Stock watch

David McEwen

David McEwen is managing director of Investment Research Group

Monday, May 21, 2007

Business tax cuts and KiwiSaver incentives contained in the budget have helped push the sharemarket to a record high. Fletcher Building continues to surge on good news and the general mood is positive.

Infrastructure investor Infratil (IFT) has seen its shares lift further on news it will split its shares by two for one to create more tradeability and potentially bring in larger investors. Infratil also reported a solid year to 31 March 2007, with earnings before interest, depreciation, amortisations, realisations and tax of $145.2m from  $77.6m the previous year. TrustPower and Infratil Energy Australia contributing to Infratil's year. IFT has set itself up for further strong growth in the medium term. Its strategy of focussing on long-term growth sectors like energy and airport assets is proving a good one. IFT shares are very fully priced, however, when you consider the very high p:e ratio and minuscule dividend.

Macquarie Goodman Property Trust (MGP) has posted an 87% rise in annual net profit, partly reflecting the rising value of its properties. After-tax profit for the commercial property investor rose to $117.8m for the year ended March, including revaluations totalling $65.9m. The trust emerged from the Colonial Group in 1999, and expanded massively in March 2005 when it agreed to acquire a portfolio of assets from Macquarie Goodman Group for $304m, creating the country's second largest listed property trust. It has benefited from a rise in the fortunes of property trusts in general. And while trading conditions are likely to become more challenging as economic activity slows down, the outlook remains good for MGP.

Rakon (RAK) has again beaten its own projections with a reported net profit up 122% to $10.6m on a 43% rise in revenue to $106.2m. Growth in sales for navigation devices (PNDs) and the use of GPS technology in third generation cellphones was all contributing to organic growth. The share is over $5 now; but ironically, when it listed in May 2006, at $1.60 it was not regarded as cheap. The price:earnings ratio was high then, and remains high. The strong NZ dollar might have more of an effect in the year ahead, as will the start up costs of new production facilities. But RAK remains a very strong growth story justifying all the hype surrounding it.

Bathroom accessory supplier Methven (MVN) reported a 7.9% increase in net profit to $7.3m for the year ended 31 March. This was on revenue up 21% to $70.4 million. This was despite margin pressure from unprecedented rises in the cost of raw material, particularly brass, and increased infrastructure and market development expenditure. Methven has delivered another creditable result in a tougher market for building supplies. Its home grown designs are selling well in overseas market, and it is dealing with the problem of high cost manufacturing. The company is positioned to benefit from gains from its outsourcing programme to China. Methven delivers an attractive gross dividend yield.

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