Saturday, January 31, 2009

Residential rental property now approaching good investment criteria

With mortgage interest rates taking a dive again this week, following a 1.5% drop in the cash rate by Allan Bollard, and further OCR cuts and therefore more mortgage cuts coming, the attractiveness of residential housing as an investment for Kiwis is becoming a more realistic and financially viable proposition.

With 5 year mortgages at major banks at 5.95% and falling house prices, realistic yields from rental income, without relying on capital gain could motivate some of us who didn't plunge into rental housing when every man woman and dog was doing not long ago.

Back then of course there was a rush to buy as many houses as ones dopey bank manager would let you have as loans were assessed according on inflated house prices as collateral and little focus was put on real returns.

Strangely enough when the investment case to buy a rental house makes much more financial sense the brakes have been put on by some banks.

The ASB Bank for example (my bank) has raised the amount you must have for a deposit and introduced a curious addition to every term of interest rates-a premium will be paid on mortgages taken out for a rental property.

Anyway, if you can still wangle some money off your bank manager, friend, Dad or sugar daddy you could make the investment purchase that will put you in good stead for a lifetime.

When an investor looks around at the current investment landscape for a good yield one will have to go past term deposits , New Zealand's most preferred investment outside housing, and at a 4% or less yield, after inflation and tax you would be at least 2% in the hole.

The two current most attractive investments for yield are shares, depending on the current profitability of the company and of course rental housing.

Of the two I would at present favour shares but rental housing is starting to look like a good move for all the above reasons and more.


Recent Share Investor Reading

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c Share Investor 2009

Wednesday, January 28, 2009

Will the speed of 2008 crash be met with a speedy recovery?

I was reading this article yesterday about Citibank, by Alice Schroeder, the author of the latest Warren Buffett biography, The Snowball: Warren Buffett and the Business of Life, and it got me thinking about the break neck speed in which the crash of the credit market led to a plunge in global stockmarkets, a collapse of the banking system in the US, Europe and other countries and then a massive banking rescue package-that didn't achieve its purpose, a global recession and then more recently a huge "stimulus" package pushed by Obama's democrats.

To be sure, you could see a "market correction" coming from a few years ago but the sheer pace of the economic structural collapse over the last 4 months or so has taken many peoples breath away and there will be more financial heartbreak to come.

The piece in Schroeder's article that really got my wheels turning was her retelling of a story about a man who wanted to withdraw $50,000.00 in cash from his local Citibank one Saturday morning, in November 2008. The fuss and flap that this caused the teller and the bank manager and then the queue of people in the bank paying closer attention as voices started getting raised because this chap was getting the run around.

“I want my fifty thousand dollars,” the man said to the teller. The subtlest nerve-twitch crossed her face, but she kept her gaze steady. "I'll have to call my manager," she said. Anyone who has seen "It’s a Wonderful Life" knows: That’s the wrong answer. “I want my money,” said the customer, in a voice audible throughout the lobby. “I don’t want your check!” Tiny gasps from the line. Somebody had said it aloud – Citi’s check might bounce...

It was a run on the bank!

On the Sunday the Treasury Department pulled a rescue plan out of the hat that stopped the run on banks when they opened Monday, that would have been reminiscent of the 1930s.

The world knew about the run the following day.

When we compare the 1929 crash to 2008, the speed of the 1929 one took longer to play out than the current one and it spread quicker around the globe because of global communications and media saturation.

The consequences of the collapse though will play out over years, and in that respect 1929 is no different to 2008.

This got me thinking even more.

If the speed of the collapse and reaction to it is so much quicker than previous financial calamities, then perhaps the recovery will come much quicker than the 20 or so years it took American to dig its way out of the 1929 crash?

To be sure, the stimulus of WW2 was the principle catalyst for America's 1950's recovery but governments around the world are busy getting their own stimulus packages together and while I don't have complete faith in Government its gotta have some positive stimulus, right?

A silver lining in every cloud and all that sort of baloney.

Don't get me wrong, I haven't turned into a Pollyanna-ish angel with blinkered eyes and my head up my lowest orifice. The recovery will be hard, it will take time and we are all going to have to save instead of spend for the next generation, and hopefully beyond, to get ourselves out of the bog.

The debt incurred for taxpayers worldwide via the massive corporate bailouts is going to be a rather big millstone.

The recovery of the global economy however maybe sooner than we think.

Fingers crossed.


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c Share Investor 2009

Monday, January 26, 2009

When will The Warehouse bidders make their move?

The length of time that has passed between The Warehouse Group [WHS.NZ] deciding to drop their "Extra" format stores-the impediment that the Commerce Commission most recently successfully argued in the Court of Appeal was the reason the company couldn't be sold to its two current suitors-doesn't look encouraging for any positive outcome anytime soon.

Just when are they going to make a move?

In January, The Australian reported that both The Warehouse' suitors were "still considering" a purchase of the company .

There are a few reasons why Foodstuffs and Woolworths Australia [WOW.ASX] The Warehouse' two suitors, might be delaying or reconsidering a move.

1. the current uncertain economic climate might make a bid less attractive. I would argue that any bidder might be able to turn this to their advantage though by being able to bid lower.

2. capital maybe harder to obtain in order to make a bid.

3. both suitors could be waiting for a decision in the Supreme Court where Woolworths has sought leave to apply to have the Appeal Court decision quashed

4. Waiting for a response from the Commerce Commission to The Warehouse decision to dump their "extra" format stores.

5. A new proposal from founder and majority shareholder Stephen Tindall to take the business private.

The biggest impediment to a quicker sale process is The Commerce Commission's Paula Rebstock and her failure to make a ruling post the Warehouse ditching their Extra format stores in October 2008.

The Extra format stores were the main impediment, from the Commission's point of view, for denying the sale of The Warehouse and now that they have gone a positive announcement in The Warehouse favour on this matter would let the bidding process begin.


Disclosure: I own WHS shares



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


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Sunday, January 25, 2009

The "New" Money Manager's Investment Vehicle still tainted by its past

Even though Money Managers-the former pyramid scheme seller or what the yanks call a Ponzi Scheme-headed by Doug Somers-Edgar (pictured inset), is trying to turn over a new leaf and reinvent itself the First Step trustee Edward Russell is still talking bullshit:

"While some of the shortfall is sadly an uncontrollable inevitability in the current economic climate, where we have seen and have experienced a period of unprecedented wealth destruction across all investment sectors...

And:

Trying to put a brave face on the losses, Russell said: "This is nothing anyone here is expecting any recognition for, but the high proportion of capital returned to date does underline the correctness of the swift action we took with the First Step Trusts to close them early and liquidate in a controlled and managed fashion. "The effort in this has been huge and the result, despite the losses, has been significantly better for investors than if early action had not been taken." Stuff.co.nz, Jan 23, 2009

Now call me a thicko if you like but should investors have been told when initially putting their hard earned into Money Manager's First Step scheme that it was not only going towards lending for vehicles but the vehicle used (pun intended) to lend that money to punters was siphoned through a related party, Club Finance, where Doug Somers-Edgar was a director?

Of course they should have, because the vehicle financing business is very risky and it didn't fit the risk profile that First Step investors were informed about.

The extent of the "distancing" of the "new" Money Managers from Somers-Edgar is a little hazy.

Back in February 2008 the Sunday Star Times reported that the company was being sold to the Chief Executive at that time, Alasdair Scott, its franchisees, and NZ Funds Management, owned by Somers-Edgar business associates Gerald Siddall and Russell Tills.

At that point the majority ownership still lay in Somers-Edgars hands through trusts directly involved with him and his wife.

There was to be be an announcement regarding ownership but nowhere can it be found, either on the Internet or the Money Managers website.

When the new Chief Executive, Derek Young, was questioned in December about Somers-Edgar's current involvement in Money Managers readers got this answer:

Has Somers-Edgar entirely exited the business?

Yes... almost, is the answer, but his shadow is long. He still owns Heritage, a trustee company which administers the family trusts of thousands of Money Managers' clients. But that is a transitional arrangement, and it will change, Young says. Stuff.co.nz, December 21, 2008

This is pertinent to the issue of First Step and a number of other Doug Somers-Edgar owned related parties because they are being wound up, investors have lost their money and Doug is running for the hills with it because he is selling up!

How clever.

So the issue over his current involvement in Money Managers is unclear as is the outcome for investors in its various related parties.

What is clear however is that the "New-Improved" version of Money Managers still cannot be fully trusted.

Many of the same people still work there, as franchisees and in management, either directly, through trusts or related parties.

Current Chief Executive, Derek Young seems like a thoroughly appropriate person to be heading up a change of direction for Money Managers but you cannot expect an ailing leopard to change its spots overnight when there is a shadow of a hyena lurking in the background.

Come clean Dougy.

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Friday, January 23, 2009

MarketWatch: Contact Energy

The slump in the Contact Energy [CEN] share price on Tuesday due to a 23% profit downgrade is really of little concern to the long-term investor already owning shares in the company.

It does provide an opportunity for those of us who would like to buy Contact shares though !

The downgrade had nothing at all to do with the global recession but was due mainly to bad luck, government red-tape and a gas shortage.

That doesn't mean the end of the world though.

Contact Energy still makes alot of money and will continue to do so long into the future and is a monopoly in various areas of its business

In fact it has been one of the better performers, profit and share price wise than any other stock listed on the NZX and it will do well during the recession.

The downgrade simply made the company a more attractive buy on Tuesday because the share price dropped by 10%.

The share price closed today at NZ$6.76, 16c up on yesterday's close and around 10% less than a week ago.


At a 52 week low of $6.29 this makes Contact Energy an essential on anyone's watchlist at the current share value.

Buy on weakness for a good long-term return.


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c Share Investor 2009

Wednesday, January 21, 2009

Fisher & Paykel Appliances looking fair value

I have given Fisher & Paykel Appliances [FPA.NZ] a beating over the last few years.

This is mainly due to its future prospects as a long-term going concern and the value that the stockmarket has previously given it.

The stockmarket plunge of the last year or so has largely changed my opinion.

That and more than a few changes management have made, and global economic circumstances as they are, have worked in the company's favour.

Lets have a look at the circumstances outside company control that are benefiting them first.

Input costs such as steel, plastics and appliance component's will have drastically come down in price over the latter quarter of 2008 and during the beginning of this year.

Couple this with a collapsing NZ dollar and you have a recipe for a profit improvement when the global economy recovers.

The full financial force of management moving key areas of manufacturing to Thailand is also set to be shown in the next reporting season come mid-May.

I must reiterate that my previous history of negative comments on the company focused primarily on Fishers attempts to compete globally by manufacturing in the high cost base of New Zealand with small production runs with niche products.

This has been slowly ameliorated by introducing a lower cost brand that sells alongside Fisher & Paykel branded goods and competes on a more level footing with the LG's, Mitsubishi's and other big appliance brands.

This is where I may have been a bit short-sighted in my previous criticism of the company.

If the company can grow its lower cost brand, making more units and therefore lower production cost, then they will be more able to compete with the aforementioned brands.

Selling their niche appliances alongside will be the icing on the cake.

Of course the only stumbling block to this whole process of transformation is going to be the global recession that I have already mentioned.

It has hit sales of appliance companies like Fishers badly-you can always put off that fridge purchase in the tough times!

All is not lost though it wont last forever.

Id love to see Fisher & Paykel make it to the big time.



The stock was down 1c today to NZ$1.32, not quite at its low of $1.18 but clearly close.


Fisher & Paykel Appliances @ Share Investor

Long Term View: Fisher & Paykel Appliances
Stock of the Week: Fisher & Paykel Appliances
Fisher & Paykel Appliances future looking bleak
Fisher & Paykel downgrade continues fine tradition
Fisher & Paykel Appliances looking fair value
Fisher & Paykel: A Tale of Two Companies
Fisher & Paykel Appliances: In a spin over nothing

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c Share Investor 2009

Monday, January 19, 2009

Market outlook flat to uncertain during 2009-2010

The stockmarket plunge that began at the end of 2007 and intensified with an intense panic that has pervaded markets since September 2008 seems to have largely abated.

Have investors just got used to feeling that way or have markets found a range that they are comfortable with and are looking for any positive sign or excuse for a market rally?

Experts are always telling us that the stockmarket is a good indication of how it sees an economy six months from now.

If that is the case then world markets-after the initial collapse last September through October-are seeing a flat global economy with little chance for recovery well into 2009. That is if we see indications that various stimulus packages from Governments worldwide manage to have positive effects on their respective economies.

I have my doubts whether these will work quick enough to stem the downturn.

The US 1 Trillion "rescue package" hurriedly passed at the end of 2008 to ease the credit markets and get banks lending again has largely failed and a proposed Barack Obama led stimulus package of about the same size but targeted at different areas of the economy looks like just more welfare that will once again largely fail in the long-term.

Even positive results in the August-September reporting season from some companies was either met with little positive upswing in share prices or a hope that there would have been a better result.

Either way investors are predicting negative times ahead for companies in their portfolios that are currently performing well.

You have to have balls of steel right now to be buying because the uncertainty over how long this current global recession will last is anyones guess.

If someone tells you they can predict just when the economy will recover they are either lying, trying to sell you something or just taking a stab in the dark.

What I do know is that the economy and markets will recover, because they always have but what I would be unwilling to predict is just when.

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c Share Investor 2009

Tuesday, January 13, 2009

Capital raising set to become popular in 2009

As a shareholder are you feeling generous towards the companies you have in your portfolio?

Whether you are or not you may have to make a choice to chase what could be good money after bad in 2009.

The dearth of cash and credit available from normal sources-like banks-to keep businesses running, especially during the current recession, is undoubtedly going to lead to some New Zealand listed companies putting out their caps to shareholders to enable them to keep trading over the difficult times to come.

There will be some capital raising through; debt raising via bond issues, rights/cash issues and or private placements with big institutions.

Usually the domain of start up companies and especially popular during the tech bubble of the late 1990s, the terms for rights issues and other forms of capital raising was relaxed by the NZX on November 26 2008 as an answer to the credit crunch.

Both rights issues and private placements dilute existing shareholders shareholdings and of course extra debt laden onto company balance sheets through alternative methods of capital raising will impact somewhere down the line.

I would favour a rights issue or private placement myself.

I could speculate here and name a few names that might be ready to pass the begging bowl around-I am not going to-but we can be fairly sure that any company with high to medium borrowings set to mature soon and without sufficient sales and or assets to allow themselves the ability to borrow off a bank is going to have to go to shareholders with the bowl.

Of course the length of time the recession plays out will mean more companies will need to avail themselves of shareholder cash or other methods of capital raising.

There is no guarantee of course that shareholders would be willing, or able, to take a further risk by contributing their hard-earned cash and this shareholder will certainly be wanting the bargain of the century before he plunks down further cash towards any company in the Share Investor Portfolio.

The million dollar question remains though and is a more than likely scenario. What happens if the cash isn't forthcoming?

Short of a mysterious benefactor, one of those struggling investment banks or an angel investor ready to take a big slice of the company, the answer is of course bankruptcy.

Time to get out the checkbook?


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c Share Investor 2009

Saturday, January 10, 2009

Long vs Short: The Warehouse Group

http://chart.bigcharts.com/custom/fairfax-com-nz/chart.asp?rnd=0.3338466193181723&style=2242&symb=WHS&size=1&type=64&time=10yr&freq=1dy&comp=&compidx=NZ50G%7E1392984&ma=&maval=&lf=&lf2=&lf3=&uf=16384&arrowdates=&arrowlegend=&country=NZ&sid=162937

In this third installment of the Long vs Short series I am once again going to take look at the chart comparisons for a stock from the Share Investor Portfolio and compare the 10 year return (above) to the turmoil of the last year with a 1 year return chart (bottom of post).

In this series I want to show the merits of investing, using charts, for the long-term vs short term gains or losses. I will use the longest available data to me for the long-term view and will compare against the NZX50.


My Portfolio

Symbol
Price
Value
Earned
$3.63
$29040
$-11760
You own 8000 [WHS.NZ] shares
purchased at $5.10 [$40800]



The third stock in the series will be The Warehouse Ltd [WHS.NZ] which I have held in this particular portfolio for 16 months, so the returns will clearly not be as good as the longer term companies in my portfolio and will mirror more closely the one year chart (see bottom of post) rather than the 10 year one, which shows a healthy 270% return.

After dividends and tax credits are taken into consideration, my 16 month return is minus 25% ( see small chart above)pretty much the same as the one year return indicated in the chart below and par for the course considering the current market depression.

The long-term hold proposition wins again with the 270% or annualised 27% return beating any other stock in my portfolio.

Shame I haven't held it for 10 years though.


http://chart.bigcharts.com/custom/fairfax-com-nz/chart.asp?rnd=0.3338466193181723&style=2242&symb=WHS&size=1&type=64&time=1yr&freq=1dy&comp=&compidx=NZ50G%7E1392984&ma=&maval=&lf=&lf2=&lf3=&uf=16384&arrowdates=&arrowlegend=&country=NZ&sid=162937


Long vs Short series

Mainfreight Ltd
Sky City Entertainment


The Warehouse Group @ Share Investor

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


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c Share Investor 2009

Wednesday, January 7, 2009

February 2009 reporting season to headline a bad year

Welcome back to the Share Investor Blog for 2009.

I wish you all an especially prosperous year after the routing we have all had to our wealth last year.

Lets get back to business!

The first real indication of how the global recession has affected New Zealand business, in terms of profit and sales, will be of course the coming reporting season, which kicks off in February.

We have already had some indication of what might lay ahead.

August 2008 reporting season was flat to lack lustre and profit warnings from several companies pre-Christmas, especially retailers (with the notable exception of The Warehouse [WHS.NZ] which only saw a 1.9% same store sales report out today), which have taken the shine off Feb 2009.

The six months to February 2009 will show a good 3-4 months of trading for New Zealand NZX listed companies, under the economic gloom that kicked off in October 2008, with massive market corrections, credit difficulties and the collapse of some large American business icons, bailouts of banks, car makers and a host of other businesses, large and small.

It isn't going to be pretty.

While companies like Contact Energy[CEN.NZ], Sky City Entertainment[SKC.NZ], Vector [VCT.NZ], Trustpower [TPW.NZ] are likely to have solid profit results, businesses such as Nuplex [NPX.NZ], Pumpkin Patch [PPL.NZ] and Rakon [RAK.NZ] are going to disappoint.

Furthermore we will be able to get a better grip on how company management see the 2009 business year going.

To be sure many companies have already ditched any accurate forecast for the coming year but shareholder should expect to see comments that will elucidate company fortunes.

This will enable us all to more accurately gauge the value of companies in this market turmoil and ascertain as to whether the stockmarket drop over the last 6 months or so has been overdone or not.

I'm picking the market has been oversold, as it usually does in times of fear.

The meek amongst us will decide to sell our shares and others, like me, will then be more able to decide-another market explosion excepted* and that is very possible- when to start buying stocks again.

Make no mistake, 2009 isn't going to be a great year for the economy, business, stocks or any other asset but it is certainly going to separate the wheat from the chaff.

* some commentators are picking the commercial property bubble bursting. The only bubble left to burst.

Disclosure: I own SKC & PPL.

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