A Stock for 2025...

I have a decision to make this year. I currently have some cash in my NZX account, and I want to use it this year. I have a Term Deposit, with maturity in June, so the cash in my NZX account isn't all of my spare funds. I have been buying more index funds throughout the year, and I probably own enough now. I have learnt from past experiences that dividends aren't everything, so I'm not just going to buy stocks that have high dividends, like Fonterra. I want to avoid buying into another SMCI this year, which is down 60% since I brought it (luckily I didn't buy much). So I want to steer clear from anything with a lot of financial risk attached to it. The phase, 'go woke, go broke' keeps cropping up for me, but if the financial returns are good, then it shouldn't matter if I buy a woke company.

Thinking of a woke NZ company, Infratil has been a prospective investment of mine before. The reason why I think they have gone woke is that ESG (Environmental, Social Governance) is mentioned in all of their board statements. Although I think noting ESG goals is quite common amongst publicly listed companies. Their 3 main investments are Longroad Energy, CDC Data Centres and One.NZ (of which they recently acquired 100%). Solar Power is a notoriously inefficient way of generating energy. Telecommunications companies are slow growth, despite being technology intensive. Infratil's best investment is in CDC Data Centres (of which they own 48%). The increasing reliance on artificial intelligence will result in more demand for data. Nevertheless, Infratil's total shareholder returns over the last five years is 23% per annum. Their current share price is $12.60, up 25.6% over the past year.

Another company I may buy is Channel Infrastructure, which own what used to be the Marsden Point oil refinery, but is now an import terminal. Craig's think that this transition will lead to more stable revenues. Their share price has only just recovered to what it was pre-Covid. Their 3 customers are BP, Z Energy and Mobil. They have recently entered into a contract with Fortescue Future Industries to provide sustainable jet fuel to Air NZ. Jet fuel demands have been increasing, and is forecast to increase 50% by 2050, Diesel and petrol demand is predicted to remain relatively stable over the next decade (1-3%). Their EBITDA margins have been 68-69% for the last 2 years, and total revenue has grown by 8%, which is pretty healthy. At 6.47%, their dividend yield is high, but they retain 30-40% of their earnings. At 40%, their gearing ratio is quite high. So considering their high gearing and limited customer base, perhaps Channel Infrastructure isn't the best investment for 2025.

Another potential is Summerset Retirement Villages, the 2nd largest retirement home operator in NZ, and the fastest growing. The sudden downfall of Ryman, which has fallen from a high of $15.40 to $4.70 now, could possibly happen to Summerset as well. The current share price is $13.11. They pay a 1.87% dividend from a 40% payout ratio. They trade on a price-to-book of 1.15. With 41 villages, they have 8,400 residents and 5,301 units in land bank, 34.7% gearing and a 32% development margin. They have $11.43 tangible assets per share, and a 30% increase in net operating profit. Revenues are growing at 17%, while the PE Ratio is only 7.6. However, net operating profit was only 3.2%. With their large land bank of units and growing revenues it appears that Summerset are well placed. I think Summerset would make a good core holding, but I would buy it in increments, not all at once.

I mentioned Fonterra before, and while Craig's only have them as a niche holding, they would add diversification. I wouldn't put all my money into Fonterra, because they are prone to commodity price swings, but they are worth a look. Only a small portion of the company is listed on the market, as it is essentially a farmer co-operative company. Their dividend is currently 13.1%, thanks in large part to our low dollar keeping export prices high. They have recently folded their Chinese added-value consumer brands, in favour of having a more simple milk powder commodity business, and streamlining efficiencies. Profit after tax was $1.7B, and a special dividend was announced in 2024. They offer a Reinvestment Plan, so I could reinvest those big dividends. There is significant exchange rate risk though, and I know not to try and make a bet on which way our dollar will go. So I won't buy any Fonterra just yet. But if their price were to come down, I may revisit.

The risk with Infratil is if the revenue growth from CDC Data Centres slows, although I don't think it will. With Summerset, there is a risk that they could lose their luster, just as Ryman has. But they do have 41 villages, over 8,000 residents, and strong revenue growth. And property prices are predicted to rise across the country this year, which will add to their total asset value. The question now becomes whether I buy one or both. Either way, its probably best for me to wait for a correction in the wider markets. Ultimately I want something that will not lose money on, and while I think Summerset is great, Infratil have shown consistent share price growth since their listing in 1994.