It has been a mixed year for investors – depending on which sharemarkets and which companies they invested in.

While the New Zealand market has disappointed and is likely to end the year slightly down, those who put their money into US markets have had a bumper year.

Kristen Lunman, general manager of investment platform Hatch, says it’s been a great year for long-term investors in the US, with the S&P 500 index up by about 27 per cent.

“We are in a global pandemic and if you had still just stuck in the S&P500 ETF, it has been a very good year for long-term investors – they have just sat back and watched their money grow.”

For Lunman, one of 2021’s highlights has been the bonanza in initial public offers.

“There were a record number of IPOs in the US – 488 – which was double the number in 2020. In addition to that, there were 591 SPACs [special purpose acquisition companies].

“There was just this bonanza of private companies going public. I think what is so interesting about that, it gives everyday investors the ability invest in a company they have been waiting for or to go on the journey with a company.”

Kiwi companies have been part of this, with Rocket Lab and Allbirds listing on the US Nasdaq exchange, which is up more than 20 per cent this year.

“Rocket Lab is probably a really good example of that,” said Lunman. “They could have potentially stayed private longer. But I think that Kiwis really like … they recognise that a number of the companies IPO-ing this year have predominantly been in tech or cybersecurity – they are long term. People are looking at them long term and people are quite content to own a slice of it and have it as their long-term investing strategy.”

Allbirds down

Unfortunately for Allbirds, its share price has struggled since its November IPO, down from US$28.89 to US$14.73.

Lunman said there wasn’t a major event that had sent the shares tumbling, but a combination of its being a young company, market jitters and disappointment over its third-quarter results.

“I think they [investors] didn’t like the smaller margins. They had better revenue but had greater losses, so that meant their margin shrunk.”

She said because the company was a fledgling IPO, there was going to be volatility in its share price and going public was an expensive process.

“That is a massively expensive undertaking to do an IPO. Yes, their costs are going to go up. I think there are some jitters but it is a young company. This is early days. You have got to expect some volatility; most people I know buying Allbirds, it’s because they love the brand and they believe it will take on – they believe it will be the future of apparel and so they are quite happy to sit back and watch it rock and roll.”

Meme stock phenomenon

Lunman said one trend that wasn’t so great this year was the rise of the so-called “meme stocks”, which resulted in investors piling into stocks such as GameStop and AMC.

“While I know that probably far too many investors are millionaires thanks to AMC and GameStop, I think it is probably not a great thing for investing, the rise of the meme stock.

“It is incredibly volatile. I have no doubt people lost money on those investments and it probably introduced an entirely new generation to a form of investing that we probably shouldn’t fall in love with. While some investors did really well on meme stocks it is not necessarily a great thing that has happened.”

Open for business

Shane Solly, portfolio manager at Harbour Asset Management, said one of the best parts of this year was that New Zealand’s sharemarket was very effective in allowing companies to raise capital and debt.

“It has been a really massive year for companies to diversify their debt and that is really important.”

He said new companies like Vulcan Steel had come to the market and had done really well, while existing companies such as Serko had been able to raise equity to continue growing.

Solly said companies like Mainfreight and Ebos had kept growing and delivering attractive returns to investors in a challenging environment.

Alongside that was the increasing commitment to improving environmental, social and governance outcomes from NZ listed companies.

Worst Moments

Solly said the worst moments included the New Zealand market producing a low return for investors.

“We have got a negative return for our market. For a lot of people that have just bought into the benchmark, it has been a low return market. You have to remind yourself we had a really good year last year, it’s not such a good year this year but over time we know markets produce positive returns and that protects against the loss of purchasing power from inflation.”

The stocks that disappointed the most included a2 Milk, My Food Bag and Push Pay.

“A2 has been disappointing but that is for many reasons outside their control – Chinese people delaying having families and competition coming in.

“My Food Bag has been a bit disappointing – at a time when they have continued to grow market share it has not resonated with investors. The business is doing what said they were going to do. They have both got opportunities to get better.”

He said Pushpay shares were down by about 25 per cent this year.

“If you go back a year ago, maybe we were too optimistic about growth in the US. There was an expectation faith groups would move more online but the reality is they have continued to shrink and there are competitors.”

Power generators down

New Zealand’s listed power companies have also seen their share prices hit hard this year thanks to rising bond yields.

But analysts at Jarden believe the bond yield changes have more severely impacted the companies than is justified.

“Over the period from mid-December until today, the 10-year bond has risen from 90bp (basis points) to 240bp, with the average gentailer multiple falling 25 to 30 per cent.

“Historically a 150bp move in the bond market would have had a 15 to 20 per cent negative impact on multiples.”

They say the premium to the 10-year bond adjusted for the enterprise value to earnings before interest, taxes, depreciation, and amortisation ratio (EV/EBITDA) is now only 18 per cent.

“This implies the market has derated the sector by over 10 per cent, after adjusting for the bond yield increase, relative to a year ago.”

The analysts have adjusted their target prices for the sector but only by 5 per cent across the board and say the sector’s cashflow is likely to beat inflation through the 2020s.

Jarden has a buy rating on Contact Energy and overweight ratings on Genesis, Mercury and Meridian.

Campervan merger

The merger of New Zealand and Australia’s two largest campervan companies is on the cards but analysts say approval from competition regulators on both sides of the ditch is not a foregone conclusion.

NZX-listed Tourism Holdings announced a conditional agreement to merge with Australia’s Apollo Tourism and Leisure last Friday in an all-scrip deal that could see Apollo shareholders owning 25 per centof THL and THL shareholders with 75 per cent.

That saw THL’s share price rise from $2.85 to hit $3.14 on Monday – its highest level since pre-pandemic times in late January 2020, although it has fallen back a little since then.

Forsyth Barr analysts Andy Bowley and Matt Noland lifted their target price on the stock by 50c to $3.60 with an assumed deal probability of around 70 per cent.

“The deal is very attractive for both financial and strategic reasons,” the pair said in a note this week.

“We estimate the deal could add at least 75c value per share and is 25 per cent EPS (earnings per share) accretive based on FY19 adjust earnings.”

They say rental market consolidation would provide fleet utilisation benefits and lift industry profit pools.

“However the deal is subject to competition agency clearance in both New Zealand and Australia which shouldn’t be seen as a foregone conclusion given the wide range of potential market definition outcomes.”

Richard Stubbs, portfolio manager at Castle Point Funds Management, said merging Tourism Holdings and Apollo made sense.

“[Tourism Holdings CEO] Grant Webster is a very good operator, and he has a good track record of acquiring. But it is a tough industry.”

Stubbs said the collective market share of the combined entity in New Zealand and Australia would be above 50 per cent, which would make them dominant.

“But there aren’t any real barriers to entry in that industry. Scale isn’t as powerful as in other industries.Just about anyone can buy a few campers using asset finance and rent them out via the internet. As soon as returns look a bit healthy someone new will set up.”

• This is the last Stock Takes column of the year. It will be back on January 21.

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