Friday, October 5, 2007

Share Investor's Friday Free for all: Edition 6

Sign O' the Times



Monday morning I get an expensive looking flash black annual report in my mailbox from Auckland International Airport(AIA) and it comes festooned with the artistic equivalent of the anarchy symbol used by the punk rockers in the 70s and still used today by the wanna bees.

The logo is part of an expensive "re branding" exercise where the use of politically correct jargon and references to Maaoori and global warming are used liberally to suck up to just about anyone who is anyone, except if you are a shareholder.

This might give you some sort of idea:

Chairman John Maasland said the company has adopted a new vision of "representing our country, and new core values of being outstanding, uniquely Kiwi and welcoming".

Do shareholders really need to shell out hundreds of thousands of dollars so AIA management can tell us what they will be doing but should have been doing all along anyway?

I have canvassed this sort of managerial mumbo jumbo before and it is nothing more than MBA spin, an exercise to make management feel better about themselves and submit an image to the public that is all surface and little substance.

Really an excuse for mediocrity.


Port in a Storm

In the wake of strikes this week at Ports of Auckland, POA, it seems owners of the now publicly owned port , Auckland Regional Holdings, ARH have refused to talk about the reasons why they put a buzz saw to the marriage between it and the Port of Tauranga (POT)

The Cameron Report, done by an investment banker, points to widespread efficiency gains from the tie up of the two ports. Efficiency gains would have resulted in more streamlined ports operations with bottom line benefits for customers.

Judith Bassett, ARH chair and ARC councillor has refused to release the report. Industry insiders say the possible gains were worth more than $50 million a year.

The Port of Tauranga is a much more efficient beast than POA and it seems jealousy over this and arguments that POT management wanted a bigger slice in the marriage because of their ports efficiencies may have sunk the merger.

As an outsider and ARC ratepayer myself one has to ask oneself what are ARC councillors hiding? It cant be good and clearly wont be released until after local elections in a week or so.

It probably wont be the end of port consolidation in the future between these two parties because it just makes financial sense to do so.

Ironically while POA's profit dived for 2007, POT's was up sharply.

Amazing what can happen to a company when it is abused by politicians.


Dow High?

The Dow hit an all time high this Tuesday (US Time), with the index up strongly by 191.92 points to close at 14,087.55.

It seems the banking and finance sector has made a comeback after the sub prime meltdown and all has been forgiven and forgotten as investors flocked to the sector.

The S&P 500 Financial Index rose 2.1 per cent, the biggest gain among 10 sector groups. Merrill Lynch, the third-largest securities firm, leaped US$2.59 to US$73.87. JPMorgan Chase, the third-biggest US bank, rose US99c to US$46.81.

Doubts still remain over how the "credit crunch" will really impact this sector as the bulk of "sweetheart" mortgage deals in the sub prime area that caused the meltdown, where lenders have a lead-in low interest rate on their mortgages for 6 months or so , have yet to fully hit the market.

Keep watching, I will!


Its a Mans World, Baby

Much fuss made in mainstream media circles this week over the apparent dearth of women CEO's running companies in New Zealand.

This in the wake of Di Humphries' decision to leave the top job at Glassons, a division of the clothing retailer Hallensteins (HLG)

Names such as Vicki Salmon, former head of Restaurant Brands(RBD) and Teresa Gattung, former head girl at Telecom New Zealand (TEL) were bandied about as examples to be admired.

Sadly these two were both monumental failures at their respective positions.

Gee, how about company heads being picked because they are good at what they do, if they happen to be men or women it doesn't matter, as long as you have the best person for the job.

Call me simple but I am just a man.

Humphries' is off to look after her young family. A very important job, if I do say so.


Financial Impact

The fallout from the dodgy finance company industry rolls on again this week.

Hanover Finance, one of New Zealand's biggest finance companies is to cut its Australian staff from 44 to 32.

Hanover has been busy rebranding itself with an expensive advertising campaign as a warm , friendly, safe and solid industry player.

I'm still a little wary over this and other companies and their long term future in lending.

Even Hanover's size wont protect it from going under and there are rumours going around about its stability.

Even the State Kiwibank, the loss making division of NZ Post, has reportedly done 6 million taxpayer dollars in the Northern Rock collapse in the UK. One has to wonder why it was invested there.

Auckland-based investment firm Clegg & Co Finance has been placed in receivership this week. NZ $15 million of investors money is at risk.

On August 28 Brian Clegg, the director of Clegg and Co, wrote to investors written under a Classic Finance letterhead:

He writes about the publicity surrounding the collapse of finance companies, but believes his company is one of the "safe" ones, because it was "still operating profitably and successfully in accordance with our lending policy", and had kept out of high-risk lending.


In yet another collapse, investors in Five Star Consumer Finance heard today that they would expect to receive back 26c to 40c in the dollar on money invested but nothing forthcoming until December.


Ladies and Gents, please place your Bets

By Reuters | 05 Oct 2007 | 12:39 AM ET with comments by Share Investor


Sky City's bizarre handling of a potential takeover led it to try the charming approach this week.

Sky City's Auckland Casino Complex


New Zealand casino operator Sky City Entertainment Group(SKC) sees the possibility of more than one bid, as a potential buyer looks at its books over a deal that could be worth around 1.9 billion.

Executive Director Elmar Toime told Reuters on Friday that the unnamed bidder's decision to conduct due diligence could spark other bids.

"The interest is there, whether the timing is right, or people have the wherewithal is the great unknown," Toime said.

Sky City, which has a virtual monopoly on casinos in New Zealand and also operates in Australia, has been actively seeking buyers since receiving the approach in late September.

Earlier on Friday, the Australian Financial Review newspaper said private equity group TPG was the favourite to take over Sky City after another private equity firm rumoured to be interested, New York-based Providence Equity Partners, did not make a bid.

Australian competitors of Sky include Tabcorp Holdings, Tattersalls and Publishing and Broadcasting Limited. Tabcorp and Tattersalls have said they are not interested.

Shares in Sky City last traded unchanged at NZ$5.36, having gained 9.2% so far this year, compared to a 5.5% gain for the benchmark top 50 index.

Toime would not give the identity of the unnamed bidder, but said it was due to complete its due diligence on Sky City by the end of October. He also declined to comment on the Australian Financial Review article.

Private equity and Asian gambling operators have been touted as the most likely source of bids.

The sector in New Zealand is tightly regulated, and Toime said he was unsure if a bid by a foreign party to takeover Sky City would attract political or regulatory opposition.

Citigroup has said in a report that recent Australasian casino deals had an average enterprise value to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of around 10 times.

That would indicate a private equity bidder paying about NZ$5.60 a share for Sky, valuing the company at $1.9 billion, said Citigroup analyst Andy Bowley.

In May, Sky City unveiled a programme to cut NZ$33 million in costs over 18 months, and said it might sell its Adelaide casino in Australia and one in Christchurch, as well as its cinema business.

Toime said indicative bids for the cinema business were expected by the end of October.

As I have said before, I wouldn't be willing to sell my SKC holding for anything like $NZ 5.60.

It is worth a substantial premium for control and an offer of $5.60 would be quickly rejected by shareholders.



NZX Market Wrap

New Zealand shares dipped today in light trading at the end of a quiet week.

The NZSX-50 index, which yesterday lost 0.6 per cent, was down 15.93 points or 0.4 per cent at 4284.05. Turnover was an unimpressive $NZ109.7 million, and falls outnumbered rises 53 to 35.

Top stock Telecom(TEL) which returned $1.1 billion to shareholders today and cancelled one share in nine, fell a cent to $4.56.

Sky City(SKC) rose 3c to 539. The Australian Financial Review said today that private equity group TPG was in the lead to buy the casino operator after Providence Equity Partners disclosed that they hadn't made a bid.

Fletcher Building(FBU) fell 31c to $12.20, continuing its pattern of large moves in either direction.

Contact Energy(CEN) was steady at $9.35 after dipping yesterday due to indirect regulatory scares, Fisher & Paykel Healthcare(FPH) was up 7c at $3.34, F&P Appliances(FPA)rose 2c to $3.55, and Auckland International Airport(AIA) dropped 3c to $3.09.

Among other stocks to go south today, The Warehouse(WHS) lost 7c to $5.37, Ebos (EBO)was down 11c at $5.04, Air New Zealand(AIR) lost 2c to $2.36, and Rakon(RAK) was down 4c at $4.80. Pumpkin Patch(PPL) fell 5c to $3.05 today and has continued to spiral downwards over the last few weeks due to US dollar weakness. Hallenstein Glasson(HLG) was down 6c at $4.50.

Guinness Peat Group(GPG) was up 2c to $1.95, Port of Tauranga(POT) gained a cent to $6.96.

Dual-listed stocks posted bigger gains, with ANZ up 40c at $35.90, Lion Nathan(LNN) up 20c at $10.95.

NZ Refining(NZR) was down 9c to $7.81 on lower oil prices and refining margins.


Disclosure: I own SKC and AIA shares

C Share Investor 2007