Yovich & Co. Weekly Update - 12 January 2015

Jan 12, 2015 | Commentary

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.

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).

Download a PDF copy

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