KEY POINTS:
The local equities industry is vesting a lot of hope in KiwiSaver (and the PIE tax changes) to provide a panacea for the ever-decreasing levels of investment in the stock market.
But Goldman Sachs JBWere equities strategist Bernard Doyle asks: Is it false hope?
In a research report (with the snappy headline: Kiwisaviour?) Doyle notes that 10 years ago New Zealand had an equity market capitalisation to GDP ratio of 56 per cent - within reach of comparable economies like Canada and Australia.
But by the end of last year both of those countries had ratios above 100 per cent while New Zealand's had shrunk to 37 per cent.
In fact New Zealand's closest peers in terms of relative sharemarket size are now Pakistan, Turkey and Hungary. So if KiwiSaver is to reverse the decline it is going to be a "long slow road to redemption".
By 2013 KiwiSaver could boost net inflow to the equities markets by $500 million, Doyle estimates. That's based on a reasonably conservative participation rate of 45 per cent.
But more policy changes are needed if New Zealand is really going get serious about catching those comparable economies.
Doyle makes the case for a couple of political hot potatoes which would ensure strong New Zealand capital markets.
One is the partial sale of state- owned enterprises. Realistically that looks like the only way the market is going to get the kind of new equity supply that is needed to match increased KiwiSaver demand.
With the threat of almost $6 billion of capitalisation disappearing from the NZX (that's the combined value of Auckland Airport and The Warehouse) something needs to be done to address the issue of where investors can actually put their money.
It would take about 400 Xero sized floats to match the market value of the airport and The Warehouse. While the NZX might have a few likely candidates lined up for later this year it has no answer to the international scramble for New Zealand's biggest companies.
No one expects the current political regime to be selling off any assets but there are plenty in the market hoping that National leader John Key will see the national interest value in floating minority stakes in energy companies such as Mighty River and Meridian.
Doyle's second suggestion - further tax reform to remove the advantages that residential property investment still holds over other assets classes - couldn't be a hotter topic.
Finance Minister Michael Cullen sounds serious about moves to stop landlords claiming back tax on their losses.
But he hasn't got much support thus far and the idea may yet get filed in the "too hard" basket with plans for a capital gains tax.
Doyle has one more idea for the powers that be - a further drop in the corporate tax rate.
The OECD average is 28.3 per cent, he notes. One doubts that Cullen and his team have that one on the drawing board right now.
Guinness Peat Group
Citigroup analyst Kar Yue Yeo is still rating GPG a "hold" despite also putting the investment group in the "high risk" category in his latest note.
The high dollar has had a marginal impact on Citigroup's target price - dropping it 1c to $2.50.
And a rebound in US clothing and accessory sales in May is a positive for the Coates thread business.
The performance of Coates - which accounts for 40 per cent of GPG's portfolio - will be the key issue for the company over the next two years, writes Yeo.
But while Coates has strong enough sustainable earnings to justify a net asset valuation of $2.50, there are significant risks around the restructuring of the textile industry.
"The whole textile and apparel industry is in a state of flux," Yeo concludes.
That will put added pressure on management to execute strategy successfully.
There are also risks around volatility of markets - particularly in the UK where about half of GPG's investments are based. GPG shares closed up 4c at $2.08 yesterday.
Travelling on
There has been a bit of reshuffling going on at big investment banks this month. Macquarie Equities head of institutional sales Mick Carolan is the latest departure.
Carolan leaves in a few weeks to become the new managing director at Equity Partners Capital Markets - a New Zealand based asset management and investment company who's principals are George Kerr and John Derby.
Equity Partners has been in the media spotlight lately as organiser of EPIC, an infrastructure investment firm which is offering local investors exposure to London's Thames Water.
News of Carolan's move comes in the same week that Goldman Sachs JBWere has announced Lance Jenkins is stepping down as chief executive.
He'll be replaced by the current head of private wealth management, John Cobb, and co-head of the investment banking team Andrew Barclay, who will be sharing the duties.
Take me to the river
Who says the golden age of pamphleteering is dead?
To promote its $65 million IPO, Pike River Coal has resorted to the tried and true marketing technique of getting some bloke with an old pram to drop an unsolicited leaflet in your letter box.
Its a bold strategy for the West Coast coal miner particularly as one of the areas being targeted is the greenie stronghold of Auckland's western suburbs.
The Te Atatu reader who provided her copy of the pamphlet to the Business Herald was none-too impressed with the sweeping green photograph of pristine West Coast scenery being used to illustrate the offer. Probably no sale there then.
Meanwhile, analysts at the Royal Bank of Canada's Sydney branch have raised their long-term (2012) price forecasts for hard coking coal - the kind Pike will be digging out - by 33 per cent in the past few days to reflect tightening supply.
The Pike River initial public offering closes on July 10 and the company will list on July 20.
Two particular ports in a storm
ABN Amro has shifted its recommendation on Lyttelton Port from "hold" to "buy" and lifted its target price from $2.35 to $2.75.
The revision is underpinned by the belief that a merger with Otago's Port Chalmers is likely. Analyst Daniel Kieser writes that the Labour-led Government is unlikely to oppose that sort of sector consolidation.
He says industry consolidation will happen and notes local ports have latent unexploited value.
Globally, the port sector is consolidating with the multiples paid hitting high levels.
The ownership of Lyttelton Port by Port Chalmers would offer the boards of both the platform to "set the structure" for South Island ports.
Possible synergies include the reduction of labour and corporate overheads by 10 per cent. Capital expenditure on expansion could be reduced 50 per cent to prevent investment duplication while capex on maintenance would not increase. Revenue per tonne would increase 2.5 per cent per annum in the first three years and debtor days could be reduced by 10 days.
So a merger would add 40 per cent to Lyttelton's discounted cashflow valuation - from $1.96 to $2.75.
It's not a certainty, of course, but Kieser concludes right now it looks like a good play for the hedge funds.
Lyttelton shares closed up 8c at $2.48 yesterday.
