Time for Retirement?

Two new Retirement Home Village operators are going to list on the NZX in the next few months. Last week AMP announced the floating of their Retirement unit and today ING have announced that their two village's are on the block for a float to the public.

When these two operators are listed it will bring the number of listed retirement home operators to four.

These IPOs' are part of a wave of activity sweeping the retirement village sector.

CVC Partners said last month that it was looking at selling Guardian Healthcare and Goldman Sachs JBWere's private equity unit is rumoured to be looking to float, sell or raise new capital for its Vision Senior Living group.

The two IPO's also have a connection of sorts. NZ First Capital, who are floating Summerset and Forsyth Barr, who is floating ING's retirement unit, got together to float the abysmal IPO failure, Feltex, a few years ago. Reminders of overvaluations , high debt and creative accounting still resound in the investment community from that fiasco.

The ING groups' village's are by far the smallest by number of units at around 150 with only two properties, while AMPs' Summerset has 11 village's and over 1500 occupants.

ING are asking for $NZ100m while AMP are looking at 300m.

Ryman Healthcare [RYM.NZ], the biggest listed Retirement operator, has a market cap of over 1B and Metlifecare[MET.NZ]around 700m.

Ryman Healthcare has today just reiterated its profit growth for the current year at around 20%. It has been growing at this rate for many years and seems confident that it will grow at this rate for years to come.

At first glance AMP's Summerset looks like a great opportunity to get into this industry, which is growing rapidly as the population gets older. How good the offer really is will only become fully apparent as we get a look at the prospectus in a few weeks time. Until then we can reserve judgement.

On the other hand the ING offer I have some problems with. While ING is a highly reputable company, the track record of some of the participants may give cause for some restraint before plunking down your moola. Colin Reynolds was the head of the pyramid "property development" company Chase Corp which went bust in the 1980s, while Robin Congreve was involved with Fay Richwhite during the Winebox tax fiasco. Beware.

One of their villages is also 20 years old so may need some capital to fix up the paintwork and spruce up the surroundings and decor for the 21st century.

The retirement sector looks set for good growth for some years to come. With good margins and rapidly increasing and also affluent population. The baby boomers, when they do decide to relinquish their hold on the rest of us, will provide a mini-boom in this industry in 10-15 years.

The added bonus of consolidation as the players in this sector get more numerous is an added attraction. Currently the majority of retirement home living is being done by individual owners of villages, that is, operators owning just one village. Good assets are always up for sale.

Of course no investment is without risk and the retirement sector, like every other one, cannot continue to grow unabated the way it has. It will have its ups and downs.

Post prospectus of AMPs' Summerset, if the figures and management look good, I am going to buy as much as I can. If it is the golden egg that I think it is then demand is going to far outstrip supply.

Burger Fuel eat your heart out.

DISCLOSURE I own Ryman Healthcare shares

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Burger Fuel's Daytime Drama

In the daytime soap opera that is the recent Burger Fuel(BFW)IPO, its first week as a listed company would have had it cancelled after its first episode.

After 5 days less than $NZ 10000.00 of stock has changed hands. In one day it was the NZX's biggest loser, the share price dropped 20% to 80c , on turnover of less than $1000.00. The very next day the show was resurrected, it was the NZ Share Market's biggest gainer, moving 25% to the previous high of one Kiwi Dollar-incidentally its listing price.

This moved the company Chairman to make a media comment:

"Company chairman Peter Brook said not much could be read into the share price change because there was very little liquidity in the stock.

"There are just not the shares out there to buy. I think if you wanted to buy 30,000 or 35,000 you would be paying $1.20 per share," he said".


Post listing media briefings from Burger Fuel have been strangely episodic when compared to life before the Burger Fuel listing and media circus kicked off but Brook was retrained in his comments. I mean fancy saying this "...not much could be read into the share price change...". Actually unless you have the mute button on with your back to the big picture I think the combo of the share price drop and low liquidity is telling us lots. Simply that the IPO was overpriced and the market has little confidence in Burger Fuel's prospects.

Josef Roberts and his team now have to prove themselves to the market. They failed to convince at the IPO and this last week market viewers were not really tuning in.

Burger Fuel is today sitting at a share price of 1 dollar with no shares traded. This values the company at 60 Million Kiwi Dollars, only 30m odd dollars less than Restaurant Brands(RBD), the NZX's other Fast Food stock. Remember RBD have sales of 300m VS BFW's 16m odd but the Burger Fuel Company will get its income mostly from franchise fees of which were around 3.5m. Not delicious figures.

With less than a third of the capital originally hoped for Burger Fuel must now change their initial plans, expensively mapped out in the $1.5M prospectus, expanding with less haste and relying more on Franchisees to stump up capital to expand store numbers and promised "global reach". In itself probably a better model than their initial plan of the company using their own capital to open new stores then selling them off to Franchisees. One positive in the myriad of negatives that swirl around this company.

Keep watching, Burger Fuels stock will be in low rotation with re-runs of the same volatile share price and rare glimpses of its star players, its execs only venturing out when a positive spin is needed or indeed if there is actually the possibility of a 10 season run.

I have a feeling there might be a cancellation after the first 1 or 2.



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c Share Investor 2007

Mainfreight keeps on Truckin

I'm a very recent convert to the Mainfreight Ltd [MFT.NZ] convoy but shareholder or not one cannot help but be impressed by this company.

It all starts at the top with great management. Don Braid, Managing Director and Bruce Plested, Executive Chairman, along with a great team locally and globally help drive this company forward.

Management are decisive, show strong leadership, and have very clear goals about where the company is going and significantly how they are going to get there:

"As we grow to become a world player we must maintain our culture and style of business by keeping a strong grip on our policy of being anti-bureaucratic; continuing to allow branch managers to make bold decisions; being energetic and entrepreneurial; and so continue to grow our business.

We expect to double the size of our business over the next 3-5 years."

Don Braid, GM, 2007

Mainfreight's management "style" then starts at the top and filters through all aspects of the business. Local decision making is crucial to the smooth running of the business and a smooth running business is more efficient, grows faster and makes more money.

One of the first things Warren Buffett looks at when buying into a company is the quality of its leadership. The management of Mainfreight and its people set it in a class above all, in my opinion, of listed companies in New Zealand and if it was large enough I believe Buffett would put this company in his portfolio because it is a well run, with a business that is easy to understand, revenues that continue to grow and an efficient use of shareholders capital, with good returns to shareholders. Certainly Mainfreight's historical financial background would attest to how well run the company has been.

The company is not afraid to ruffle political and financial analysts feathers either:


"To the financial analysts and other scaremongers who downgraded us in the early part of the 21st century as we put together our offshore strategy, you were wrong, and we were right. Stop discouraging New Zealand companies from expanding offshore – of greatest risk is the low growth available in New Zealand.

More and more the New Zealand economy slides down the OECD economic rankings as we milk our productive sector in the hope of remaining a first world country with taxpayer funded hospitals, education and social welfare.

There needs to be a clear understanding that the productive sector is the only means by which a country can prosper – interesting, challenging enterprises earning profits are the mechanism which creates opportunities for people to do well for themselves, the enterprise, and for mankind". Bruce Plested, Mainfreight, annual report 2007


The same approach is used when dealing with shareholders. Information in company reports is straight to the point with little or no "corporate speak", so one can actually read their company report and understand what the hell is going on. A rarity but an essential ingredient. Shareholders must know how their investment is doing and they must be able to do that easily.

The focus by the company on global growth has enabled Mainfreight to slowly assemble a network of operations around the globe that encompass a wide number of countries. With bases now in Australia, Asia and various states in the USA, Mainfreight is starting to have the ability to lever its logistics capabilities off an increasingly enlarged network and customer base.

Their current expansion goals have largely been met and medium term goals have already been mapped out and management are working towards achieving theses goals. Acquisitions have been a cornerstone to Mainfreight's expansion but once purchased and integrated, organic growth is a feature of these add-ons.

Mainfreight intend to have "global significance" in international logistics in the US, Europe, China and Australasia, with an aim to double revenue growth from the present 1 Billion NZ dollars. With full year profit of 55 Million NZ Dollars for 2007 the future for profit growth also looks good if margins can be maintained or even improved as logistical costs come down as the company grows.

In Bruce Plested's closing remark in his 2007 Chairman's report he takes a swipe at New Zealand's current economic decline and unfriendly business climate:

"In summary, we do not have a large enough or vibrant enough business sector in New Zealand. Economically, New Zealand has been on a long slow decline relative to other OECD countries for close to forty years, and this decline has accelerated in recent years. Surely with the benefit of hindsight, New Zealand governments can recognise that our productive sector is not performing to the level necessary to ensure this nation’s future health and prosperity.

Right now we need bold new initiatives and inspirational leadership. Other countries have found ways to reverse economic decline, and that has involved low company tax rates as in Singapore and Ireland and a reduction in the weight of compliance costs.

Whatever the outcome, Mainfreight has a determination to remain a New Zealand owned and operated business while continuing to pursue global aspirations".

Like many New Zealand businesses and business people, Bruce seems to be implying that Mainfreight exists in spite of what the current Labour government are doing to screw our economy and is clearly annoyed at the impediments that his business faces.

While it would be nice to have a government being "business friendly" we all know that the opposite is more than often the truth.

It is to Mainfreight's obvious advantage then that they see global expansion as their way to grow. They clearly cannot easily expand in their country of origin.

As I write this Mainfreight are in discussions with 3 freight forwarding companies with a view to purchase, with one company already in the hole.

I own shares In Mainfreight and I am looking to buy more for the long-term portfolio at any weakness.

The closing price of MFT shares today is $NZ 7.40, 1c above my original purchase price.


Disclosure I own MFT shares in the Share Investor Portfolio.


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c Share Investor 2007

Dubai Aerospace Enterprise Move on Auckland Airport: Will It Fly?

There has been much written about the recently announced "merger" of Dubai Aerospace Enterprise (DAE) with Auckland international Airport Ltd [AIA.NZX]

Let me give you my take.

DAE have offered the equivalent of $NZ 3.80 per share in quite a complex merger proposition that values AIA somewhere north of $NZ 5 billion in its entirety. This is substantially more than what the company was valued at before rumours of potential buyers started coming out of the woodwork a few months back. It was consistently trading at around the 2.20-2.40 range.

The hurdles that this merger proposition have to overcome are those that a midget would have trouble getting over even if he was thrown by a tall man.

Two city councils, Auckland and Manukau City, between them own almost 25% of the airport. Manukau Mayor Barry Curtis said they "wont sell" and the Auckland City Mayor, Dick Hubbard, has put proposals to be aired and voted on, one of the proposals includes ACC buying more AIA shares. It looks unlikely that these two shareholders will come to the party and sell, even at an increased offer.

The merger is also facing the wrath of other local and national politicians and the consensus of those in power and public opinion seems to be overwhelmingly in favour of don't sell. Public pressure against a sale is bound to resonate with a Labour Government wanting a 3rd term in 2008, its constituency would be overwhelmingly against such a sale.

The unpopularity of the AIA sale in the public's eyes focuses on the fact that they don't want to see a valuable "strategic" asset flogged off to any overseas company. Ironically though AIA is already owned 33% by foreign shareholders.

There are some, including yours truly, who have mentioned the obvious threat to national security that a bid from a Muslim backed company brings. We are reminded of last year when DAE was forced to relinquish ports bought in the US for similar security reasons. This itself alone is a good reason to block the sale of AIA to DAE.

I have no problem with AIA being sold to anyone else, foreign or local and in fact there is rumoured to be at least another seven possible buyers for AIA assets with a handful currently doing due diligence, among them are Melbourne airport owner, Australia Pacific Airport, Macquarie Airports and Canada Pension Plan. The last is said to be close to launching a bid.

The only problem that I see is price. While the offer by DAE is considerably more than historical AIA value placed on the company by the market AIA is a very attractive asset.

It is in a monopoly position, has one of the highest profit margins for any airport in the world and is highly undeveloped compared to foreign airports.

It is this undeveloped nature of the business that must seem the most attractive proposition to potential bidders. It is for me as a shareholder and I intend to hold long-term for that reason alone.

There are vast tracts of undeveloped land with uses for ancillary services for the airline business, retailing and hotel potential and a myriad of other possibilities. In fact AIA was discussing the possibility 2 or 3 months back of splitting the land/retail based assets of the business from airport business and trading the two entities separately on the NZX. That is where the value lies.

In my opinion the sale of AIA looks unlikely to anyone but when you have interventionist local and national politicians involved in public companies you never know what is going to happen. A couple of years ago Ports of Auckland, a publicly listed company, was bought by the Auckland Regional Council and delisted and before that Air New Zealand was grabbed by the State "in the interests of the country"

AIA CEO says the DAE offer "should be accepted by shareholders in the absence of another offer" but he himself has undervalued the very company he presides over and its shareholders.

Long-term the company is worth much more.

Disclosure: I own AIA shares

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c Share Investor 2007