Stocks to watch: New Zealand equity preview

Thursday 24th July 2008

The following stocks may be active on the New Zealand exchange after developments since the close of trading yesterday.

Themes of the day: The Reserve Bank of New Zealand unexpectedly cut the official cash rate to 8% from 8.25% and said further cuts are likely because economic activity will probably remain weak through 2008. Inflation is likely to slow back to within the bank's 1% to 3% target range, Governor Alan Bollard said. The move drove down the New Zealand dollar to 74.34 US cents from 75 cents before the RBNZ announcement. Crude oil futures sunk as low as US$124.34 a barrel in New York yesterday, extending its decline from a record high on July 11. Gold futures had the biggest drop in six weeks, reaching US$922.80 an ounce on the New York Mercantile Exchange.

Air New Zealand (AIR): The national airline yesterday said its short-haul load factor fell last month as growth in passenger numbers couldn't keep pace with an increase in capacity. Long-haul load factor was little changed from the previous month. The stock rose about 7% to NZ$1.23 yesterday.

Fletcher Building (FBU): Forsyth Barr head of research Rob Mercer predicts the construction and building products group will post a 6.6% drop in profit this year to $452 million, and a further slide to $404.4 million next year, the New Zealand Herald reported. Disappointing earnings from its Formica unit and less demand for New Zealand housing is eroding earnings, he said. Still, he values the stock at $11.82 valuation, well above the NZ$6.55 price yesterday. On the positive side, the central bank's decision to cut rates today may help revive sentiment.

National Property Trust (NAP): The property investor defended a proposal to overhaul fees charged by manager St Laurence, which would increase the range and amount of fees charged for property services. While the fees may seem unfair on the surface they shouldn't be treated in isolation because historically the trust had paid higher management fees, according to a statement from its independent directors. H&G, Selwyn Cushing's family investment vehicle, has called the fee changes "ridiculous," give NAP's lackluster returns.

NZX Ltd. (NZX): The manager of New Zealand's stock exchange today posted an 18% gain in first-half earnings to NZ$4.97 million after increasing operating revenue by 6% and keeping expenses flat. In the second half, market conditions will crimp revenue from listings, trading and settlements and the global credit crunch may erode data sales. NZX stock has dropped about 21% this year, about matching the benchmark NZX 50 Index.

Telecom Corp. (TEL): The nation's biggest phone company may quit its AAPT unit in Australia after its decision to hold off on introducing so-called naked DSL, the Dominion Post reported, citing Australian telecommunications researcher Paul Budde. Telecom spent NZ$2.2 billion on AAPT, which has a book value of NZ$270 million. While accounting for the biggest chunk of the NZX 50 Index, Telecom's stock has sunk 30% over the past five years while the benchmark rose 50%. It traded at NZ$3.50 yesterday.

By Jonathan Underhill

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