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Shares (or Equities)

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Harbour Asset Management Logo

Equity Income:

A New Approach to Income in a World of Low Interest Rates

Craig Stent, the Portfolio Manager of the recently launched Harbour Australasian Equity Income Fund, has prepared the attached paper “Equity Income: A new approach to income in a world of low interest rates”.

This is a timely, relevant and considered paper that we hope you get some benefit from reading.

A Summary Follows:

  • With interest rates globally and locally falling over recent years, and forecast to stay low for some time, investors are finding it more challenging to source adequate income from traditional investments such as term deposits, bonds and cash.
  • A well constructed portfolio of New Zealand and Australian equities can provide investors with an alternative source of income, and the potential to grow the real capital base.
  • Relative to other developed markets, New Zealand has over the long-term paid a high dividend yield. In the 10 year period to 31 December 2011 dividends contributed the majority of the total return. The picture is not too dissimilar for the Australian or US market.
  • Companies in Australia and New Zealand are generally in a good financial position post the Global Financial Crisis (GFC). Many companies potentially have surplus cash on the balance sheet and are either returning capital to shareholders via dividends or undertaking other capital management initiatives.
  • Harbour Asset Management has launched an Australasian Equity Income Fund which follows a quantitative and fundamental investment process in selecting a diversified portfolio of companies across the New Zealand and Australian markets. We believe that used in a balanced portfolio, this approach should provide investors with an attractive level of income with some capital growth relative to traditional income asset classes.

Click here to read the fill paper“Equity Income: A new approach to income in a world of low interest rates”

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We last recommended Chorus on 23 November 2011 when it was just about to list. Investors who bought then at $3.00 are now sitting on a 10% capital gain and a gross dividend yield on cost of over 11%.

CNU is New Zealand's largest telecommunications utility company which provides voice and fixed broadband services to 90% of the market, boasting a near monopoly position.

CNU demerged from Telecom NZ on 30 November 2011 as a condition of it participating in the Government's Ultra Fast Broadband (UFB) initiative. Eligible Telecom shareholders received CNU shares at a ratio of one Chorus share for every five Telecom shares held.

Growth: $1.35 billion Government Ultra Fast Broadband Initiative

CNU will play a leading role with government owned Crown Fibre Holdings Limited (CFH), who will invest $929m in CNU to fund construct the Government’s ultra-fast broadband (UFB) initiative worth $1.35bn which aims to be accessible to 75% of New Zealanders by the end of 2019, whilst maintaining its existing copper network. CNU is well positioned to capitalize on the UFB rollout and execute successfully given its proven management in rolling out large networks.

Future Shareholder Returns

Our Analyst expects CNU to add value to shareholders through a mixture of capital growth and dividends and to report well in its first result for the 7 months to 30 June 2012 around August 2012. The market anticipates an update from CNU around March/April. Future shareholder returns including dividends will be underpinned by the UFB rollout.

7.5% Cash Dividend Yield and Attractive Valuation

CNU is currently valued at ~$4 per share. The average analysts’ Earnings Per Share (EPS) estimate is 51.3 cps, which means at the current price of $3.32 the stock is trading at a forward PE of 6.5x which is a low multiple relative to the utilities sector.

CNU’s earnings and cash flow are expected to be stable and hence CNU’s initial dividend policy of 25cps (from year to June 2013) will likely to be sustained. This would mean the stock is trading on ~7.56% cash dividend yield (before imputation) at the current price which is very attractive from a dividend payment point of view.

Bear Points

CNU’s beta or business risk is higher relative to its peers and currently has a S&P BBB/Stable credit rating. If at any time CNU’s credit rating falls below investment grade while CFH Debt Securities remain outstanding, CNU is prohibited from paying dividends.

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Picture of Brent King

IRG is pleased to be the sponsor of this years first sharemarket listing

Company: Mykris Limited

Issuer Code: MYK

Short Name: Mykris

Registered Office: Level 10, Swanson Towers, 20 Hobson Street, Auckland

Postal Address c/o Forest Harrison, Level 1, 18 Shortland Street, PO Box 828 Auckland

Telephone: +64 (9) 308 0080

Nature of Business: Mykris, through three wholly-owned subsidiaries, offers internet access services, application software development and IT-based products and services

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Chorus LogoTelecom NZ has recently demerged into 2 companies. The Demerger has created two independent listed entities. The new Telecom & Chorus. Both will be dual listed on the ASX and the NZX.

  1. Chorus – The largest telecommunications infrastructure business in NZ with a current 93% market share of fixed line access market.
  2. Telecom (post demerger) – NZ's leading telecommunications and IT services provider with #1 and # 2 market positions across all key markets.

Chorus shares begin trading on the NZX today, 23rd November. In the demerger current Telecom investors receive 1 Chorus share for each 5 existing Telecom shares. Chorus will not be included in the MSCI World Index. Chorus' exit from this index occurs on November 23rd which, we believe, will likely trigger forced selling from shareholders who track the MSCI World Index. In our view this potentially creates a one-off opportunity. If the Chorus share price sells off down to levels at or below $3.00, then the following benefits become available to buyers:

  • Attractive Dividend Yield: at $3.00 a share Chorus would have a Gross dividend yield of 11.6%. At $2.70 a share Chorus would have a Gross dividend yield of 12.9%.
  • Potential Capital Gain: on current research analysis our 12-month valuation for Chorus is $3.95 per share. However, we would not expect the valuation gap to close in the short term as it may take a while for the market to fully understand the model for Chorus' business.

Telecom LogoIn summary, this is a dividend yield play with the potential for some capital gains over time. The key risks are around line losses given high operating leverage of the Chorus business.

If this potential opportunity sounds like something you would be interested in ring Jonathan or Andrew on 07 578 3863 and we can discuss further. For your information the window when the opportunity may occur is in the last 30 minutes of trading before the market close today.

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Chorus LogoTelecom NZ recently demerged into 2 companies. The demerger created two independent listed entities. The new Telecom & Chorus. Both are now dual listed on the ASX and the NZX.

  1. Chorus – The largest telecommunications infrastructure business in NZ with a current 93% market share of fixed line access market.
  2. Telecom (post demerger) – NZ's leading telecommunications and IT services provider with #1 and # 2 market positions across all key markets.

In the demerger current Telecom investors received 1 Chorus share for each 5 existing Telecom shares.

Chorus shares began trading on the NZX on 23rd November closing at $3.21 on the first day and subsequently have traded as high as $3.31.

At the time of the demerger we knew Chorus would not be included in the MSCI World Index (as Telecom was). We thought this would be likely to trigger forced selling from shareholders who track the MSCI World Index and this would likely create a one-off opportunity. As it happened demand exceeded supply and the initial price was higher than we expected.

On the 2 December S&P Indices announced changes to the S&P/ASX 200 Index as a result of its quarterly review. The changes will see Chorus removed from the S&P/ASX 200 Index effective December 16 after the close of trading.

It appears that this announcement may have been the catalysts for a sell off in Chorus and the shares have traded down to as low as $2.95 recovering to $3.03 yesterday.

With the Chorus share price down at levels at or below $3.00, then the following benefits become available to buyers:

  • Attractive Dividend Yield: at $3.00 a share Chorus would have a Gross dividend yield of 11.6%. At $2.70 a share Chorus would have a Gross dividend yield of 12.9%.
  • Potential Capital Gain: on current research analysis our 12-month valuation for Chorus is $3.95 per share. However, we would not expect the valuation gap to close in the short term as it may take a while for the market to fully understand the model for Chorus' business.

In summary, this is a dividend yield play with the potential for some capital gains over time. The key risks are around line losses given high operating leverage of the Chorus business.

If this potential opportunity sounds like something you would be interested in ring Jonathan or Andrew on 07 578 3863 and we can discuss further.

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Sommerset LogoSummerset Group Holdings Limited launched its Initial Public Offering of shares on 28 September 2011.

Summerset is a provider of retirement living in New Zealand. Summerset's philosophy is to build , own and operate retirement villages that provide retirement living for New Zealand's mature population and a continuum of care services. Summerset is currently the third largest retirement village operator in New Zealand, and was recognised in 2010 as the 'Best Retirement Village Operator' in Australasian Over 50's Housing Awards.

The company is raising $50m of new capital and current shareholders are also selling between $72.5m and $86.0m (~30% of pre-IPO shares on issue) of their current share holding as part of the offer. The indicative price range is $1.40 to $1.60 per share, with the price to be set via a book build process on 6 & 7 October. The offer closes on 26 October.

Click here to view the Summerset Holdings Limited Investment Statement and Prospectus relating to the offer, which should be read fully before you consider taking up the offer. Please note that under the new process for registering prospectuses, the offer does not open until 10 October 2011, and accordingly the current offer document does not contain application forms.

Click here for a report prepared by First New Zealand Capital's research analyst John Norling which summarises key aspects of Summerset's business and its share offering.

If you wish to participate in the offer, please ensure you urgently contact Jonathan or Andrew on 0800 867 323 or email This email address is being protected from spambots. You need JavaScript enabled to view it. to request shares, please include your contact details and how many shares you might wish to apply for, or how much you might wish to invest.

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Get your shareIf the National Government is re-elected it appears likely to start a round of partial sale of state sector assets.

This will no doubt bring with it lots of gnashing of teeth and cries of "selling the family silver" from commentators in the media. Irrespective of whether or not you agree with state sector asset sales it is likely to bring good investment opportunities.

The new share issues, are likely to be very popular with investors. There will no doubt be "public pools" where anyone can apply but there is also highly likely to be allocations to brokers, such as us, to place. We do not expect there to be enough shares to satisfy total demand, but that doesn't mean you need to miss out. The earlier we can firmly commit a number to an issue the more shares we are likely to be able to get.

If you think you might like to be in on the action make sure you register your interest with us. By registering your interest you are not making a commitment to invest in anything merely helping us estimate demand and give you higher priority in any allocations we might receive.

To register your interest for any potential Government sales of state assets please email This email address is being protected from spambots. You need JavaScript enabled to view it. with your name and contact details and an estimate of how much you might like to invest in any one issue and how much you might like to invest in total should there be more than one issue.

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Canterbury Building SocietyMaracSouthern Cross Building Society

Have you recently received shares in Southern Cross Building Society and subsequently shares in the new Building Society Holdings Ltd?

If you are unsure about what to do with your shares please contact us on 07 578 3863.

Some people who have done business through Southern Cross Building Society in the past have recently found they have been allocated shares in Southern Cross Building Society.

The latter has recently merged with Canterbury Building Society and Marac Finance Ltd. These three companies are in turn owned by Building Society Holdings Ltd via an entity called Combined Building Society.

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