Share Investor: December 2009

Tuesday, December 29, 2009

MARKETWATCH: Low holiday volumes a good opportunity to buy

If you haven't been buying stocks this year already, and you probably should have been because there were some relative bargains to be had, and you haven't spent all your moola before Christmas or in what are euphemistically and laughingly called in New Zealand the Boxing Day "sales" then heads up young shoppers!

The stockmarket is still here and is open today and some of us born capitalists are still interested in trading/investing.

A word to the wise, some good buys can be had on a day like today and over the coming stockmarket trading hours during the holidays.

This is because of the distortion of prices through low volumes offered and sold.

Some stocks are selling at prices way above pre-Christmas market closing and the inverse of this is true also.

Time to get off the couch, away from the pool or that woman in the bikini on the beach sitting next to you and get in front of the computer screen to have a look.

By the way and a small step away from this subject, Warren Buffett isn't going to retire in 2010. Doug Kass just has recognition hunger.

Recent Share Investor Reading

Download NZ company reports here.

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c Share Investor 2009

Tuesday, December 22, 2009

Allied Farmers: What's it Worth?

I didn't mean to write something else before Christmas but couldn't help myself over the plunging fortunes of ex Hanover investors and their allotment of 1.9 billion shares (yes that is billion with a capital "B") issued last week in lieu of a wind-up of Hanover Finance.

Allied Farmers Ltd [ALF.NZ] shares were always going to significantly drop in value as the new investors in the company headed for the hills and dumped their stock but existing investors in Allied sold shares last Friday after a trading halt was lifted dropping shares from 20c to 14.8c. Yesterday a small number of Hanover investors bailing took the share price down to 10c a share.

There will be a further drop today and further drops as Hanover investors get firm allocations confirmed and they are able to employ a broker to do the business -many Hanover investors would not have easy access to a sharebroker.

What is the company worth though?

Well, that is part of the problem, the market doesn't really know its true value because the "assets" folded into Allied from Hanover are of suspect and therefore unknown value and the prospects for the new Allied Farmers is uncertain at best.

Markets hate uncertainty with a passion.

Those former Hanover investors would have been advised to dump stock ASAP if they wanted some sort of immediate return because I don't think this company is going to stick around for any good length of time but if they think that there is hope for the company that it will survive then the best thing investors could do would be to hold what they have and wait for some concrete results to give the market an indication of true value -the share price will recover if the results are good.

At close of market yesterday Allied Farmers share price valued Hanover assets at around 35c in the dollar, so according to those commentators who eschewed a wind-up of Hanover in favour of a takeover by Allied a 35% return of your money is better than returns from a bankruptcy and they are probably right but the share prices aint going stay above 10c for much longer.

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c Share Investor 2009

Saturday, December 19, 2009

Merry Christmas and Happy New Year from Share Investor

I wish all my loyal readers a very happy Christmas and a prosperous 2010 New Year and to your family and loved ones.

It has been a pleasure writing on some my favourite subjects and I hope you have found some interesting tidbits to help you out in these very crazy financial times.

I hope you can all join me in 2010 where we can all do it again but this time with a smile and a wink!

To check out the holiday operating hours of the NZX and what is coming up please go here.

Darren, Share Investor.

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Share Investor's top 12 Stockmarket/Business Awards for 2009

A list seems appropriate for the end of the year, everyone else is doing one so I might as well.

Here goes nothing.

CEO of 2009 - Russel Creedy from Restaurant Brands Ltd [RBD.NZ] For turning around the usually beleaguered fast food company by implementing better menus and service with a capital "S'.

Share price recovery - Restaurant Brands again for almost tripling their share price from a low of 62c to over NZ$1.60 in 12 months.

Management of the year - Mainfreight Ltd [MFT.NZ] As a whole the quality of management shone through as the logistics sector was particularly hard hit. Don Braid, Bruce Plested and the team they manage have negotiated their way through a bleak 2009.

Fraudsters of the year - Mark Hotchin and Eric Watson share this distinction. For going above and beyond the call of duty to fleece elderly investors of their life savings and walking away scot free. They should both be in prison.

Head in the sand award - Rod Oram and his ilk banging on about the fraud of Global Warming simply because they stand to make money by peddling this myth.

Stockmarket crusader award - Bruce Sheppard from the New Zealand Shareholders Association. When there is noise that needs to be made Brucie is there with his horned helmet ready to expose those that need to be seen in all their ingloriousness.

Worst performing major NZX stock/s - This would have to go to Nuplex [NPX.NZ] first and Fisher & Paykel Appliances [FPA.NZ] Nuplex destroyed millions of dollars of shareholder wealth by over extending themselves during the boom times and paying for it in 2009. Fisher & Paykel did the same but only stayed in the game because a capital rescue by the Chinese and their shareholders.

Sneaky IPO Prospectus award - Kathmandu Holdings [KMD.NZ] for hiding detail of their financial position in pro -forma accounts.

Wankers Award - ING and ANZ for duping clients out of hard earned cash after advised by bank tellers that investing in specific product being offered by ING that they were as safe as term deposits -turns out they were not!

Award for having no bark and no bite - The Securities Commission for failing to act in good time on fraudulent activity over finance company collapses and ongoing disclosure issues and insider trading of shares listed on the NZX.

Brand destruction Award - Cadbury for changing the recipe of their chocolate then vowing that customers wanted the change and would "get used to it" and after much pressure reversing the decision - lost sales to other chocolate producers.

Fire Sale of 2009 - Kirin bought the remaining part of Lion Nathan they didn't already own for a song - the "independent" report advised shareholders to sell but they could have gotten more.

From Fishpond.co.nz

c Share Investor 2009

Friday, December 11, 2009

Burger Fuel Worldwide: 2009 Half Year profit analysis

The Burger Fuel Worldwide [BFW.NZ] 2009 half year profit to 30 September is more of the same from this company, continued and mounting losses.

Revenue is up strongly but so are expenses, and the loss, while down by more than 50% to $NZ 296,000, is still a loss and is difficult to compare with last year's half year loss because that figure could be stacked with IPO expenses and other establishment costs -this is not clear from the accounts - and does include a more fulsome period of new store construction by new franchisees.

Cash reserves have dwindled down to below $1.5 million, from over $2 million in the previous corresponding period. While still conservatively geared at a debt to equity ratio of around 32% that cash balance is going to dwindle if the company is to get back on track and deliver the growth they promised in their July 2008 IPO.

As franchisors the only significant income BFW are currently receiving is their cut of franchisee sales and advertising income. The promised windfall of franchise and management fees are paltry at best.

More money was earned from cash in the bank than franchising and construction fees combined.

Key Points from BFW 2009 Half Year

1. $296,000 loss - down 54%

2. $4.2 million revenue - up 19%

3. Cash reserves down 25%

4. Earnings per share -52c VS -$1.26 last year

5. No new stores added

6. 2 stores in Australia incurring significant losses.

*Download the BFW half year Financials & other docs @ Share Investor Forum - Register free to download.

Burger Fuel Worldwide @ Share Investor

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c Share Investor 2009

Wednesday, December 9, 2009

NZX Share Split good news for profit takers

The announcement of a 3:1 share split and improved dividend payout by the the New Zealand Stock Exchange Ltd [NZX.NZ] shows that directors of the company are confident that future performance of the company is going to exceed market expectations.

The share split is an attempt by the NZX to get more mum and dad investors on their share register as the bulk of shareholders are currently brokers -who used to privately own the company - and those on the "inside" of the stockmarket industry.

This is the second time the stock has split since its 2003 listing.

The theory of stock splits is that by making shares "cheaper" it increases liquidity and enables more people to own shares.

In practice though, splitting shares has no material long term effect on the company doing it - and nor should it - and rarely does much for liquidity.

The main effect a stock split has is to allow short term investors to make good quick profits based on the typical rise of the pre-split share price and then dump the shares before the stock splits.

Post split, shares sometimes rally as well so there is opportunity there to turn a fast buck.

This kind of "sleight of hand" with shares is rarely sustainable for any long term share price increase and it is back to basics for concrete results to get a real indication of a market value for a company.

If you are keen to make some fast moola there should be more to be made before the record date for the share split on Monday 21 December 2009 . The share split will happen after market close on Monday 21 December and be effective on, and from, market open on 22 December 2009.

NZX shares have rallied around 60c on the news since it came out on Monday 7 December so if you take the plunge please be aware of the risk involved.

Good luck!

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c Share Investor 2009

Tuesday, December 8, 2009

Stock of the Week: Telecom Ltd

Telecom New Zealand Ltd [TEL.NZ] is a good stock to trade rather than hold long term simply because the trading volume is consistently the highest on the NZX and that is why I have included the company in this Stock of the Week series.

I am not a chart man myself or a short term trader but if you look at the one year chart above there has been a good deal of money to be made in the earlier part of 2009, going from around 10c per share right up to 60c per share profit.

The share price reached an 8 month low of NZ$2.36 yesterday and has risen like a roller coaster (hence the trade possibilities) from a year low reached in mid January 2009, so one could assume that indicators are showing that an opportunity exits for a good trade at these stock price levels and a good range for profit made considering its recent trading history.

I don't like the long-term prospects for the company, it still has a defensive, reactive culture with employees who are badly trained and informed on what they are selling and poor service levels but it has a 10% plus gross dividend and it isn't going to go out of business any time soon.

Shorties will win here.

Good luck!

Telecom @ Share Investor

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Stock of the Week Series

Reprise - Contact Energy Ltd
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Michael Hill International
Contact Energy Ltd
The Warehouse Group
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c Share Investor 2009

Monday, December 7, 2009

Carbon Trading: A good reason to exit the Stockmarket

When your taxi driver, next door neighbour and friends at barbecues start talking about how much money they have made buying carbon credits on the NZX, which start trading in New Zealand in July 2010, you will know it is time to exit the New Zealand Stockmarket, and other global stockmarkets as well.

Whether you think the theory behind climate change, which carbon trading is supposed to help ameliorate, is true or not - and it has been proven it isn't - carbon trading is going to be the buzz phrase of 2010 and beyond. As the price for these carbon credits increases, and it will, it is going to take stockmarkets on a ride with it not seen since the Internet boom on the late 90s.

Like that boom though, Carbon Credits have no real assets behind them to back them up, they are simply "made up" and the revenue that flows from these credits is based on political maneuvers and manipulation rather than real economics, so the ride isn't going to last forever.

As I picked almost 2 years ago I expect a bull run for the NZX in 2011, for different reasons back then but the carbon trading market is going to be part of the resurgence.

This isn't about knocking global warming or carbon trading though, because others do it better and quite frankly it is easy to do because of the sheer kookiness of it all. This is about my strategy to get out of the stockmarket before the carbon trading market inevitably collapses and takes everything else down with it.

I prefer my own exit strategy, I don't like being pushed. but I reckon i will have little choice once this pile of bullshit gains momentum.

How bad it will be nobody knows but the carbon trading market is likely to get intertwined in every facet of our lives as well as our financial markets so any fallout from its collapse will be significant.

I just have to wait for those first signs to come and for every Al (oh hang on HE already is and is already making moola out of it), Dick and Harriet to start blabbing constantly about it and I know the market will be near its peak.

Keep that in mind if you are going to get into carbon trading directly or the stockmarket in general and head for the exits if you dont want to lose your carbon neutral shirt.

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c Share Investor 2009

Sunday, December 6, 2009

Hugh Fletcher: Silver spoon no recipe for success

In an interview with Kim Hill on National Radio a few weeks back Fletcher Building Ltd [FBU.NZ] former CEO Hugh Fletcher gives his views on the history of the business and his time there.

Fletcher followed in the footsteps of his father and grandfather at what was then Fletcher Challenge. He remains a director of Fletcher Building to this day.

He is currently on the board of the Reserve Bank of New Zealand in 2002 and chairs the board of directors of IAG New Zealand and is a director at Vector Ltd [VCT.NZ], and a board member of Insurance Australia Group.

The interesting part of the interview is the glossing over by Hugh of his failure as CEO in the 1980s-1990s. Under his reign the company limped towards oblivion in the 1990s as failed expansion attempts led to the breakup of the company into 3 different divisions in 2000.

He made many enemies along the way, notably Sir Ron Trotter, Sir Ron Brierly and Dr Rod Deanne, a former director at Fletcher Challenge and failed former CEO of Telecom NZ [TEL.NZ].

A very interesting view from Mr Fletcher on the history of what is now Fletcher Building and it is ironic that the company went back to its roots in the building industry after its failure under the grandson of the founder.

It just goes to show, leaders and business are not born but made from hard work and ability and often separated from parentage.

Disc: I own a small FBU holding in the Share Investor Portfolio

Fletcher Building @ Share Investor

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From Fishpond.co.nz

The story of his family and their company is told in Fletchers: a Centennial History of Fletcher Building by Paul Goldsmith

c Share Investor 2009

Friday, December 4, 2009

Hanover, Allied Farmers deal more of the same

So the Hanover Finance "rescue" package proposed by Allied Farmers has been given the big tick in an "independent report" by Grant Samuels . Well GS does reports on a number of companies and favour in its reports usually falls on the side of the party paying the cheque, so we can largely discount the GS report.

This is what it basically said though:

The Allied Farmers proposal is superior to the status quo and a high risk of receivership for Hanover Finance investors, according to Grant Samuel. NZ Herald

I happen to have an alternative view.

As I said back in November 2009 when Hanover proposed their moratorium, the best thing to do would have been to vote to wind the company up and get what you could get.

Hanover investors instead voted to give Eric Watson and his fellow fraudsters another chance and of course we now know that has blown up in investors faces just one year latter.

Investors in Hanover and United Finance, who Allied are also interested in buying, have the choice again to this time give directors at Allied a chance to get some money back on assets that are not likely to improve in value any time soon, in a property market that is uncertain at best or to simply bury their pride and vote to wind up the companies and get the best they can get at today's market rate.

I bet you Mark Hotchin's $35 million house in Paratei Drive that taking the money now rather than crossing your fingers for a recovery under future management will be the best bet.

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c Share Investor 2009

Thursday, December 3, 2009

Warehouse strike opportunity to buy

News earlier this week that less than a third of The Warehouse Group [WHS.NZ] workers will go on strike because they see the company as the big bad Christmas Grinch is bad short term for the company because it comes at a time of year when the bulk of their sales and profit is made but it is nonetheless another opportunity for people like myself to load up on the Christmas bargain that Warehouse shares could become if the industrial dispute drags on.

"Project Invigorate" the Warehouse' initiative to streamline and save costs includes the ability for management to direct workers into more flexible hours and conditions. Approximately 7500 staff work at the big red sheds and the bulk of the staff, who are not unionised, agree with management and so don't have a problem.

As I said above the short term prognosis if a strike is called and it drags on means that sales and profit for the next reporting period will be down but in the long term savings from increased labour flexibility along with logistics changes and inventory tweaks will mean bigger profits and more dividends for owners like myself and clearly that aint a bad thing.

The company is getting bad press in the mainstream media and they are largely behind the union from what I have been reading but below is typical of some of the coverage:

"All the staff were happy in their job. The managers used to be more flexible with the hours, they understood our personal circumstances, they used to work around our lives instead of us trying to work around the company's life. NZ Herald

I mean hang on a sec, don't you realise your boss is employing you ! at a time when economic circumstances are tough.

While I am for treating workers well, one has to realise that the company is there to make money and while you are an important part of that the company deserves the right to do what it sees fit to run their business.

The majority of Warehouse employees agree with management and only a handful of workers whipped up by a socialist union are pissing in the wind.

Time for them to go elsewhere get another job and let us run the company how we see fit.

With every cloud though there is a silver lining. I will be poised to buy if the share price drops.

Thanks to the Union for that.

Warehouse shares dropped 10c yesterday on the news and my interest will be piqued at around the $3.75 mark.

The Warehouse Group @ Share Investor

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From Fishpond.co.nz

NEW! "Letters to Aston: Lessons Learned from a Lifetime of Investing" by Martin Hawes

c Share Investor 2009

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