an
attractive dividend yield. The market was still
underestimating the benefits of the Adelaide and Auckland
casino expansions, he said.
The outlook for New Zealand property stocks was positive with
the sector buoyed by the strong New Zealand economy.
''We view the sector as being fairly valued with the three
stocks we cover at slight discounts to fair value.
Nonetheless, all stocks offer relatively attractive yields at
current prices,'' Mr Moghe said.