Yovich & Co. Weekly Update - 12 January 2015

Jan 12, 2015 | Commentary

Changes in Market

 

 

 

This Week’s Themes

  • The New Zealand market has started the year off well with a 1.23% gain since the New Year and marking another record high. The local market has many reasons to be positive with high net migration, low unemployment, a strong currency and low inflation all indicating that the economy is in a growth sweet spot at the moment.

  • The New Zealand Reserve Bank was named the Central Bank of the Year by Central Banking Publications. A worthy award given the RBNZ’s proactive stance on raising interest rates and implementing alternative policies to cool the Auckland housing market.

  • The Australian market has started the year with some volatile movements but without any direction as uncertainty around the oil price and resource commodities remain. The Australian S&P 200 Index edged out a 1.1% gain last year and it looks like the subdued performance might continue into the start of this year.

  • It has been a turbulent start to the year in the U.S. with the market whipping around as investors consider the impact of falling oil prices, a strong US Dollar, a 63% rally over the past three years and conflicting economic data on the health of the economy.

  • The Crude Brent Oil price has now fallen from around $115 USD a barrel to $46.59 over the past 6 months after the OPEC producers failed to reach an agreement to reduce supply to match falling demand.

  • It was a strong week for the Kiwi with the improving Global Dairy price helping give the local currency a lift against both the Aussie and the Greenback.

Investment News

First NZ Capital Top 5 NZX picks for 2015:

The basket is a collection of the best ideas from the FNZC analysts.

  • For 2014 our selection was ZEL, CEN, FPH, HBY and AIR. In 2014 this basket returned +37% (including dividends) vs NZX50 Gross of +18%.

  • Since 2007 FNZC’s basket has returned +19% per annum compounding (vs NZX +4%). Since 2010 FNZC has returned +28% compounding (vs NZX +12%)

  • Our selections look for a combination of steady performance, event driven opportunities, clearing outlooks and a forecast of rerating or multiple expansion.

The 2015 our picks are:

  • Z Energy (ZEL $4.72). Benefitting from a decline in oil prices which is good for margin and      volume. Also has a 15% stake in NZR. ZEL trades on a 14x PE and 8% Gross div. yield.

  • TrustPower (TPW $7.95) TPW is our top pick in the utility sector. TPW’s +21% EPS growth is the highest in the sector. TPW has a 7% gross dividend yield. Positive developments for 2015 could come from progress on TPW’s wind portfolio and selling Snowtown.

  • Mainfreight (MFT $16.00) MFT is a “stock for all seasons”. Solid management that has a track record of consistently looking after shareholder equity value. We expect +11% EPS growth.

  • Diligent (DIL $4.75) “DIL is starting to find its mojo”, we think DIL will benefit from on-going sales momentum and expansion into new markets.

  • Scales (SCL $1.42) We like the combination of valuation and a c. 10.5% gross dividend yield. Yesterday’s company update also provides some comfort for the 2015 calendar year.

As per normal practice 3 names that came close but didn’t make the cut were Port of Tauranga (POT $17.00), Infratil (IFT $2.97), ERoad (ERD $3.79).

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Jarrod Goodall



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Weekly Update Investment Shares Bonds Market Commentary Z Energy ZEL.nz TrustPower TPW.nz Mainfreight MFT.nz Diligent DIL Scales SCL.nz



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