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Stocks to watch: CVT, KMD, MHI, NZX, SAN, WFD

Tuesday 8th June 2010

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Concerns about the latest developments in the European and US markets are likely to weigh on the NZ sharemarket today. Also investors will continue to keep an eye on NZX and Michael Hill International which has announced it is closing half its US stores.

Themes of the day:  Fears about the global economic recovery continued to weigh on investors with Europe’s sovereign debt crisis foremost on everybody’s minds after a Hungarian government spokesman said it wouldn’t be an exaggeration to talk about a default, while Germany announced it would embark on its biggest austerity drive since World War II.

Stocks on Wall Street and in Europe sank after Goldman Sachs was issued a subpoena for failing to provide all documents requested by the US inquiry examining the financial crisis, driving the financial sector lower. German factory orders, adjusted for seasonal swings and inflation, rose 2.8% from March, when they surged 5.1%. The dollar index, which measures the greenback against a basket of six major currencies, edged 0.02% higher to 88.25, while the euro fell below US$1.19 for the first time in four years. The kiwi dropped 3.8% from its Friday level to finish at 65.95 US cents from 68.54 cents.

Comvita (NZX: CVT ): The honey products manufacturer’s sales increased 19% for the year ended March, and it posted a 2.5% increase in net profit. “Strong growth was achieved in Comvita’s main markets, with New Zealand up 24.6%, Australia up 21.7% and Asia up 10.6%,” Craigs Investment Partners analyst Selwyn Blinkhorne said in report, according to the ShareChat website. While European sales were down 15.2%, they account for only 10.5% of total sales. Blinkhorne said the company’s profit margins have increased for the past three half-year periods and reflect operating efficiencies, tight cost controls and rationalisation benefits achieved from its $50 million of acquisitions in 2008. “Comvita is now well removed from the vulnerable financial position of 2008 when interest cover was only 0.4 times and net-debt-to-equity was 44.5%,” Blinkhorne said. Interest cover in 2010 was 5.8 times with net-debt-to-equity at 17.6%. On Friday its shares lifted three cents to $2.45.

Kathmandu (NZX: KMD ): Jan Cameron, the cashed-up founder of the outdoor equipment retailer, is in talks with outdoor clothing and equipment maker Macpac about a joint venture to take on her former business, reported. Cameron said last year she had $27 million to spend on a return to outdoor retailing in New Zealand and Australia, setting up 60 stores in direct competition with Kathmandu, according to the report. The shares were unchanged at $1.90 on Friday.

Michael Hill (NZX: MHI ): The international jeweller is to close eight of 17 stores it acquired from Whitehall Jewellers in a chapter 11 process in July 2008. Since testing its retail concept on the mostly Chicago-based jewellers, Michael Hill has decided to keep nine open, and incur a US$6.0 million operating loss for the 2009/10 U.S. financial year. “This rationalisation of the US business will not affect other parts of the company and the company has plans to open up to 15 new stores in other markets over the coming year where it has a proven business model,” chairman Michael Hill said. On Friday its shares held steady at $0.70.

NZX (NZX: NZX ): The stock exchange operator’s shares have fallen since the country’s five top electricity generators said they would use the rival ASX to operate a new electricity forward market.  NZX, whose stock has fallen by about a third this year, has been positioning itself to grow from new derivatives markets, and told an investor presentation in March that it was anticipating half of its revenues to come from derivatives trading in five years time. The shares fell 1.9% to $1.55 on Friday.

Sanford (NZX: SAN ): The company is rated ‘reduce’ by John Cairns, an analyst at Forsyth Barr, according to the ShareChat website. "We consider the Sanford share price will remain under pressure until a recovery to across-the-cycle earnings becomes more assured," Cairns said. The shares fell 6 cents to $4.29 on Friday.

Wakefield Health (NZX: WFD ):  The private hospital operator on Friday announced a sweetened offer for Norfolk Investments, which controls Tauranga’s Grace Hospital, and said it has binding acceptances for more than 50% of the stock. It lifted its offer to $3.60 a share from $3.52, valuing the target at about $23 million. Wakefield’s shares were unchanged at $7 on Friday.

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