Tuesday, April 29, 2008

Wrigley/Mars passes Warren Buffett's taste test

The merger of Mars Inc with Wrigley Jr Company and Warren Buffett's interest in helping fund the purchase, and having a subsequent minority stake in the merged company, to be held by his Berkshire Hathaway investment vehicle, is Warren Buffett in his element.

Wrigley and Mars as one, will make the largest confectionery business in the world and its combined brands, like Mars chocolate bars, Snickers, Doublemint and Juicyfruit will make Buffett a very happy man indeed.

Warren Buffett already owns outright or portions of some of the worlds biggest food, consumer and beverage brands: Coca Cola, Gillette, MacDonald's and America's Sees Candies among them.

He sees in Mars/Wrigley what he sees in his other holdings, companies and brands with strong histories and dominant positions in the marketplace that will survive through the turbulent times and good times alike.

He calls companies like these "Economic Moats", companies that have products to sell that have a point of difference, cannot easily be copied and are hugely dominant, and therefore see off competitors year after year. Mars/Wrigley strong brands easily fulfill this investment requirement.

Another requirement that fits Warren Buffett's investing criteria is the fact that Wrigley/Mars is a very easy business to understand. There is nothing complex about making chewing gum and chocolate bars and therefore huge continuing capital expense involved in such in industries as computing, in coming up with new technology to stay ahead of competitors isn't going to hurt the food-makers bottom line.

One thing I am not sure of, is if Buffett's main criteria for investing is being fulfilled in the Wrigley/Mars tie-up. That is, the value investing part of his investing principles. Whether he is paying too much for his stake in the merged company will only be known by the man himself and by the rest of us in time, as the merits and performance of the merged giant reveal themselves.

He is famous for making good investment decisions and I personally doubt he has made a mistake to get involved in this monumental marriage of these two sugar pushers.

In New Zealand the closest thing we have to a Wrigley/Mars is Goodman Fielder Ltd[GFF] , an Australasian food conglomerate with very strong dominant food brands and a long history of loyalty among consumers. Its brands are staples, its business easy to understand and its products consumed for breakfast lunch and dinner.

It definitely fits my investment criteria and I have a holding.

Further reading on the Mars/Wrigley merger

c Share Investor 2008

Monday, April 28, 2008

Vector sale decision hangs on political knife edge

The dilemma I would be facing now if I was a minister in the New Zealand Government is, if I gave to go ahead for the Hong Kong based, Cheung Kong Infrastructure Holdings (CKI) to buy 100% of Vector Vector Ltd [VCT.NZX] lines infrastructure, in the Wellington region, then I would be going against a decision I made just a few weeks ago to refuse the sale of a non-controlling interest in Auckland International Airport[ Ltd [AIA.NZX], to a Canadian pension fund, thereby making me look like an utter plonker.

On the other hand If I turned down the sale of arguably a much more "strategic" asset, again Wellington region power line infrastructure, then I would put the Chinese Government's nose out of joint by reneging on detail of various free trade agreements made only a couple of weeks ago and again look like an utter plonker.

Lets face it, our government is at least consistent in its inconsistency.

The vetoed sale of the airport and Vector's Wellington lines is the same scenario whatever way one cuts the cable.

To say otherwise is to be just ever so slightly more than economical with the truth. For Helen Clark to give the reasons for a go ahead for a Vector sale that "the sale doesn't include any sensitive or strategic land" is a pure unadulterated lie. She made reference to the Airport sale over this "land issue" but that deal wasn't turned down because of "sensitive land", it was turned down for political reasons.

The issue of land rights in the Vector deal may actually be applicable. The power infrastructure and lines that Vector is selling has to have easements over the land they transverse thereby making Helen Clark's claim just a generator or two short of a full load.

It is hard to say what the Labour Government will do in the Vector case, but one can be sure it will be a purely political decision, rather than the financial one it should be, and once again the investing public is unsure about how their investments will be treated by such Governments in future takeovers.

The consistency we investors need, especially during these tough economic times, is found wanting by the very authorities that are supposed to be instilling security and a level hand to one of the backbones of our economy. The stockmarket and the essential funds it provides for investment and economic expansion.

The university trained political plonkers who make these decisions have clearly not woken up to the fact that they are not working in theories anymore and the real world consequences of their ludicrous strokes of the pen is costing us millions.

Vector is going to retire some of its large debt with the proceeds of the sale, ironically established when management went on a buying spree around 5 years ago and borrowed heavily to buy the Networks now up for sale off United Networks.

Worryingly, Micheal Stiassny, Board Chairman and his management are also looking to use proceeds to buy more infrastructure assets, probably "greener" forms of electricity assets, like wind turbines, in which they already have interests in. Stiassny and his crew don't have a good track record in management or the purchasing of assets.

Investors marked VCT shares down 1c to NZ $2.10 on average volume on today's news.

Related Share Investor Reading

Cullen's move on Auckland Airport has far reaching effects

Related Reading

Stiassny.org
NZ Herald report on Vector sale
Vector.co.nz

Vector Ltd @ Share Investor

Long Term View: Vector Ltd

Discuss VCT @ Share Investor Forum
Download VCT Company Reports


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c Share Investor 2008

The Warehouse Group takeover saga continues

One to watch this week.

The Warehouse[WHS.NZX] takeover saga continues Tuesday 28 April (NZ Time) with the Court of Appeal case, and runs for a further 3 days. There will be no immediate decision, with weeks more to wait, well, we have waited nearly 2 years so far, and the likelihood that Foodstuffs and Woolworths Australia [WOW.ASX] will be able to make a bid looks more likely than not.

The Commerce Commission(CC), who are appealing against the affirmative decision in the High Court last year, have struck it lucky to some extent, with spiraling food prices making emotive headlines all over the place but it any judge worth his pay packet will look past this temporary wave of bio fuel inspired food inflation and make a fully emotionless decision.

The CC have a wafer thin case and any new arguments for their case will probably pin themselves on the possibility that The Warehouse and its "Extra" food format will be a serious player sometime in the distant future.

The Warehouse Group @ Share Investor

Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Share Investor Forum-Discuss this topic


Unlikely given that The Warehouse itself has largely lost interest in the concept itself.

While many may groan when I mention government interference halting the other long running takeover saga, the Auckland Airport bid by the Canadians, this writer wouldn't put anything past New Zealand's socialist government putting their sticky mitts into this deal, should the Court of Appeal case come down in The Warehouse favour.

Whatever the machinations maybe in our courts this week, the outcome will be closely watched and a positive outcome for The Warehouse will be a serious shot in the arm for our local stockmarket, given its rather stagnant showing over the last 6 months.

Many shareholders will reinvest the collective north of NZ$ 2 billion proceeds of a sale in other shares on the NZX.

Keep watching here for further updates on this story.


Related Links

The Warehouse Financial Data


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c Share Investor 2008 & 2009

Friday, April 25, 2008

Notes from San Francisco


Just some observations before I kick off writing on the Share Investor Blog again next week.

I have spent the last week and a bit touring around San Francisco and attending the wedding of my Texas outlaws.

I have been commenting for several months on the nature of the credit crunch, economic conditions and things sub prime and it is interesting to see and hear the reality of things when you actually get to speak to the people that it is most directly affecting.

The majority of individuals that I spoke to were largely uninterested in talking about important issues like the coming election or the state of the economy but those who were seemed unconcerned about a probable recession and generally viewed such things with a stoic matter of fact nature.

Getting on with the business at hand seemed the order of the day.

Talking to Chuck from Manhattan, a real estate investor with years of experience, on the airport shuttle to our hotel in Geary Street, I was engaged by the positive attitude to his investment outlook. He was in San Francisco to do business and back in New York he was buying commercial property with a view to a long term gain by buying run down properties on Long Island and refurbishing for higher rentals.

Americas favorite pass time, shopping, seemed in good health in San Fran, as I imagined it would be, and tourists like my good self, from inside and outside America, were spending bucket loads of money on food, goods and services.

On the unfortunate side,depending on which side you are on, one of my Texas outlaws has just spent US$220,000.00 on a foreclosed house in Dallas that cost the previous owners $325,000.00. She has a 30 year mortgage at 5.75%! Kind of puts New Zealand rates of nearly 10% in the shade huh?

In a related matter, it seems the sub-prime lesson hasn't been learnt yet. Glancing at bank windows with "sweetheart" interest rates of 0% for business loans left me with a cold uncomfortable feeling. Like the sub prime loans for mortgages the low rates were for a limited time, after which more substantial rates would kick in.

I know there is cheap state funded credit out there but I'm just hoping the borrowers are such that they can afford to repay their loans. We don't want to be re-visiting a similar credit blowout story a few years from now.

Finally I'm heartened and disgusted at the same time by the huge numbers of "homeless" people begging for money on the streets on San Francisco.

Heartened because at least Americans don't hide their indigent by handing out welfare and disgusted because, well, these people are walking the streets and have no shame anymore.

American capitalism at its best, or worst, depending on ones world view.

Oh, the Golden Gate was lovely...Dude.

Related Share Investor reading


State backed Sub-prime Mortgages in NZ a recipe for disaster

Current credit crunch a blessing in disguise
What happened to risk?

c Share Investor 2008

Monday, April 14, 2008

Why did you buy that stock ? [Goodman Fielder]


To be honest I bought Goodman Fielder[GFF] because I noticed just about everything I shoved in my fat mouth was made by the company.

Everything from Vogel's bread, Olivani olive spread Tararua milk and cheese products and a whole range of food for breakfast lunch and dinner.

I thought before buying, that this company has a huge clutch of branded, staple, food products that New Zealanders and Australians have grown up with and people simply keep buying them!

What more could you want from a business?

That is pretty much the the main reason why I bought the company. Goodman's dominant brands give it the "economic moat" advantage that Warren Buffett talks incessantly about and the fact that the company, what it sells and how it functions, is very easy to understand, puts it above other more complicated industries, whose balance sheets are only decipherable by specialist forensic accountants with xray vision.


Why did you buy that stock?

Why did you buy that stock? [Kiwi Income Property Trust]
Why did you buy that stock? [Hallenstein Glasson]
Why did you buy that stock? [Briscoe Group]
Why did you buy that stock? [Fisher & Paykel Healthcare]
Why did you buy that stock? [Pumpkin Patch Ltd]
Why did you buy that stock? [Ryman Healthcare]
Why did you buy that stock? [Michael Hill International]
Why did you buy that stock? [Mainfreight]
Why did you buy that stock? [The Warehouse]
Why did you buy that stock? [Goodman Fielder]
Why did you buy that stock? [Auckland Airport]
Why did you buy that stock? [Sky City Entertainment]

Discuss Goodman Fielder at Share Investor Forum


Goodman's competitive advantage over its competition lies in its ability to leverage off those strong brands, excel during good economic times and plod boringly through the tough years, as we are having now-we all have to eat and that will never change.

Going back to Buffett again, he has a massive holding in Kraft Foods[KFT], a company similar in its branded food focus to Goodman Fielder, but alot bigger of course and he has been adding to his holding over the last year as the stock price tumbles.

Would I buy the stock again today? of course, I still hold it and have done for around 4 years and have been adding to my portfolio over the last few months.

The only crimp for the short to medium term are commodity prices like wheat and raw dairy ingredients, which add to retail product cost but are not always able to be passed on to the consumer.


Related Share Investor reading


Goodman Fielder hit by high commodity prices
Goodman Fielder a Hedge against an economic slump
Goodman Fielder pie gets bigger


Related reading

Kraft good in a recession -Everything Warren Buffett
Goodman Fielder - Corporate Website


c Share Investor 2008

Friday, April 11, 2008

Why did you buy that stock ? [Auckland International Airport]

In this second of a series of columns about why I bought a particular stock for my portfolio, lets hover over Auckland International Airport[AIA.NZ] for a while a see what motivated me to buy.

Recent political interference involved over a possible Airport sale aside, there wasn't a lot negative about this company to speak of before I plunked down my dineros.

Perhaps a large requirement for capital expenditure in the short to medium term, to expand the business to meet growth expectations was the only thing that would keep the company taxiing down the runway, the rest looked blue sky to me.

Why did you buy that stock?

Why did you buy that stock? [Freightways Ltd]
Why did you buy that stock? [Kiwi Income Property Trust]
Why did you buy that stock? [Hallenstein Glasson]
Why did you buy that stock? [Briscoe Group]
Why did you buy that stock? [Fisher & Paykel Healthcare]
Why did you buy that stock? [Pumpkin Patch Ltd]
Why did you buy that stock? [Ryman Healthcare]
Why did you buy that stock? [Michael Hill International]
Why did you buy that stock? [Mainfreight]
Why did you buy that stock? [The Warehouse Group]
Why did you buy that stock? [Goodman Fielder]
Why did you buy that stock? [Auckland Airport]
Why did you buy that stock? [Sky City Entertainment]

Discuss this stock @ Shareinvestor.net.nz

Again, like Sky City Entertainment [SKC.NZ] Auckland Airport stood out as a monopoly, protected in its position for the foreseeable future and it has that "moatability" that Warren Buffett talks about :

The competitive advantage that one company has over other companies in the same industry.
The wider the moat, the larger and more sustainable the competitive advantage. By having a well-known brand name, pricing power and a large portion of market demand, a company with a wide moat possesses characteristics that act as barriers against other companies wanting to enter into the industry.

Warren Buffett

Auckland Airport, because of its monopoly position, has the ability to raise prices well above the rate of inflation and does so within its division of different businesses. From car parking and retail rents, to landing and departure fees, regular price rises seem the order of the day.

The economic moat factor is the main reason I bought shares in the company, although there are a couple of others.

The history of passenger growth for the company is excellent and more could be expected, but not guaranteed, in the future if history is any measure of the company going forward.

The individual share purchase cost relative to the various financial ratios and measures of the business in comparison to international airports was also an attractive carrot.

Bids by The Canadian Pension Plan Investment Board and Dubai Aerospace Enterprise for a premium of over 60% of my purchase price is evidence of how cheap the shares were. In a relative sense anyway.

Now the question I must answer. Would I buy this stock again?

Again political interference aside, yes(I will go into this in another column but I don't want politics to enter here)

The affirmative answer is reinforced by the long term growth prospects and again the fact that the company is unlikely to be challenged in its monopoly position in its industry.

Auckland International Airport @ Share Investor

Cullen's move on Auckland Airport has far reaching effects
Cullen's move on AIA tax plan Anti-Business
AIA profit stays grounded
Softening opposition to CPPIB bid for AIA
Directors of AIA bribe brokers not to sell
What is Auckland Airport worth to you?
Second bite at AIA by CPPIB might just fly
AIA new directors must focus on shareholders
Auckland Airport merger deal nosedives
The Canadians have landed
AIA incentive scheme must fly out the window
Government market manipulation over AIA/DAE deal
DAE move on AIA: Will it fly?

Related Links

AIA Financial Data


Related Amazon Reading

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c Share Investor 2008



MARKETWIRE: CPPIB reaction to Auckland Airport veto

CPP Investment Board

Statement From CPP Investment Board Following Government's Decision on Overseas Investment Act Application

AUCKLAND, NEW ZEALAND--(Marketwire - April 11, 2008) - The Canada Pension Plan Investment Board (CPPIB) today said it was disappointed in the outcome of its Overseas Investment Act application, which has been declined.

CPPIB's partial takeover offer for Auckland International Airport required CPPIB's Overseas Investment Act application to be approved in order for the offer to become unconditional.

The offer received the necessary levels of shareholder acceptance and approvals.

CPPIB's Vice-President - Head of Infrastructure, Graeme Bevans, said: "We are naturally very disappointed in the outcome.

CPPIB appreciates the support we have received from the 29,000 largely New Zealand, Auckland International Airport shareholders who accepted our offer."

Under the terms of the offer, the offer will now lapse. Shareholders who accepted the offer are now free to deal with their holdings as they wish.

About CPP Investment Board:

The CPP Investment Board invests the funds not needed by the Canada Pension Plan to pay current benefits on behalf of 17 million Canadian contributors and beneficiaries. As at December 31, 2007, the CPP Fund was C$119.4 billion (NZ$148.7 billion) of which C$2.5 billion (NZ$3.1 billion) represents infrastructure investments. In order to build a diversified portfolio of CPP assets, the CPP Investment Board is investing in publicly-traded stocks, private equities, real estate, inflation-linked bonds, infrastructure and fixed income.

Based in Toronto, the CPP Investment Board is governed and managed independently of the Canada Pension Plan and at arm's length from governments.

UBS has acted as financial advisor and Bell Gully has acted as legal advisor to CPPIB.

For more information, please contact

In Canada:
CPP Investment Board
Joel Kranc
(416) 874-5163
Email: jkranc@cppib.ca
Website: www.cppib.ca

or

In New Zealand:
Consultus
Coran Lill
+64 27 600 8602
Email: clill@consultus.co.nz


Auckland Airport deal vetoed by NZ Govt

State Services Minister David Parker and Associate Finance Minister Clayton Cosgrove have vetoed the sale of Auckland International Airport [AIA.NZ]

After over a year of negotiations by two prospective parties, The Canadian Pension Plan Investment Board and Dubai Aeronautical Enterprise, all the time money and expertise that has gone into brokering a deal has been reduced to an international farce by the stroke of a socialist government pen.

The intervention has come at a time when markets are shaky and the economy is on a downturn and this added uncertainty has disappointed the market again and the 50000 odd voting age Mums and Dads who voted overwhelmingly in March to allow the CPPIB to buy their shares.

It is not hard to imagine what the CPPIB next move might be, but they have 3 options. Walk away completely, walk away while making a financial claim against the New Zealand Government, for their costs involved in axing a deal by retrospectively changing an overseas investment law, or push on in the courts to allow them to seal the deal.

The Auckland Airport would also have a claim for the millions of dollars of costs incurred for its shareholders because of the retrospective law.

Disclosure: I own AIA shares


NZ Herald's Auckland Airport merger coverage to date

The Battle for the Airport



Auckland International Airport @ Share Investor

Latest Airport coverage
Cullen's move on Auckland Airport has far reaching effects
Cullen's move on AIA tax plan Anti-Business
AIA profit stays grounded
Softening opposition to CPPIB bid for AIA
Directors of AIA bribe brokers not to sell
What is Auckland Airport worth to you?
Second bite at AIA by CPPIB might just fly
AIA new directors must focus on shareholders
Auckland Airport merger deal nosedives
The Canadians have landed
AIA incentive scheme must fly out the window
Government market manipulation over AIA/DAE deal
DAE move on AIA: Will it fly?


Related Links

AIA Financial Data


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c Share Investor 2008

Thursday, April 10, 2008

Why did you buy that stock ? [Sky City Entertainment]

I'm going to kick off a series of articles about what drew me to the 15 stocks that I hold in my portfolio.

While it is interesting to know what different investors hold in their stock portfolio, it is clearly more intriguing as to why they made the decision to buy an individual stock in the first place.

Let me begin with the largest stock holding in my top draw, the often much maligned Sky City Entertainment[SKC.NZ] the Casino, Hotel and Cinema operator.

I have held this company since buying in 2002 and it has cost me just under $2 a share when the very generous dividend is accounted for.

Why did you buy that stock?

Why did you buy that stock? [Freightways Ltd]
Why did you buy that stock? [Kiwi Income Property Trust]
Why did you buy that stock? [Hallenstein Glasson]
Why did you buy that stock? [Briscoe Group]
Why did you buy that stock? [Fisher & Paykel Healthcare]
Why did you buy that stock? [Pumpkin Patch Ltd]
Why did you buy that stock? [Ryman Healthcare]
Why did you buy that stock? [Michael Hill International]
Why did you buy that stock? [Mainfreight]
Why did you buy that stock? [The Warehouse Group]
Why did you buy that stock? [Goodman Fielder]
Why did you buy that stock? [Auckland Airport]
Why did you buy that stock? [Sky City Entertainment]

Discuss this stock @ Shareinvestor.net.nz

The main reason I purchased is the monopoly position that it holds in all the markets it operates in. The constant cash flow that this sort of business provides, even during tough economic conditions, is another quality that attracted my hard earned cash.

Initially, before I plunked my shekels down, I visited a couple of the company's casinos, talked to some middle management and harassed employees on the shop floor to see what sort of business it was.

Naturally there was both good and bad feedback but mostly it was positive stuff.

I made a few more visits to the company's main gaming floor in Auckland, New Zealand and after reading the prerequisite company financials, was convinced to put about NZ$135,000.00 on the table.

I came to the conclusion from my interactions with Sky City, that it was a pretty easy business to understand, a principle that Warren Buffett uses to gauge a possible company purchase, and there wasn't too much that management could do wrong with such a basic business. I was wrong about that, but that is another story for another time-a Buffett principle that escaped me at the time, look carefully at management when buying!

Would I still purchase Sky City today?

A good question stockmarket investors should all ask of ourselves about stocks in our portfolios.

While there is much that has gone wrong with the management of this company, some very bad decisions have clearly been made, cash is still flowing into the tills, the company rides out downturns in the economy well, and profit is there, albeit slowed considerably, I would indeed purchase at anything below 2 bucks.

Sky City @ Share Investor

Sky City Entertainment 2009 Interim Result Review

Sky City Entertainment 2009 Interim Result Preamble
2008 Sky City profit analysis
Sky City Entertainment 2008 Full Year profit results , NZX release, 2008 full year presentation, result briefing webcast, financial statements
Sky City 2008 profit preamble
Sky City outlines a clear future plan
As recession bites Sky City bites back
Sky City Assets: Buy, sell and hold
Why did you buy that stock? [Sky City Entertainment]
Sky City Share Volumes set tongues wagging
Sky City half year exceptional on cost cutting
NZX Press release: Sky City profit to HY end Dec 2007
Sky City Cinemas no Blockbuster
Sky City Entertainment share price drop
New Broom set to sweep
Sky City Management: Blind, deaf and numb
Sky City sale could be off
Opposition to takeover
Premium for control
Sky City receives takeover bid
Sky City Casino Full Year Profit to June 30 2007
Setting the record straight
Sky City CEO resigns
Sky City Casino: Under performing
Sky City Casino 2007 HY Profit(analysis)
Sky City Casino 2007 HY Profit

Discuss this stock @ Shareinvestor.net.nz


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Sky City Financial Data


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c Share Investor 2008

Wednesday, April 9, 2008

Fisher & Paykel Healthcare profit downgrade masks good performance

It was almost inevitable that Fisher & Paykel Healthcare [FPH] would come out with a new lower profit guidance to March 31 2008 today, from a former guidance of NZ$67 million down to $58 million dollars.

A higher NZ dollar marks down profit to the company when repatriated back to New Zealand of approximately NZ$2.5 million every percentage point the $US goes down against our currency.

The very good news that should put shareholders minds at rest is that US revenue was up strongly by 18% to US$ 270 million.

On the back of that though high demand for the company's respiratory humidifier products outstripped supply in the all important United States market.

Clearly this shouldn't have happened and management should be well displeased with their efforts in letting down buyers and consumers alike. This highly competitive market doesn't like mistakes such as these.

High demand also for Fisher's consumables and their respiratory and acute care products allowed CEO,Michael Daniell to comment,"we expect a strong start to the new financial year and continuing increase in demand for our products".

Fisher and Paykel Healthcare have grown strongly in the US market over the last five years and are one of the most innovative and technologically driven companies of its type in the world.

FlexiFit 405 Nasal CPAP/BiPAP Mask with Headgear from Fisher & Paykel
Image courtesy FPH





Fisher & Paykel FlexiFit 405 Nasal CPAP/BiPAP Mask with Headgear



Its disruptive sleep apnoea products are especially world leading and it is a fast growing market because of snoring problems caused by overweight and obese patients. The United States is clearly the centre of the sleep apnoea universe because of its sheer number of affected patients and therefore potential consumers.

Its latest sleep apnoea product has been given FDA approval to be used in a home setting.

The size of the Sleep apnoea market and the company's products excited me so much I invested.


FPH shares closed down 12c today to NZ$2.93 pr share on heavy volume.

Historically Fisher & Paykel Healthcare have grown revenues and profits steadily and their innovation and continued R & D spending will assure they will stay on the cutting edge when it comes to product updates and consumer satisfaction and their future looks bright if the innovation continues.


Related Share Investor reading

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c Share Investor 2008












Tuesday, April 8, 2008

The Warehouse Court of Appeal case lay in "Extra's" hands

Chart for The Warehouse Group Limited <span class=



The Warehouse Group @ Share Investor

Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Share Investor Forum-Discuss this topic


Quite a number of my readers have been searching for any possible hints on what may happen with The Warehouse Group [WHS.NZ] and the long winded saga over whether it is going to be allowed to be sold to either Foodstuffs or Woolworth's Australia [WOW.AX] when a hearing in the Court of Appeal is heard 29 April-May 1.

Lets get excerpts from the November 29 decision by the High Court to allow a buyer to make a bid for the retailer as to where a judge in the Appeal's Court might go with the High Court precedents :

We consider that there is a real prospect that the Warehouse Extra will be abandoned when it is reviewed in [ ]. There is also a real prospect that the Warehouse Extra will instead continue to be trialled for a further period and then abandoned without any further stores rolled out. We consider there is not a real and substantial prospect that the Warehouse Extra will continue for long enough to establish the necessary halo on which the concept depends. Because of that, we consider that the roll out of more Extra stores on a scale that would make the concept sustainable is not "likely" to occur.”

This is the main crux of Foodstuff's and Woolworth's argument against the Commerce Commission in the High Court case and the same argument that compelled the Judge to make her decision in their favour.

Warehouse management haven't given an indication in their February profit announcement of any expansion of the "extra" format and didn't make more than a passing comment about its performance. Clearly a nod to the High Court's comments above "
There is also a real...then abandoned without any further stores rolled out".


In addition to this, the High Court has also been very insistent that even if The Warehouse managed to roll out their originally planned 15 Extra format stores, that this wouldn't be of sufficient competition to the incumbent supermarkets, so poses no serious threat as a competitor of consequence and another reason for the High Court to make a decision to allow a sale of The Warehouse.

For completeness, and although we consider that this is not a real prospect, we have also considered the likely state of competition in the event of a roll out of more Extra stores on a scale that would be sustainable for The Warehouse. We consider that the constraint from the Warehouse Extra, once rolled out to 15 stores, would not provide a material constraint on Woolworths or Foodstuffs.”

Now I'm not quite sure if this would be the case but if the new lawyers for the Appeals Court case have an argument to pin their appeal on, then it might focus on the ability of The Warehouse to be a serious contender once the 15 stores were rolled out, if The Warehouse do this of course, but in all probability they wont.

15 larger than supermarket stores would be good competition in the local areas in which they operate, but when you look at the New Zealand food market as a whole you can see the High Court's statement makes good sense. Real competition just wouldn't be there when one considers Foodstuffs and Woolworth's OZ combined, have over 200 markets of various brands and target markets.

The High Court also found the following:

The Court found (in some respects appearing to go beyond even Woolworths' submissions):

  • The pricing impact when a Warehouse Extra is opened is the same regardless of whether it is in a location where a Pak'n Save is also located;
  • The evidence indicates that Woolworths considers it worthwhile to observe the Warehouse Extra, not that Extra has led to a material change in Woolworths' competitive strategy;
  • The impact at Sylvia Park is difficult to gauge. What is clear is that the market share remains very small;
  • Foodstuffs has not responded to the presence of the Warehouse Extra at Sylvia Park;
  • Any price change in response to the Warehouse Extra at Whangarei is well below the level at which the Court would have concern;
  • Neither Foodstuffs nor Woolworths has responded to the Warehouse Extra in Te Rapa;
  • There is nothing in the evidence that indicates that the Warehouse Extra would cause pricing impacts of 2% or greater in the local markets;
  • The Warehouse Extra does not aim to be a main player in food (it seeks to get to 3% of the market), it does not intend to be a price leader;
  • The Warehouse Extra does not intend to behave as a maverick;
  • The one-stop convenience model has provided innovation but that innovation has not had the effect of constraining Woolworths or Foodstuffs.
To me, it is very interesting to note the local vs national competition arguments concluded from the evidence put forward by the participants in the High Court hearing.

Even if The Warehouse was to take the Warehouse extra format national, the most even the company sees as their share of the grocery market is 3%. Just on company intention alone it is clear why the High Court made its decision in November, they just wouldn't have been a serious competitor in the supermarket sector in this country, under any scenario put forward at the hearing and therefore having Foodstuffs or Woolworths buy them wouldn't be seen as removing a serious competitor to our two company supermarket duopoly.

Fast forward to the Appeal Court case in May and you can see that The Commerce Commission are going to have a tough case to argue against the November High Court decision.

You cant see them using the extra format stores as an argument to preclude either Foodstuffs or their giant competitor, Woolworths, from making a pitch at The Warehouse, because "Extra" doe not, and will not in the future, provide any serous competition in the grocery market and therefore a purchaser of The Warehouse would not have a competitive advantage over the remaining player or provide a third supermarket chain to the New Zealand retailing landscape.

The only thin veil I can see The Commerce Commission arguing a Appeal Court case on is a time factor.

That is, if The Warehouse were allowed to continue to trade as it now is, its Extra format stores, would in time, prove to be as successful as similar formats have been overseas. Walmart is a good example of this success. But that will clearly be hard to prove as results so far have been far below Warehouse management expectations and overseas comparisons.

The Commerce Commission seem in an un-winnable place in my opinion, because ultimately, their main basis in argument, The Warehouse Extra, isn't performing well and furthermore isn't going to be seriously considered as a long term prospect, even by The Warehouse themselves.


Disclosure: I own WHS shares



Related Links

The Warehouse Financial Data

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Monday, April 7, 2008

Biology a major key in the glass ceiling for women

The minute you focus your energies on hiring your staff because you must have “diversity” or a broad range of people in your company is the minute that you are making a fatal mistake.

Clearly a lot of those men and women on our listed company boards are not the brightest light bulbs in the supermarket but we won’t go there in this column.

After the perennial report from the Human Rights Commission showed that there were a lot less female directors in New Zealand’s publicly listed companies, 45 female directors in the stock market's top 100, readers of their report could be forgiven for thinking that general work culture needs more women sitting behind the big mahogany desk simply because they were born without a particular appendage.

There is some truth to that but probably not the reason that you think.


Last week, Equal Employment Opportunities Commissioner Judy McGregor said she'd like the top 10 companies on the NZX to say they are making moves to bring women on to their boards. She points the finger at Fisher & Paykel Appliances.

"I would say about 80 per cent of its whiteware is bought by women, and it markets itself as the sponsor of the Silver Ferns, “says McGregor. "If it's good enough for women to buy the product, and market the product to women, would it not be good to have women on the board?"

NZ Herald, 6 April 2008


Granted, it maybe wise to have a broad range of thinking in the boardroom but Fisher and Paykel does focus group research on the products that they sell, with women as contributors, and in this way, the end user, usually women, have an input into what they use.

The CEO of Fisher and Paykel Appliances[FPA] is John Bongard, he has been with the company for 35 years. John started as a purchasing cadet and rose through the ranks until he was appointed Chief Executive Officer in 2004.

This is where I get to the meat that is missing from the likes of Judy McGregor and Shayne Quanchi’s-from Hallentsteins Glassons[HLG]-argument.

A large part of the “missing women” at board room level hasn’t got a lot to do with the “Old boys club” or knowing the right people, although that clearly still goes on, but it has more to do with biology.

We all know women can do most things that men do right? Right, including footing it in the boardroom but something that women also do is reproduce-no not buying identical shoes-but have our kids.

The gap that comes while a women raises a child could be as much as five years away from the workforce, starting at around 30 these days, a crucial age in the forming of a lifelong career in the boardroom, and on the way to the top, and I would argue fatal in terms of developing the skills needed to get good boardroom positions in our listed companies.

Blaming others for a biological fact for your lack of representation at the long table is ignoring the blatantly obvious.

Two examples of how women in this country back up my argument, but there are many more, are the omnipresent Helen Clark, Prime Minister of New Zealand and the former CEO of Telecom, Teresa Gattung.

Now regardless of how bad or good you might think either of these two are and were at their prospective jobs, and I think they were truly awful, they rose to the very top of their professions.

There are, however, a couple of things these two women have in common. Sacrifice and determination to get to the top.

It is no secret that the personal lives of Clark and Gattung have been filled with sacrifice. Neither having children, or had successful and fulfilled relationships with the opposite sex.

Is it a coincidence that these two have lackluster personal lives? I think not.

We all know how many men out there have sacrificed family life, hardly see the kids and end up divorced simply because they were married to their career.

More time was put into Helen and Teresa’s careers, that is what they obviously wanted, and fair enough they both achieved their goals. Well done.

While there are women who are able to do both the mother thing and have a career, I don’t think it is possible to do both well and long term.

Jens Mueller, of the Waikato School of Management, who set up www.finddirectors.com a year ago, says about 30 per cent of the 320 directors on the site are very well-qualified women. "If you broaden your search you will sweep up some superbly qualified women," he says.

Now the Waikato University is the most PC mad institution in the country and it is no surprise that their School of Management has a wrong headed approach by focusing on women as possible candidates for director positions rather than the best individual for the job.

When you go down this track you follow the University thinking that ultimately there must also be a quota of Maori, Pacific and Asian candidates nominated simply because they fit some grouping rather than being the best for the position.

Presumably one day there will also be a lack of left handed, lesbian, tea growing women from the Alaskan foothills not being represented in our board rooms, but will they be good employees?

Seeing as there is so much emphasis on men and the positions that they reach in business vs. the low levels that women reach, it may do just as well to measure in some way how well men do in running a business vs. women to get a better idea of how competent each are?

That might truly tell us something.


Related Share Investor reading

Business Mis-Management
Fisher & Paykel Appliances: In a spin over nothing
Telecom rewards ex chief for mediocrity


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Friday, April 4, 2008

Watching Sky Television

Chart for Sky Network Television Limited  (SKT.NZ)

A continued drop in share price for SKT, in the face of an historically high Kiwi dollar,
doesn't bode well for the company when the NZ dollar loses value.



Sports, The Sopranos, Coronation Street and Late Night with Letterman, my personal Fav-we all watch too much TV but is it a good investment?

On first glance Sky Television Network [SKT.NZX] looks like a great blue chip, with excellent prospects and good cashflow. They announced an excellent profit of just over $NZ 51 million for the half year to Dec 31 2007 which was up roughly 40% on the same period last year.

I would argue though that Sky could face an uncertain future, for a number of reasons.

The technology needed to keep the company updated and competitive is very expensive and will require much shareholder cash to do so. Sky need to continually update technology, because they will face intense competition in the future, from cheaper and better services from foreign lands sending their content to customers in New Zealand, through broadband pipes that look set to get bigger from this year.

Another large problem Sky face is the cost of programming.

Currently the Kiwi exchange rate vs the US dollar, where the bulk of Sky programming is purchased, is at near post float highs and has been unusually high for a couple of years.

This is unlikely to continue, as historically the NZ dollar averages below 60c to the US dollar.

Like other shares listed on the NZX, the price of SKT has been hit badly, down to $4.90 currently but off from an all time high of above $6.50 just over 2 years ago.

The share price really should be doing alot better considering the historically high NZ/US dollar cross.

Further weakness in share price will clearly be the order of the day when the NZ dollar falls.

The company is in a dominant position at present in the pay TV market, it is the only player, but its customer satisfaction isn't good, as they use their monopoly position to excuse weak customer care.

Something that monopolies like Telecom NZ Ltd [TEL.NZX], and Auckland International Airport Ltd[AIA.NZX] also suffer from.

Sky Television management need to be a bit more savvy in their outlook to the competition that is out there.

With the internet and mobile technology playing an ever increasing influence in the war for consumers eyeballs, their attitude to that technology and a better attention to customer service and satisfaction will help them counter their competition.

The jury however, is still out over whether they can achieve that.

Disc: I own AIA shares in the Share Investor Portfolio


Sky Network Television @ Share Investor

Long Term View: Sky Network Television Ltd
Watching Sky Television
Market Quickie: Sky TV Worth Watching

Discuss SKT @ Share Investor Forum
Download SKT Company Reports


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