Stock takes: Fruit of the vine

First NZ Capital has initiated coverage on listed wine exporter Delegat's.

Analyst Andrew Mortimer gives the stock a neutral recommendation and a value of $2.27, compared with last night's close of $2.25.

Mortimer takes a more optimistic view of its long-term value, giving it a 12-month target of $2.40.

"Delegat's value hinges on unsated international demand for super premium wine, combined with the company's ability to significantly boost production," he writes.

Despite the world wine glut, the super premium end of the market - wine that retails for more than $15 a bottle - is forecast to grow at between 5 per cent and 16 per cent a year in Delegat's main markets. The other important factor that will enable Delegat's to met its prospectus targets - a profit of $13 million next year - is the weaker kiwi dollar.

With that in mind, Mortimer forecasts full-year profitability is likely to be 30 per cent.

When the company listed in April, Jim Delegatand his shareholding family members said they would cancel up to $22 million worth of their own shares if the company missed its prospectus projections. At this stage, those shares are looking safe.

Top fund

This column follows the moves of Carmel Fisher and Fisher Funds quite closely - particularly in relation to its buying of new listings such as Rakon and Delegat's.

For its part, Fisher Funds hasn't been shy about pointing out reasons for taking such a keen interest.

The Fisher team put out a press release this week to highlight the latest www.fundsource.co.nz managed fund league tables for the year to June 30. Fisher Funds has been the top performer by some distance based on returns annualised over one, two, three, five and seven-year periods.

Its NZ Growth Fund has achieved returns of 35.78 per cent over the past year and a return of 15.81 per cent over five years. Fisher Funds' Fledgling Fund had annual returns of 33.56 per cent. In third spot was AMP Strategic NZ Shares with 19.42 per cent followed by ING Equity Selection Fund (18.85).

Meanwhile, Fisher Funds is still buying Rakon - taking its stake to 7.77 per cent this week.

And, for the record, the fund invests in these stocks: Cadmus, Comvita, Delegat's, Rakon, Ryman, Pumpkin Patch, Michael Hill, Kidicorp, Freightways, F&P Appliances, Metlifecare and the NZX.

Top of the world

Desirable though they may be, all of those returns are dwarfed by another New Zealand-based investment manager, 36 South, which, according to Bloomberg, is running the world's best-performing commodity fund this year.

The 36 South "Regent Fund" - which invests in precious metal options - has achieved annualised returns of 333 per cent to the end of July. No ... the decimal point is not missing.

Wellington-based director Anthony Limbrick modestly makes the point that the fund is actually tracking at more like 65 per cent returns over its full, two-year life span.

36 South has a low profile in this country because it targets European institutional investors.

Limbrick says geography is no longer a barrier to operating on a global basis. In fact, it is easier to be objective from down here.

36 South uses a "contrarian global macro strategy" to seek investments with low implied volatility - in other words it looks for sectors that are out of favour and buys options out two or more years.

Following that logic, Limbrick says the commodities sector (and equities for that matter) now have high implied volatility and the time is nigh for exiting.

Sectors with low implied volatility are bonds and currency.

Stepping out

On the topic of investment funds, Goldman Sachs JBWere partner Christopher Swasbrook has left the company after nine years for his own "boutique" fund, Elevation Capital.

Swasbrook plans to cap the fund at $100 million and will deal in minimum investments of $250,000. His investment focus will be Australasia.

The move is in part timed to take advantage of proposed investment tax changes. He doesn't see his fund as being in direct competition with the big players in the market.

With the local sharemarket heading towards being a "small caps" kind of index (in global terms), Swasbrook believes there is plenty of opportunity for small, relatively liquid funds that can invest in companies that will not make it on to the radar of the larger players. Swasbrook is online at www.elevationcapital.co.nz.

Regulatory mess

The phrase "regulatory nightmare" has become something of a cliche over the years as businesses have sought to avoid the attentions of Government intervention.

But since the Commerce Commission announcement last week that it intended to take control of Vector's pricing, that nightmare has become more than just a bad dream for infrastructure stocks generally.

Vector obviously has been hit hardest, down from its $2.65 close on August 8 to $2.25 yesterday. But Contact also appears to be out of favour and has dropped from $7.23 last week to just $6.90 yesterday. Auckland International Airport shareholders too have the jitters with the stock down from $2.06 to close at $1.99 yesterday.

Infratil was caught up in the fall-out, dropping from $4.37 last week to $4.15. As the company pointed out in its monthly newsletter this week, TrustPower - in which it holds a 35 per cent stake - does not come under the regulatory glare of the Commerce Commission.

Ah the timing ...

Meanwhile, the local business community will be looking forward to Commerce Commission chairwoman Paula Rebstock's upcoming speech to the Trans-Tasman Business Circle. Her topic: promoting dynamic and responsive markets. Hmm ... should be a cracker.

Nothing for free

Life may be cheap these days but death just keeps getting more expensive. Passing on is no longer an excuse for a free ride when it comes to transferring shares, a few disappointed brokers noted this week. The NZX-owned Link Market Services has instituted a new fee of $50 for the probate transfer of shares from the deceased to his or her beneficiaries.

Building a future

Matt Henry, of Goldman SachsJBwere, has dissected last week's Fletcher Building result and concluded that the stock remains a long-term hold. In the short term, he rates it as a market-perform and he has tweaked his discounted cashflow valuation up 1 per cent to $8.62. He says the firm appears to be trading broadly in line with that valuation.

Though there is a risk that there may be a greater earnings upside - which could be driven by internal expansion, productivity initiative and acquisition growth - that is offset by constraints that the macro-economic environment puts on the stock.

The valuation, therefore, includes the potential risks of a hard landing for the local economy.

Goldman is forecasting a 4 per cent decline in building activity for the 2007 year as non-residential follows residential into a contraction phase.

That - as Fletcher Building pointed out last week - will, in part, be offset by infrastructure building.

Goldman is predicting that residential growth will be positive in 2008 although it may be the 2009 year before non-residential catches up.

Fletcher Building shares closed at $8.43 yesterday.