Fisher & Paykel: A Tale of two Companies

The two Fisher stocks, Fisher and Paykel Healthcare[FPH] and Fisher and Paykel Appliances[FPA] are interesting propositions when looking to top up the portfolio with a potential good long-term growth company.

These two stocks used to be parts of one company and lately the share prices of the seperate companies have been trading at a similar level.

The long-term growth story and prospects for FPA and FPH could not be more different though.

Fisher and Paykel Appliances, the small white ware producer is struggling at present.

While FPA has done well in the past and continues to grow revenue, its profit margins continue to slip as competitors have produced cheaper product with more advanced technology, previously the sole domain of FPA. Their best days appear to be behind them.

The company has responded to cheaper and more savvy foreign product by cutting production in New Zealand, their home base and moving to cheaper cost bases in Thailand.

In my opinion, this will be the only way they can continue to compete with global giants such as LG and clearly this is a case of ever diminishing returns with a finite term for cost savings. FPA simply cannot compete successfully long-term with their much bigger global competition.

Management at FPA seem to be a little confused about what direction they are heading in though. They want to compete by producing more white ware units but say they want to be a niche player with higher margins. They cannot compete as a high volume producer because they are simply too small and even as a niche player they struggle against competitors flashier product.

I have a more positive spin with regard to Fisher and Paykel Healthcare though.

The only black spot that I see on the horizon for FPH and something that it shares with FPA, is the high New Zealand Dollar but that is going to be a temporary thing as the status quo for our currency is usually for it to be weak and there is no reason why that wont be the case again given the sad state of our economy.

FPH is a company on a continued drive, in its niche market as a health equipment products producer, to expand the company through innovation, technological advantage and being at the cutting edge of its business by investing in research and development to keep its very high margins.

The margin story for this business is one of the most exciting parts, apart from the technological breakthroughs they have made for the likes of sleep apnoea and various breathing apparatus.

Most companies would kill for the margins that FPH provide for their shareholders and this puts them in good stead as they move forward and continue to innovate with new products and therefore hopefully similar high margins.

The biggest breakthroughs and innovations seem to be coming from the new sleep apnoea products range. In the year to March 2007, FPH's revenue from sleep apnoea products rose 27 per cent to $162.1 million.

At last month's annual meeting, CEO Mike Daniell estimated that F&P had around 7 per cent of the global market for such products, which is growing at about 15 per cent a year.

These products will help FPH to compete with its competitors Respironics and ResMed , its two main rivals, which both sell these products.

This kind of innovation is part of the culture of the company and it will clearly continue to be a driver of profit growth as the company gets bigger.

The two Fisher stocks were split for a reason. Management knew this at the time of the split and the tales of both companies since tell the story that management probably knew as they were taking the knife to the combined company.

"Mr Market" moves in mysterious ways and I'm still a little curious as to why he has valued these two companies with a similar share price because their future prospects couldn't be more different.


*Disclosure: I own Fisher and Paykel Healthcare


Related Share Investor Reading

Fisher & Paykel Appliances: In a spin over nothing
Big Fisher & Paykel share trades a curious tale
Why did you buy that stock? [Fisher & Paykel Healthcare]
Drinking and Trading
Share Investor's 2008 stock picks
Fisher & Paykel: A tale of two companies
FPH downgrade masks good performance


Related Amazon reading



From Brand Vision to Brand Evaluation, Second Edition: The strategic process of growing and strengthening brands by Leslie de Chernatony
Buy new: $46.22 / Used from: $37.99
Usually ships in 24 hours



c Share Investor 2007 & 2009

Auckland Airport Merger: The Canadians have Landed

The Dubai Aerospace Investment(DAE) bid,in its current form, for Auckland International Airport (AIA) has inevitably fallen over but one of the many bidders waiting in the wings has finally shown its hand.

The Canada Pension Plan Investment Board wants to buy 49 per cent of Auckland International Airport(AIA) through a proposal that would see the Auckland and Manukau City Councils maintain their combined 22 per cent stakes.
The Canadians said this morning they had largely completed due diligence on the airport and were now considering their options ahead of a formal proposal to airport shareholders.

The group, said it was committed to two main points. These were limiting its share to 49 per cent and allowing the two city councils to maintain their existing shareholdings.

Any proposal would involve the issue of new shares.

Nothing so far in the whole AIA merger/takeover saga has been simple. Complication seems to be the order of the day and the Canadian offer looks to be following this trend.

The 49% limit to the Canadian bid to get around local council politics with the combo of the issuing of new shares means a dilution in ownership for those shareholders who choose not to sell.

As I have said before, I dont mind selling my shares to an overseas concern, as long as the price is right or I am not going to be disadvantaged in any way.

I wasn't ready to sell to DAE for obvious political and security reasons but I'm willing to make an exception for those wealthy Canadians because if I stay a shareholder in such a complicated shareholding structure I am likely to be subject to political maneuvering and all that entails.

The deal between The Canadian Pension Plan and AIA is by no means a foregone conclusion,
because there are individuals in local councils and National politics who are dead against selling to any foreign buyer. It maybe wise for those short-term shareholders who think that this or any other deal may not succeed, to offload their shareholdings at any material increase in share price due to a concrete offer.

If of course if the structure of the company stays as it presently is, if no deal will succeed because of political pressure, then I will be happy to remain a shareholder.

Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) by Benjamin Graham Buy new: $41.77 / Used from: $32.40 Usually ships in 24 hours

c Share Investor 2007

Share Investor's Friday Free for all

Airport Merger with DAE finally crashes

The merger of Auckland International Airport(AIA) with Dubai Aeronautical Enterprise (DAE) has hit crosswinds with DAE finally realising that their deal to control around 60% of the company looking like it is about to crash and burn.

DAE said legal action filed by Air New Zealand seeking a judicial review of AIA's landing charges constituted a "prescribed occurrence" under the terms of the merger agreement.

DAE have stated if the parties were unable to come to an agreement by the end of five working days of mutual talks, either party could terminate the merger agreement.

As many, including myself have commented DAE look likely to fly the coop.

There are other prospective buyers of AIA in the wings and there is a possibility that a Canadian Pension Plan maybe ready to launch a bid.

Shares ended down to NZ$3.02 on the news today.

Don't leave town or sell your shares yet.

Finance Companies Folding

Finance companies continued to collapse with gay abandon this week. Five Star Consumer Finance disappeared with $80 Million and today a subsidiary of Dorchester Finance was wound up by Dorchester directors.

Dorchester claim the parent company isn't in trouble but we have heard that before haven't we.

The Securities Commission has asked all finance companies to respond to them with a state of their affairs. 18 stragglers were the last to report at 6.30pm today but we have yet to hear the health or otherwise of these companies. It looks likely that we will hear of others going south next week.

Micheal Cullen, the Labour Minister of Finance, has come out to reassure the public that the Finance company mess hasn't spread to the banking sector. His comments are far from reassuring. They scare me.

Two Titans bow out

Sir James Fletcher , the driver behind the incredible growth of Fletcher Challenge from the 1940s-1980s bowed out this week.

Born into privilege and wealth James Fletcher took the reins of his fathers building company in the mid 1940s and turned it into what was to become one of New Zealands largest companies.

His management style , capacity for hard work and ability to communicate with and respect people are aspects of upper management that are sadly lacking, with a few notable exceptions, in this country today.

Nick Nobilo, the founder and head of Nobilo Wines will be remembered for introducing New Zealanders to wine and also for transforming large areas of West Auckland into quality Vineyards where exports of his product have now become commonplace.

Another hard grafter, this immigrant had a vision, had a backbone and got down and let his hands get dirty. Sadly these traits seem to be missing from many of us today.

Burger Fuel share price rises

Josef Roberts explained to me this week that his companies share price was dropping because of poor liquidity and negative world markets. The price was trading at .65c at the time. Burger Fuel shares were up to 70c yesterday and closed today at the same price. Go figure.

Wasted Opportunities

Transpacific Industries, the Australian parent of Waste Management, reported a 117 per cent rise in net profit on the back of a year of aggressive expansion.

Transpacific, an Australian company, bought Waste Management a few years back at what alot of market commentators and directors of Waste Management said was a good price for shareholders. I was one shareholder who thought the price paid was poor and clearly I didn't want to sell.

My stance was vindicated with today's Transpacific announcement.

A shame my detractors seem silent now and so are the former directors of Waste Management.

Short term thinkers can only see just that. Short term.

NZX finishes up

The benchmark NZSX-50 index closed up 0.3 per cent, or 11.37 points, at 4118.97.

Contact Energy(CEN) was down 12c at 915 after swinging very wildly this week and reporting a good profit. Fisher & Paykel Healthcare(FPH) was down 2c at 338, F&P(FPA)Sky Television TV(SKT) shed 3c to 558.

Port of Tauranga (POT) lost some of yesterday's gains to close down 10c at 700 after reporting a stellar profit increase yesterday, Air New Zealand(AIR) rose 5c to 206, Freightways(FRE)was up 5c at 395, and Mainfreight(MFT) lost 2c to 707.

Sanford (SAN) was up 15c at 455, Tower(TWR) rose 7c to 231, Rakon(RAK) was up 7c at 489, and The Warehouse(WHS) rose 3c to 564.

ANZ shed 60c to 3350, Westpac was up 45c at 3145, AMP gained 14c to 1215, Lion Nathan(LNN) rose 5c to 1055, and Goodman Fielder(GFF) was up 10c at 300 after earlier this week reporting a solid profit result. It is at near historical highs.

Till next week.

*Disclosure: I own AIA, FRE, FPH,GFF, MFT, SKC, Shares

c Share Investor 2007

IPO Quality indicative of poor economy

The poor number of IPO's listed on the New Zealand Stock Exchange in 2007 reflect the lack of confidence that the business sector and therefore market investors have in the NZ economy.

This is a good indicator of where our economy might be going, considering share markets usually anticipate real economic factors months before they happen.

Michael Cullen's tax, spend and welfare splurge has finally come home to roost. His huge taxpayer funded surplus has meant Kiwis have used credit to buy consumer goods instead of the cash that is theirs and the Labour Government's contribution to the current finance company mess must be stated clearly.

The quality of some IPO's listed this year have left investors a little bit cold. Xero [XRO.NZ] the software company listed at over NZ$1 and now languish at around 70c, Burger Fuel International [BFW.NZ] listed at $1 and are currently getting grilled at .70c (up 5c today!!!) Pike River Coal [PRC.NZ] , the biggest IPO this year started trading at $1 and is now selling at just above 80c.

We have had several prospective IPOs canceled this year because of investor nervousness. One of them, AMP's listing of their Summerset Retirement Village unit has been canned but ING's Retirement unit will still be listed later this year, even though some of its directors have been involved in major business failures and losses for investors in the past.

The New Zealand share market is lacking a big IPO that would possibly kick off a new wave of investing. One remote possibility would be this countries biggest company, the Dairy giant Fonterra. There has been talk around the traps from time to time about this happening but nothing concrete or with any substance as yet.

It would make perfect sense to list Fonterra, especially now as the Dairy business is doing historically well, more investment is needed to increase capacity and listing would allow farmers to free up capital more easily than currently and using the proceeds to reinvest in their business, pay back debt or buy that new Holden or Ford.

IPO's can be a good indicator of how well the business community sees the economy going. The dearth of good ones in 2007 indicate that the brakes have already been applied to the economy.

Lets hope the impact isn't too hard.

The resumption of some good IPO's will be one indicator of a turnaround.

Related Amazon Reading


IPOs for Everyone: The 12 Secrets of Investing in IPOs by Linda R. Killian
Buy new: $33.06 / Used from: $4.37
Usually ships in 24 hours


c Share Investor 2007