Stock of the Week: Ryman Healthcare Ltd

Ryman Healthcare [RYM.NZ] is a stock up there with Fisher & Paykel Healthcare [FPH.NZ] in terms of possible long term gains.

In my opinion it will grow revenue and profit for many years to come.

The reasons I have included it in this week's Stock of the Week are its long term prospects and the fact that I still think it is cheap stock at current prices.

The elder care sector that Ryman competes in has been growing for the company at a rate of 20% per annum for the last 10 years and shows little sign of abating. In fact current growth rates could look quite modest in comparison to future growth.

Demographics show that in the future the elder population that will need such care that companies like Ryman provide will increase by around 150% over the next 20 years or so.

The stock has been cheaper over the year at a 52 week low of NZ$1.14 but at a $1.97 close yesterday and an all-time high of Over $2.70 at its peak, considering its potential growth this still makes Ryman a good long term stock.

Buy on any weakness if this stock is for you.

Good luck!

Disclosure: I own RYM and FPH shares


Stock of the Week Series

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Ryman Healthcare @ Share Investor


Share Investor Q & A: Reader Questions to Ryman CFO Gordon Macleod
Long Term View: Ryman Healthcare Ltd
Stock of the Week: Ryman Healthcare Ltd
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Time for retirement?

Discuss RYM @ Share Investor Forum




c Share Investor 2009

Kathmandu IPO: Shares set for discount

According to a Bloomberg story the Kathmandu Holdings [KMD.NZ]IPO looks set to be oversubscribed, indicating that either this is the best IPO since IPOs were invented or that investors have failed to look close enough into the prospectus for the numerous omissions and sleights of hand made by current owners Milford fund shareholders and their associates and decided there is money to be made.

If the Myer float last week is anything to go by Kathmandu is going to begin trading at a deep discount when the shares begin trading on the NZX and ASX in late November.

Myer Holdings Ltd [MYR.ASX] shares were dumped as institutions holding stock soon realised they couldn't stag the issue and began to sell off.

Those patient investors wanting to get Kathmandu shares may get them for closer to their worth if they are willing to wait a while and let Mr Market decide what the company is worth.

KEY DATES

Prospectus date Friday, 23 October 2009

Retail Offer opens Tuesday, 27 October 2009

Retail Offer closes 5:00pm AEDT/NZDT, Friday, 6 November 2009

Institutional Offer and Institutional Bookbuild opens Tuesday, 10 November

Institutional Offer and Institutional Bookbuild closes Wednesday, 11 November 2009

Pricing and allocation announced Thursday, 12 November 2009

Expected commencement of trading on ASX (conditional and deferred settlement basis)
and on NZX (conditional settlement basis) Friday, 13 November 2009

Institutional Offer settlement and last day of conditional trading Tuesday, 17 November 2009

Shares expected to begin trading on a normal basis on NZX Wednesday, 18 November 2009

Expected despatch of holding statements and any refund payments if required Thursday, 19 November 2009

Shares expected to begin trading on a normal settlement basis on ASX Friday, 20 November 2009


Kathmandu @ Share Investor

Kathmandu IPO: Prospectus Analysis
Kathmandu IPO: Jan Cameron lands a blow to IPO
Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration at Share Investor Forum to download
Download Kathmandu IPO Prospectus

Discuss Kathmandu at Share Investor Forum

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c Share Investor 2009

Has Warren Buffett Gone Nuts?

Make no mistake, I am a big fan of Warren Buffett. I follow his investment style in my own Share Investor Portfolio as faithfully as I can given my individual circumstances and background and have followed his fortunes closely in the years that I have known about him but I think he has gone a little nuts over the last year or so.

The past 12 months of financial turmoil has seen saturation coverage of the billionaire as he professes to be "Buying American", doing very large deals to buy stakes or debt in Harley Davision, Mars/Wrigley, Goldman Sachs, Tiffany, a whole host of other stocks and his latest coup de grace, the full takeover of Burlington Northern Santa Fe, the large North American railroad freight mover.

His media over-exposure on its own seems a little desperate but the move on Burlington seems a little over the top considering he seems to be paying full price for the company, something he usually tries to avoid.

This deal will be Buffett's Berkshire Hathaway largest deal ever to take full control of the 77% of the company it doesn't already own and comes on top of news that his company will do a 50:1 share split of its "B" listed shares, something that Buffett has talked against for as long as he has run Berkshire.

None of these things on their own -with the exception of the Burlington purchase - indicate anything else other than looking to buy a "bargain" during the current economic downturn but the latest large purchase just seems to smack of putting it "all in" in an attempt to score the big one. Something he has done many times successfully in the past.

I know alot less than Buffett about the rail freight business, it may be a great long term purchase and there could be an ulterior motive to the move apart from the freight business but if you pay too much for an asset, well that is something Buffett has written books about. He normally wouldnt do it.

He really has me a little worried about the real state of affairs of the current financial turmoil. It is worse than what most would have us believe but Warren's actions smack of a man who knows that things could be alot worse.

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c Share Investor 2009

Kathmandu IPO: Jan Cameron lands a blow to IPO

I have been covering the Kathmandu IPO over the last few weeks and am working on the prospectus in between changing nappies and trying to get some sleep.

News out today that Jan Cameron, former owner of Kathmandu, will set up her own outdoor clothing chain in New Zealand and Australia is clearly bad news for the IPO:

Now she has revealed she is well advanced in plans to set up an outdoor clothing business of 60 stores - 30 in New Zealand and 30 in Australia - to compete with Kathmandu next year. She said she was earmarking A$27 million for the venture.

She was even dismissive of the Kathmandu model of regular 50 per cent off sales.

"I imagine that if we are offering a similar product at competitive prices, at everyday low prices, around 50 to 60 per cent lower than Kathmandu, I imagine that might be quite attractive," she said. "I really love the product and the industry and I see an opportunity with a different model.'' More at Stuff.co.nz

Cameron is an individual not to be underestimated when it comes to competition. She has made a career out of buying cheap assets and making money from them and her retail prowess when it comes to starting a business is almost unparalleled.

She recently bought up large stakes in Pumpkin Patch Ltd [PPL.NZ] Postie Plus Group [PPG.NZ] and purchased cheap retail sites in Australia abandoned by The Warehouse Group [WHS.NZ] a few years ago and set up a cut price chain.

Her move back into outdoor retailing will affect the value of the Kathmandu IPO to investors because of the direct competition with her old company.

All the figures contained in the prospectus, on which the value of the company is based, are now largely academic due to the new entrant and prospective investors will now have to reassess their position as they contemplate writing out their IPO cheques.

Disclosure: I own PPL and PPG shares.


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Kathmandu @ Share Investor

Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration Share Investor Forum to download
Download Kathmandu IPO Prospectus

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c Share Investor 2009

Kathmandu IPO: What is it Worth?

I have given you my opinion of the Kathmandu IPO on a number of occasions, based on my knowledge of the company from media circles and from the downturn in economy as a whole as it affects retailing.

It is however good to get other views from people with different opinions and ValueCruncher.com has done an analysis based on 3 different scenarios that is very interesting:

Valuecruncher has completed a base case valuation and three separate scenarios for Kathmandu. The first scenario (EBIT 8%) assumes EBIT margins of 8% against 10% in the base case. The second (Growth 5%) assumes 5% growth not the 10% of the base case. The third (CAPEX $40m) assumes CAPEX of NZ$40m compared to NZ$30m in the base case.

This base case and three scenarios give an enterprise value range of NZ$354 million to NZ$460 million (8.9 to 11.5x estimated 2009 EBIT). Valuecruncher gave a 25% weighting to each scenario which gives a NZ$411 million valuation (10.3x estimated 2009 EBIT). This NZ$411 million is our mid-point valuation of Kathmandu. See Valuecruncher for more

Valuecruncher have given this alot of thought but in my opinion their models, while giving 3 possibilities of value for the company, seem too positive given the global economic outlook.

Indications have been that sales at the company have been down, so a prospective investor needs to assume the worst in the current economic climate and that means no growth at all or indeed going backwards.

Debt levels are also largely discounted in the VC model, and as many have commented, debt levels were high over a year ago at more than $NZ180 million and the majority of IPO money is going to the former owners, not to be used within Kathmandu itself.

In addition more capital will be needed to fund the aggressive growth plans that management have.

To be fair Valuecruncher's estimates, as they point out, are based only on publicly known information, excluding the prospectus, so their estimate of value, like mine, is a bit of an educated punt.

We will look at the Kathmandu IPO prospectus - Requires free registration at Share Investor Forum to download


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Kathmandu @ Share Investor

Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
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c Share Investor 2009

Kathmandu IPO: Retail Interest High

I have to say I am very surprised by the level of interest in the Kathmandu IPO.

This comes after confirmation of the IPO where Kathmandu will offer between 166.9 million and 197.4 million shares or 84-99% of the issued capital to investors. The IPO will be valued at between $A1.65 and $A1.90 ($NZ2.01 – $NZ2.32). This will raise a total of between $NZ338.6 and $NZ457.2 million.

Economic circumstances as they are at present would at first thought be indicative that there was no money around.

As I pointed out a few weeks ago Google searches that have reached this blog with "Kathmandu" as the search subject were gathering pace.

I can inform my readers that the level of interest in this subject has at least tippled since then with a record being set for readership for the Share Investor Blog.

As before the interest comes mainly from New Zealand and Australian readers.

This level of interest shows that at retail level investors are possibly ready to take some risk again after being burned in the sharemarket and that there is spare cash around to invest.

Having said that it could just be curiosity for a major recognized brand that will end in disappointment for the company as happened with the Burger Fuel IPO in 2007.

Kathmandu has aggressive expansion plans in Australasia with the possibility of 70 stores being opened over the next 3 years.

It looks like then a large part of the IPO funds will be spent on expansion rather than paying down their very large debt - disappointing in the current economic squeeze and folly considering that same store sales and overall company profit is down.

The IPO opens on October 27 and closes on November 6 and the shares will then begin trading on the NZX on November 18.

Investors interested in buying Kathmandu shares might be better advised to see what happens to the share price post IPO after company results are announced to the market.

Present Kathmndu owners will be hoping for a good Christmas shopping season to bolster the share price because current company fortunes do not make for pleasing reading.


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Kathmandu @ Share Investor

Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
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Download Kathmandu IPO Prospectus

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c Share Investor 2009

Stock of Week: Restaurant Brands Ltd

This weeks Stock of the Week, Restaurant Brands Ltd [RBD.NZ], as I pointed out last week, is a tale of two stocks.

It takes a bit of a leap of faith by current shareholders not to sell and for new shareholders wishing to buy - current fortunes of the company now being at a high and the share price starting to reflect that.

All is not lost though!

This company has rallied from penny dreadful status many times before and has managed to reward shareholders who got in at the early stages and there is probably more upside to come.

From a 52 week low of 58c to the current 52 week high of NZ$1.42 the share price looks likely to rally closer to the 2 dollar mark as it has done before so there is room for a good short term gain if you think the company profit is unsustainable or room for a good long term return if you think the company is on track for more of the same -this would defy company history however.

The dividend has just been raised for the latest results to 4.5 c to give this stock a gross return of slightly over 7.5%, not bad when term investments are getting 4%.

Good luck!


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Restaurant Brands @ Share Investor

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2008-2009 KFC sales figures mislead investors
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c Share Investor 2009

Restaurant Brands: Buy or Sell?

My regular readers will know I have been critiquing Restaurant Brands [RBD.NZ] for many years and my comments have been far from complimentary at times.

I have been a shareholder in the past and have never lost interest in the mis/fortunes of the company or in the yummy food that KFC serves up.

With the latest half year result for 2009 out Friday I may have to reconsider my stance on what I think about the company and its future.

That result showed a half year better than any they have had in around 10 years and they indicate that this is likely to continue in the second half.

Sales and profit are up but a major indicator of business going well is that margins are up as well. This also hasn't been the case for many years but is on the back of cost savings rather than increased counter prices so clearly indicates good management of shareholder capital in tough times.

The major force behind the recent resurgence of RBD has to be Russel Creedy, the CEO/CFO, brought in during 2007 to revive the companies years of lagging fortunes. He has got to work quicklyand efficiently and most importantly his goals have been indicated to the market and to staff clearly and executed well.

Years of under-performance has largely been forgotten by new shareholders and market watchers who have more than doubled the company share price over the last several months with increased buying and a re-inclusion in the NZX 50.

I have not forgotten however and this is where my big but comes in.

Creedy has done a fine job in turning the fortunes of his company around, when nobody else has been able to do so since it listed but the one thing the company has lacked in terms of performance is consistent profit on a year to year basis or an indication that it has been able to grow profit significantly.

At post NZ$300 million in sales the company should be able to consistently return a minimum profit of $15 million per annum, based on the sectors margins and more if costs and service levels can me maintained.

The company has never been able to achieve this year to year under previous management and are just through their first year of good results under Russel so it remains to be seen whether he can sheppard KFC, Starbucks and Pizza Hut through 2-3 years of good results, a length of time one can expect to give a company such as RBD - whose past has been wracked with poor results, management and a dismal future - to prove to the market and establish itself as a serious business with a good long-term future.

The boost in company fortunes has also been bolstered by the recession, with sales artificially up because punters are heading to cheaper fare when buying ready prepared meals -beware then of a tail off when things look better economically.

So clearly current investors need to make a decision whether to sell at the currently high stock price this company is selling for or hope that the present turnaround will be a sustained one, and they can then reap a decent return as the years unfold.

I have seen the share price do this 3 or 4 times based on a "turnaround" only to head back down to the penny dreadful price it was attracting at the beginning of 2009.

The jury is still out.


Restaurant Brands @ Share Investor

Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss Restaurant Brands @ Share Investor Forum


Fast Food, Fast Track: Immigrants, Big Business, And The American Dream by Jennifer Parker Talwar
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c Share Investor 2009

Trying to define an exit strategy

I think I have developed a successful strategy for myself for buying good stocks - buy and hold for 10 years or more - but shouldn't I really decide in a similar way as to when exactly I should sell?

My first answer to that would be a definite yes but on the other hand if I have picked good stocks/companies to invest in in the first place then surely I should hold them "forever" and collect the returns along the life of the company ? - or at the very least my life.

Lets have a closer look at what I could do when, if and why I might want to sell off parts or all of the Share Investor Portfolio.

Lets have a look at some salient points one might look at when deciding when, why or if you should sell up. You will be able to tell from my many different tangents and questions to myself that an exit strategy to me is as foreign to me as soap is to a Green Party supporter.

Please keep in mind I am writing this as it comes into my head, clearly with no planning:

1. No company lasts "forever". Many of the 17 companies I have shares in will not be around in 10 years, either in whole or in part. Some will have been taken over, some will exist in different forms and others will simply be out of business.

2. Companies fortunes are never static. Depending on what sort of company one has invested in most have economic cycles where profit and performance ebbs and flow. Some that are managed better than others are able to get through these cycles unscathed and manage the extremes well - either because of management or design of the business.

The company value will vacillate between these two cycles and in the case of a listed vehicle a good opportunity exists for that shareholder to take the money and run just past the mid point of that economic cycle to get the maximum return for that asset - until the next cycle begins again of course where one may get an even better return if one has the patience.

3. Management plays a big part in deciding whether to get in or out of a company. If it changes and the fortunes change this could be a very valid reason for you to cash in your chips.

4. An individual who invests in a company, either listed on the stockmarket or private is unwise to invest money one cant afford to lose or will need to pull out in the future but sometimes circumstances change and you may have to reassess your position in the stockmarket - clearly not a good exit strategy and one that I am mindful of given my changing family demands and current economic conditions.

It can be very painful to your wallet if you have to sell any asset and I guess planning an exit strategy close to when you buy - along with the usual due diligence - is a good way of ameliorating any negative outcomes.

5. Setting a percentage return, either on an annual basis or over the term you think you might hold your stock might be a good way of exiting a stock - you cant really argue with hard concrete numbers right? After all you are investing to make money!

6. Look at the returns you might be getting from a comparable business and decide if your company can do better.

7. Consult a financial adviser - nah just kidding, do your own thinking. Only you know what is best for you financially and your exit point will be different to someone elses.

8. Related to the above, do some of your own research about exit strategies, talk to others with more experience in the stockmarket and take the points applicable to you and only you and jettison the rest.

For the life of me even after writing this I am still in more than two minds about when to decide just when to sell. There is so much to take into account when there is money involved and as I said above I am 99.9% sure of my entry strategy but probably 50/50 on when to head to the hills.

My head says I must hold indefinitely because I am pig headed about decisions, I think I made the right initial company choices so why wouldn't I hold until I curl up and die as long as the companies are making moola and then pass on the hopefully much bigger mantle to my little girl? That is very clear in my my head, so I think I will end where I began.

With the intention of holding "forever".

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c Share Investor 2009