Ratings for NZX Top 50 companies
23 July 2004
Rapid Ratings issues ratings for NZX Top 50 companies.
Rapid Ratings, a majority owned subsidiary of Collection House (a listed Australian company) has released its second annual ratings for all the NZX Top 50 Companies. It the only rating agency in New Zealand that provides credit ratings for all listed companies in the country. The newly released ratings are contained in the NZ Top 50 Report , which is a comparative risk review of the top 50 companies listed on the NZ Stock Exchange.
Rapid Ratings is the only global rating agency that takes a scientific approach to corporate financials. The ratings are based on 62 financial ratios, which are benchmarked against data from more than 250,000 companies across 30 years from more than a dozen countries. Around 15,000 listed companies are rated in New Zealand, Australia, Singapore, Canada, the US and the UK.
Dr. Patrick Caragata, Managing Director and CEO of Rapid Ratings, said that “Overall the NZ Top 50 Index is rated as being of reasonably good quality, but keep in mind that things change. For the last two years, the index has scored an investment grade rating of B3, however, this possibly understates its quality because it is a weighted rating. If we removed Carter Holt Harvey, which is rated well below investment grade and representing around 10% of the index, we find that lifts the index rating significantly. New Zealanders are fortunate investing in an investment grade index at the moment. If I were to compare it with another index we have rated recently, the Toronto Stock Exchange Top 60 Index, which is rated a C1- or borderline investment grade, the NZ Top 50 is certainly a safer bet.”
Drilling down to individual companies, the 5 NZX companies with the highest rating, in rank order, are Sky Network TV Ltd, Freightways Ltd, Telecom Corp of NZ Ltd, Auckland Int. Airport Ltd, Telstra Ltd, (Refer to Table 1.) The 5 NZX companies with the lowest rating, in rank order are Carter Holt Harvey Ltd, Tenon Ltd, Rubicon Ltd, AMP Ltd, BIL International Ltd. He noted that the major surprises in this report are the significant improvement of Sky Network Television, which is now the top rated NZ company, and Trustpower.
The NZX Top 50 Report outlines ratings ranking from 1 to 50 for all listed companies within the NZ Top 50. In addition to the ratings, it also includes rating outlooks for all companies. In the July 2004 edition, around 40% of the NZX Top 50 companies rated are indicating a Positive outlook, 37% are showing a Negative outlook and the balance of around 23% have a Stable outlook.
Table 1: Top 5 rated companies based on most current rating
Rank Company 2002 2003 Most current
1 Sky Network TV Ltd D2 33 B4 60 A3 87
2 Freightways Ltd A4 81 A4 82 A3 86
3 Telecom Corp of NZ Ltd A3 87 A3 88 A4 84
4 Auckland Int. Airport Ltd B1 77 A4 82 A4 82
5 Telstra Ltd A4 84 A4 83 A4 81
Table 2: Lowest 5 rated companies
based on most current rating
Rank Company 2002 2003 Most current
1 Carter Holt Harvey Ltd D2 30 E1 17 E1 17
2 Tenon Ltd E1 17 E1 18 E1 19
3 Rubicon Ltd C2 50 D4 20 D4 20
4 AMP Ltd E1 16 D4 21 D4 21
5 BIL International Ltd D2 34 D4 20 D3 29
Dr. Caragata, who is the creator of Rapid Ratings software and the author of Business Early Warning Systems: Corporate Governance for the New Millennium (Butterworths, 1999) stated that there is a growing demand in international markets for independent and objective equity research and credit ratings of listed companies in the aftermath of corporate scandals and bankruptcies a few years ago. He noted that, “this is symptomatic of the increasing influence of the baby boom generation on equity markets and their desire to protect their assets as they prepare for retirement. This generation is the best educated generation in history and is placing increasing and intense pressure on regulators, investment funds, brokers and financial planners for much more transparency in markets, more corporate accountability and better and more objective performance measurement, all of which are core governance issues.”
Using only publicly available corporate financials and no other sources of information, Rapid Ratings has a tremendous track record of anticipating the distress of companies before they collapse or become distressed, and of anticipating the turnaround of troubled companies.
Its success in establishing that Enron was in serious trouble four years in a row before its collapse in December 2001 propelled the rating agency on to the global stage. It now has offices in New York, Toronto and Singapore as well as New Zealand (where it started in 1997) and Australia (its headquarters are in Brisbane). Closer to home, the Rapid’s ratings determined that both Air NZ and AMP were starting to struggle in 1998, and that HIH was in distress every year beginning in 1996, 5 years before collapse.
The NZ Top 50 Report (A Comparative Risk Review of the Top 50 companies listed on the NZX) is updated semi-annually and is available for purchase from Rapid Ratings Pty Ltd.