Pumpkin Patch a screaming buy

I'm going to do something I have never done before and recommend a stock to buy. I own shares in Pumpkin Patch Ltd [PPL.NZ] and the share price is at near the IPO price when it listed a few years back. It finished down 9c at NZ$1.83 today after reporting a near 23% fall in 2008 first half profit.

The fundamentals of the share price have changed, putting this company into the realms of an income stock whereas before Mr Market priced it as a growth stock-it had reached the dizzy heights of close to 5 bucks last year.

In my opinion though little fundamental has changed to the business itself during its market re-rating.

While profit was down 22.3% to just over $12 million, revenue was up soundly by 13.5% to $205 million, indicating that sales growth is on track and the appetite for the Pumpkin Patch brand is strong.

Clearly costs and a strong NZ dollar have bitten into profit.

As I have said before though, there is nothing the company can do about the exchange rate and many of the increased costs are those associated with growing a company in new markets. All relevant to the business and no surprise to retailers, people who own businesses and those in the market who don't focus on unnecessary hyperbole related to a short term view of the sharemarket.

I love the brand, the management and believe that their growing pains are just that.

Operations in the USA and UK are having a toughish time of things, but all retailers there are. They are still growing revenue, admittedly from a smallish base and once the one-off establishment costs are kicked touch, things should start to focus more tightly on the all important margins.

Managements forward outlook for the coming year is muted but a focus on increasing profitability at the large numbers of new stores they opened in 2007 is a good idea considering the short-term downturn in the retail sectors of their two biggest growing markets, the USA and UK.

I have no idea if $1.83 is the bottom share price wise, probably not, but it would surely find some resistance at the $1.25 IPO price, where brokers, who were extremely bullish on the company less than 4 years ago(and now seem they wouldn't touch it with 3 barge poles) might decide that is a good price to re purchase the stock they sold when the company hit a speed bump.

I recommend this stock as a very strong buy at these current prices if you have an investment horizon of 5 years or longer.

If it is less than that, forget it.


Disc I own PPL shares in the Share Investor Portfolio.


Pumpkin Patch @ Share Investor

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Pumpkin Patch ripe for the picking
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Buyer of large piece of Pumpkin Patch a mystery
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New Zealand Retailers ring up costs not tills

Discuss PPL @ Share Investor Forum



c Share Investor 2008

The Owen Glenn story: Singing the same tune but hitting a bum note

The revelations over Owen Glenn and his murky donations to the Labour Party before and after the 2005 election have taken another turn today.

All sides are now saying what was reported in an interview with Glenn last week was a misunderstanding, taken out of context and statements made by Glenn, such as the assertion he made and was very clear about, that he was offered the post of Minister of Transport in a Labour Government by Helen Clark were light hearted comments misunderstood by the journalist.

Clark initially denied any such offer had been made when the proverbial hit the fan last Friday commenting that "...it didn't happen" but yesterday was reported as saying:

"... could not remember discussing the issue with Glenn, but if it had come up, it would not have been a serious conversation".

Typical Helen Clark backtrack stuff.

Followed by Glenn's statement to the Media:

"I was not offered a Cabinet position. My comments on this matter were light-hearted and have been taken out of context," he said.

"It is unfortunate that some comments I made to a journalist last week have been taken out of context and are now being used as a political football".

The blanket agreement now over what really happened seems a little too convenient for this reader.

As to the murkiness over the secret "loan" of $100,000.00 made after the 2005 election the fact that Labour kept it secret seems more than a little disingenuous when the money was gifted during the heady days of the electoral finance bill debate, where the contention by Labour was that political funding "should be transparent" and political parties must be upfront about just who is funding them.

Clearly this didn't apply to themselves.

So far this major controversy hasn't hit the mainstream media, The Herald, their competition and the blogs have picked it up but the TV networks have done their best to avoid it like the plague.

The media saturation over the secrecy of the Brethren donations in 2005 stands in stark contrast.

Parliament sits today Listen to Parliament (only during sitting, Tues-Thurs, 2.00pm , NZ time) and National must seize on this with both hands and take it to Labour.

We have a Government steeped in a very murky funding issue and their assertions over the Electoral Finance Act, that" funding must be transparent" must be given closer scrutiny.


Related Political Animal reading

Labour Party Election funding murky at best


C Political Animal 2008

Softening opposition to Canadian Pension Plan bid for Auckland Airport

The long winded takeover saga that is Auckland International Airport [AIA.NZ] coming up to one year in July, rolls on with a further possible development revealed today.

The Battle for the Airport

• Council won't sell its shares to Canadians
• Canadians confident of airport stake after mystery bidder pulls out

Links courtesy of NZ Herald


AIA takeover calendar

Early March: Auckland City Council votes on its response to CPPIB offer
March 6: Deadline for Auckland airport board to review its objection
March 13: CPPIB offer deadline for shareholders



According to the AIA board:

"The market has changed significantly since December so we have an obligation to review our recommendation. The board considers that it has a responsibility to whether the reconfirm its recommendation or otherwise."

Its only a suggestion that the board will take into account negative "market conditions" but it is curious to me why the board would waiver on their previous uncompromising stance that they wouldn't support a bid by the Canadian Pension Plan Investment Board(CPPIB) for an almost 40% share of the Airport company.

It seems short sighted, to say the least that the AIA board might backtrack on previous statements around the long-term value of the company and now even consider lightly the short term vagaries of global markets.

That idea should be dismissed forthwith and any recommendation to sell or hold should be made by shareholders in the company as to whether they would want to part with this asset.

Both Auckland and Manukau City Councils have said they wouldnt sell their shares but Auckland remains open to supporting the partial takeover on which they will vote on soon.

The outcome still remains up in the air but institutions must be pressuring the likes of the Councils to approve a partial takeover given their partiality to cut and run and take short term profits.

I will stick my neck out and pick it will fail, because the deal seems too complex and local council political egos are involved. Much like the failed merger of Port of Tauranga(POT) and Port of Auckland last year.

We can but wait.


Disclosure: I own AIA shares


Auckland International Airport @ Share Investor

Latest Airport coverage
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Directors of AIA bribe brokers not to sell
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Second bite at AIA by CPPIB might just fly
AIA new directors must focus on shareholders
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The Canadians have landed
AIA incentive scheme must fly out the window
Government market manipulation over AIA/DAE deal
DAE move on AIA: Will it fly?


Related Links

AIA Financial Data

• Summary
• Charts
• Dividends
• News
• Announcements
• Price History
• Related Securities

Related Amazon Reading



Mergers, Acquisitions, and Corporate Restructurings by Patrick A. Gaughan
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c Share Investor 2008

The Joneses Real Estate business fails to keep up with market conditions

The prospect of the only float this year, so far, to kick off, certainly piqued my interest and following in The Joneses, a cut price, flat rate real estate agent that planned a back door listing on the NZAX early this year.

c Fox Corp 2007

According to the Real Estate Institute, The Joneses real estate business model
was flawed and it led the their liquidation. The business case is no Bart Simpson
fly by night though, the Joneses simply undercapitalised and were unable to function
in the current property and stockmarket downturn.

Its business model differed from the run of the mill Real Estate agents like Barfoot and Thompson, Century 21 and Harcourts, who all charge much larger selling fees on a sliding scale, tapering off as the price they might get for your house gets higher-no incentive here to get a better price for the seller.

Unfortunately the Joneses were not able to keep up with the market uncertainties surrounding them.

In the face of a marked and welcome (in my opinion) downturn in Real estate sales and property prices the IPO was bound to have “done a Burger Fuel” and tanked because the appetite for real estate and sharemarkets in combination was a recipe for disaster.

Joneses management say the business model was sound and I would agree with that. Their problem was that they needed volume of sales for this business model (just like most businesses) and their cash flows simply ran out before they reached critical mass.

The Real Estate Institute came out today and trumpeted their old fashioned model as the only one that could be a success and clearly they were rubbing hands together as their competition bit the dust but they shouldn’t be too quick to dismiss the likes of other cut-price real estate companies that operate successfully.

This sector works well overseas and here but is expensive initially to set up.

Increasingly these days, individuals have become savvier when selling property. Negotiating fees with the full price brokers and as the internet and businesses associated with the net matured, to allow that media to process house and property sales, websites like Trademe have taken business off the big boys.

Contrary to popular belief the best person to sell your property is you. You know better than anyone else, you know your suburb like the back of your hand and the incentive really is there for you to get the best price.

It is human nature for us to be lazy and that is where these Real Estate agents see the gap and try to fill it. We “just don’t have the time”, or “we don’t have the expertise” to sell our house, quite frankly that is bullshit. It ain’t hard.

The laziness also extends to the agents, their “incentive” to get you a better price just isn’t there. When their fee slides downwards as the sale price of your house goes up then one can see they just aren’t living in the real world or working for you or the buyer. They are in it for themselves.

How much extra time do you have to spend at work to pay the $15,000.00 or more these companies charge?

But I digress.

Given better market conditions the Joneses IPO would have been a success. As with most things financial, timing can be 80% of your success. The Joneses management were just not able to time the market to make this thing a goer.

Having said that, clearly the capital to help make this business float wasn’t there from the beginning and the IPO would have allowed them cash to develop the company in a sustainable way.

It would have been wise for Joneses management to have got extra capital from the get go, make the business profitable for a number of years, then list.

The stockmarket is better off without the likes of the Joneses in its present guise and one can see a return of such a company to the market when financial stability returns to the global equities and the real estate sectors.

Related Share Investor reading

Can the Joneses keep up with the market?
IPO quality indicative of poor economy


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c Share Investor 2008