Wednesday, April 29, 2009

Warren Buffett faithful ready for big Weekend in Omaha

A big thanks to those of you who contacted me over a doco to be made of Warren Buffett by the BBC around Berkshire Hathaway shareholders and the Berkshire 2009 Annual Meeting in Omaha Nebraska that kicks off this weekend.

I have had many replies, and none more so than the following one encapsulates the deep feeling and respect this great investor and thoroughly interesting man seems to capture from his many millions of followers, including myself:

"I understand you are looking for Berkshire shareholders. I have been a Berkshire shareholder since 2001.

I can say with some confidence that Warren Buffett and Charlie Munger are more important in my life than God! I am a university graduate and a Chartered Accountant. I have worked in businesses for over 25 years but any knowledge I have acquired from these experiences is like a pebble in ocean in comparison to what I have learned from Warren and Charlie.

If you study Berkshire and the people behind it you are tapping into a rich reservoir of knowledge and wisdom that has proved incredibly useful in the real world of business over a long period of time. The Berkshire values are very old fashioned and very simple. It is about taking the long term view, common sense, humility, rationality, hard work and prudence.

Much of what goes on in the world of business and politics looks absurd and grotesque when viewed through the Warren Buffett lens. Why are people so loyal to Warren Buffett and Berkshire? It is just pure Disney. Failing textile mill, Berkshire Hathaway, taken over by young investor Warren Buffett. Investment is a terrible mistake. Buffett uses the company as his investment vehicle choosing not to take a management fee from his fellow shareholders. Over time the company evolves into one of the largest and most respected companies in the world. Warren Buffett turns out to be the greatest investor ever and becomes the richest man on the planet. In the end it’s not about the money and Warren gives the bulk of his fortune to the children of Africa. Who would not want to be part of this?

Good luck with your documentary. It will be easy to make the shareholders look like crazy America cult members. I know the BBC will go deeper than that." Gareth, Northern Ireland.

What Buffett has to say this weekend will be covered by media from around the world and more than 35,000 people will be attending in person to get his pearls of investing wisdom sieved through a down home style of old fashioned hokiness and a wonderful sense of black humour.

The world will be watching closely for some explanation of his frenzied buying activities over the last year and also his view of economic conditions over the following 12 months and of course the years to come.

I will be watching closely and you can keep up to date on what is more commonly known as the "Woodstock for Berkshire Hathaway Shareholders" at Everything Warren Buffett.

Until then I highly recommend reading his 2008 Annual letter to Berkshire Hathaway Shareholders published in February of this year. It will change your way of thinking about investing .

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Monday, April 27, 2009

Kirin bid for Lion Nathan undervalues brewer

So Kirin is making an offer for the rest of Lion Nathan Ltd PDF [LNN.NZ] that they don't already own. They are offering A $12.22 per share therefore valuing the company at about $A6.5 billion.

The LNN board is recommending the offer but are shareholders getting a fair deal?

Lets do a comparison of the recent buyout last year of Anheuser Busch by InBev. In that deal InBev bought its target for close to US $50 billion with valued the company at approx 15X EBITDA according to website Blogging Stocks.

The Kirin/Lion deal values Lion at 12.5 X EBITDA according to Michael Feller from the Business Spectator

"The price Kirin is offering effectively values Lion at $6.5 billion on an equity basis and $8.2 billion on enterprise value, as well as an FY09 consensus forecast EBITDA multiple around 12.5 times".

The EBITDA comparison then between the two deals shows an enormous gap in the prices paid for the two targets, with Kirin shelling out 20% less to take control of Lion than what InBev paid for Anheuser Busch last year.

If a comparable 15 X EBITDA figure was offered by Kirin then the per share price should be closer to $14.66 per share.

Figures aside the iconic status of both target brewers is very strong and there should be a premium for that.

Also the tough economic times we are currently facing show fully the benefits and therefore the value of having brewing assets-they do well during booms and better in recessions!

The long-term benefits of good brands must also be accounted for in this takeover price.

Clearly then, Lion shareholders are being seriously under represented by Lion Nathan management as they have agreed the price to be paid is sufficient and another higher offer must be made for control of the company.

Lets hope the independent report into the offer turns out to be a definite no at the current Kirin offer price.

Shareholders should reject the bid.

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Saturday, April 25, 2009

Bank Guarantees: The Return of Bryce

I mentioned to one of my email correspondents that I would return in a few months to see my bank manager, "Bryce" at the ASB Bank in Albany after having seen him first late one Thursday at the end of February to re-negotiate the terms of our rather large mortgage.

I did, sort of.

This time Bryce was unwilling to see me after my hard workday so we discussed the matter over the mobile.

I would have preferred to see him in person but he insisted I couldn't.

I pointed out to him, again, that the New Zealand taxpayer was guaranteeing banks in New Zealand so they could borrow cheaper money from abroad to lend to us.

Bryce pointed out to me that it wasn't the taxpayer that was going guarantor,it was in fact the Government.

After pointing Bryce to the error of his ways over the fact that Government and the taxpayer were one and the same (Bryce still doesn't think they are) I thought out loud that wasn't it funny that as a borrower from his bank, the ASB, that I was now a guarantor for my loan but also as a taxpayer I was going guarantor for his bank to borrow the same money to lend back to me.

This seem to confuse Bryce but it was very clear to me.

I added what I said at our Thursday evening meeting in February, that we are clearly living in exceptional economic times, something Bryce agreed with during the mere half dozen times I repeated that same mantra.

Bryce said I would be breaking my contract with the bank if we re-negotiated without an outrageous bank fee and I agreed with Bryce at that stage but had to point out that the terms of our contract had clearly changed because I was now going guarantor for both his and my borrowing, hence making it cheaper for Goldstein and his fat American buddy to borrow money in the first place.

We both became dizzy as I reiterate the above several times (I don't let go once I sink my teeth in) to no effect at all.

The bank will not negotiate at all, that is all he had to say from the get-go

Before we both left the conversation, Bryce pointed out that the bank had been around for 100 and something years and was "very safe" immaterial of any taxpayer/Government guarantees and then I asked him why then did the bank sign up to the guarantee and he kindly pointed out because that is what the other banks were doing and it wouldn't "be fair" to the ASB if they didn't join the party.

Fair... mmm, yes but, why?...

A asked whether the bank had these sort of guarantees during the 1930s, he didn't know, I left none the wiser and Bryce left probably wishing he hadn't returned my call.

I don't think Bryce is going to take another call from me.

I will however have another go in a few more months.

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Friday, April 24, 2009

535 Ex Trans Rail Holders due $10 million

I hate to see people lose money and not get money that is due to them.

The Securities Commission is actually earning its money in this case - I knew they were good for something!

Some 535 shareholders are still eligible for compensation from settlement of the Tranz Rail insider trading case. The names of these shareholders are listed on the Commission's website at They are invited to contact the Commission by 24 July 2009 for information about how to claim their compensation. Entitled shareholders will need to verify their identity and shareholding details. Full Press Release

The claim relates to the Fay Richwhite Trans Rail insider trading case where the aforementioned made a $27 million payment to the Securities Commission, without admitting guilt, to insider trading.

The case was unable to be proven by the Commission but there is clear evidence of the insider trading and most of us are aware of information that points to Messrs Richwhite's guilt.

The claim for those 535 shareholders with money outstanding is time limited, so get off your butt and contact the Securities Commisssion before the State gets it.

Just as an aside, funny that last year the same company was bought on behalf of the taxpayer under similar fraudulent circumstances by one Michael Cullen.

I wonder if the SEC COM will be chasing Mr Cullen?

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Sky City CEO doubles down

The rationale for Sky City Entertainment [SKC.NZ] loading up the balance sheet with extra shares and as a consequence around NZ$230 million of cash isn't completely clear to me over the last few days since SKC were put on a trading halt on Tuesday 21.

My confusion is compounded by the fact that the $230 million raised appeared to be for two different reasons, for purchase opportunities and "strengthening the balance sheet" in uncertain times but if a purchase is made how does that strengthen the balance sheet? especially if it involves drawing down on the half a billion in unused credit facilities that Sky City currently has.

I am going try to unwind my confusion and explain my point of view on this subject in the following column.

This from a story in might give you an indication on where I might be heading:

But despite its $916 million of debt, SkyCity plans to put the money it raises in a bank deposit account, at least for now.

Chief executive Nigel Morrison said that was because SkyCity "owes no bankers anything."

Just one question though, if you have access to cash in the bank and a rather large debt hanging around your neck don't you pay some of it down?

Well, Nige did say when posted to his position as CEO last year that one of his main tasks would be to be prudent with shareholder funds:

"Our shareholders have made it clear to us that they want us to focus on maximising the performance of the assets we operate. This is what we will be doing. as we have said previously, we expect to achieve this within an 18-month time frame. We will retain tight control over capital and not expend capital unless we are very confident of healthy returns for shareholders".

The emphasis on unnecessary capital spending in addition to paying down debt has been made several times since then and one could be forgiven for thinking that this task was going to be paramount to everything else until performance at the company was "maximised".

That certainly of direction needed to be achieved as the company has floundered directionless over the last 5 years under the previous CEO Evan Davies.

Now of course Morrison does have to be fleet footed and have the ability to change tack as economic circumstances change but the clear direction that he outlined last year has forked out into another, possibly expensive direction:

"For anybody to suggest that the money it just going to sit on deposit in a bank account earning 3 per cent for three years, that's ludicrous," he said. "It's a position of strength. We're not beholden to any financier or any bank." Morrison said it also gave the company funding for acquisitions should opportunities arise. Full Story

Now I am not about to suggest that Morrison is going to plunder more shareholder money on overpriced assets as Evan Davies did, as his reputation for being a canny operator who rejuvenates casinos is well known but I get a little edgy when he is asking shareholders to put their hands in their pockets to buy more casino assets, even if they are as he said, now going for knocked down prices.

It is the move away from the previous stated 18 month aim of being financially prudent and rejigging the business that has me worried and to then focus on other plans that involve large capital expenditures would be a more realistic goal, especially as those casino assets he may now be talking about could be alot cheaper in 6 months time.

It seems to me that he may already have a target casino in mind.

Time to cross your fingers if you are a shareholder. I am.

Sky City @ Share Investor

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Wednesday, April 22, 2009

More Moola Please!

Back on the agenda for this week is the capital raising that is sweeping NZX listed companies.

Apart from the fact that they have been carried out without the permission of shareholders and the NZX has granted them waivers to allow management to do so, there seems to be a pattern forming.

The latest capital raising to be announced was Sky City Entertainment [SKC.NZ] who came out today with an underwritten offering of 71 million shares to institutions and a further NZ$50 million or around 20 million shares in an offer to smaller shareholders like me.

The company really doesn't need the extra funding because its current debt servicing doesn't have to be re-negotiated for a number of years.

This is much like the deal offered from Fletcher Building [FBU.NZ] and Freightways Ltd [FRE.NZ] for extra capital over the last couple of weeks.

Just doing very rough figures in my head the dilutionary effect for shareholders for these 3 companies is around 15%.

What that means to me is the followng to avoid dilution of my shareholdings:

1. Fletcher Building - additional 150 shares

2. Freightways Ltd - additional 1230 shares

3. Sky City Entertainment - additional 5250 shares

What I have decided to do is the following:

1. Fletcher Building - additional 500 shares @ 5.35 per share approx

2. Freightways Ltd - additional 1800 shares @ 2.44 per share approx

3. Sky City Entertainment - maximum of 6000 shares @ 2.52 per share approx

An additional $NZ 22,000 approx that I must find. Not a problem for me and I don't have a big issue with stumping up the cash because as part owner of these businesses sometimes you extract money from them and sometimes you have to put it back in.

As I mentioned above what I do have a big issue with is the lack of consultation with shareholders like me and the NZX's collusion with company management to allow them to bypass owners rights and give institutions preferences that smaller shareholders dont get. I would have said yes to company requests (sans the institutional favouritism) for more capital but I nevertheless should be asked in the first place.

I own part of these companies after all !

It has sent me into a kind of Bruce Sheppard mode on speed but there is very little I can do except make it known here that I am an unhappy camper.

As I said back in early January capital raising is set to become popular this year and it has by no means finished yet.

Nuplex Group [NPX.NZ], Fisher & Paykel Appliances [FPA.NZ], Kiwi Income Property Trust [KIP.NZ] and a whole host of other companies have already had out the begging bowl and I fully expect to have to fork out more myself although the bulk of my extra capital allocations have already revealed themselves.

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Monday, April 20, 2009

Im Buying: 2009

Close watchers of mine would have noted a renewed interest in Auckland International Airport [AIA.NZ] over the last few days. I have written a couple of articles (1 2 )on Auckland's near monopoly air services provider.

My interest has culminated today by buying a small additional shareholding of 2000 shares to add to my existing 1000. Cost NZ$1.70 per share.

I have taken my eye off the ball over the last few months with other commitments and it is not until you can sit down and look at the figures that you can start to make a case to spend more money in this turbulent investing environment.

Only yesterday did I write that I felt that collectively investors had seemed to reach some kind of investing "Tipping Point" where they have got thoroughly brassed off with all the gloom and focused on the more positive aspects of business and investing.

This has certainly been the case for me today with my new purchase but lets not get carried away. I have bought at a good price for me, my original foray into AIA being at $2.15 in November 2006. With dividends and tax credits included in that initial AIA purchase my cost price comes in at $1.88 per share. Today's purchase then is 18c per share lower than it was more than 2 years ago.

That is like a sale at Bricoes!

Readers may like to be reminded that Canadian and Arab investors were last year willing to pay more than twice today's closing price for a half share in the Airport before being stopped by Government legislation.

My wandering into the market today was the first time since July 2008 when I bought Hallenstein Glasson [HLG.NZ] and Postie Plus [PPG.NZ] shares.

No extra money went into the Share Investor Portfolio today, the $3400.00 plus $30 brokerage was funded from a part of this reporting seasons dividends.

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Auckland Airport needs main focus on its core business

Auckland International Airport [AIA.NZ] looks like they are using a downturn in passenger numbers and therefore revenue to move away from their core business of airport services.

The downturn in passenger arrivals coincided with the release of a new strategy plan for Auckland Airport by Moutter, himself newly appointed to the job.

The previous management team had responded to the drivers of the day, which was strong and continuing passenger growth, said Moutter. But the dynamic had shifted, and there was huge uncertainty as to when that growth might return. "But if we hunker down and drop everything to the lowest cost base, then we won't be able to capitalise when growth triggers return," he said.

His new strategy concentrates far more on developing the substantial land holdings held by the company. Property, he says, is one area where the airport company had the highest hopes and greatest opportunity of surviving, and even thriving through the recession. Full Story ( Doc attachment)

Investors need to beware that when a company with a core business changes tack there can be problems with that change and all the associated financial fallout that entails-increased capital expenditure being just one of those fallout's.

Auckland Airport have done well in the past from operating an airport and that is where their business expertise principally lies.

Granted they are landlords for retail outlets that operate inside and outside their main airport buildings and revenue also comes from their large car parking facility. These areas of their business comprise 55% of their income but management need to keep in mind why those facilities are there and are successful in the first place - the foot traffic that comes from airport user and visitor foot traffic.

New Zealand listed businesses are littered with the failure of management moving outside their sphere of business experience. Recent examples include The Warehouse Group [WHS.NZ], Restaurant Brands [RBD.NZ], Telecom NZ [TEL.NZ] and Hallenstein Glasson [HLG.NZ] making moves into markets they didn't know well and their shareholders were materially affected by these poor decisions.

Don't get me wrong, you have to adapt to changing markets. Auckland Airport passenger numbers are currently falling, but this will not last and management simply cannot take their eye off the golden goose lest they be caught unaware when traffic numbers climb again.

The focus for the long term must be on planning for increases in airport facilities, for passengers, planes etc and driving demand for more airline business.

The other bolt on revenue streams, while clearly important, need to come second to the main business and driver of those other revenue streams, core airport facilities.

Disclosure I own AIA, WHS, and HLG shares

Auckland International Airport @ Share Investor

Marketwatch - Auckland International Airport
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As at 2:16 pm, 20 Apr (20 min delay)

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Investors have reached a Tipping Point

I have got to say it, I am over reading, watching, listening and writing about economic crises, recessions, banking collapses and companies sinking under debt.

Enough already!

Lets get on with the real stuff of business, finance, companies growing and returns we can all get from investing, in the stockmarket and other financial sectors.

I, and I feel others, have reached a psychological tipping point where we just cant take all this bad news anymore and we want to concentrate on content rather than the emotional turmoil of turbulent markets. Whether it is boredom or pure negative information overload we all have a tipping point that we reach at one stage or another.

That is not to say people want to bury their heads in the sand and forget what is happening around them but this change in market "feeling" (some say would say greed instead of the most recently prevailing fear) is palpable in my circles of influence.

I was reasonably pessimistic about economic events over the last few years but there came a point where my tiny little brain just couldn't take any more bad news and it did a 180 degree turn.

That happened a couple of weeks ago.

When that happens as a group, or in this apparent case millions of investors, the more positive mental outlook lifts everything around them.

We have been told at least half of the economic downturn is due to state of mind rather than real economic factors, and I believe that has merit, so finally hitting the wall of economic bad news is, well, good news for the real economy.

Let me repeat, I am not sticking my head in the economic sand. I and I would contend many others are sick of the dire economic news, just cant take anymore and are ready to move on.

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Friday, April 17, 2009

MarketWatch - Auckland International Airport

Auckland International Airport [AIA.NZ] is presently a well underrated stock, for a number of reasons. It, like every either stock on the NZX, is getting a pasting by nervous investors and post the merger hubbub the share price has tanked.

OK, I do own this stock but it is pretty immaterial really, I only own 1000 shares, so if you do rib me just make it a small ribbing if you would.

I bought my shares at $2.15 and at today's closing of $1.70 (I originally started this yesterday when AIA was at $1.64) it makes the company a cheap proposition. $1.56 is its 52 week low. (see 2 year chart above for details)

Just over a year ago they were fetching more than $3.60 due to competing bids to buy a share of the company.

Lets forget about the share price for a moment though, even though that is the main reason for this particular column.

For $1.70 per share what do you get?

* An essential monopoly with the ability to raise prices consistently above the rate of inflation.

* Add-on revenue streams from large retail areas inside and outside the port proper.

* Large tracts of undeveloped land surrounding the port.

* Consistent organic growth through increased passenger movements.

To add to this there has been a softening in National Government policy to allow assets like these an easier saleability to overseas interests; Previous Government regulation led the AIA sale to fall through.

In addition to the above point and politics again I'm afraid, with the imminent "super city" about to dawn on Auckland the question of airport shares being held by Auckland and Manakau City Councils will definitely come up again.

Regardless of the short and long term propositions that I have pointed out for owning this stock you will have to make your mind up whether you want to buy Auckland Airport stock but I rate it a buy at these price levels.

Auckland International Airport @ Share Investor

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Thursday, April 16, 2009

Irving gives investor's perspective

I post this Wall Street Journal article here because not only is the WSJ the best financial paper in the world but the article is the most illuminating that I have seen on the current economic and financial mess that we find ourselves in the middle of.

It gives perspective, some opinion and most of all experience.

Perhaps the most illuminating of accounts is about a man called Irving Kahn, I have heard about him before briefly and his story, among the others in this sizable column really put today's investors in the picture more clearly than anything I have read, listened to or watched over the last 2 years.

The following excerpt is about 103 year old Irving Kahn:

Irving Kahn sits at his cluttered desk, peering at his computer screen through thick, dark glasses. The Dow inched up 38 points today, a small move in light of its 332-point drop earlier in the week. But Kahn has made a career of betting on beaten-down stocks, and he's hard at work poring over annual reports and studying balance sheets looking for companies that have lots of cash, not much debt and good long-term growth prospects. General Electric has a solid business and looks pretty good at these prices, he muses. General Motors? Not so much.

Like a lot of us, Kahn has seen good times and bad, bull markets and bear markets, recessions and recoveries. But he's also seen something most of us haven't: the Great Depression. Kahn, who still shows up at work every day and puts in a good six hours, worked as a stock analyst and brokerage clerk on Wall Street in the 1930s. He's 103 years old.

That's right — 103. As pundits half their age dominate the airwaves with prognostications on whether the next Great Depression is just around the corner, a small group of overlooked folks who not just lived through it but worked through it — on Wall Street — are still here. What's more, they're still at it, running their own sizable portfolios and, in a few cases, managing money for clients. Despite innumerable bull and bear markets, 17 presidents, and countless economic policies, they've remained remarkably true to their investing philosophy. They've also remained remarkably true to their methods: Forget BlackBerrys; most of them hardly touch their desktop computers. And you won't find CNBC blaring in their offices throughout the day; that's more noise than news to these gentlemen. Instead, you'll find stacks of reading material (these guys actually read a firm's annual report before investing) and a lot of old-fashioned...what do you call it? Oh, right. Math. See fully story at WSJ

Irving puts the long into long term investing and if any example of longevity can give today's investors hope for that long-term it is individuals like Irving, with qualities like tenacity, a capacity for hard work, honesty, intelligence, ethics and most of all experience.

If the WSJ article doesn't give you a better feeling about where you are going in the future, investing and in life, you haven't read it thoughtfully enough.

Move over Mr Buffett, I think I just got a new Guru.

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Wednesday, April 15, 2009

The BBC wants you

The BBC are working on a documentary on the Sage of Omaha, Warren Buffett. Associate Producer Charlotte Dawes is looking for shareholders of Berkshire Hathaway (although I don't expect many from New Zealand) who are willing to share their thoughts or stories about the man and his investment style.

I have been asked to participate as to why I follow his unique way of investing but Charlotte is principally looking for Poms to be included, because it is the BBC and they will be following some Brits to the Berkshire Stockholders meeting coming up in May.

If you are interested in participating please email Darren Rickard here .

I would be chuffed to get some readers to contribute their thoughts opinions and ideas, especially if you are a shareholder.

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Saturday, April 11, 2009

Tortoise VS Hare: Tortoise wins again

Long VS short, there just aint no contest!

Yeah, I know, I know, he is going to bang on again about the merits of long term investing over short term.

Absolutely, it is a good subject and important if you want to make money well into the future. Invest in a good business, it will have its highs and lows performance wise regardless of its share price and the odds are better than a short term punt that you will be happier in the end.

I am motivated to write this column because of my sustained interest in Warren Buffett and his investment style; buy a great company for a good price and never sell it.

Recent developments for Buffett have seen his Berkshire Hathaway company lose money, lose share price and Berkshire losing its high credit rating a few days ago.

That has seen his critics lather at the mouth to come out and critique his recent moves to buy stocks and spend money rather than do the opposite I presume.

One virulent critic has been Doug Kass and he has been shorting Berkshire stock over the last year.

But surprize, surprize being the short term thinker he his today he came out and did a complete 180 degree flip flop, Doug is buying Berkshire stock for his long term draw!

This from Doug:

"When conditions change, as they appear to be doing now -- see this morning's Wells Fargo (WFC Quote) news -- opinions must change, and opportunities must be embraced. This is especially true in the case of Berkshire Hathaway as the considerations that led to my shorting of Berkshire Hathaway's shares at around $145,000 a share have now reversed, and, with the shares today trading under $90,000 a share, I have begun to accumulate a long position in Berkshire Hathaway".

Doug could have bought Berkshire at $74,100 in November and again in February 2009 at $73,677.30.

But if you looked at Buffett's move when "his" Wells Fargo bought the basket case Wachovia last year, as a long term investment, you might have had the fortitude to buy Berkshire stock thinking Well's management might know what they were actually doing.

Kass even advocated buying Wells Fargo last November, but not Berkshire Hathaway stock, which owned around a 7% stake in the company according to filings last December. Wells is now one of Americas largest banks.

Berkshire has been the owner or part-owner of many global brands and added more recently.

Kass could have had a stake in all of these cheaply for a long term recovery but only picked one.

The purchase of debt or stock in Harley Davidson, Tiffany, Goldman Sachs, General Electric and a number of other smaller and some larger purchases over the last 12 months also look to pay off as the economy inevitably recovers in the long term.

Oh how the tortoise has taught the hare a lesson, and more to come I would think.

Thanks for your indulgence of my self-indulgence once again.

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Thursday, April 9, 2009

The NZX continues to lose ground with retail investors

How can you tell if you are important to a business? that is, whether they want your business in the first place and what will they do to keep it.

Lets take a look at the New Zealand Stock Exchange [
NZX.NZ] and see how they stack up for customer service.

Lets ask a number of important questions to give the NZX some sort of customer rating.

Do they look after all their customers?

The answer would have to be a clear no.

Why so?

Well the NZX in all its infinite wisdom gift their larger customers with preferential treatment simply because of the financial/old-schoolboy/business connections between those larger customers and with the NZX itself, that is, it is in the NZX' best interests for example give their mates in the same industry as them advantages over smaller shareholders in recent capital raising's; the likes of Kiwi Income Property Trust [KIP.NZ], Fletcher Building [FBU.NZ], Freightways Ltd [FRE.NZ], and Nuplex [NPX.NZ] because of the backscratching and arse licking that has to go on in the financial industry to make the wheels turn in New Zealand simply because of its small size.

One day the favour will be returned you see. Its wrong but it is true but it happens constantly.

Retail customers-small investors like you and me-are clearly shafted.

Are market rules broken to advantage the "big boys" ?

Well yes they are.

Back to the recent capital raising's, we had the NZX waiver several NZX rules to allow companies to buy preferential shares on preferential terms without consulting smaller shareholders who would have their shareholdings diluted through the issue of more shares.

To add insult to injury any offer made to smaller shareholders to buy shares was not on a pro-rata basis and capped at a set dollar rate, to be scaled down depending on demand.

The little guy gets it again.

But wait there is more.

Access to live market news data is unfairly distributed because unless you are lucky enough to have an NZX terminal you get the market news 20 minutes after the big boys get it.

Boy us retail investors are really on the back foot there.

Does the NZX take rule breaking seriously enough?

In my opinion the answer would have to be a big fat NO.

In my 11 years of market watching I have seen stock prices either dramatically rise or fall days before good or bad news about a company is finally revealed to the little guy. Its out there, an individual insider or some broker is trading on it and big money is made.

Surely it would be easy to find the culprit?

Well, yes it would but little detailed investigation is done into this by the NZX except the usual question to the company concerned about "whether you were aware of any company news that would have affected the company share prices, etc. etc.."

The NZX has access to trading records and irregularities in trading could be hauled up for question.

What does all this do Darren?

Well clearly it puts retail investors at a large disadvantage when it comes to investing in the New Zealand stockmarket.

Rules are broken and there are few consequences, favouritism to insiders is rife and ignored when it should be discouraged and in the vain hope that someone might be found guilty of any shenanigans there are usually very light consequences.

No wonder then retail investors or "Mum and Dad" if you like have deserted the NZX in droves for finance companies, term investments, residential housing and ultimately overseas stockmarkets, when you have different rules for different customers then those given the short end of the stick are simply going to go elsewhere.

Mark Weldon was charged with improving such things in our capital markets when he started as the boss of the NZX early this century but he has failed to halt the decline in New Zealanders investing in the NZX and ultimately Kiwi businesses and for that he should be soundly ashamed.

4 out of 10 from me.

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Wednesday, April 8, 2009

2008-2009 KFC sales figures mislead investors

Let me just elaborate on a short post I made at regarding Restaurant Brands [RBD.NZ] results to the year ended 28 February 2009.

It is something I have mentioned many times before but it must be stressed once again because Restaurant Brands shareholders and prospective investors in the company must be given the full picture when it comes to RBD managements disclosure over their KFC sales.

The "record" $211 million of sales reported in today's result for KFC is only a record in terms of 2009 dollars. KFC are actually serving up less chicken to fewer customers.

Their best listed year was in 1997 where they did $172.3 million in KFC sales. That is because of accumulated inflation at a very conservative 3% annually over the last 12 years amounts to 36%.

36% inflation means in 2009 dollars RBD would have to sell $62 million more chicken just to match the record made in 1997.

$211 million is a long way from the figure they need to make, of $234.32 million, just to match the 1997 record.

I am not an accountant and nor do I think I need to be but if such emphasis of "record sales" is placed on a figure by RBD management to gain market approval that the expenditure of 10s of millions of shareholder funds on KFC refurbishment in order to attain those sales then that figure should be clearly accurate and take inflation into account. That is simply not the case here.

Granted one can do the math oneself to come up with relative figures and compare year by year sales but having said that, to use current sales figures as a tool to push further shareholder expenditure must be justified to the nearest decimal point.

RBD's figures therefore do not pass this test and furthermore for analysts and business reporters to accept this without question is surely remiss to some extent.

Still my record with this company probably goes back longer than many on the RBD board or those professional stock analysts in their professional capacity.

Once again I am not an accountant but I would like to see inflation taken into account when businesses do their books, at lease an annotation in the audited reports of what the inflation rate was in the last year so a stockholder or a prospective stockholder can make a fully accurate comparison before they decide to buy, or not as the case may be.

Just to end on a positive note, the company is negotiating with YUM! over the Pizza Hut franchise and it is expected that this will allow RBD management to divest individual Pizza Hut stores to owner operators.

This is one thing I have argued for Pizza Hut for years that individual ownership makes for a better run business because owners have skin in the game. Pizza Hut's competitor Dominos have this arrangement and they are currently experiencing records sales.

This solution will be at once beneficial for RBD because Pizza Hut loses money and for the Pizza Hut brand in New Zealand which will be able to rejuvenate itself under an alternative ownership structure.

RBD shares were up 1c to 86c today on reasonable volume.

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Monday, April 6, 2009

Sweetheart deal for Fletcher Building's friends makes small investors sick

Bruce Sheppard had a go at it yesterday and now it is my turn to have a go at Fletcher Building [FBU.NZ] management for the cavalier attitude they have for small Fletcher investors.

At the heart of that attitude is the recent capital restructuring to raise funds to retire debt and reinforce cashflow.

Institutional investors basically got a sweetheart deal from Fletcher management when they got cut price shares at NZ$5.35 per share on a pro-rata basis. That is, in proportion to the shares they already hold. A deal apparently will be offered to smaller shareholders, but capped at NZ$100 million and not pro-rata, so we got the arse end of the donkey here.

Compounding this favouritism, apparently non-institutional "large investors" (whatever that means) have also got some cream on top of the sweetheart deal for institutions that makes it so sweet smaller investors are bound to chuck up after reading it. This particular deal will give special rights to those large non-institutional investors to ratchet up their holdings to reduce the diluting effects of the placement to institutions.

Now I don't know about you but if you are a small Fletcher shareholder (I am, I have 1000) you might be suffering a diabetic reaction to all this sweet favouritism to the big boys by now and wonder out loud to yourself again why the NZX might be an unfavourable place for New Zealanders to invest considering they are not on a level footing with the big boys that Mark Weldon's NZX has granted a wavier to to snap up more of Fletchers.

According to the NZX website the folk who may have participated in the $405 million placement of shares concluded last week are connected to Fletchers by virtue of the fact that some are "Associated Persons of FBU Directors by virtue of having a common Directorship with FBU and several placees participating in the Placement".

Those people are:

(a) ANZ National Bank Limited, by virtue of Sir Dryden Spring’s and Mr John Judge’s common Directorship;
(b) Westpac New Zealand Limited, by virtue of Mr Ralph Waters’ common Directorship; and
(c) the Accident Compensation Corporation, by virtue of Mr John Judge’s common Directorship.

So it gets even worse when you dig down into the detail. Its like a bloody incestuous Utah Mormon clan!

I haven't got the time to read through the pages of verbose detail but I guess some will be revealed at a latter stage. Most will be lost on the average small mom and dad Fletcher share holder because media are too lazy to do the research - all except Bruce Sheppard, I am sure we will be hearing from him again on this matter.

There is however a solution to this.

Strong demand from those mentioned above for shares in the capital raising aside, Fletcher Building still operates in an environment of weak business prospects and an uncertain future as far as sales go.

Global stockmarkets have raced ahead over the last month or so and there is downside to come.

Shares in the company have ranged from $5.11- $6.50 over the last six months (see chart above) and it is not unlikely scenario that smaller shareholders like me could pick up extra shares cheaper than the proposed $5.35 to stop dilution of their holdings by buying them on the open market. You don't have to participate in this madness and still stay undiluted!

That is just what I am propose to do .

Bugger them.

Fletcher Building @ Share Investor

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