Good, bad, ugly — 2020 had it all
Some companies shone, but others would rather forget the past 12 months
Covid-19 has driven a rollercoaster ride in sharemarkets this year, with thenzxplummeting in February and March only to bounce back just as quickly.
Since then it has continued to rise, hitting fresh highs. For the year to date, the Nzx50isupby about 12 per cent— something that would have surprisedmanypeople if they’d been asked at the beginning ofnew Zealand’s level 4 lockdown.
Butamongthe ups and downs, somecompanies have shone and others have been either very unlucky in theirmanagement or had poor timing.
Stock Takes talked to four fund managers thisweek about their views on the good, the bad and the ugly momentsin 2020.
Thegood
It’s probably no surprise thatmany see the performance of Fisher& Paykel Healthcare as a standout this year.
Mark Brown, chief investment officer at Devonfunds Management, saysf&pwas the gift that kept giving.
“Insomeways they have been lucky but in other waysthey have actuallymanaged it enormously well to get production to peoplewho needed it.
“Atsomepoint yousawtheir gross margins hadcomedownslightly because they didn’t actually abuse their customer base by pricingupand savaging them. They had amuch longer-term view on the world.”
Harbour Asset Management’s Shane Solly points to Pacific Edge as another highlight.
“Pacific Edge and its patience as an overnight success over 10 years. We have a bunch of businesses innzthat are overnight successes over 10 years. Xero is another one where the stock price is up84 per cent.”
Solly says Mainfreight’s long-term view also paid off this year, while the retirement village sector has stoodup well in protecting its residents from the pandemic and isnowseeing the payback in increased demand.
Thebad
Samtrethewey, portfolio manager at Milford Asset Management, says his worstmomentwasthe Metlifecare takeover.
“Private equity biddereqt engaged in a schemeof arrangement at $7 pre-covid and the board allowed theminto the tent at that point and then Covid hit.
“Therewasa legal fight around the material adverse event clause in the contract and the situation they ended upin was: Accept the $6 offer orwe will fight you in the courts for however long it takes and burnup moneyon legal fees.
“Ultimately itcamedowntowho had the deeper pockets and put the Metlifecare board and shareholders in a very awkwardsituation and resulted in acovid discount being given out.”
Forbrown itwas Kathmandu’s capital raising. “They did it at the absolute worstmomentin time— I’m sure they felt itwasa prudent thing to do at the time— they absolutely diluted shareholders and did this monster capital raising. They were already overgeared given they had bought Ripcurl.”
Solly says Covid-19 exposedsome businesses that lacked operational and financial resilience.
Hesays Skytvwasa loser with Covid-19 accelerating the structural changes already happening, such as themoveto streaming service Netflix.
“They havemadesometough decisions but it’s going to take time to see whether it actually works.”
Solly says cinema software firm Vistawasright in the firing zone.
“It is not bad; it is just ugly. They have a very focused client base. Similarly, things like Sanford— people not eating out overseas so not buying fish.”
Hesays Covid alsoshowedthat Airnewzealand perhaps didnot have enough resilience.
“If you look back a year ago— everythingwasgoing well to the point where they were talking about a special dividend, paying capital back, but actually it needed to be operated with a bitmoreresilience. I think having said all that, they have done a good jobnowof trying to arrest this— there have beensome really hard decisionsmade there.”
Solly says Z Energy is also one that got caught out by the Covid shock.
“Z Energy is one of the businesses people would often put inthe mix and think this is pretty sustainable, where is the risk here? People will fuelup in good times and bad, but they didn’t so you’ve got this massive business that had never seen a demandshock.”
Hesays there wasnotmuchthe companycould do, but it is also a business that faces medium-term structural change as people look to reduce their carbon footprint.
“Nomatter what framework that takes— electric/hybrid— this event has really dragged forward and highlighted businesses that are really dependent on the good times.”
Theugly
Trethewey says anycompanythat raised capital in March or April created an ugly situation for shareholderswhosestakes were very diluted as a result.
“Aucklandairport and Kathmanduboth foundthemselves in very tight spots. Aucklandairport, their debt profilewasincredibly short-dated and it forcedtheminto a very large capital raising— 20per cent of their register and very short notice and at a price . . . that share price is near doublenow.
“Kathmanduwaseven worse. Existing shareholders endedupwith about 45 per cent of the business post the capital raising andagain the share price hasmore than doubled since then. It just shows that if you have toomuchdebt or debt maturing at the wrong time, whenyour revenue driesupthen youget whacked.”
Brownsays the departure of Sanford’s chief executive in the middle of the Covid outbreakwas also an uglymomentfor him.
“The loss of that guy for themhas been massive, especially at a time whenyouneed someone to navigate you out of Covid.
“I think inthese times a safe pair of hands and a good handover period . . . I think thatwashandled really badly and of course the share price has suffered.”
Castle Point’s Stephen Bennie says it has also been a very ugly year for anyone saving for their first home. “Residential house prices are becoming a significant social problem fornewzealand.”
Bennie reckons the highlightwill be December 31, and the end of one of themost stressful years in living memory. “Lockdowns, job losses, droughts, harbour bridge closures, families separated, share market crashes, losing toargentina, travel restrictions, the list feels endless.”
Stock Takes couldn’t agree more. Merry Christmas to all and let’s hope 2021 is a better year all round.