Reporting season a true indicator of company value

The New Zealand reporting season kicks off this month and regardless of the sub prime fallout and all its associated negative connotations, financial results and future indication of direction are still the main indication of company health and its possible day to day market value.


Mainfreight will face margin pressures in New Zealand
but is likely to get increased business from their global
divisions.


The subprime fallout was expected to vary widely on Kiwi companies. Of our top 30 stocks reporting, 10 were indicative of their respective fields: Auckland International Airport(AIA), Briscoes(BGR), Telecom(TEL), Freightways(FRE), Fletcher Building(FBU), Goodman Fielder(GFF), Contact Energy(CEN), Tourism Holdings(THL), PGG Wrightson(PGG) and The Warehouse(WHS).

Many of the above will be conservative in their indications for profit in the coming year.

Many companies have already indicated profit warnings, Hallensteins Glassons(HLG) and Postie Plus(PPG) have come to the table, while many companies have indicated flat earnings, The Warehouse, Telecom, Contact Energy, Sky City Entertainment(SKC), Pumpkin Patch(PPL) and Freightways have all indicated pressure on margins over the past year.

The pressure has come mainly from government intervention. Increased labour costs through a higher minimum wage, 1 week extra holiday and paid maternity leave have all pressured businesses and margins. Clearly those companies with very high staff numbers will be affected by this, retailers especially.

In addition to the above, more Government associated paperwork for administration staff has lead to lower productivity.

More Government pressure from reckless spending has led to higher interest rates, for consumers and lending for business, and the increases in energy costs, due to Government dictated taxes on petrol and electricity have made 2007 a bad year and are due to get considerably worse in 2008.

There maybe some surprises on the upside during the current reporting season.

Mainfrieght(MFT) looks like a good bet to increase profit and Restaurant Brands(RBD), the often talked about whipping boy here should show an increase from a very low comparison this time last year.

Fletcher Building’s half-year after-tax result was forecast by ABN to increase 13.5% from $NZ193m last year to $219m this year and their order book for future work is still going to be over NZ$ 1 billion.

This reporting season seems like a turning point for investors to me.

They must make up their minds whether they want to hold their investments during a coming hard year or run crying for the hills with their share proceeds in their hands.

Fortune will favour those who hang on to good companies and if you are buying shares for the first time or adding to your portfolio, look for good management first before anything else, for it is good managers with a track record that will be able to ride out the inevitable tough times.

I'm ready to face the coming months, good or bad, and reporting season is definitely an exciting time for this investor.


Related Share Investor Reading

Learn before you leap
A rare breed
Business gobbledegook

Disclosure: I own SKC, MFT, AIA, GFF,PLL,PPG,FRE,FBU and WHS shares

C Share Investor 2008

Commerce Commission makes a meal of Warehouse takeover

The latest dance by the participants in the Warehouse takeover waltz has one of the participants grandstanding, again.


Ian Morrice, CEO of The Warehouse, maybe smiling but
the Commerce Commission are losing their argument
to stop the retailer from a takeover because competition
from the company's Extra format stores, on which the
commissions argument is based, are failing to provide
an alternative in the supermarket sector.


The Commerce Commission was earlier this week cleared to appeal a High Court decision allowing Woolworths and Foodstuffs to make takeover bids for The Warehouse(WHS).

Justice Mallon heard the commission's application for leave to appeal in the High Court at Wellington. The application was opposed by both of the supermarket giants and the Warehouse itself.

The Commerce Commission have wanted to drag out the whole process since they got involved way back in mid 2007. The latest attention grabber by them is trying to drag out an appeal date.

The commission had pushed to have the Court of Appeal hear any case in late April and early May.

The commission had said:

"the potential dates for a hearing, starting on February 26, were not suitable as the legal counsel it has been using would not be available at that time".

It seems incongruous to me that legal counsel would "not be available" because one would expect that commission counsel would be working hard on the case given that an appeal was imminent and they were actually preparing a case for a decision to appeal this week.

After arguing that the commission's counsel would "not be available" commission chairwoman Paula Rebstock said:

"The commission agrees with the need for urgency and will be asking the Court of Appeal for the earliest achievable date".

So which one is it Paula!

In my opinion, counsel should have been ready to go as soon as the High Court gave their approval for an appeal.

Either the Commerce Commission don't have solid new evidence for an appeal and they are simply stalling for time in the hope that their argument can be backed up by something new they might uncover.

One of the commissions major arguments against allowing the takeover of the Warehouse by Foodstuffs and Woolworths is crumbling.

The Warehouse' "Extra Format" food/general merchandise stores, of which there are just 3, would allow new competition in the duopoly supermarket sector in New Zealand the commission argued, but since their initial ruling against a takeover in June 2007 sales figures for the stores have been below expectations and management is expected to make a decision in around a month regarding their future.

As I have said before, I don't have much faith that the commission have a good case. If they did they would have won it first time up and been ready to argue their appeal immediately.

A decent assemblage of briefs would have been ready to rock and roll ASAP and it will certainly inspire confidence in the defence given the slackness of the commission's counsel.

The Commission may be forced to fight its appeal as soon as next month, alot earlier than they expected, perhaps February 26-28.

Investors in The Warehouse have pushed up the share price from NZ$5.35 to $5.84 this week, so the sometimes savvy market doesn't believe the commission's argument either.


Essential related Share Investor reading


Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon
Court of Appeal case could be dismissed

Disclosure: I own Warehouse shares


C Share Investor 2008

Warehouse Appeal: From stuff.co.nz

Warehouse sale delay costing shareholders and public

By NICK CHURCHOUSE - The Dominion Post | Wednesday, 30 January 2008

Woolworths says every month the Commerce Commission holds up a prospective purchase of The Warehouse is costing shareholders in the red sheds $5 million.

The High Court in Wellington heard the commission's argument for leave to appeal against a November High Court decision that overturned its ruling stopping Woolworths and Foodstuffs - New Zealand's two main supermarket companies - bidding.

Commission lawyer Stephen Kos QC told Justice Jillian Mallon the commission had a public responsibility to appeal if it thought a takeover would bring substantial lessening of competition in the supermarket industry.

The case relates to The Warehouse Group's foray into the supermarket game with its Warehouse Extra stores.

Mr Kos cited examples from Australia and Britain where competition regulators had questioned the competitive practices of supermarkets, saying the industry was a matter of concern worldwide - and in countries with more competition than New Zealand.

"The commission clearly has a responsibility to represent the public interest for the benefit of consumers," Mr Kos said.

But Woolworths lawyer David Goddard QC said the commission was doing the opposite. With every month a takeover bid did not eventuate, shareholders and the general public were out of pocket.

Mr Goddard estimated each Warehouse share would earn a $2 premium on face value from a hypothetical Woolworths buy-out, and with 300 million shares that meant they were missing out on $600 million.

Adding interest earnings to the guesswork numbers, he said every month without an offer on The Warehouse was $5 million lost.

Warehouse shares closed down 3 cents at $5.70 last night.

The delay, more than a year since the commission first blocked takeover moves, also left Warehouse employees in limbo and robbed consumers of benefiting from synergies and savings through adding The Warehouse to the Woolworths stable, Mr Goddard said.

Mr Kos, also seeking a stay on attempted acquisition by the supermarket companies till the matter could be heard in the Court of Appeal, said they could not expect the commission not to appeal because of commercial inconvenience.

"Unless [Woolworths and Foodstuffs] can show the commission is doomed to failure then there is an appeal to be heard."

He said the case was arguable and the stakes were significant so they should be allowed to appeal.

Foodstuffs and Warehouse lawyers also opposed the commission's applications.

Warehouse counsel Matthew Dunning said the "Damocles' sword" the commission had was creating uncertainty for The Warehouse.

Justice Mallon reserved her decision.

Disclosure: I own WHS shares

Essential related Share Investor reading

Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Links c Share Investor 2007,2008

Goodman Fielder a hedge against an economic slump

Consumers still eat, even during economic downturns. Goodman Fielder is well
placed to weather the storm.



A stock likely to do well over an economic slump, a slump looking more likely than not, is the Australasian food giant Goodman Fielder (GFF).

With operations in Australia, New Zealand and throughout the Pacific Islands, Goodman has a business with food staples such as bread, milk, butter, flour, and highly branded packaged and processed foods for breakfast, lunch and dinner, and the snacks in between.



Wonder White, a strong
Australian brand.


Consumers are loyal to their brands and tend to stay true even when prices rise. Having said that there have been some large price increases of their products on the retail floor because of higher commodity prices, like wheat and sugar and increased labour, packaging and energy costs.

Unlike other companies, in less consumer essential businesses, Goodman Fielder has been able to pass on much of their increased business costs, so margins havent been affected on the downside too much.

Margins have been under pressure though and prospective buyers must be aware of this caveat.

Goodman does have competition, although Goodman does tend to dominate allot of food staples and brands: Vogels bread, Tararua, Kiwi, Edmonds, Meadowlea, Quality bakers, Irvines, anchor and a whole host of other recognised brands.

Goodman's share price has suffered of late, down to a low of NZ$ 1.78 last week from a high of $3.20 at the end of last year and finishing up 3c at $1.93 today.


Related Share Investor reading

Contact Energy looks bright during dark times
Goodman Fielder 2007 full year profit

Disclosure: I own GFF shares


C Share Investor 2008