Next Companies to be added to the NZX50, which ones ?

[Beagle]

Third Friday of the last month of each quarter (this one 16/3/2018) is index rebalancing day with the changes to the index announced after close of trade the Friday before (9/3/2018)
With CBL certain to exit and MPG with a market cap of just on only $140m also looking likely this begs the question on who are the likely contenders to replace them ?

I note HLG has a market cap of $273m at $4.60 and after deducting timothy Glassons 20% stake that leaves a free float of $218m. Looks likely they're a contender.

Other possibilities ? please feel free to share your thoughts.

Full disclosure : I hold HLG and have been topping up on SP weakness in recent days.

[winner69]

Hardest part of this exercise is remembering who is the NZX50 these days

Pretty secret isn’t it?





w

[winner69]

Is OCA not in the Index

ARV seems to be in

Must be something wrong with how they select the components

[minimoke]

Is THL in there yet. If not cant be far away.

[Beagle]

Is OCA not in the Index

ARV seems to be in

Must be something wrong with how they select the components

Based on free float. I lot of OCA locked up. Maybe E Road is another ?

[gbogo]

Slightly off-tangent but I heard that XRO will go into the ASX(100?), to be announced 9th March for inclusion 16th Mar.

I also hear talk that Mercury Energy (MCY) will come out of a Global MSCI index in May while ATM will go in.

[Beagle]

Slightly off-tangent but I heard that XRO will go into the ASX(100?), to be announced 9th March for inclusion 16th Mar.

I also hear talk that Mercury Energy (MCY) will come out of a Global MSCI index in May while ATM will go in.

Interesting, what's the date in May of the MSCI rebalance ?

[King1212]

Possible SML?

[44wishlists]

May the 14th will be the Semi-Annual Index Review. You may refer to the following link Mr Beagle.

https://www.msci.com/eqb/pressreleases/archive/ir_dates.pdf

[Beagle]

May the 14th will be the Semi-Annual Index Review. You may refer to the following link Mr Beagle.

https://www.msci.com/eqb/pressreleases/archive/ir_dates.pdf

Much appreciated. Thank you.

[Snoopy]

Other possibilities ? please feel free to share your thoughts.


Skellerup (SKL): 192.8m shares @ $1.83 = $352m market cap. Less the 7.3% stake held by the Cushings vehicle H&G Limited and I get a free float pf $326m

SNOOPY

[Balance]

So it’s Metro Glass out and Gentrack in

[Rep]

Based on free float. I lot of OCA locked up. Maybe E Road is another ?

Well kind of based on free float - this is from the NZX https://www.nzx.com/files/static/NZX-Equity-Indices-Methodology.pdf

Free Float – the portion of a security that is freely tradeable. Large, non-traded share holdings will be classed as Strategic and excluded from the Free Float. NZX’s criteria for Strategic holdings are discussed further in the methodology for those indices that use Free Float.

The NZX 50 Index is weighted by an innovative “Modified Free Float” methodology. Tailored to suit the intricacies of the New Zealand market, this
weighting methodology is intended to enhance the liquidity of the index whilst maintaining diversity, and is explained in detail in the methodology section that follows. Key aspects of the methodology include:
Some of the largest (and hence usually most liquid) constituents, if they have exclusions from Free Float, are allowed an up-weighted Index Weight, higher than Free Float and closer to their full market capitalisation, thus increasing the overall liquidity of the index and reducing index concentration on the largest companies that are fully Free Float.
The smallest (and hence usually least liquid) constituents are down-weighted to an Index Weight below their Free Float, again improving the overall liquidity of the index.
The Modified Free Float methodology is applied using impartial mathematical methods, to ensure all index constituents are treated in a fair and transparent manner.


Well kind of transparent... the innovative upweighting is like this - companies with a NZ market cap of $1.2b then free float is considered to be NZX market capitalisation despite any strategic holdings so technically it's only free float for anyone who isn't part of the big boys club...
If you have a market cap between $600m and $1.2 billion depending on how big you are, then strategic holdings will be effectively be partially ignored so the closer you are to the $1.2b big boys club, the more the NZX pretends there aren't any strategic holding for calculating free float but if you are closer to $600m then they tend to care more... because you aren't as close to making more fees for the big boys broker... if you are between $200m and $600m then it's free float because you can't generate the broking fees - below $200m then you are downweighted below the free float market cap the further away from $200m then you might see a greater negative loading...

The reality is that unless you are one of the brokers or pay NZX a fee for the data then you can't work out the constituents because as far as I am aware the upweights and downweights aren't shown anywhere that is in the public domain. And despite what most folk are lead to believe, so long as your market cap is big enough then someone could hold a significant holding but is doesn't matter for the purposes of the free float... hence FBU gets upweighted in the index because it's big.

I've often said that just because companies end up on the NZX 50 it doesn't actually say that they are good investments they might be large enough so they have be indexed up because of the upweights. I shudder to think of what some Kiwisaver balances and passive funds might otherwise have been if the funds hadn't had to buy @#$%house large companies and be indexed up just because they are big whereas companies like ATM only end up being indexed in when they have already realised most of their growth.

[Balance]

NZX reminds one of the rulers of old in Asia and Europe - keep information and knowledge exclusive to the ruling class to preserve their overlord status.

The rest are but peasants fated to serve the master class.

Go over to ASX and you find the index information readily available.

[Scrunch]

So it’s Metro Glass out and Gentrack in

So the latest entry into the NZX50 has a market cap of just over $500m. Gentrack closed at $6.30 on Thursday and had 83.7m shares on issue ($527m market cap). 4-traders puts the float at 49.5m making the float market cap $312m.

Must have made it touch and go between them and SKL. Using the same 4-traders numbers the float on SKL is 166.1m shares which at $1.83 is a float market cap of $304m. Who else is over say $280m market cap using float calculations?

[Scrunch]

Based on free float. I lot of OCA locked up. Maybe E Road is another ?

OCA has a market cap of around $600m (610m shares on issue) and trading at 98c at the time of writing. A dominant 57% shareholder ties most of these up. Float of circa 246m (from 4-traders) means they are well below SKL on a free float basis unless their share price gets to around $1.25 and SKL stays where it is.

[Beagle]

So it’s Metro Glass out and Gentrack in

Yeap, didn't pick that but then again neither did anyone else.

[McGinty]

Well kind of based on free float - this is from the NZX https://www.nzx.com/files/static/NZX-Equity-Indices-Methodology.pdf

Free Float – the portion of a security that is freely tradeable. Large, non-traded share holdings will be classed as Strategic and excluded from the Free Float. NZX’s criteria for Strategic holdings are discussed further in the methodology for those indices that use Free Float.

The NZX 50 Index is weighted by an innovative “Modified Free Float” methodology. Tailored to suit the intricacies of the New Zealand market, this
weighting methodology is intended to enhance the liquidity of the index whilst maintaining diversity, and is explained in detail in the methodology section that follows. Key aspects of the methodology include:
Some of the largest (and hence usually most liquid) constituents, if they have exclusions from Free Float, are allowed an up-weighted Index Weight, higher than Free Float and closer to their full market capitalisation, thus increasing the overall liquidity of the index and reducing index concentration on the largest companies that are fully Free Float.
The smallest (and hence usually least liquid) constituents are down-weighted to an Index Weight below their Free Float, again improving the overall liquidity of the index.
The Modified Free Float methodology is applied using impartial mathematical methods, to ensure all index constituents are treated in a fair and transparent manner.


Well kind of transparent... the innovative upweighting is like this - companies with a NZ market cap of $1.2b then free float is considered to be NZX market capitalisation despite any strategic holdings so technically it's only free float for anyone who isn't part of the big boys club...
If you have a market cap between $600m and $1.2 billion depending on how big you are, then strategic holdings will be effectively be partially ignored so the closer you are to the $1.2b big boys club, the more the NZX pretends there aren't any strategic holding for calculating free float but if you are closer to $600m then they tend to care more... because you aren't as close to making more fees for the big boys broker... if you are between $200m and $600m then it's free float because you can't generate the broking fees - below $200m then you are downweighted below the free float market cap the further away from $200m then you might see a greater negative loading...

The reality is that unless you are one of the brokers or pay NZX a fee for the data then you can't work out the constituents because as far as I am aware the upweights and downweights aren't shown anywhere that is in the public domain. And despite what most folk are lead to believe, so long as your market cap is big enough then someone could hold a significant holding but is doesn't matter for the purposes of the free float... hence FBU gets upweighted in the index because it's big.

I've often said that just because companies end up on the NZX 50 it doesn't actually say that they are good investments they might be large enough so they have be indexed up because of the upweights. I shudder to think of what some Kiwisaver balances and passive funds might otherwise have been if the funds hadn't had to buy @#$%house large companies and be indexed up just because they are big whereas companies like ATM only end up being indexed in when they have already realised most of their growth.

Thanks for your insight with the break down off the NZX50 methodology, as things are getting less transparent these days.

Did you have some experience (either the NZX or broker) to gain this understanding of the methodology?

[Rep]

Thanks for your insight with the break down off the NZX50 methodology, as things are getting less transparent these days.

Did you have some experience (either the NZX or broker) to gain this understanding of the methodology?

Hello McGinty

Actually neither as I have not worked with either. I have worked for a company listed on the NZX which came out of the NZ50 and did some modelling around what was necessary to get back into the Index.

I ran some modelling around what I had been told about free float and couldn’t come back to the index weights on my simulation until I happened upon the document that I referenced in my note about the top tier caps and the innovative modified free float. I asked the NZX for the weighting adjustments and the reply was why would we give that away for free?

So the conclusion I drew was that it wasn’t very transparent unless you were a broker or a big fund and probably got the information for nothing. But even as a constituent member of the NZX and paying listing fees, folk at the NZX still weren’t happy to provide as they considered part of their IP.

Happy outcome was that the company did reenter the NZ50 mainly because the underlying performance meant that the SP grew enough to increase the free float market cap and it has stayed there ever since (although I moved on.j

[Snoopy]

Skellerup (SKL): 192.8m shares @ $1.83 = $352m market cap. Less the 7.3% stake held by the Cushings vehicle H&G Limited and I get a free float pf $326m


Skellerup market cap up again:

192.8m shares @ $2.15 = $415m

Must be knocking on the door of that NZX50 again, yet the quarterly index NZX50 adjustment says 'no change'.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/NZXO/323580/286387.pdf

I await the 'big push' by those index fund buyers for SKL in the December quarter.

SNOOPY

[Beagle]

Skellerup market cap up again:

192.8m shares @ $2.15 = $415m

Must be knocking on the door of that NZX50 again, yet the quarterly index NZX50 adjustment says 'no change'.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/NZXO/323580/286387.pdf

I await the 'big push' by those index fund buyers for SKL in the December quarter.

SNOOPY

Is it all free float though Snoopy ?
Will be an interesting contest with OCA which after the recent Maquarie sell down their stake at 41.65% is not free float but at $1.20 this leaves an apparent free float market cap of $427m. Could OCA be the new entrant to the NZX50 on the next rebalance date (third Friday in December 2018) ?

[Snoopy]

Skellerup market cap up again:

192.8m shares @ $2.15 = $415m

Must be knocking on the door of that NZX50 again, yet the quarterly index NZX50 adjustment says 'no change'.



Is it all free float though Snoopy ?
Will be an interesting contest with OCA which after the recent Maquarie sell down their stake at 41.65% is not free float but at $1.20 this leaves an apparent free float market cap of $427m. Could OCA be the new entrant to the NZX50 on the next rebalance date (third Friday in December 2018) ?

With the departure of Trade Me and Restaurant Brands likely, because of takeover activity, surely the day of NZX50 index inclusion both SKL and OCA is coming?

Free float estimates as of today below:

SKL: $2.12 x 192.8m x (1-0.073) = $379m

OCA: $1.02 / $1.20 x $427m = $363m

c.f. post Global Valar Restaurant Brands free float following takeover:

RBD: $8.20 x 125m x (1-0.75) = $256m

SNOOPY