MARKETS SPECTATOR: Goldman clears Air NZ for take-off

Goldman Sachs has made changes to its conviction list, adding Air New Zealand and Mirvac Group, but giving Emeco and Mineral Deposits the boot.

Goldman Sachs has this morning released its latest update to its Australia & New Zealand conviction list.

This month, the team at Goldman Sachs has decided to add a couple more New Zealand based stocks to its conviction list, including Guinness Peat Group and Air New Zealand, which are both rated buy recommendations.

Locally, it has added Mirvac Group as a buy, but removed both Emeco Holdings and Mineral Deposits from the list.

Regarding the two NZ additions, the broker believes there is an opportunity in Guinness Peat given the improving momentum in the sell-down of its investment portfolio in the second half to date, which has resulted in the company commencing an on-market share buyback of about 15 per cent of its market cap to return surplus proceeds to its shareholders.

Air New Zealand's stock, which has been historically driven by earnings momentum, has been added to the list after Goldman upgraded it from neutral to buy. Goldman recently lifted its adjusted net profit forecast for the airline by 17 and 22 per cent for fiscal 13 and 14 respectively, driven by an expected pickup in underlying long-haul revenue and lower jet fuel prices.

This resulted in a upward revision to the brokers target price from $NZ1.12 to $NZ1.52 to reflect the increase in net profit.

Goldman Sachs also added Mirvac to the list after it upgraded the stock to buy from neutral on relative valuation grounds and its sizable discount to its net tangible asset backing.

"With its earnings underpinned by rental income from the trust, Mirvac has leverage to a turnaround in the Australian residential sector and, in time, cheaper funding costs. Our office sector report is favourable towards Mirvac’s office portfolio and, coupled with its active development pipeline, we see Mirvac as a good way to gain proxy AUS office exposure”, the broker said in a note.

Coming off the conviction list was Emeco and Mineral Deposits. Emeco has been downgraded to neutral from buy following the company’s negative AGM update. It’s initial positive view on the stock has been overshadowed recently by a rapid deterioration in the Australian coal and iron ore sector.

Mineral Deposits was downgraded to neutral from buy as well due to the impact of the revised mineral sands prices and thus Goldman’s forecast for materially lower earnings going forward. Since its inclusion, it has underperformed terribly, falling 13 per cent for an index gain of 1.5 per cent since its inception on 1 September, 2012.

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