New Zealand has emerged as an unlikely economic leader, outstripping its developed-country peers in growth. The land of the long white cloud was the fastest-growing of the 34 OECD (Organisation for Economic Co-operation and Development) economies in the past year, and the country’s Treasury expects the New Zealand economy to grow by 3.3% this year, after growth of 2.5% in 2014.
Australians are well-placed to take advantage of their near-neighbour’s economic strength: there are 37 New Zealand stocks listed on the ASX. Here are five that could be worth a look.
Air New Zealand (AIZ, $2.35)
Market capitalisation: $2.63 billion
Prior to Qantas’ spectacular recent recovery – from $1.34 a year ago to $3.22 – the Kiwi flag carrier was cutting its Australian rival’s lunch. And while Air New Zealand can’t match Qantas’ 138% return (all in share price gain) over the last 12 months – Air New Zealand has only generated 23.1% over the last 12 months – the Kiwi airline has outperformed Qantas over three years (62.4% a year versus 44.1% a year) and five years (26.9% a year versus 6% a year).
Simply put, AIZ has been doing better than Qantas, and for longer. Where Qantas lost money in two of the last three financial years – including a record $2.8 billion loss last financial year – Air New Zealand has been profitable since 2002. Qantas has not paid a dividend since FY09.
The strong projected New Zealand economic growth and a benign competitive backdrop have analysts expecting more of the same for Air New Zealand. Macquarie, for example, rates AIZ as outperform, saying it does not see any real competitive threat to Air NZ, suggesting the company is set to release a strong FY15 result, and has “never been better positioned” financially. The broker sees a target price of NZ$3.20 (equivalent to $2.89), while UBS and Deutsche Bank look for NZ$3.15 ($2.85) – however Credit Suisse rates the stock a sell, seeing NZ$2.25 ($2.03) as its target price.
On consensus forecasts, at current exchange rates, AIZ is trading at a 5.6% yield for FY15 and 6.3% for FY16, unfranked. AIZ’s New Zealand imputation credits are not available to Australian residents but the New Zealand government refunds the imputation amount to foreigners, minus 15% withholding tax. This refund is paid as a supplementary dividend.
Source: Yahoo! 7 Finance, 15 June 2015
A2 Milk Company (A2M, 52.5 cents)
Market capitalisation: $332.5 million
By now, most fridges in the country would have at least flirted with A2 milk, which since it arrived in Australia in 2007, has built its market share to 9% of the Australian fresh milk grocery market.
Most cows produce milk with different proteins, called A1 and A2 (among others). But some people can tolerate milk that only has the A2 protein. A2M says it has developed a process to identify cows that only produce this protein, meaning the company can deliver milk only containing the A2 protein. A2M markets its milk to consumers who have previously had trouble digesting dairy products, saying they should be able to consume its product with no problems – which, it must be said, not everyone in the global dairy industry accepts as true.
A2M listed on the ASX in March 2015. The company sells its milk in New Zealand, Australia and the UK and is building its infant formula sales in China. The company says sales in the US are imminent. Brokers expect first profit to come through in the FY15 result. UBS has a target price on the stock of NZ 92 cents (83.1 cents), while Credit Suisse says NZ 76 cents (68.7 cents) and Deutsche says NZ 75 cents (67.8 cents).
Source: Yahoo! 7 Finance, 15 June 2015
Kathmandu Holdings (KMD, $1.19)
Market capitalisation: $240 million
Hammered by a flurry of profit downgrades over the last couple of years, outdoor leisure retailer Kathmandu plunged from the heights of $3.68 in May last year to the current price of $1.19, on the way to slipping into net loss in the half-year (to January 2015). But the company is making reasonable progress in expanding into the UK and in the lead-up to the usually stronger winter trading season, analysts are generally bullish on Kathmandu, with a consensus target price of $1.62 implying 36% upside from present levels. That is skewed by Morgan Stanley’s extremely positive view: it has a target price on KMD of $1.80.
Kathmandu is expected on consensus forecasts to pay a full-year dividend of NZ 7.4 cents a share in FY15 and NZ 8.7 cents a share in FY16, which on current exchange rates equates to a forecast yield to Australian shareholders of 5.6% (FY15) and 6.6% (FY16). And KMD pays fully franking dividends, which augments those yields further in the hands of Australian SMSFs.
Source: Yahoo! 7 Finance, 15 June 2015
Fisher & Paykel Healthcare (FPH, $6.48)
Market capitalisation: $3.61 billion
There used to be two Fisher & Paykel stocks listed on the ASX, but the appliance-maker was delisted in 2012. That left Fisher & Paykel Healthcare, which designs, makes and markets products and systems for use in respiratory care, acute care, and the treatment of obstructive sleep apnoea (RSA). It sells its products and systems in more than 120 countries worldwide, where it competes with Phillips Healthcare and ResMed.
FPH has been an excellent performer in recent years, delivering on the ASX total shareholder returns of 25.2% a year over five years, 65.3% a year over three years and 50% growth over the past 12 months. That rise has analysts divided: Deutsche Bank rates the stock a buy, with a target price of NZ$7.94 ($7.18) and Macquarie calls FPH an ‘outperform,’ with a target price of NZ$7.25 ($6.55), but UBS, Citi and Credit Suisse all have a target price lower than the current share price. In addition, FPH is not a great dividend payer: analysts expect it to pay 15.4 cents a share, unfranked, in FY16, for a prospective yield of 2.4%; and 17.9 cents a share in FY17, again unfranked, for a prospective yield of 2.8%.
Source: Yahoo! 7 Finance, 15 June 2015
Xero (XRO, $17.59)
Market capitalisation: $2.39 billion
New Zealand-based cloud accounting software provider Xero, which floated on the New Zealand Stock Exchange in June 2007 at NZ$1 a share, has been an outstanding performer – it has risen more than 1800% on the stock market.
But despite this rise almost making it worth as much as Air New Zealand, Xero is yet to make a cent of profit.
The stock’s performance on the ASX is a touch more muted: it listed here in November 2012 at $4.50, and has subsequently moved to $17.59, for a gain of 290%.
Xero is that rare mix of a very clear global growth strategy, rising revenue and a surging customer base, but no profit, as it ploughs cash flow back into product development and sales and marketing. FY15 (to March) revenue rose by 77% to NZ$123.9 million, but the net loss was NZ$69.5 million. Xero is the market leader in cloud accounting in New Zealand, Australia and the UK, and is making good progress in North America, where it more than doubled revenue in FY15. Xero had NZ$268.9 million of cash on hand at year-end and said it would continue to invest in creating long-term shareholder value.
Credit Suisse is the most bullish of the local brokers on target price, seeing XRO at NZ$24.50 ($22.14), citing a “surge in innovation” at Xero – but it holds a ‘neutral’ view. Macquarie sees XRO reaching NZ$20 ($18.07), but rates it as ‘underperform. But Deutsche Bank would sell the stock, seeing a target price of NZ$16.30 ($14.73).
Source: Yahoo! 7 Finance, 15 June 2015
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