We tend to get some complaints when we write about New Zealand-based issues. This post is one of those New Zealand focused ones. Feel free to skip it if that isn’t what you are interested in.

Dear NZX

We like your work – we really do. The relevance and professionalism of the New Zealand share market has improved by an order of magnitude over the last ten years.

But we also love the quote from Il Gattopardo (The Leopard) – “If we want things to stay as they are, things will have to change”

We know you get that – for New Zealand to remain competitive we need stronger capital markets. The Capital Market Development (CMD) Taskforce has some good thinking – which needs the political support to implement. However, looking at the majority of suggestions – they are 20^th century solutions. Do they need implementing – absolutely. But for a small market like New Zealand we need to be looking at different solutions as well – what works in a big market doesn’t necessarily work here. We need to be looking at more innovative solutions – and again, I do think you get this. Adding Rod Drury to the NZX board is a step in the right direction.

We are in the broad equity research space – and we were disappointed by sections of the CMD Taskforce report. The CMD report (from page 69) outlines a situation where there is limited traditional equity research coverage of smaller listed companies. The CMD report offers solutions including public and private funding of additional equity research (supplied by traditional research providers) – because that is what other markets are doing. There is discussion about a “small levy on trades” (page 70).

Really. That is the best solution we have got. New Zealand is a very small market – quoting the CMD report:

“INFINZ data show that 30 stocks are covered by all six major New Zealand brokerages, and a further 37 stocks are covered by some of those firms. There are 47 (41 percent) NZX companies without any analyst coverage at all, and a further 15 have only one or two analysts covering them. There is generally no coverage of small stocks, and no coverage of the companies on the smaller exchanges, the NZAX or Unlisted.”

“All six major New Zealand brokerages”. Unless the plan is to make a significant investment in research (more than one analyst per company) – and that doesn’t seem possible – why are we bothering? The traditional large market research model doesn’t seem to be relevant here. Never mind that most traditional research reports are virtually impossible for the average retail investor to comprehend – anecdotally the consumption of research reports by retail investors in New Zealand is low. NZX knows where retail investor education is in New Zealand – the large electronic ticker going around the NZX Centre in Wellington uses full company names and the share price not ticker codes and the share price. That is the right thing for NZX to do by the way – but it shows how far we have to go.

Why not start with a plan to provide base financial information and valuation resources for the market? Let’s initially make information and tools available - how people use them is the next step. NZX.com is the logical home for those resources.

There will be traditional coverage where the market deems it worthwhile – the largest companies on the NZX only. For the rest not covered by traditional research (in fact for all of the NZX companies) NZX should be following Jeff Jarvis’ rule from What Would Google Do – “do what you do best and link to the rest”.

Most investors in New Zealand go to the NZX website for information on listed companies. NZX has added news feeds from Fairfax to encourage more engagement – but where is the financial information and analysis? NZX should make base financial information and valuation resources available. NZX.com is in a position to be the default portal for listed company information in New Zealand. There are options available to NZX where other parties are providing free access to information and tools to fill the current gaps on NZX.com.

Example 1 – Reuters

It isn’t well known – but the free Reuters website has good coverage of NZX listed companies. We can use New Zealand’s largest listed company Telecom New Zealand ($TEL.NZ) as an example.

For New Zealand companies all you need to add is a “.nz” suffix to the ticker code and there is a quantity of quality free information. The information is comprehensive – and in a single location. Using $TEL.NZ as an example – consensus analyst estimates, historical financial statements, charts and even paid research options. It isn’t only the large NZX companies – for example Xero ($XRO.NZ) even though they have no analyst coverage.

Example 2 – Valuecruncher

At Valuecruncher we provide interactive valuation tools for listed companies. This already includes 156 companies on the NZX. These are comparator based tools. Using $TEL.NZ as the example again.

Valuecruncher Interactive Analyst Report For Telecom New Zealand ($TEL.NZ)

Our algorithms choose the peer group from an international selection. But you can change the peers to a New Zealand focused group. The tools are interactive.

Disclosure: Yes – one of the solutions is Valuecruncher. In case there is any doubt – that is the company associated with this blog.

NZX – do what you do best and link to the rest. What would Google do? Google Finance uses links to Reuters for deeper data.  NZX.com can be the default financial information and valuation resources location for New Zealand as a first step to a potentially bigger future. It is time to look for specific solutions for this market - not simply copying the actions of larger markets.

Regards,

Mark Clare

Valuecruncher CEO

The Capital Markets Development Taskforce currently reviewing the New Zealand financial markets released am interim report this week. Media reports have focused on a range of issues - one of which is a lack of analyst coverage.

From page 14 of the interim report:

“Work commissioned for the taskforce has found that there is no analyst research is available on 42% of the companies listed on the NZX, and a further 13% of companies have only one or two analysts covering them.”

We would disagree with that assessment. Here at Valuecruncher we cover 156 companies listed on the NZX. This is more than 42% of the companies on the NZSX. We have valuation tools available for companies from Telecom New Zealand ($TEL.NZ) to Xero ($XRO.NZ).

Telecom New Zealand ($TEL.NZ) - Valuecruncher Interactive Analyst Report

Xero ($XRO.NZ) - Valuecruncher Interactive Analyst Report

Now our reports are not the “typical” analyst reports. But we would argue that the current analyst model looks broken - the current model is too expensive and produces research reports that are complex and hard for retail investors to consume. Those are some of the reasons that there is a lack of traditional analyst coverage in markets like New Zealand.

We believe that equity research will change moving forward and while we may not yet know what the final solution looks like - it will be different to what has gone previously. Parties like the The Capital Markets Development Taskforce should be looking at different more innovative solutions and how those can be encouraged.

Clay Shirky - “That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. The importance of any given experiment isn’t apparent at the moment it appears; big changes stall, small changes spread.”

Financial markets need experiments. For small markets like New Zealand - these are vital.