If you’re an entrepreneur or investor and having a bad day, this thought may enter your mind.
Are there any opportunities left in New Zealand?
Is this market too small? Overregulated now? And are some of the best opportunities being sold offshore to those with deeper pockets?
On Tuesday, May 10, shareholders up and down the country received a payment. From Z Energy for settlement of the sale of all their shares to Ampol Australia [ASX:ALD].
Many will be looking for a new investment home for the money.
Z Energy taken over by Ampol. Source: Fuels and Lubes, Offshore Technology
Z Energy was one of the few sharply priced stocks on the NZX in recent years.
It had suffered from Covid-19 lockdowns and travel restrictions. But as earnings grew and the dividend was restored, it appeared to present some value in its share price.
Clearly, others noticed. In particular, Ampol. And another great Kiwi Company is now owned offshore.
Confession: I voted against the takeover. First, I don’t like good Kiwi businesses being sold offshore. Second, I value good dividend payers. And, third, for a business rebuilding from Covid, it didn’t seem a prime time to sell.
But the majority of shareholders did not agree with me.
Hunting for value on the NZX
So, like you, I am hunting for another long-run opportunity on the NZX that I can invest in with Kiwi dollars. For my kids too, who were also Z holders.
A common port of call is to review Morningstar recommendations.
Now, Morningstar doesn’t cover all stocks. It tends to concentrate on the larger companies. Which is what I’m looking for in this recession-wary environment.
Of course, such recommendations should only be treated as an ‘additional investment resource’. And you should seek independent financial advice for your own situation.
Today, only two companies are covered under ‘BUY’ recommendations across the NZX.
Ryman Healthcare [NZX:RYM] and The a2Milk Company [NZX:ATM]
Ryman Healthcare is, to some degree, at the mercy of a declining residential property market. Older people selling their homes for less. And thus having a more slender coin for retirement living.
Meanwhile, a2 Milk, arguably, has its glory growth days behind it. And now faces new headwinds with the economic slowdown in China.
As I scan across other companies on the NZX, there are some good dividends on offer. But when you measure by earnings, large New Zealand-listed companies are expensive.
Contact Energy [NZX:CEN], one of the more keenly-priced gentailers, has a P/E of around 24. Though the dividend of ~5% is strong.
In comparison, a renewable generator in the UK I monitor has a similar dividend, arguably a stronger growth outlook, and a P/E of ~7.
Another great NZX dividend payer is Spark [NZX:SPK]. They’ve done well over the past few years in mobile. With a P/E of around 21, they currently project a dividend of ~7%.
But I’m looking for the option of capital growth too, which has been on the slender side with Spark.
Spark is going through a considerable change to their business model, which could see an influx of capital.
They have carved out a subsidiary called Spark TowerCo. Here, they plan to sell an interest of 70% in their 1,263 cell-phone towers to the highest bidder.
Call me old-fashioned, but I’m not that keen to lose ownership in what appears to be valuable and critical infrastructure.
Sure, that infrastructure is changing as we move toward 6G. But what else can they invest in that offers similar growth and security?
Further, there is around $35 million in earnings projected from the tower business with a strong growth profile. That could potentially, again, go majority offshore.
I’ll be watching the space. And more analysis needs to be done on the costs and benefits, since it does appear the move could drive down costs and pay down debt.
But I’m not convinced, at this time, there will be much escalation in value for Spark shareholders. At least not from the current share price.
What about property?
Here, we see a crunch.
Values are high but falling. Debt — to leverage property with — is much more expensive and harder to come by. Further, the stand-off between buyers and sellers is going to take some time to reveal where market prices should be.
The New Zealand property market faces the first chilly headwinds since the GFC. A drawdown in residential property values will have ramifications for commercial property. And retirement village operators like Ryman.
For instance, if we take a look at Property for Industry [NZX:PFI] — a large owner of industrial and logistics property — the share price is heading for a 20% drop this year:
Source: Google Finance
Since the start of monetary tightening, even the defensive end of property investing seems to be falling back. At last report, PFI had a loan-to-value ratio below 30%. This would imply that concerns go beyond debt to the wider outlook for New Zealand property.
It’s probably time here. No party can last forever. It’s hard to envisage a swift economic recovery without low interest rates and high net migration.
In that case, this hermit property market shows all the signs of preparing for a painful test.
Opportunities beyond the radar
One option is to look beyond these shores to the global markets. These present a much wider range of industries and companies. From mining, to pharmaceuticals, to the cutting-edge of technology. Or even recovering areas like aviation and retail property.
This is exactly what we do for our eligible and wholesale investors with Vistafolio Managed Accounts. We scour the global markets for some of the best companies and opportunities sitting at value. Helping investors enjoy the one free lunch in finance: diversification. Diversification into new markets and opportunities.
I will miss Z Energy as a Kiwi-owned, high-yielding stock in my portfolio. It was out of favour with investors due to its reliance on fossil fuels. But it did have a great network and the potential to offer rapid charging for EVs throughout the country.
It was my go-to service station with convenient locations.
No longer a shareholder, I may now simply look for the best value. And that seems to be coming from offshore with the advent of a new Costco [NASDAQ:COST] here in Auckland.
Watch this space.
Regards,
Simon Angelo
Editor, Wealth Morning
Important disclosures
Simon Angelo owns shares in Contact Energy [NZX:CEN], Spark [NZX:SPK], and Property for Industry [NZX:PFI] via portfolio manager Vistafolio.
(This article is general in nature and should not be construed as any financial or investment advice. To obtain guidance for your specific situation, please seek independent financial advice.)