New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Equity Strategy</h2>
Institutional Model Portfolio
The near term outlook for both economic activity and markets remain highly uncertain, despite the spread of COVID-19 showing signs of peaking domestically and in Europe. Companies are looking to (1) lower costs to mitigate the current demand shock while in preparation for the uncertainty ahead, and (2) protect their balance sheets from the wrath of lenders. Consequently, a tidal wave of equity raisings has begun, with Kathmandu (KMD) and Auckland Airport (AIA) quickly out of the blocks. We think it likely that others will follow. In addition to being called on to contribute more capital, investors will likely have to share the pain of lower profits through dividend cuts. Our portfolio is largely devoid of companies exposed to capital raise risk and we favour those stocks that will likely maintain distributions to shareholders. To concentrate our exposure to this theme, we upweight our already overweight positions in the utilities and telco sectors. ​​​​​​​
Safety bias with yield benefit
We prefer defensive, yielding names for a variety of reasons: (1) ultra-low interest rates are here for the foreseeable future. Central banks with be lethargic to anything but rampant inflation. (2) ​​​​​​​Investor demand for income will increase not diminish. (3) ​​​​​​​The supply of safe, income generating, options is falling. A large number of companies are undergoing dividend holidays. For many, dividends will not resume quickly given recessionary demand impacting earnings, the need to rebuild balance sheets, and potential need to invest to reinforce vulnerable supply chains.&nbsp;
Portfolio changes; increasing exposure to&nbsp;gentailers,&nbsp;SPK&nbsp;and&nbsp;RYM
We add to our existing positions in each of the four large&nbsp;gentailers&nbsp;— Contact (CEN), Meridian (MEL), Mercury (MCY) and&nbsp;Genesis (GNE)&nbsp;— to extend our already overweight sector call, despite&nbsp;Tiwai&nbsp;closure risk, which we continue to believe is overplayed.&nbsp;We also add to our overweight position in Spark (SPK), and move to overweight in&nbsp;Ryman&nbsp;(RYM) given its heavy needs based product, which should ultimately benefit from COVID-19.&nbsp;
Exiting&nbsp;KPG, AIR, and beginning staged exit from&nbsp;NZK
We remove Kiwi Property (KPG) from the portfolio given the considerable uncertainty over its retail assets near-term and upcoming portfolio revaluations. We also remove Air New Zealand (AIR) to reflect its challenged outlook and need for new equity to replace debt. Lastly we begin a staged exit (because of liquidity reasons) from NZ King Salmon (NZK) given the likely social distancing risks attached to its higher margin food service channel, even in a post-lockdown world.&nbsp;
Andy Bowley andy.bowley@forsythbarr.co.nz +64 4 495 8246
Matthew Leach matthew.leach@forsythbarr.co.nz +64 4 495 1324&nbsp;
Liam Donnelly liam.donnelly@forsythbarr.co.nz +64 4 495 8194&nbsp;
Forsyth Barr Research Team fb.research@forsythbarr.co.nz

Equity Strategy
Institutional Model Portfolio
The near term outlook for both economic activity and markets remain highly uncertain, despite the spread of COVID-19 showing signs of peaking domestically and in Europe. Companies are looking to (1) lower costs to mitigate the current demand shock while in preparation for the uncertainty ahead, and (2) protect their balance sheets from the wrath of lenders. Consequently, a tidal wave of equity raisings has begun, with Kathmandu (KMD) and Auckland Airport (AIA) quickly out of the blocks. We think it likely that others will follow. In addition to being called on to contribute more capital, investors will likely have to share the pain of lower profits through dividend cuts. Our portfolio is largely devoid of companies exposed to capital raise risk and we favour those stocks that will likely maintain distributions to shareholders. To concentrate our exposure to this theme, we upweight our already overweight positions in the utilities and telco sectors. ​​​​​​​
Safety bias with yield benefit
We prefer defensive, yielding names for a variety of reasons: (1) ultra-low interest rates are here for the foreseeable future. Central banks with be lethargic to anything but rampant inflation. (2) ​​​​​​​Investor demand for income will increase not diminish. (3) ​​​​​​​The supply of safe, income generating, options is falling. A large number of companies are undergoing dividend holidays. For many, dividends will not resume quickly given recessionary demand impacting earnings, the need to rebuild balance sheets, and potential need to invest to reinforce vulnerable supply chains.&nbsp;
Portfolio changes; increasing exposure to&nbsp;gentailers,&nbsp;SPK&nbsp;and&nbsp;RYM
We add to our existing positions in each of the four large&nbsp;gentailers&nbsp;— Contact (CEN), Meridian (MEL), Mercury (MCY) and&nbsp;Genesis (GNE)&nbsp;— to extend our already overweight sector call, despite&nbsp;Tiwai&nbsp;closure risk, which we continue to believe is overplayed.&nbsp;We also add to our overweight position in Spark (SPK), and move to overweight in&nbsp;Ryman&nbsp;(RYM) given its heavy needs based product, which should ultimately benefit from COVID-19.&nbsp;
Exiting&nbsp;KPG, AIR, and beginning staged exit from&nbsp;NZK
We remove Kiwi Property (KPG) from the portfolio given the considerable uncertainty over its retail assets near-term and upcoming portfolio revaluations. We also remove Air New Zealand (AIR) to reflect its challenged outlook and need for new equity to replace debt. Lastly we begin a staged exit (because of liquidity reasons) from NZ King Salmon (NZK) given the likely social distancing risks attached to its higher margin food service channel, even in a post-lockdown world.&nbsp;
Andy Bowley andy.bowley@forsythbarr.co.nz +64 4 495 8246
Matthew Leach matthew.leach@forsythbarr.co.nz +64 4 495 1324&nbsp;
Liam Donnelly liam.donnelly@forsythbarr.co.nz +64 4 495 8194&nbsp;
Forsyth Barr Research Team fb.research@forsythbarr.co.nz

Equity Strategy: Institutional Model Portfolio

Kathmandu Holdings

Equity Strategy: Institutional Model Portfolio