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New Zealand Market Outlook - Core Stocks

New Zealand Market Outlook - Core Stocks

Pockets of value emerge in an otherwise fairly valued market.

In aggregate, stocks in New Zealand were trading in line with our fair value estimates with the price-to-fair-value ratio of 0.96 at September quarter's end. The economic outlook remains mixed, though higher inflation in the near term is likely. Construction activity is strong and manufacturing is holding its own. The dairy industry remains under pressure, though the worst could be over. Auckland housing prices are plateauing with investor interest being attracted to better value regional markets. Another cut in the official cash rate is possible in December.

There is some value on offer in the electricity generation sector with Contact Energy and Genesis Energy trading below fair value. Mighty River Power and TrustPower appear cheap. All four companies have a high uncertainty ratings so care is needed when seeking additional exposure in this sector.

In the health care sector the retirement village operator Ryman Healthcare is selling at a 10% discount to fair value. Growth prospects for this company are strong, and favourable demographics in both New Zealand and Australia provide a meaningful tailwind. A 10% discount to fair value is rare and provides an opportunity for investors to increase their holdings. Fisher & Paykel Healthcare Corporation may be attractive and is a quality company, but is relatively expensive at price-to-fair-value ratio of 1.08. Currently Ebos Group also looks expensive, selling at a 24% premium to fair value.

Precinct Properties New Zealand is worth a look as it offers some value with earnings and distributions forecast to rebound strongly from 2018.

There is growing  value in the telecommunications sector, with both Chorus and Spark New Zealand recovering from weakness during the quarter.

On the retail front the discount department store operator, Warehouse Group is now selling at an attractive 15% discount to fair value and could be worthy of investors consideration depending on the success of the Christmas sales period.

Company Name

Share Price

Fair Value Estimate

Price/ Fair Value

Recommendation

   Uncertainty

 

Air New Zealand Limited

2.67

2.80

0.95

Hold

          Very High

Auckland International Airport Limited

4.77

4.20

1.14

Reduce

Medium

 

Briscoe Group Limited

2.75

2.90

0.95

Hold

High

 

Chorus Limited

3.70

3.90

0.95

Accumulate

High

 

Contact Energy Limited

4.86

5.50

0.88

Hold

High

 

EBOS Group Limited

12.98

11.00

1.18

Hold

High

 

Fisher & Paykel Healthcare Corp.

6.97

7.50

0.93

Hold

Medium

 

Fletcher Building Limited

7.16

7.60

0.94

Hold

High

 

Fonterra Shareholders' Fund

5.35

6.00

0.89

Hold

High

 

Freightways Limited

5.45

5.50

0.99

Hold

Medium

 

Genesis Energy Limited

1.78

2.20

0.81

Accumulate

High

 

Goodman Property Trust

1.18

1.20

0.98

Hold

Medium

 

Infratil Limited

2.96

3.50

0.85

Accumulate

Medium

 

Kathmandu Holdings Limited

1.44

1.90

0.76

Accumulate

High

 

Kiwi Property Group Limited

1.28

1.30

0.98

Hold

Medium

 

Mainfreight Limited

14.80

16.00

0.93

Hold

Medium

 

Meridian Energy Limited

2.11

2.20

0.96

Hold

High

 

Michael Hill International Limited

1.07

1.40

0.76

Accumulate

High

 

Mighty River Power Limited

2.42

2.90

0.83

Accumulate

High

 

Nuplex Industries Limited

4.19

3.50

1.20

Reduce

High

 

Port of Tauranga Limited

16.70

15.50

1.08

Hold

Medium

 

Precinct Properties New Zealand

1.15

1.30

0.88

Accumulate

Medium

 

Ryman Healthcare Limited

7.14

8.50

0.84

Accumulate

Medium

 

Sky Network Television Limited

4.96

5.00

0.99

Hold

High

 

SkyCity Entertainment Group Limited

3.92

4.30

0.91

Hold

High

 

Spark New Zealand Limited

3.06

3.10

0.99

Hold

Medium

 

Tower Limited

1.90

2.00

0.95

Hold

High

 

Trade Me Group Limited

3.58

3.70

0.97

Hold

Medium

 

TrustPower Limited

7.19

8.50

0.85

Hold

High

 

Vector Limited

3.16

2.80

1.13

Reduce

Medium

 

Warehouse Group Limited (The)

2.57

3.10

0.83

Accumulate

High

 

Z Energy Limited

6.25

6.00

1.04

Hold

High

 

PLEASE CONTACT YOUR ADVISOR TO DISCUSS THE APPROPRIATENESS OF THE ABOVE RECOMMENDATIONS 0800 10 40 50.              

 

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