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Stocks to Watch: Air NZ, Fletcher Building, Infratil

Wednesday 7th April 2010

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Air New Zealand shares are flying high and predicted to reach up to $1.90 in the next year, while Fletcher Building is also set for growth due to the strong construction sector. Infratil has been rated as "outperform" after completing a joint venture with the NZ Super Fund, while NZ Refining's outlook is less optimistic.

Air New Zealand (AIR): Bullish analysis by brokers Forsyth Barr and denial that its highly regarded chief executive, Rob Fyfe, was planning to leave the company gave the national airline a strong boost in trading yesterday, while the ongoing attraction of New Zealand as a destination for Australian tourists is further enhanced by the ongoing divergence of the trans-Tasman currencies. Head of research for Forsyth Barr, Rob Mercer, is targeting $1.80 to $1.90 for AIR shares in the next year, and as high as $2.30 over the next two years. Its shares were up 7 cents to $1.38 in light trading yesterday.

Fletcher Building (FBU): With the QSBO identifying construction as one area of relative strength in the weak New Zealand economy, and the growing pace of recovery in Australia and relative competitiveness to that market of New Zealand exports, FBU appears well-placed to ride the trans-Tasman uplift. Meanwhile, greater optimism about the US economy may assist sales in that market. FBU shares jumped in trading yesterday, rising 8 cents to $8.42 in trading yesterday.

Infratil (IFT): First NZ Capital's Robert Bode is rating IFT "outperform", according to a report on the Sharechat website, following its completion of the acquisition in a 50/50 joint venture with the NZ Super Fund of the downstream assets of Shell NZ. Bode believes the Shell assets will be immediately accretive for IFT, and worth perhaps $20 million to the bottom line annually. The $696.4 million purchase price is attractive and approximately 4.2 times earnings on an EBITDA basis, says Bode. IFT has been trying to convince investors that it has been under-rated in recent times, noting a 40%-plus gap between recent share price levels and brokers' net tangible assets valuation of $2.36 billion. IFT shares were up 1 cent to $1.74 yesterday, and the company announced it had bought back 200,000 of its own shares at $1.72.

NZ Refining (NZR): Less optimistic views are emerging about the country's sole oil refiner, in which IFT has taken a 17.1% as part of the Shell assets acquisition. Broker McDouall Stuart says the recent improvement in refining margins from a historic low point is unlikely to be sustained. "The twin threats of increased refining supply in Asia and reduced demand still loom heavily over the industry and we expect margins to decline and oscillate somewhere between the recent January/February high of US$6.85 a barrel and the November/December low of US$1.18 a barrel," McDouall Stuart says. NZR shares closed yesterday at $3.80, down 18 cents on their pre-Easter close.

Restaurant Brands (RBD): The fast-food franchise operator is due to report today, amid expectations of a strong profit turnaround over the last financial year at its Pizza Hut, KFC and Starbuck's outlets. Shares in RBD slipped 1 cent to $2.03 in trading yesterday.

Themes of the day: Global dairy commodity prices strengthened in this morning's globalDairytrade auction, ahead of this afternoon's announcements from the Fonterra on share trading among farmer members of the dairy cooperative. An average rise of 23.2% across the wholemilk and skim-milk powders, and anhydrous milkfat reflected reducing production as the Australasian production season draws to a close. The latest NZIER Quarterly Survey of Business Opinion continued to show a large gap between strong expectations of recovery and muted action on hiring and consumption, although retailers were becoming more "realistic". With Australian official interest rates now at 4.25% and NZIER predicting no change in New Zealand's official cash rate before September, further competitiveness gains for New Zealand exporters to Australia appear likely.

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