Companies to watch in 2013

Money means news. If shares rocket or dive you'll soon see the company in the headlines.

But the media is also attracted to a mystery. Why did a profit announcement fail to budge a share price? Or how can a company justify its seemingly inflated market cap?

After a relatively stellar year, in which the NZX50 outpaced many global indices, one has to wonder if the dream run by some listed companies can continue.

By mid-December, the benchmark index dropped back under the 4000-point mark, dragged down by a few companies that had aggressively rallied in the preceding weeks and months.

Analysts are picking 2012's strong growth to spill over into 2013.

Below is a list of companies to watch next year, picked mainly on the mystery factor.

There are plenty of unanswered questions which should become clearer as the year wears on. Investors will be hoping the questions are answered in the positive.
 

XERO (NZX: XRO

Only a few companies wear the "market darling" tag well and Xero is one of them, this year.

Continued impressive sales growth by the cloud accounting software company has led to a 173% increase in share price for Rod Drury's baby.

It certainly has no worries raising capital when it needs to, as shown by a $60 million investment from two US firms in November.

But is it worth almost $900 million, as a $7.50 share price suggests?

The biggest question mark is whether it can maintain its exponential growth curve, especially in Australia and the US.
 

PUMPKIN PATCH (NZX: PPL

This company has been a lesson in faith.

As chairwoman Jane Freeman said, 2011 was one of the most challenging years the company has encountered.

"Results in recent years have not been good enough," she said at the 2011 annual meeting.

"This has led to a complete review of strategy, structure and operations. We know we must do better."

Well, what do you know. It closed its US and UK stores, shifted its distribution focus online and retail maestro Rod Duke joined the board.

Shares worth 64 cents at the start of the year were worth $1.39 by mid-December.

But how much more growth is there in the children's clothing retailer?

Online is the way of the future and it is talking up its partnerships with internet auction sites but will innovation lead to greater profits?

 

CAVALIER CORPORATION (NZX: CAV

It's tough in wool.

Once a premium New Zealand carpet brand that could sell to the world, Cavalier is moving into synthetic carpet tiles to keep pace with the commercial world.

It has aggressive plans to move into Asia but it was clear from Cavalier's annual meeting some shareholders believe it is not moving fast enough.

The market punished the company for saying it will miss its profit guidance, and it was the worst-performed company on the NZX50. 

A turnaround is going to require strong leadership.

Cost-cutting can not come fast enough for weary investors but there are also concerns if the market turns around it can push the button and meet increasing demand.

 

FONTERRA UNITS (NZX: FSF

The dairy giant's fabled run continues.

New Zealand's biggest company, and the world's biggest dairy exporter, shrugged off indifference from some farmer-shareholders to successfully launch its $525 million investment fund.

Institutions and retail investors fell over themselves to get a slice but much of the action went offshore.

The $5.50 opening price of units quickly shot up, as scaled-back investors scrambled to increase their holdings.

However, at such high prices the dividend yield is heading down towards bank territory.

Fonterra's milk volumes will probably drop from last season's record highs, so will an expected price hike caused by the US drought be enough to cover it?

 

NZF GROUP (NZX: NZF

Who would have predicted this financial services firm would last the year?

After subsidiary NZF Money went into receivership in 2011 it was left fighting two High Court battles – against NZF Money's receivers and its joint venture partner in a Mike Pero Mortgages company.

Then there were investigations by the Financial Markets Authority and Serious Fraud Office.

Its bank accounts were frozen and it suspended interest payments of capital notes.

Yet it has limped on.

It faces a High Court hearing over the NZF Money dispute in February and it will take a Houdini-like escape for this company to keep going.

Yet this year's performance has shown it is capable.

 

ANZ BANK (NZX: ANZ

Perhaps it should be rebranded the teflon bank.

After its outrageous scoop of Olympics banking sponsor ASB Bank (ANZ was the official insurance sponsor – not that most of the public knew that), ANZ Bank seems to have sent the National Bank horse to the knackers with seemingly little backlash.

Its share price was sitting at $30.85 in mid-December, up from $26.50 in May.

Investors will judge the bank on its financial performance, which should be helped by rationalisation of National Bank branches in the new year.

 

KIWI INCOME PROPERTY TRUST (NZX: KIP

Given the part property has played in the collapse of finance companies some Kiwi investors might be a bit shy of listed property players, but some are smart operators.

In what appears to be a savvy move, the trust paid off bank debt from a $69.3 million insurance settlement from the quake-damaged PricewaterhouseCoopers office tower in Christchurch and the $55 million sale of Auckland's Beca House.

How will it cope with an earnings drop, given a fall in rental income?

The trust has a $2 billion portfolio, including high profile properties such as Auckland's Sylvia Park Shopping Centre, LynnMall, ASB North Wharf and Wellington's Majestic Centre.

 

FLETCHER BUILDING (NZX: FBU

The building behemoth can be summed up in two words: unrealised potential.

If one company should be raking it in as Christchurch's rebuild takes off, it's Fletcher.

And from all reports the rebuild is picking up pace.

New ceo Mark Adamson is also hell-bent on unlocking potential – potential savings that is.

He's an efficiency guru who doesn't mind making a few hard decisions to drive efficiencies.

Investors have started to believe.

The share price has rallied from $5.77 in July to $8.29 in mid-December.

One wonders what it will do with further efficiencies, the sell-off of some steel companies and a frenetic Christchurch.

 

AUCKLAND INTERNATIONAL AIRPORT (NZX: AIA

Another company with a new chief executive, namely Adrian Littlewood.

The infrastructure company's share price has lifted from $2.385 in June to $2.62 in mid-December, perhaps buoyed by the strong market.

The company is facing growth challenges and has a northern runway and a terminals upgrade on its books.

The question is when to push the button and how long the existing infrastructure can cope, especially with the increasing number of deals with Asian airlines?

 

CHATHAM ROCK PHOSPHATE (NZX: CRP

One of the alternative market's best self-promoters.

Given the relative size of the company and the fact its technology is yet to be deployed, this would-be deep-sea miner punches above its weight for news attention.

Its share price has leaped from 17 cents in January to 36 cents in mid-December.

With production scheduled to start in December 2014, 2013 will be crucial for securing government permits.

Imperative to get its consents before a possible change of government in 2014.

 

PACIFIC EDGE (NZX: PEB

A star small-cap market performer in 2012, with its share price exploding from 19 cents to 41 cents by mid-December.

The Dunedin biomedical company has the high-profile backing of NBR Rich Listers Peter Masfen and Sir Stephen Tindall and is rolling out its urine-based cancer test, Cxbladder, in the United States, via its laboratory in Hershey, Pennsylvania.

Its growth depends on convincing the US's 17,000 urologists they must add its product to their practice.

By this time next year it will be clear if it is gaining traction.

 

FISHER & PAYKEL APPLIANCES

Okay, okay it's not a listed stock anymore but it's still worth keeping an eye on this Chinese-owned whiteware-maker

Keep firmly in mind the conditional promises made by Haier's New Zealand point man, Liang Haishan.

He said Haier would keep F&P in New Zealand as a standalone company with its own board.

Well, that was its intention. But that could change any time, of course.

Expect to see the changes on the F&P board and the sale of its finance arm in fairly short order.

Bets are probably being taken on whether chief executive Stuart Broadhurst will last the year. 

DISCLAIMER: This story should not be misconstrued as financial advice. Readers should seek professional advice before investing.

dwilliams@nbr.co.nz

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