Weekly Broker Wrap: NZ Market, Insurance, Supermarkets And Hospitals

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            [4] => ((SUN))
            [5] => ((ORG))
            [6] => ((FBU))
            [7] => ((TME))
            [8] => ((HVN))
            [9] => ((GFF))
            [10] => ((PMV))
            [11] => ((AMP))
            [12] => ((NAB))
            [13] => ((IAG))
            [14] => ((QBE))
            [15] => ((IFL))
            [16] => ((WOW))
            [17] => ((RHC))
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            [7] => TME
            [8] => HVN
            [9] => GFF
            [10] => PMV
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            [12] => NAB
            [13] => IAG
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            [15] => IFL
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This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

-Make active choices – Crowe Horvath
-NZ market looks prime for Credit Suisse
-Life insurance remains contentious
-Confidence in wealth improving
-Getting tougher for supermarkets
-Value outside of Australia in hospitals
 

By Eva Brocklehurst

What are the best investment ideas for 2014? According to Crowe Horvath change is the one constant in the theme and investors should be making more active choices in portfolios. The financial advice specialist believe companies which have invested time and resources into reinventing both themselves and their products should be the foundation for a well performing portfolio. Specifically, this includes CSL ((CSL)), which has invested in technology and R&D to acquire market share. Also, Australia's travel industry is well placed to benefit from the baby boomers' penchant for travel as they retire. Those coming the other way, ie the increasing middle classes of China and India, are also expected to support the local travel industry. This means that, over time, Crowe Horvath is increasing clients' exposure to major airport infrastructure assets, such as Sydney Airport ((SYD)).

Quality property and infrastructure assets are a viable alternative for those wanting to move away form the safety of term deposits and cash but still require sustainable income in a low interest rate environment. Crowe Horvath favours exposure to mature and established infrastructure through companies like APA Group ((APA)). The financial adviser also warns investors not to fall into a yield trap but look for quality stocks with both rising dividends and share prices. In terms of offshore investment, the focus is on the recovery in the US market. Crowe Horvath also notes that those companies that are cashed up are likely to be looking at mergers and acquisitions this year. Lastly, what to do with bank stocks? Crowe Horvath advises that, if they're owned for income, they're still providing attractive yields. If the investor is looking for growth then that's to be found elsewhere, as the bank stocks look fully priced.

New Zealand is the new black, in terms of Credit Suisse's regional investment strategy. Economic growth across the Tasman is accelerating. Forecasts for NZ GDP growth of 3.4% in 2014 compare with Australia's sub-trend expectations around 2%. Key stocks are in the dairy industry, with a rebound in prices and exports in that sector alone seen adding around 2.0 percentage points to the nation's GDP. The other aspect is exposure to the re-building of Christchurch. Credit Suisse notes the recovery is broadening and confidence indicators are close to decade highs.

The broker expects the Reserve Bank of New Zealand to be the first central bank in the developed world to raise rates. Moreover, the NZ dollar is now close to parity with its Australian counterpart. This is a positive for Australian companies with NZ businesses. Credit Suisse highlights some Australian-listed businesses with at least 10% revenue exposure to New Zealand as including ANZ Bank ((ANZ)), Suncorp ((SUN)), Origin Energy ((ORG)), Fletcher Building ((FBU)), Trade Me ((TME)), Harvey Norman ((HVN)), Goodman Fielder ((GFF)) and Premier Investments ((PMV)).

Life insurance statistics show not much has changed for the sector over recent months. Credit Suisse notes that, while a lot has been said about addressing the issue of lapse rates and increasing premium rates, very little action has been taken to date. The broker considers earnings risk are still there, even though downgrades in recent years have reduced the life contribution to group earnings. AMP's ((AMP)) exposure to life insurance is around 15% while for Suncorp its is around 12%, according to Credit Suisse.

AMP and National Australia Bank ((NAB)) appear to be losing market share in life but this is not necessarily bad in the broker's view, given the pressures in the industry. Morgan Stanley believes the outlook for the retail life business is more promising and margins seem to be near cyclical lows. Still, the broker is not overly bullish and flags a continuing risk to growth and margins, making the observation that, while losses in disability appear to have stabilised, profits remain elusive.

On the subject of wealth, Morgan Stanley is encouraged by improving flow trends and rising investor confidence. Cash tucked away in term deposits has peaked, although the broker is cautious about margin upside from any switch back into growth assets. Morgan Stanley notes asset allocations appear broadly similar to levels prior to the global financial crisis. Morgan Stanley prefers wealth managers over domestic insurers, as there's more upside for earnings, supportive markets and regulatory tailwinds. The broker acknowledges that insurer trading multiples are attractive, with the highest sector discount to the market since November 2009. Morgan Stanley's order of preference in insurers/wealth management is AMP, Insurance Australia Group ((IAG)), Suncorp, QBE Insurance ((QBE)) and IOOF ((IFL)).

UBS finds competition is picking up in the broader insurance market. The broker had noted this theme in personal lines and this underscored an Underweight rating on the general insurance sector last year. Now, anecdotes suggest that the commercial market by be slowing at a greater rate than first thought. IAG downgraded gross written premium guidance last week and UBS understands intermediated business – largely commercial – was a contributing factor. The broker does not expect that the two major insurers – IAG and Suncorp – will now be able to grow premium through increasing market share with stable rates. UBS thinks QBE offers the most upside based on value metrics.

BA-Merrill Lynch has been surprised by the ability of the two supermarket chains to increase margins in the past two years in the face of increasing competition, price deflation and the rising cost of doing business. This is particularly the case for Woolworths ((WOW)), which has one of the highest earnings/sales margin in the world and where sales growth was slowing. Where the broker thinks the two supermarkets have been executing well is on growing market share at the expensive of independent grocers. They have leveraged strong balance sheets by rolling out new stores and eclipsing the independents, which do not have the financial capacity to compete on capital expansion. The second reason is the ability of the chains to extract better buying terms and conditions from suppliers, with a material amount of value being transferred from the suppliers' margin to the supermarket.

All this could be approaching an end, as Merrills notes the Australian Competition and Consumer Commission appears to be stepping up its scrutiny of the activities of the chains. Hence, the broker suspects that growth in the next three years will be harder to achieve than in the past three.

CIMB is positive about the private hospital sector, with its strong underlying fundamentals and solid growth prospects, but suggests stock selection should be the focus instead of sector allocation, as valuations differ widely. This is particularly the case when looking across the Asia Pacific region. There are considerable differences in health care funding, infrastructure and regulatory situations. In developing regions the broker sees the core drivers as increasing demand for more and better health care, strong urbanisation and growing medical tourism. In a mature market such as Australia the drivers are incremental growth, scale extraction via consolidation or regional expansion and cost containment. The Australian names do not merit Add ratings, with the broker believing the better earnings profile offers value in Thai and Singapore stocks compared with the likes of Ramsay Health Care ((RHC)), which has a Hold rating.
 

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