The news: Morningstar has added Auckland International Airport, James Hardie Industries and Spark New Zealand to its ‘Best Ideas’ list and removed Brambles and TPG Telecom.
The numbers: Morningstar currently has fair value ratings of $8.45 for Auckland Airport, $48 for James Hardie and $3.20 for Spark.
Auckland Airport shares were up 0.9% to $7.02 at 11:20am AEST. James Hardie shares were up 1.6% to $36.52 and Spark shares rose 0.7% to $2.07.
The context: Morningstar analyst Matthew Hodge said he expects Auckland Airport to generate a “reasonable return” on its major capital investment plan. He believes the market is “unjustifiably” pricing either lower returns on regulated expenditures or weakness in unregulated businesses, such as retail and car parks.
“This presents an attractive entry point into a rare, high-quality, essential infrastructure asset,” he said.
Hodge said James Hardie has a “tremendous runway for growth”, with ageing US houses providing a pipeline of repair and renovation customers, while the company’s strategy to win contracts with large homebuilders is increasing volumes in newbuilds.
Hodge also noted that the building products manufacturer’s “downtrodden” share price is “overblown”, reflecting concerns about the price paid for its AZEK acquisition.
“We see a decent opportunity for sales of the acquired products and are optimistic significant cost savings can be extracted from the merger,” Hodge said.
Meanwhile, Hodge believes Spark’s earnings should recover in line with New Zealand’s economy. The telco is likely to refocus on costs with “decent cost-out targets”, he said.
“On our earnings and dividend forecasts, we think the balance sheet will stay reasonable and could improve with asset sales,” said Hodge. “None of this is reflected in the share price, nor Spark’s moaty mobile business.”
The ‘Best Ideas’ list, chosen from Morningstar’s coverage of around 200 companies, highlights Australian and New Zealand stocks that are currently trading at discounts to the investment house’s assessed fair values.
Auckland Airport, James Hardie and Spark join APA Group, ASX, Aurizon Holdings, Bapcor, Domino’s, Dexus, Endeavour Group, Fineos, IDP Education, IGO, Ramsay Health Care, SiteMinder and Woodside Energy on the list.
The source: Morningstar research