Bruce Sheppard: Explanation Received

Capital raising, company creditworthiness and business viability during these highly unsure and volatile economic times is very important for investors with NZX listed companies in their portfolios and that is why I am following the stoush between Bruce Sheppard and Mark Weldon at the NZX with much interest.


In a post I made this morning I pointed out that I thought Bruce was being irresponsible in blanket accusations over NZX companies defaulting on bank credit terms and the NZX wanted him to explain himself and name names.

I thought he should too.

He has in a general way this morning with a letter addressed to Mark Weldon, NZX CEO:

Mark,

I have thought about this long and hard, read all my blogs. They explain the background to the issue, and they explain the simple matrixes that I have applied and they have explained how I have analyzed the financial statements with this in mind. Either analysts are blind stupid or inefficient, the simple numbers that you need to check reasonable compliance are these and they don't require a detailed breakout of financial statements:

They are these:

1) How much interest are they paying, a bit hard to find sometimes but not hours of work.

2) Continuing EBITDA (earnings before interest, tax, depreciation and amortisation), not hard to find either but you do have to make some assumptions about what is recurring and what is not, this is explained in my blog.

3) Interest bearing debt, and where it is parked, parent subsidiary, its composition between capital notes, and those notes' terms, bank debt and so on. Currency risk is an exposure, and hedging polices come into play. I have not analyzed hedging as disclosure on this is such a tangled web of crap that it is almost impossible to work out how they have hedged their interest and debt exposures and the issues that go with that. Many have foreign currency debts with no natural hedge.

4) Book Equity... that is easy.

5) Net tangible assets is a bit harder but not to hard.

Read the full article

Bruce gives his reasons and goes into some detail as to why he made his sweeping accusation without further elucidation and it seems generally correct, to the point, accurate and honest and we need to know that detail.

Having said that, I still maintain all the research and detail that he says is coming on particular companies should have been released coinciding with his general release.

Us investors need to know but need to know in full before he slanders the good NZX listed companies among the obvious bad.

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Bruce Sheppard: Please Explain

I am a big fan of Bruce Sheppard and agree with his usual well considered and fully explained point of view most of the time. He is more often than not right, expert at financial matters and blunt to the point appearing rude.

This blog yesterday received many hits with Bruce's name as a search and I didn't have the time to explore why.

The reason for the controversy is in Bruce's blog post published on May 8.

It is explained in this piece in Stuff.co.nz that basically he has put his line in the sand and alluded to various NZX listed companies having problems with debt levels:

According to Mr Sheppard, around half of 47 major listed companies he analysed during a three week investigation are at risk of defaulting on their bank terms. However, he said he will not reveal names until companies have had a chance to respond to letters he has written to them.

He selected companies based on published 2007/2008 debt levels and applied assumed bank terms to their financial metrics. Mr Sheppard added that his research raises questions about exchange operator NZX continuous disclosure regime and its role as regulator.

What Bruce has failed to do, and this is unusual for him, is provide corroborating evidence that backs his May 8 accusations.

Frankly if he does have evidence, he needed to come out with it at the same time he made his claim, and not scare the horses so to speak.

It is highly unprofessional to do otherwise because it taints every NZX listed stock with the same debt brush.

He has received a "please explain" from the NZX and unusually again I agree with the NZX and that doesn't happen often:

14 May 2009 - Shareholders' Association chair Bruce Sheppard has contributed meaningfully to capital markets debate over the years. The broader interests of the market, and market confidence, would be best served at this time if he released his analysis at a very detailed level. Investors can then draw their own conclusions as to the health of the companies in which they are investing.

NZX shares Mr Sheppard's goal of healthy, open and transparent capital markets in which investors can have confidence. Providing detailed and transparent information to support his conclusions will further that goal.

Time to put up or shut up Bruce.

Read the answer to the NZX request

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Long VS Short: Michael Hill International

In this seventh installment of the Long vs Short series I am once again going to take look at the chart comparisons for a stock from the Share Investor Portfolio and compare the 10 year return (above chart) to the turmoil of the last year with a 1 year return chart (large chart at bottom of post).

In this series I want to show the merits of investing, using charts, for the long-term vs short term gains or losses. I will use the longest available data to me for the long-term view (10 years )and will make a comparison against the NZX50.

In this segment of Long vs Short I will take a look at Michael Hill International Ltd [MHI.NZ] .

I currently hold 3000 Michael Hill shares after buying them in November 2007 (see small chart below for detail) I added a further 7000 in July 2009.

The company has been a spectacular performer over its 25 year plus history, growing from just one store to more than 200. Its returns to shareholders have been similarly spectacular but have tapered off over the last year due to the world-wide recession.

Symbol	Price	Value	Earned
MHI.NZ	$0.620	$1860	$-807
You own 3000 [MHI.NZ] shares purchased at $.889 [$2667]

In my 18 months of owning this share my return has been a loss of $807 or around 30% (see small chart above)This includes dividends and tax credits.

If I had bought this share just a year ago (see large chart at bottom) my return would have been exactly the same as my 18 month return of a 30% loss.

Now for the real point of this comparison lets look at the return for Michael Hill shareholders who have held the stock for 10 years. (see large chart above)

From a high of a 450% return in 2007 the 10 year return as of writing is still around 240%.

That beats my holding return and the one year return by 270%!

Yet another point made that when it comes to long VS short term investing, long beats short like it has its hands tied behind its back.




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Road Worriers

The fuss made over the proposed motorway tunnels going through the suburb Mt Albert and through to Waterview reminds all of us of the elitism that rules the Labour Party and some of those that vote for them.

It is OK to put open motorways throughout Auckland through a number of different suburbs, some of them wealthy and some of them less so but not through Mt Albert, where the former Prime Minister lived?

Aparently yes, if you are a Labour Party member.

We are all well aware of driving along the Southern Motorway, through suburb after suburb along an above ground piece of tarmac, sometimes ten lanes in width.

True, motorways can now be built better above ground, with noise walls and noise dampening surfaces but they are a necessary evil.

The last link in Auckland's motorway system, the Waterview connection is the most crucial part of the system because it completes a road system designed in the 1950s to move future traffic.

The proposal by Labour was for a $3 billion plus unfunded tunnel of approximately 4km that was never going to go ahead under Helen Clark's reign of terror because it would have cost her votes and possibly her power. So it was a political decision to stall the motorway rather than a practical one to go forward and progress-hardly surprising given Labour's track record.

Labour took 9 years to get something done and failed. This left Mt Albert residents affected by the new road in limbo and it left Auckland as a whole losing 10s of millions of dollars a year because of lost time due to extra travel around the Mt Albert area.

What makes Mt Albert residents and surrounds such special people, nothing really, they aren't.

It was simply Labours elitist political approach that made it seem normal to them that spending more than $3 billion of taxpayer money on Mt Albert tunnels instead of half a billion on an open highway to keep political power and expecting people in South Auckland (ironically where Labour has BIG support), where that 10 lane highway I mentioned above cuts through, to pay for it.

We now have a decision and the road (PDF)is going to be built.  

About bloody time.

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