Yovich & Co. Weekly Update - 11 November 2013
Nov 11, 2013 | Commentary
This Week's Themes
• The past few weeks have been eventful with some of the high growth stocks like Xero (XRO.nz) and Pacific Edge PEB.nz) rocketing up and pushing the Kiwi market close to the significant 5,000 point level.
• On the other side of the ledger, Chorus has been hit hard by the Commerce Commission's ruling on copper pricing. First NZ Capital has released a note outlining that due to the likely binomial outcome, (either the pricing is over ruled by the government or it is not) CNU is a high risk investment. Their continued assumption is that the government will over rule the Commerce Commission and that the share price for Chorus will recover some of the lost ground.
• Offshore markets were mixed with the Dow making fresh all time highs on good jobs numbers while the Chinese market continues its downward trend with expectations of reduced stimulus by the U.S. Federal Reserve.
• The Kiwi has rallied against the Aussie to close the week around 88 cents after the RBA kept rates steady over the Tasman.
Fisher & Paykel Healthcare Corporation (FPH.nz) – FNZC Upgrade to Outperform
First NZ Capital has upgraded Fisher & Paykel Healthcare (FPH) to outperform in anticipation of their half year results announcement on 22 November. They highlight that their previous assumptions for medium term growth "cut short" their potential and that the rollout of their Obstructive Sleep Apnoea (OSA) masks in the U.S. market is currently ahead of the curve and that they are taking market share off the biggest player, ResMed (RMD.nys).
In addition to the improved expectations for their OSA products, FNZC also believe that their respiratory and acute care (RAC) product, Optiflow, is also growing at a higher rate than originally assumed. FPH is already treating an estimated patient pool of 1 million out of a total potential pool of 30 million and that the growth rate is superior to other RAC products.
The investment case for FPH is based on potential growth, as current multiples are factoring in a portion of this potential already. Using the improving market share and higher growth rates assumed above, FNZC has a Discounted Cash Flow valuation for FPH of between $3.90 and $4.50 and have increased their target price to $4.50. FPH remains in our preferred list of Growth stocks.