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

Sky Network Television / Equity Bottom-Up

<h2>Equity Strategy<br>The Year Ahead: Five Themes and Five Stocks</h2>
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<p>The long&nbsp;market bull run&nbsp;since the GFC appears to be ending as the structural&nbsp;decline in interest rates has reversed.&nbsp;The NZX is facing its first down year in a decade;&nbsp;the benchmark NZX50 index is down ~-2% year-to-date.&nbsp;Looking ahead into 2022,&nbsp;we believe some trends from this southern spring&nbsp;such as inflation,&nbsp;congested supply chains and re-opening will continue to influence stocks. We believe that&nbsp;the ever present theme of interest rates may shift from primarily being one of valuation to also include a focus on a few stretched balance sheets. One theme which we do not expect to be repeated is record house price increases. Consensus expects&nbsp;plateauing&nbsp;prices, a reasonable base case. However, we believe downside risks are getting elevated. Our five stocks to watch this year includes&nbsp;deep value&nbsp;(Sky TV [SKT]) and beneficiaries of re-opening&nbsp;(SKYCITY [SKC]). We also like "pass through" business models that are largely sheltered from inflation and&nbsp;have included both&nbsp;EBOS (EBO)&nbsp;and&nbsp;Vulcan Steel (VSL).&nbsp;Arvida&nbsp;Group (ARV)&nbsp;is our "coming of age pick" as it is on track to deliver its first green field village and start to reap the benefits of maturing previous acquisitions.&nbsp;</p>
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<h3>Five investment themes for 2022</h3>
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<li><strong>Theme #1: Reopening vs restrictions</strong>&nbsp;— New Zealand (and Australia) should enjoy greater freedoms in 2022, relative to the domestic restrictions in place in recent months and the closed border all year. A gradual phased opening of the border bodes well for the recovery in travel and tourism stocks, while retailers should have more favourable operating conditions through the year.&nbsp;&nbsp;</li>
<li><strong>Theme #2: Inflation not so transitory</strong>&nbsp;—&nbsp;Inflation has accelerated through 2021 and will likely remain high through 2022. This supports our view of constrained market performance as equities generally perform poorly during inflationary periods, as&nbsp;margins typically contract,&nbsp;uncertainty increases and valuation multiples ultimately fall.&nbsp;​​​​​​​</li>
<li><strong>Theme #3: Interest rates and the return of the balance sheet&nbsp;</strong>—&nbsp;Higher interest rates will increase&nbsp;balance sheet risk for more indebted companies and/or those where COVID-19 has impacted earnings. While one major capital raise (Air New Zealand [AIR]) has been flagged for early 2022, others may also be necessary.&nbsp;</li>
<li><strong>Theme #4: Congested supply chains to only partially ease&nbsp;</strong>—&nbsp;Supply chain congestion intensified through 2021 as the boom in consumer demand for products (as opposed to services) together with the existing disruption in container shipping led to a freight rate super-cycle. Freight rates have likely peaked, but will remain elevated through 2022 as congestions eases gradually.&nbsp;&nbsp;</li>
<li><strong>Theme #5:&nbsp;House price risks increasing</strong>&nbsp;— Higher mortgage rates, lower&nbsp;credit availability and increasing supply, given the generational boom in new build rates, suggests an easing of the tail winds that have propelled house prices over the past few years. We recognise that sharp corrections are rare in developed countries and expect&nbsp;slow steady real price erosion.&nbsp;​​​​​​​</li>
</ul>
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Equity Strategy The Year Ahead: Five Themes and Five Stocks


The long&nbsp;market bull run&nbsp;since the GFC appears to be ending as the structural&nbsp;decline in interest rates has reversed.&nbsp;The NZX is facing its first down year in a decade;&nbsp;the benchmark NZX50 index is down ~-2% year-to-date.&nbsp;Looking ahead into 2022,&nbsp;we believe some trends from this southern spring&nbsp;such as inflation,&nbsp;congested supply chains and re-opening will continue to influence stocks. We believe that&nbsp;the ever present theme of interest rates may shift from primarily being one of valuation to also include a focus on a few stretched balance sheets. One theme which we do not expect to be repeated is record house price increases. Consensus expects&nbsp;plateauing&nbsp;prices, a reasonable base case. However, we believe downside risks are getting elevated. Our five stocks to watch this year includes&nbsp;deep value&nbsp;(Sky TV [SKT]) and beneficiaries of re-opening&nbsp;(SKYCITY [SKC]). We also like "pass through" business models that are largely sheltered from inflation and&nbsp;have included both&nbsp;EBOS (EBO)&nbsp;and&nbsp;Vulcan Steel (VSL).&nbsp;Arvida&nbsp;Group (ARV)&nbsp;is our "coming of age pick" as it is on track to deliver its first green field village and start to reap the benefits of maturing previous acquisitions.&nbsp;


Five investment themes for 2022



Theme #1: Reopening vs restrictions&nbsp;— New Zealand (and Australia) should enjoy greater freedoms in 2022, relative to the domestic restrictions in place in recent months and the closed border all year. A gradual phased opening of the border bodes well for the recovery in travel and tourism stocks, while retailers should have more favourable operating conditions through the year.&nbsp;&nbsp;
Theme #2: Inflation not so transitory&nbsp;—&nbsp;Inflation has accelerated through 2021 and will likely remain high through 2022. This supports our view of constrained market performance as equities generally perform poorly during inflationary periods, as&nbsp;margins typically contract,&nbsp;uncertainty increases and valuation multiples ultimately fall.&nbsp;​​​​​​​
Theme #3: Interest rates and the return of the balance sheet&nbsp;—&nbsp;Higher interest rates will increase&nbsp;balance sheet risk for more indebted companies and/or those where COVID-19 has impacted earnings. While one major capital raise (Air New Zealand [AIR]) has been flagged for early 2022, others may also be necessary.&nbsp;
Theme #4: Congested supply chains to only partially ease&nbsp;—&nbsp;Supply chain congestion intensified through 2021 as the boom in consumer demand for products (as opposed to services) together with the existing disruption in container shipping led to a freight rate super-cycle. Freight rates have likely peaked, but will remain elevated through 2022 as congestions eases gradually.&nbsp;&nbsp;
Theme #5:&nbsp;House price risks increasing&nbsp;— Higher mortgage rates, lower&nbsp;credit availability and increasing supply, given the generational boom in new build rates, suggests an easing of the tail winds that have propelled house prices over the past few years. We recognise that sharp corrections are rare in developed countries and expect&nbsp;slow steady real price erosion.&nbsp;​​​​​​​



Equity Strategy: The Year Ahead: Five Themes and Five Stocks