Share Investor's Friday Free for all: Edition 2

Xmas comes early for Warehouse Shareholders

An announcement today from The Warehouse(WHS) New Zealand's Largest retailer, that they will be paying a large special dividend of $NZ 35c imputed per share along with a 5.5c normal dividend will have shareholders running to the bank.

It seems the proceeds from sale of their Australian unit plus some other property sales sees the company flush with some $109 million in cash and owners are going to benefit. The share price was up 14c on modest volume today possibly reflecting the markets lack of faith in the retailing sector given Bricoes (BGR) 16% fall in profit announced today.

It is a shame more companies don't have good capital management such that The Warehouse is operating. Many would have the 109M burning a hole in their pockets looking for a place to spend it.

Sky City(SKC) Entertainment take note when considering what to do with proceeds from mooted asset sales late in 2007 and early 2008.

Auckland Airport Merger Crashes and Burns

The original Dubai Aerospace, DAE, merger with Auckland International Airport(AIA) took a nosedive this week.

In the face of rampant idealist pressure from leftist councils and Central Government the proposal was dead in the water. It was never a flyer to begin with for manifold reasons, mainly due to the fact that the company was a foreign one.

DAE is rumored to be stitching together another more politically palatable deal and a Canadian pension fund is said to be about to launch a concrete bid soon.

Any deal is going to be almost impossible considering there are politicians with big egos and tiny reproductive parts involved.

My speculation would be if Dick Hubbard from Auckland City Council gets re-elected(god help us!) and Manukau Council continues to lean left after October this year then we could see councils combining to re-purchase the airport. Perhaps not a likely scenario but I think the most likely in the face of other proposals.

Finance Company woes Hound Investors

Two more Finance companies went up in smoke this week, bringing the grand total over the last 16 months to 9 and well over NZ$ 1 Billion at risk of being lost.

Fingers continue to be pointed at everyone but those most to blame. Directors of such companies and those that "invested" in them.

A curious excuse was given by the liquidator of Nelson based LDC Finance for its collapse. It seems said liquidator blamed investors for pulling out funds because of market nervousness over finance company collapses.

He conveniently forgot to mention that the company he was in the process of liquidating took call deposits and used them to invest in long term situations. Well duh., it was bound to come unstuck sooner or latter.

Blue Chip Debt fails the risk test

Following in the rumblings of the sub prime meltdown in the United States, New Zealand companies issuing debt securities to pay for business expansion have been left high and dry by fed up Kiwi investors. The Canadian School Teachers Pension Fund, who bought Telecom NZ's Yellow Pages unit this year for NZ$ 2.2 Billion were initially after $300 Million from Kiwi investors at 11% then scaled back twice before being scrapped earlier this week.

I suspect the fund wanted more than the original amount but market sentiment propelled them to scale it back. When they purchased Yellow Pages, market appetite for such debt was at an all-time high. They would have been counting on that appetite to continue when it came for them to fund their purchase.

A hint of desperation also surrounds the issue by Origin Energy, Contact Energy's(CEN) main shareholder, of preference shares with an initial 10% yield.

I have been called twice and offered to buy into this issue. Once by my Broker, ASB Securities and once by the bank that owns the broker ASB Bank. Never before have I been "hounded" in this way. I said no.

Power to the People

Not to let any opportunity go by to bash Helen Clark and her sisters in power or without power in this case.

The case for New Zealand to have nuclear power has never been stronger.

The ideological bent by the New Zealand Labour Party for the country not to use its coal and hydro assets to produce much needed electricity is only matched in stupidity by the same collective ideology that would have them oppose nuclear energy.

Labour's answer to New Zealand's power crisis is to use windmills and solar power, forgetting of course that wind the doesn't always blow (unless you are a parliamentarian) and the sun doesn't always shine(unless you are a Green Party member after your daily spliff)

Kiwi business needs cheap, reliable and plentiful supplies of power to push the economy ahead and for business to have the confidence that they are able to expand with the knowledge that the extra power is there when it is needed.

Slow food

The listed fast food company Restaurant Brands(RBD) is still looking for a leader after more than six months without one.

With news this week that one will be appointed sometime next month share investor wonders-with tongue firmly planted in cheek- whether the ex-chief of Telecom New Zealand(TEL) might be one of the contenders shortlisted.

On second thoughts, perhaps even RBD do not deserve someone so lacking in business acumen and forward planning.

I'm still available.

Burger Fuel(BFW) the listed gourmet burger wrangler, has failed to have its shares trade at all this week.

Watching the share price of this company could get more exciting next week. Yeah right!

Seriously though,this is going to be a market announcement driven stock price in the absence of any material facts and figures about how the business is doing.

Capital would have dried up though and their initial plans would have had to change.

Meanwhile the owners of Hell Pizza and Burger King, one of RBD's competitors for their Pizza Hut brand , have had a stoush with their ad company.

Cinderella Marketing, the advertising company that pursues guerrilla-style marketing promotions - including a condom letterbox drop depicting Hitler and a brazen magazine called Hell-o - are credited with making the brand stand out from bigger fast food competitors.

It seems the brazen advertising has finally got too much for Hell's owners. Was it the condoms or the Hitler references and why did it take so long for the owner of Hell to reject the brazen ad placements?

Market Wrap up

The benchmark NZSX-50 index closed up 11.88 points, or 0.3 per cent, at 4151.98, on turnover totalling $101.8 million.

The big mover today was The Warehouse(WHS) which jumped 2 per cent to 588 on the news of a special dividend of 35c a share totalling $109 million.

Auckland Airport(AIA) was still in play, as suitors such as the Canada Pension Plan Investment Board have been rumored to be making a bid soon.

Auckland Airport shares closed up 2c at 309.

Telecom (TEL)was up a cent at 438, Fletcher Building(FBU) gained 6c to 1191, Contact Energy(CEN) rose 14c to 915, Fisher & Paykel Healthcare (FPH)was up 5c at 355 after announcing new sleep apnoea products this week, and F&P Appliances(FPA) was flat at 367.

Briscoe Group(BGR) was flat at 151, reflecting consideration by the market that their profit drop announcement today was already priced in after reporting a 12 per cent fall in half-year net profit to $10.5m, as competition hit margins.

Among rising stocks, Cavalier Carpets(CAV) was up 9c at 321, Nuplex(NPX) gained 11c to 700, PGG Wrightson(PGG) was up 9c at 193, and Michael Hill(MHI) rose 15c to 1015.

Air New Zealand(AIR) lost 2c to 215 after earlier this week announcing a large special dividend, Sky City(SKC) fell 2c to 441, Vector(VCT) was down 4c at 241, and NZX (NZX)fell 5c to 975.

Lion Nathan(LNN) 5c lower at 1100, and Goodman Fielder(GFF) down 12c at 308.

Disclosure: I own SKC, GFF, FPH ,AIA shares

c Share Investor 2007

Competitive Strain Inquiry

The decision that the Commerce Commission are currently mulling over, to give the go-ahead for the Warehouse to be sold to either Foodstuffs or Woolworths Australia, is a very clear one.

The competitive advantage that either one of these two companies would have if they were given approval and won a bidding war would allow a larger company to dominate not only the grocery sector but the variety goods sector as well.

The removal of a third and in time, eventually larger competitor in the Warehouse, will remove the ability of the public to have a viable chance for cheaper grocery prices and leave New Zealand with the current duopoly, with high prices and poor service.

To go back to two players in the New Zealand grocery business will be a missed opportunity that will probably never come again for generations and put the sector back where the variety goods sector was before the Warehouse came along 25 years ago.

Will the two players in this drama cite the sort of nonsense that Auckland Airport and Regency Duty trot out when they tell us less competition will mean more choice and cheaper prices for consumers? Well the answer is they already have. Those are two of their arguments for both of them buying the Red Sheds. How dumb does business and the Commerce Commission think the New Zealand consumer is. Clearly terminally so.

For too long New Zealand consumers have come off second best when it comes to the competitive advantage of having manifold players operating in an industry. When we get a chance to have more competition in an area so important and so uncompetitive as the grocery sector is, then we need to grab it with both hands and our watchdogs need to do their jobs and come out on our side for once.

Airlines, retail petrol, communication and a myriad of other industry have been given the once over lightly from the Commerce Commission when it comes to mergers, anti-competitive behaviour and the like.

If Woolworths and Foodstuffs want to expand in this country then they have only got to plunk down the some of billions that they have in revenues and go head to head with the Warehouse in a truly competitive environment and let the best man win. Carnage or not that is true competition.

We have only got to look at Woolworths anti-competitive modus operandi on the North Shore of Auckland where a new Foodstuffs Supermarket has sat empty for 2 years because WW has objected to it opening on the bizarre grounds that it will create too much traffic, strange when a Mitre 10 Mega has opened just around the corner. Do we expect Woolworths to operate fairly if they are allowed to expand by buying the Warehouse?

The alternative to a buy by the aforementioned parties would be for a party with a small presence already doing business here or a completely new player from offshore, thereby making a the purchase a competitive one that keeps three players in the grocery business.

New Zealand is a small market and often, in business sectors of monopolies, duopoly's and the like market dominance is all too frequent. While I'm not against business getting bigger, areas like the grocery sector that are extremely unrepresented by multiple players must be open to such when the opportunity arises. The Commerce Commission must therefore make the decision, and soon, to keep the grocery sector open to real competition.


C Share Investor 2007