KEY POINTS:
The big market shakeout which began last Friday after the US mortgage lending fallout put a big dent in the upward progress of three top stocks on the NZX.
Being big enough to have sizeable exposure to increasingly risk-averse Australian and US funds, our blue chips were always going to be vulnerable.
Fletcher Building, Contact and Telecom all took heavy losses and accounted for a chunk of the 4 per cent the market has fallen over the past week.
Fletcher opened at $12.98 last Friday and has shed more than 6 per cent to close at $12.16 yesterday. Contact came off a record high of $9.65 last week and shed 5 per cent to yesterday's close of $9.17.
Telecom had rallied through July to an almost respectable $4.87. It really didn't need another whack from the Commerce Commission right in the middle of the market sell-off this week, but it got one. It has shed more than 8 per cent to yesterday's close of $4.47.
Based on a general consensus of local analyst recommendations and valuations, the sell-off has left Fletcher Building looking like a pretty good bargain, Contact less so but still cheap and Telecom, unfortunately, about where it ought to be.
Bargain-hunters should always go in with eyes open. The trend this year has been for the market to rally and fall three times already on uncertainty from China and the US.
Privately, brokers remain optimistic based on the large amounts of investment cash still sloshing around the world, but there is no doubt there has been a huge rerating of risk in the past week.
Currency correction
The sharp fall in the currency last week had some of the local export stocks looking set to fly.
Plenty of stock market investors out there are trying to pick their entry timing on these stocks as a way to cashing in on the long-expected drop in the value of the New Zealand dollar.
Fisher & Paykel Healthcare and Delegats both benefited from this kind of investor appetite last Friday as the dollar fell in tandem with global markets.
But this week the combination of the Kiwi stabilising at around the 76c mark and the ongoing negative market sentiment has stopped them in their tracks.
F&P Healthcare went as high as $3.44 - up 7.5 per cent in the three days to Monday's close, but closed yesterday at $3.28.
Delegats hit $2.35 - up 11 per cent over the same period. It closed yesterday at $2.35. So a false start for the exporters perhaps, but an indication of how quickly we can expect to see those stocks rise if and when a more fundamental currency correction takes place.
The star of the Kiwi Income show
Kiwi Income Property Trust's Angus McNaughton gets to star on the silver screen on August 13 at the group's annual meeting in Auckland.
He'll make his big-screen debut at the giant multiplex cinema KIPT has built for Hoyts at Sylvia Park.
Auckland unit-holders haven't been treated to an AGM in the city for a few years. They'll no doubt be hoping for popcorn and chockie ice creams instead of the traditional scone. Turn up the sound and turn down the lights.
And talking of big events: Fletcher Building chief executive Jonathan Ling will be the "star" at the Stamford Plaza on Wednesday for the release of the company's annual results. He has a hard act to follow after his predecessor, Ralph Waters, who, despite his taciturn delivery, always managed to throw in a little "upside": a surprise for the shareholders.
Perhaps Ling should roll out crusty Auckland rockers Hello Sailor (left) as he did at the party to celebrate the Formica acquisition in May.
Luck of the draw
Negative sentiment about SkyCity for the past few months left it heavily exposed to the global shakedown.
Its shares were among the harder hit this week, falling more than 5 per cent to yesterday's close of $4.77. By almost all the analyst valuations, SkyCity is a bargain at this price. But until there are some signs that the company has resolved its management issues it still looks like a stock for those who aren't afraid to gamble.
GPG is another stock that has been weak lately, leaving it vulnerable to the correction. The past five days has seen it slip back as far $1.82. It hasn't been that low since February last year. It closed yesterday at $1.87.
Last year's top stock Mainfreight also took a hit. While it hadn't been threatening January's high of $8.07, the stock began to rally in July, putting on 4.5 per cent - to $7.66 - by the end of the month. But a bullish outlook at the AGM on Tuesday and plans for further US acquisitions weren't enough to stop it shedding 26c by the close on Wednesday. It closed yesterday at $7.40.
Survivors
In the midst of the wreckage this week a few stocks held their ground.
The Warehouse and Auckland Airport were safely underpinned by offers or potential offers. The Warehouse was up 4c for the week, perhaps helped by a Citigroup note backing Woolworths and Foodstuffs to beat the Commerce Commission in the High Court in October.
The airport has traded down 4c as investors cash in now rather than await the politically charged outcome of a sale decision in November.
Despite its low level of liquidity making it vulnerable to rapid price movements, Air New Zealand was steady, even in the face of the double whammy of oil prices reaching new record highs.
It closed at $2.66 yesterday - up 14c for the week. Strong passenger numbers for June must have helped.
Goodman Fielder also finished up 5c for the week at $2.82. As investors would have hoped, it offers low risk given its relatively low returns.
As former owner Graeme Hart used to say: Wars and recessions will come and go but "I'm pretty confident that you're going to eat your toast in the morning regardless. And you're going to put butter on it and you're going to have a glass of milk".
Ironically, the one obvious uncertainty still hanging over the stock is if and when Hart will sell his 20 per cent cornerstone stake, when a two-year moratorium (self-imposed to provide security for the IPO) ends in December.
Viking adventure
Keen observers of listed finance company Dorchester Pacific have noted cornerstone shareholder Viking Capital has been selling stock on market. Trading at just $1.30 yesterday, Dorchester is well below the levels at which Viking first bought in (above $2). The strategic importance of Viking's 9 per cent stake has diminished since the other big shareholders, Hugh Green and St Laurence Group, bought out Bridgecorp back in April to lock up control. If Viking's Brent King ever had serious designs on recapturing Dorchester (which he originally founded) he must have well and truly given up on them now.
Dorchester is in the middle of a share buyback so most likely everything Viking sells is going back to Dorchester and further strengthening Hugh Green's control.
The selling may have something to do with helping out biotech company ICP BIO, in which Viking also has a 9 per cent stake.
ICP chief Sanne Melles has been doing the rounds of the big broking firms seeking support for his company's $10 million rights issue. The message they are sending him is that they'd expect to see ICP's cornerstone shares taking up their rights before other investors feel confident to follow.
Viking Capital shares closed at 26c yesterday. ICP Bio closed at 5.8c.
Mooring movements
Cavotec MSL - the mostly Dutch company trading on the NZX after its purchase of Mooring Systems last year - quietly reported a strong half-year result last week.
Adrian Allbon at Goldman Sachs JBWere updated his earnings estimates to reflect global forecasts. Issues relevant to Cavotec, which makes heavy machinery for use in ports, airports and the mining industry, include higher prices for industrial metals and a stronger outlook for global industrial production growth.
Latest currency forecasts for a New Zealand dollar cross-rate with the euro for 2007 and 2008 have also been factored in.
That all results in Allbon upgrading his net profit forecast for 2007 by 1.5 per cent to $14.7 million, but dropping the 2008 forecast by 2.6 per cent to $17.8 million and increasing the 2009 forecast by 6.6 per cent to $21.4 million. The major reason for the upgrade is the prospect of higher forecast prices for industrial metals translating to stronger demand for mining and tunnelling products.
Allbon has a "hold" recommendation on the stock and has a 12-month target price of $5.48. That reflects his "confidence in Cavotec's business model and its leverage to strong global infrastructure spend". That is offset by a belief that a lot of growth is priced into the stock already. The shares closed steady at $5.29 yesterday.
