Napier Port seen joining NZX 50 as Gentrack falls from favour

Napier Port debuted on the NZX last year. Photo / Warren Buckland

Utilities software developer Gentrack is expected to drop out of the S&P/NZX 50 Index in tomorrow's quarterly rebalancing with Napier Port poised to take its spot.

The NZX 50 is a measure of the performance of the 50 largest listed companies as set by their free-float market capitalisation. As a gross index, it includes dividends.

Matt Goodson, managing director at Salt Funds Management, said there was a general expectation the change would happen but there was scope for a surprise as Standard & Poor's had some discretion as to what is included.

The swap would be a "point of moderate interest" but it was unlikely to move the market in the same way that changes to big offshore indices, such as the MSCI, do.

"It changes nothing about the stock. Ultimately, the entry and exit of these businesses reflects the passage of the business over time," he said.

Goodson said Gentrack entered the benchmark after the share price was bid up aggressively on the expectation of success in the UK which was never fully realised.

Fall from grace

The utility software firm's fall from grace came as the UK energy market found itself in crisis last year.

Regulated price caps on electricity in the UK and Australia prompted Gentrack's customers to either cut or put off IT investment, hitting the Kiwi company's already soft sales projection.

And when major UK supplier Npower collapsed and was absorbed by Eon, another of the six biggest suppliers in Britain, the Kiwi firm lost two major projects in one blow when a planned deployment of its billing platform was suspended.

In December, that sent Gentrack's share price into a free fall that did not let up until the market bottomed out in March. The stock fell below 80 cents and has only recovered to about $1.70, putting it next in line to be relegated out of the benchmark index.

Ready and willing

On the sidelines, and ready to be subbed in, is Napier Port.

The country's fourth-largest container operation is 55 per cent-owned by Hawke's Bay Regional Council, but fund managers suggest it has sufficient liquidity to be included in the top 50.

The company debuted on the NZX last year at $2.91, and from there it climbed above $4 before being caught up in the Covid-19 sell off. It dropped to $2.83 in March and but has now recovered to $3.46, weathering the storm better and recovering faster than many other stocks

Stuart Williams, head of equities at Nikko Asset Management, said the stock was set to enter the index near historic highs.

"Napier Port at these levels is pretty ritzy," he said.

Williams said the stock price wasn't inconsistent with a number of other listed companies, but suggested investors bidding up prices were "not paying a lot of attention to the risks".

"The core products they are exporting are good and probably quite enduring, which is positive. But they have a building programme to do and quite a few balls to juggle."

Fruitful exports

Most of the region's fruit and meat processing continued during lockdown, keeping activity running through the port. However, log harvesting and timber production was halted and weighed on a key export.

In February, the port started a $170-million-plus development of a new wharf to improve the flexibility of its ship-handling.

Salt's Goodson said fund managers had varying views on whether Napier Port deserved its high valuation, which is well about the NZX's average price-to-earnings ratio. Refinitive puts the latter at 22.09 versus the port's ratio of 38.9.

"Some people can get their heads around a multiple and others can't," he said. "It's fair to say the multiples are rather high and liquidity is somewhat limited."

The result of the NZX rebalancing will be announced just before 5:30pm tomorrow and will take effect from June 22.