Smaller stocks surprise in stellar year

16:00, Dec 31 2012

It has been a great year for shares on the New Zealand sharemarket.

The NZX 50 gross index, which tracks the value of the top 50 companies and includes dividends, soared 24.5 per cent for the year compared with 2011, when the index dipped about 1 per cent.

The NZX 50 opened at 3274.71 on January 3, 2012 and closed yesterday, December 31, at 4066.51, down 14 points on the last day of the year.

Sharebroker Hamilton Hindin Greene partner Grant Williamson said it had been the best year for the NZX 50 since 2004, when the NZX 50 gross index gained 25 per cent.

"It's been an absolute stellar year for investors on the local market," Williamson said.

The NZX 50 is still shy of its 2007 peak of 4342.


"I think investors will be extremely happy considering the rather dismal returns they would have received off interest rates or term deposits and maybe even property hasn't been doing too well," he said.

"Really, 2012 has been the year of the equity market."

Two IT stocks were the stand-out performers of the NZX 50 in 2012.

The first was Diligent Board Member Services, whose shares rocketed 183 per cent for the year and closed at $5.47 yesterday. It's a third spectacular year for the company, which also soared 183 per cent in 2011 and 175 per cent in 2010.

Diligent provides software allowing company directors to securely access board documents online rather than on paper.

Diligent has reversed the poor fortunes it experienced after listing in 2007 when issues over directors resulted in the shares plummeting 80 per cent to 15c by the end of 2008.

The other star was Wellington accounting software firm Xero, soaring 175 per cent for the year and closing at $7.60 yesterday.

Williamson said three retailers on the NZX 50 had proven strong investments.

The shares of children's clothing retailer Pumpkin Patch, which is turning its business around after closing its United Kingdom and United States businesses, gained 109 per cent for the year. Retailer Briscoe Group rose 62 per cent, and clothing company Hallenstein Glassons 50 per cent.

Shares in retirement villages were also a strong bet. Stellar South Island performer Ryman Healthcare gained 68 per cent, Summerset group was up 67 per cent and Metlifecare up 37 per cent.

The underperformers included telecommunications network company Chorus, down 0.2 per cent, NZ Refining down 9 per cent, and carpet maker Cavalier Corporation down 13 per cent.

"Overall, if you were nicely diversified in the market you would have done well," Williamson said.

Craigs Investment Partners adviser Greg Easton said it was a bit of a mystery why Xero had risen so much as it was not making much money. He said the future was not bleak for Cavalier, expected to benefit from the post-earthquakes rebuild of Christchurch homes.

Chorus' other half, Telecom, was up a very healthy 24.7 per cent for the year.

Among the small companies was a startling 1150 per cent leap in the share price of Veritas, a penny dreadful that not many investors will have heard of. It started the year at 0.7c and ended at 10c.

Veritas was previously Salvus Asset Management, which had sold most of its assets. It announced two weeks ago it was buying The Mad Butcher for $40 million and would have a capital raising in 2013.

Easton said another extraordinary climber was finance and insurance firm Dorchester Pacific, "a phoenix rising from the ashes". Its shares rose 327 per cent for the year, starting at 7.5c and closing at 32c yesterday.

Dorchester had managed to restructure and find new investors including Aucklanders Grant Baker, Geoff Ross and Hugh Green buying $8 million of convertible notes in late 2011 to keep the company going.

Williamson said local shares were in demand from local and international investors.

"There's been a lot of foreign buying in the local market."

They liked the New Zealand dollar and regarded the New Zealand economy as doing pretty well compared with others.

The KiwiSaver funds were helping to drive the local sharemarket as well.

"I think probably the biggest disappointment for 2012 will be the lack of new listings that have come to the market," Williamson said.

Other South Island stocks to show good form were Scott Technology up 65 per cent for the year and Ebos up 27 per cent.

Easton said some small stocks like Burgerfuel had surprised with a 192 per cent gain, while Dunedin biotech company Pacific Edge, developing tests for bladder cancer, jumped 189 per cent.

Easton said a lack of alternative investments and low interest rates drew investor funds to the local sharemarket in 2012 but investors might venture more overseas in 2013.

He doubted the NZX 50 could repeat a 24.5 per cent rise in 2013 but he was still optimistic for the year. "The market will still beat the banks hopefully.

"I guess 2012 has shown you have to be in to win," Easton said.

Williamson said the American "fiscal cliff" problems would add uncertainty to the sharemarket in the first quarter and could cause some anxious moments and sharemarket volatility.

But he believed the fundamentals were solid for the New Zealand market. Low-interest rates would continue to underpin demand for share investments.


Top large stocks for 2012

Diligent up 183 per cent.

Xero up 175 per cent.

Pumpkin Patch up 109 per cent.

Ryman Healthcare up 68 per cent.

Summerset up 67 per cent.

Scott Technology up 65 per cent.


Pyne Gould Corporation down 23 per cent.

Rakon down 18 per cent.

Cavalier down 13 per cent.

NZ Refining down 9 per cent.