Reason to be cautious on Nuplex forecast

2009 was Nuplex Ltd [NPX.NZ] worst year on record, with a massive capital raising big losses and a huge dilution of value for their shareholders.

2010, according to Nuplex, is going to be their best year on record with an estimated profit of between NZ$120-135 million. This is after 3 profit upgrades in the last 6 months.

This is good news for the company and as shareholders you might be thinking that and you are probably right to think that but then I believe you must treat these results with an element of caution and this is why.

Like their worst year in 2009, management did not "foresee" that coming and according to managing director John Hirst the 2010 upgrade has been:

"...proving as difficult to forecast the upside of the post global financial crisis period as it was the downside at this time last year..."

In addition to management's inability to forecast accurately, their current forecast is expressed as, earnings before interest, taxes, depreciation and amortization (EBITDA). This measure of accounting practice can be used to hide detail that should be known by the shareholder and is pretty much the accounting equivalent of hiding nuts under shells. Unfortunately it is used far too often by lazy, ineffectual accountants directed by lazy dishonest directors to hide bad figures from shareholders - look deeper Nuplex shareholders!

Given the inability of the company to accurately forecast results over the last 2 years and also given that the same management who governed the company into their worst ever year in 2009 and left them on the brink of bankruptcy (they would have gone down the tubes if not for generous shareholders) are still at the levers of power, one would have to take a closer look at Nuplex forecast for 2010, especially when one considers their "cavalier" attitude to accounting practices and therefore their shareholders .

Beware.

Nuplex @ Share Investor

Nuplex rights decision a dilemna for shareholders

Discuss Nuplex Ltd @ Share Investor Forum - Register free


Related Amazon Reading


Accounting for Non-Accountants: The Fast and Easy Way to Learn the Basics by Wayne Label
Buy new: $11.53 / Used from: $8.00
Usually ships in 24 hours


c Share Investor 2010

Cadbury Acquisition a good deal for Kraft

I am still following the Kraft Inc [KFT.NYSE] acquisition of Cadbury PLC [CBRY.LSE] . A conditional deal for sale of Cadbury to Kraft has been approved by Cadbury management but it still needs the approval of both Kraft and Cadbury shareholders.

Nearly 10% shareholder of Kraft, Warren Buffett, publicly came out against a deal on Jan 5 and today on CNBC indicated that he would have voted against the acquisition.

The latest comment, if it isn't just being made to blow off some steam, appears to suggest that Kraft is paying too much for the maker of Dairy Milk, Jaffas, Chrunchie , Moro and other well known brands but this is where Buffett and myself part company.



Cadbury is a global brand and has dominance in the majority of the markets that it operates in, New Zealand is no exception.

Because of its strong brand position globally, its potential to grow in all its markets - especially in Asia - and the largely untapped market for Cadbury in the United States -where Cadbury is a minor player - the price to be paid for full control of the company must show a healthy premium to its recent trading activity. Cadbury has a strong economic moat - good brands, with high cashflow with a reasonable barrier to entry by competitors.

Warren Buffett seems to be ignoring this fact and it seems contrary to previous indications by him that in order to gain control of a company during an acquisition a premium is more often than not paid.

The price being paid by Kraft for Cadbury isn't the deal of the century but it is approaching fair price - on Kraft's part - considering what Kraft are getting for their shareholders moola.

Locally, New Zealand media have been speculating that Cadbury's Dunedin factory maybe the subject of staff cuts and that local brands maybe for the cut. While this is of course possible because of Kraft's high debt levels due to the acquisition and pre-deal debt levels, it would be folly on Kraft's part to repeat the recent mistakes of Cadbury in New Zealand and in other global markets.

I am having sugar overload over this deal. The Kraft acquisition of Kraft is not yet a fait a compli however, so there is still room for a diabetic attack. There is still time for other Cadbury tyre kickers like Hershey to make a higher bid for some of the sweet brown stuff.


Cadbury @ Share Investor

Bitter - Sweet Chocolate Business
Cadbury could learn a thing or two from 1980's Coca Cola Experiment

Discuss this topic @ Share Investor Forum - Register free




c Share Investor 2010

Stock of the Week - Reprise : The Warehouse Group

In this Stock of the Week we are going to be looking at New Zealand's dominant general retailer The Warehouse Group [WHS.NZ].

I picked it in June 2009 as a Stock of the Week and am including it again in 2010 for much the same reasons.

It has been trading at a pretty steady share price for the last 12 months (marking time until news about its sale is forthcoming) at a range between NZ$3.00 - $4.55 and represents value whether you want it for a quick buck for its probable sale or if a sale falls through and you want a good solid company for the long term portfolio.

It approached around the middle of that range, closing at $3.88 today.

On its long-term merits the company has a dominant position in its sector of the retail market and a great cash flow that helps contribute to a gross dividend north of 8%. Spectacular in these days of 3-4% returns for term deposits or 5-6% for rental property.

Retail is struggling these days but that isn't going to last forever and The Warehouse is coping well with the current recession. It historically does well in recessions because of its low price perception.

Its 2009 Christmas trading period was flat in terms of sales and that is no surprise as other retailers experienced similar trading. The key will of course be the margins.

The company has recently met its own forecast for profit in its October release of its 2009 full year profit (see 2009 annual report for details) and its forecast for FY 2009 is on track to meet last years profit of $90.76 million.

I am looking at taking the plunge again to add to my holding.

Good luck!

Disclosure - I own WHS shares in the Share Investor Portfolio

Stock of the Week Series

Reprise - Contact Energy Ltd
Restaurant Brands
NZ Refining
Ryman Healthcare
Mainfreight Ltd
Fisher & Paykel Healthcare
Xero Ltd
Auckland International Airport
Sky City Entertainment Group
Burger Fuel Worldwide
Michael Hill International
Contact Energy Ltd
The Warehouse Group
Fisher & Paykel Appliances
Stock of the Week: Telecom Ltd

The Warehouse Group @ Share Investor

The Warehouse: Big Brands, Big Opportunities
Warehouse strike opportunity to buy
Long Term Play: The Warehouse Group
Share Investor Short: Warehouse Group yield worth a look
Woolworths supermarket consolidation an indicator of a move on the Warehouse?
Stock of the Week: The Warehouse Group
Warehouse 2009 interim profit a key economic indicator
When will The Warehouse bidders make their move?
Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Discuss this topic @ Share Investor Forum - Register free


From Amazon

	Getting Started in Chart Patterns (Getting Started In.....) by Thomas N. Bulkowski Buy new: $13.57 / Used from: $9.98 Usually ships in 24 hours
	Chart Your Way To Profits: The Online Trader's Guide to Technical Analysis (Wiley Trading) by Tim Knight Buy new: $44.10 / Used from: $36.95 Usually ships in 24 hours

c Share Investor 2009 - 2010

Bitter - Sweet Chocolate Business

The scramble for a king-size block of Cadbury PLC [CBRY.LSE] by Kraft Foods Inc [KFT.NYSE] fascinates me. I love business and investing but I have to confess also to be somewhat of a chocoholic - doctor it has been 3 minutes since my last bite. In a protracted bid that has been going since a formal offer by Kraft was made in November 2009 after it telegraphed interest in the Dairy Milk maker in September the takeover process has been full of harsh words, threats, finger pointing and egos from all sides of the chocolate vat.

Since then Kraft has been rebuffed twice by Cadbury and those harsh words have been flowing like Cadbury Creme eggs between the CEO'S of Kraft and its sweet milky target Cadbury. Meanwhile Kraft's biggest shareholder, Warren Buffett, has issued a press release urging Kraft not to pay too much for the company.



In this sickly mix of nuts and fruits comes interest from just about every major chocolate company in the world. Ferrero Rocher, Nestle', and Hershey have all been on the radar but all seem to have been dismissed as having short pockets or not serious, save for Hershey which seems to be mulling over a formal bid of its own according to some sources.

The problem for Kraft is that Cadbury contend that its shares are worth more than what they are offering and Kraft's bid significantly undervalues the long-term prospects of the company and they will have to increase their bid before the January 19 deadline if they want to take a chip off the Cadbury block.

I have to agree with Cadbury. The company has a strong presense in most parts of the world and its brand and products - no matter what some might think of its sweet milky almost chocolate free taste - dominate the minds of consumers and their sweet ways when they make a decision to buy a quick convenient snack.

This brand awareness has made Cadbury one of the worlds most successful chocolate makers in the past and that is unlikely to change any time soon.

For these reasons alone Kraft need to raise their offer and any other company considering a move on Cadbury must also take into account the company and its fine pedigree.

Warren Buffett, as a 10% holder of Kraft stock, was against Kraft's bid principally because of its intention to issue new shares in Kraft to help pay for the purchase. I have just been reading Warren Buffett on Business: Principles from the Sage of Omaha, a collection of Warren Buffett's letters to Berkshire Hathaway shareholders and he makes it very clear in a number of his letters that he is against the dilutionary effects of such transactions for the predator company if it doesn't present value for the predator. Of course the price paid for the company is a key factor as well and if the price is right for the takeover then the preferred option of purchase for Buffett is cash and preferably non -borrowed cash at that.

Cadbury would be a great company to own. Good cash flows, strong brands with a competitive moat and profit to boot.

Any suitor will have to pay a premium to take control of the purple one and Buffett has stressed he doesn't want Kraft to be that suitor but if he wants a piece of it - and I think he does - then Kraft and any other buyers are going to have to sweeten the deal beyond the current valuations put on Cadbury's assets.

I cant wait for the next move!

Cadbury @ Share Investor

Cadbury could learn a thing or two from 1980's Coca Cola Experiment


Related Amazon Reading


Cadbury's Purple Reign: The Story Behind Chocolate's Best-Loved Brand by John Bradley
Buy new: $37.96 / Used from: $29.61
Usually ships in 24 hours

c Share Investor 2010