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&nbsp;<br>The Year Ahead</h2>
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<p>The year of the virus&nbsp;makes way for the year of the vaccine, or at least we hope.&nbsp;Despite apparent&nbsp;armageddon&nbsp;for markets in March and continued challenging health situations in many countries,&nbsp;the global economy is learning to live with COVID-19. This paves the way for a robust economic&nbsp;recovery and relative market stability,&nbsp;albeit we caution the recovery may not be linear given (1) vaccine hype is currently elevated, (2) the global&nbsp;geo-political landscape is at risk from a more assertive China, and (3) sovereign debt issues are resurfacing. Market valuations are elevated&nbsp;but supported by low rates and a lack of investment options.&nbsp;Our key picks for the year ahead are A2 Milk, EBOS, Genesis, Kathmandu and&nbsp;Skellerup.&nbsp;</p>
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<h3>Five investment themes for 2021</h3>
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<li><strong><em>Supportive macro environment</em></strong>:&nbsp;A combination of low rates, rising employment, asset inflation, strong&nbsp;capex&nbsp;intentions, and healthy consumer confidence&nbsp;bodes well for a robust marco backdrop, supporting (1) a further recovery in corporate earnings through 2021 and (2) a bias to growth&nbsp;focussed&nbsp;companies and risk assets.&nbsp;</li>
<li><em><strong>From virus to vaccine:</strong></em> With vaccine roll-out at its infancy, we believe markets have peaked in terms of vaccine hype. The two early pace-makers, Pfizer and Moderna, both have high efficacy&nbsp;rates and limited side effects. We do not yet know the durability, acceptance or longer term side effects. Any negative vaccine news will dent confidence in key vaccine leveraged sectors.&nbsp;</li>
<li><em><strong>M&amp;A opportunities</strong></em>: The recent bid for&nbsp;Infratil&nbsp;(IFT) by Australia Super highlights&nbsp;the relative attractiveness of certain assets listed on the NZX. Our quantitative and qualitative screen highlights a number of potential M&amp;A candidates.&nbsp;&nbsp;</li>
<li><em><strong>Climate change investing:</strong></em> The "E" of ESG is becoming more important as investor mandates and investment philosophies change. This is a multi-year theme that investors can no longer ignore, not least given the upcoming emissions disclosure requirements for both NZX listed companies and fund managers.&nbsp;&nbsp;</li>
<li><em><strong>China's assertiveness:</strong></em> The global order is slowly changing. China's increasing assertiveness&nbsp;on the US and Australia (trade war) has not been missed,&nbsp;its neighbours (militarisation), and in Hong Kong (legislative).&nbsp;New&nbsp;Zealand&nbsp;has never been more reliant on trade with China.&nbsp;This poses an increasing economic risk (we consider low at this stage),&nbsp;that our politicians need to navigate carefully.&nbsp;</li>
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<h3>Five stock ideas for 2021</h3>
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<li><strong>A2 Milk</strong>&nbsp;(ATM):&nbsp;​​​​​​​Recent proprietary channel checks&nbsp;in China reinforced our&nbsp;view that the challenges are in one channel,&nbsp;daigou, with other areas still growing strongly.&nbsp;Attractive value more than compensates for risk.</li>
<li><strong>EBOS</strong>&nbsp;(EBO): Solid growth outlook, improving free&nbsp;cashflow&nbsp;profile, healthy balance sheet headroom to invest&nbsp;and structural tailwinds.</li>
<li><strong>Genesis</strong>&nbsp;(GNE): A potential ESG winner given&nbsp;Kupe&nbsp;investment review and new carbon neutral targets. Key beneficiary of&nbsp;Tiwai&nbsp;smelter staying open for longer.&nbsp;&nbsp;</li>
<li><strong>Kathmandu</strong>&nbsp;(KMD): Reopening play internationally through&nbsp;RipCurl&nbsp;business. Scope to grow Kathmandu brand through wholesale&nbsp;channels.</li>
<li><strong>Skellerup</strong>&nbsp;(SKL): Further re-rating supported by international comps that trade at a premium and recovery momentum in industrial operations.&nbsp;</li>
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<div><strong>Andy Bowley</strong></div>
<div><a href="mailto:andy.bowley@forsythbarr.co.nz" target="_blank" rel="noopener">andy.bowley@forsythbarr.co.nz</a></div>
<div>+64 4 495 8246</div>
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<div><strong>Aaron Ibbotson CFA</strong></div>
<div><a href="mailto:aaron.ibbotson@forsythbarr.co.nz" target="_blank" rel="noopener">aaron.ibbotson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 9 368 0024</div>
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<div><strong>Liam Donnelly</strong></div>
<div><a href="mailto:liam.donnelly@forsythbarr.co.nz" target="_blank" rel="noopener">liam.donnelly@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 495 8194</div>
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<div><strong>Chelsea Leadbetter CFA</strong></div>
<div><a href="mailto:chelsea.leadbetter@forsythbarr.co.nz" target="_blank" rel="noopener">chelsea.leadbetter@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 5262</div>
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<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
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<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
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<div><strong>Rohan Koreman-Smit CFA</strong></div>
<div><a href="mailto:rohan.koreman-smit@forsythbarr.co.nz" target="_blank" rel="noopener">rohan.koreman-smit@<wbr>forsythbarr.co.nz</a></div>
<div>+64 9 368 0085</div>
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<div><strong>Jamie Foulkes</strong></div>
<div><a href="mailto:jamie.foulkes@forsythbarr.co.nz" target="_blank" rel="noopener">jamie.foulkes@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2217</div>
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<div><strong>Forsyth Barr Research Team</strong></div>
<div><a href="mailto:fb.research@forsythbarr.co.nz" target="_blank" rel="noopener">fb.research@forsythbarr.co.nz</a></div>
<div>+64 4 499 7464</div>
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Equity Strategy&nbsp; The Year Ahead


The year of the virus&nbsp;makes way for the year of the vaccine, or at least we hope.&nbsp;Despite apparent&nbsp;armageddon&nbsp;for markets in March and continued challenging health situations in many countries,&nbsp;the global economy is learning to live with COVID-19. This paves the way for a robust economic&nbsp;recovery and relative market stability,&nbsp;albeit we caution the recovery may not be linear given (1) vaccine hype is currently elevated, (2) the global&nbsp;geo-political landscape is at risk from a more assertive China, and (3) sovereign debt issues are resurfacing. Market valuations are elevated&nbsp;but supported by low rates and a lack of investment options.&nbsp;Our key picks for the year ahead are A2 Milk, EBOS, Genesis, Kathmandu and&nbsp;Skellerup.&nbsp;


Five investment themes for 2021



Supportive macro environment:&nbsp;A combination of low rates, rising employment, asset inflation, strong&nbsp;capex&nbsp;intentions, and healthy consumer confidence&nbsp;bodes well for a robust marco backdrop, supporting (1) a further recovery in corporate earnings through 2021 and (2) a bias to growth&nbsp;focussed&nbsp;companies and risk assets.&nbsp;
From virus to vaccine: With vaccine roll-out at its infancy, we believe markets have peaked in terms of vaccine hype. The two early pace-makers, Pfizer and Moderna, both have high efficacy&nbsp;rates and limited side effects. We do not yet know the durability, acceptance or longer term side effects. Any negative vaccine news will dent confidence in key vaccine leveraged sectors.&nbsp;
M&amp;A opportunities: The recent bid for&nbsp;Infratil&nbsp;(IFT) by Australia Super highlights&nbsp;the relative attractiveness of certain assets listed on the NZX. Our quantitative and qualitative screen highlights a number of potential M&amp;A candidates.&nbsp;&nbsp;
Climate change investing: The "E" of ESG is becoming more important as investor mandates and investment philosophies change. This is a multi-year theme that investors can no longer ignore, not least given the upcoming emissions disclosure requirements for both NZX listed companies and fund managers.&nbsp;&nbsp;
China's assertiveness: The global order is slowly changing. China's increasing assertiveness&nbsp;on the US and Australia (trade war) has not been missed,&nbsp;its neighbours (militarisation), and in Hong Kong (legislative).&nbsp;New&nbsp;Zealand&nbsp;has never been more reliant on trade with China.&nbsp;This poses an increasing economic risk (we consider low at this stage),&nbsp;that our politicians need to navigate carefully.&nbsp;



Five stock ideas for 2021



A2 Milk&nbsp;(ATM):&nbsp;​​​​​​​Recent proprietary channel checks&nbsp;in China reinforced our&nbsp;view that the challenges are in one channel,&nbsp;daigou, with other areas still growing strongly.&nbsp;Attractive value more than compensates for risk.
EBOS&nbsp;(EBO): Solid growth outlook, improving free&nbsp;cashflow&nbsp;profile, healthy balance sheet headroom to invest&nbsp;and structural tailwinds.
Genesis&nbsp;(GNE): A potential ESG winner given&nbsp;Kupe&nbsp;investment review and new carbon neutral targets. Key beneficiary of&nbsp;Tiwai&nbsp;smelter staying open for longer.&nbsp;&nbsp;
Kathmandu&nbsp;(KMD): Reopening play internationally through&nbsp;RipCurl&nbsp;business. Scope to grow Kathmandu brand through wholesale&nbsp;channels.
Skellerup&nbsp;(SKL): Further re-rating supported by international comps that trade at a premium and recovery momentum in industrial operations.&nbsp;




Andy Bowley
andy.bowley@forsythbarr.co.nz
+64 4 495 8246





Aaron Ibbotson CFA
aaron.ibbotson@forsythbarr.co.nz
+64 9 368 0024





Liam Donnelly
liam.donnelly@forsythbarr.co.nz
+64 4 495 8194





Chelsea Leadbetter CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262





Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255





Rohan Koreman-Smit CFA
rohan.koreman-smit@forsythbarr.co.nz
+64 9 368 0085





Jamie Foulkes
jamie.foulkes@forsythbarr.co.nz
+64 4 914 2217





Forsyth Barr Research Team
fb.research@forsythbarr.co.nz
+64 4 499 7464



A2 Milk Co Ltd

Equity Strategy: The Year Ahead