YEAR IN REVIEW: NZ stock investors ride wave of new listings

Tuesday 30th December 2014

The New Zealand stock market welcomed 16 companies to the bourse in 2014, raising $8.3 billion in equity capital and trumping a 2013 year that had been the busiest for listings in a decade.

Initial public offerings added $6.6 billion of new capital to the stock market this year existing listed companies raised more than $1.7 billion via 165 capital raisings. Investors were drawn to a market where the benchmark NZX 50 Index is heading for an 18 percent annual gain, the third straight year of double-digit growth.

“It’s many, many, many more than we’ve had for many years, if not ever,” said Mark Lister, head of private wealth research at Craigs Investment Partners. “So, lots of new companies coming to market and the market is performing very, very well.”

The performance of the new listings has been mixed, with eight of the 16 up on the year, seven down and one unchanged. The biggest gainer was mobile payment app developer Pushpay Holdings, which advanced 84 percent to $2.73 since listing in August, followed by a 49 percent gain in cinema software Vista Group International, up 49 percent to $3.80 since its August debut, and a 40 percent rise to 28 cents for NZAX-listed Lateral Corp, whose mobile technology directly charges services to a customer's phone bill rather than their credit card.

The worst performer of the new listings was accounting software reseller Enprise Group, whose shares have dropped 18 percent to 45 cents since its regulatory listing on the NZAX this month. Utilities and airports software developer Gentrack’s shares have dropped 15 percent to $2.13 since its June listing, while remote measuring tool developer ikeGPS has declined 13 percent to 86 cents.

Genesis Energy, the last of the government’s partially privatised power companies, is up 19 percent to $2.145 since its April listing, while health software developer Orion Health Group was down 8.3 percent to $5.75 since its debut last month.

New Zealand has been an attractive destination for foreign investors with 2014 growth forecast at about 3.5 percent compared to 2.4 percent for the US and 2.5 percent for Australia while the central bank’s official cash rate of 3.5 percent compares to zero to 0.25 percent for the Federal Reserve, zero to 0.1 percent for the Bank of Japan and 2.5 for the Reserve Bank of Australia.

“From a GDP perspective we’re pretty strong and the government fiscal position is pretty robust, and it’s a high-yielding market, so it’s all really in favour from an international perspective,” said James Lindsay, who helps manage $400 million in equities for Nikko Asset Management. “That’s why international investors have been lapping up New Zealand assets, both bonds and equities, because of that running yield.”

With two days left of trading, Chorus is the stand-out on the benchmark index, up 84 percent to $2.65. The telecommunications network operator recovered this year after being pummelled last year at the height of regulatory uncertainty over how much it can charge on its copper lines as it builds a nationwide fibre network.

Meridian Energy is next in line, up 69 percent this year to $1.725 after the National-led government’s victory in the September general election meant removed the threat of a central power buying agency that was being promised by opposition political parties. MightyRiverPower, the first of last year’s partial privatisations, rose 42 percent to $2.98.

Air New Zealand is up 65 percent to $2.58 after the airline beat profit expectations and declared a special dividend this year, and has been given a tailwind in recent months as plunging oil prices make jet fuel cheaper.

The worst performer on the benchmark index this year has been accounting software developer Xero, which is down 50 percent to $16.25. The firm has been a darling of the stock market in recent years, and peaked at $44.98 in March, but has since fallen out of favour as investors question its ability to break into the US market.

Pacific Edge is down 36 percent to 85 cents, also peaking in March before getting caught in a global sell-off of biotech and software firms.

Craigs’ Lister said Pacific Edge and Xero have been strong performers in the past, and “that’s part and parcel when you’re in that growth phase – you can have an exceptionally strong period and then a weak period and it all sort of events out over time.”

Kathmandu Holdings is down 39 percent this year to $2.13 after a profit warning last week sent the stock to a two-year low after a subdued start to the Christmas trading period in its Australian market.

The outdoor equipment chain isn’t the only retailer to struggle this year, with children’s clothing group Pumpkin Patch down 75 percent to 22 cents as it overhauls its business to remain solvent, and clothing chain Hallenstein Glasson falling 19 percent to $3.15.

Across the NZX All Index, financial software developer Finzsoft Solutions is poised to top the market with an 852 percent gain to $4 after signing its biggest deal which it expects will more than quadruple annual profit. The firm plans to pay its first dividend in four years, and is facing a takeover by managing director and majority shareholder Andrew Holliday in conjunction with Singapore-listed IT firm Silverlake Axis.

At the bottom of the index is Bathurst Resources, whose shares have plunged 85 percent to 3.2 cents after the would-be coal miner trimmed its board size and clamped down on costs while it waits for the global coking coal price to improve.

While the local stock market has had its biggest year of listings, operator NZX has also embarked on plans to roll out more exchange traded funds – a way for investors to passively track an index of securities – in the coming year, buying fund manager SuperLife for as much as $35 million.

The stock market operator also plans to introduce a new growth market, NXT, early next year, giving small and medium sized businesses the opportunity to go public without the same disclosure obligations as the main board.

Craigs’ Lister said 2015 will likely be more volatile, and while the market may report another positive year, returns will probably fall back to the long term average of 6 or 7 percent.

“We’re telling our clients to expect a more difficult year next year, and be a little bit more careful,” Lister said. “If people acknowledge those risks and realise things can’t go up at a 15 or 20 percent pace forever, then at least they’ll be prepared for things to be a bit tougher.”

Still, Lister said New Zealand’s corporate sector is in “really good shape” and there should be more IPOs and opportunities in 2015 to broaden investors’ choices.

BusinessDesk.co.nz

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