Stock takes: Outlook healthy for rest homes

Given New Zealand's demographics, the rest home business has long been identified as having great prospects.

In the case of Ryman Healthcare, it looks as if even the credit crunch is no more than a slight hiccup in its growth.

Although the company's annual net profit was down 9 per cent to $66.1 million, underlying earnings were up 5 per cent.

Morningstar analysts note the firm's strong balance sheet with gearing of just 25 per cent and commented that it has executed its growth strategy well and is well positioned to ride the downturn.

Morningstar is picking the company's dividends for the current year to rise to 6c a share, up from 5.3c in 2009, and Ryman chairman David Kerr's comments accompanying last week's result support that view.

Morningstar reckons the downturn in the housing market may actually help the firm by driving down construction and land costs.

With the elderly population growing at a rapid rate - the population aged 85 or over is increasing by more than 3000 annually - and the retirement industry adding only 700 units a year, there's a growing shortage and demand is likely to remain strong.

Morningstar has reiterated its "accumulate" recommendation on Ryman's shares which closed yesterday at $1.60 and has lifted its fair value from $1.75 to $2.10.

MARGIN LIPOSUCTION

Almost a month on from the Reserve Bank's 50 basis point cut to the official cash rate the major banks have not cut their variable mortgage rates despite no small amount of prompting from the RBNZ itself and Finance Minister Bill English.

AMP Capital Investors head of fixed interest Grant Hassell who, a couple of weeks back, reckoned there was a degree of fat in banks' short-term and variable rates that they could forgo for their customers' benefit, is now convinced the banks are not in fact thumbing their noses at the RBNZ, Finance Minister and customers.

He points to the competition for funds in the retail deposit market, which has got even more intense9.

Locally owned tiddlers TSB Bank and Kiwibank have both come out with 4.75 per cent term deposit rates while Westpac has introduced a 4.8 per cent rate for 70 days.

This along with ANZ National's increases to their longer-term fixed mortgage rates this week, as if any further proof was needed, continues to demonstrate how precarious the RBNZ's grasp on retail rates has become.

FAREWELL JOHN

There were likely a few sore heads yesterday at Macquarie New Zealand after the firm's annual shindig on Wednesday night.

Chances are it was something of a farewell bash too, with the firm's head of financial services John Rowley, a well known figure in the local broking industry, finishing up next week.

Rowley, who's been with Maccas for six years and has by some accounts done a fair amount of heavy lifting and firefighting for his employers in the last couple of years, wasn't in a position to say where he was going next.

"There's nothing to tell really, I'm going to do different things down the track."

Rowley denies suggestions Macquarie is reducing its New Zealand presence, saying the company now has 38 advisers, up from 28 back in October - "growth is alive and well". As for moving the firm's two operator positions to Sydney a few weeks back, Rowley says that was "more around giving the client the best service more than anything else".

GRIST TO THE MILL

Rowley's departure, however, is helping feed the rumour mill which has cranked up around Macquarie's future here given the round of consolidation affecting the industry.

Chatter suggests Macquarie might look to buy or merge with the private client operations of one of its rivals. Market watchers note there has been some talk that Goldman Sachs may be looking to offload its local private client business.

SIGNATURE MOVE

When Stock Takes heard that the battle between shareholders and directors at NZX takeover target NSX had come down to a court decision on whether a meeting called by the disgruntled shareholders or one called by the existing board or management was the valid one to vote on a motion to remove the board, we immediately thought Guinness Peat Group might be involved.

One of GPG chairman Sir Ron Brierley's more celebrated manoeuvres back in his 1980s heyday was the Gary Weiss-masterminded holding of a shareholders meeting for Robert Holmes a Court's Bell Resources, without Holmes a Court's knowledge, the day before the company's scheduled annual meeting.

The West Australian Supreme Court eventually found that the meeting convened by Sir Ron's Industrial Equity Ltd was valid. However, in the case of NSX, GPG has so far remained on the sidelines.

Given its 12.8 per cent stake is worth less than A$2 million ($2.5 million) at current pricing - even less according to the recent independent expert's report from PricewaterhouseCoopers - the fate of NSX is probably not one of GPG's more pressing concerns right now.

MARKET'S MAKER

Meanwhile, NZX was waiting for the dust to settle from the board resignations at NSX early this week when Stock Takes spoke to head of markets Geoff Brown.

Even if it is successful in its bid for NSX, to execute its strategy NZX will need to get the company's two market licences amended. That may be easier said than done.

Is there any reason to think that in the glorious spirit of Anzac co-operation seen in episodes such as Australia's abrupt by fax canning of the 1994 Open Skies agreement and also the non-mutual recognition of imputation/franking credits, that any NZX application to amend NSX's market licences wouldn't be consigned to the same Federal Government purgatory where AXE ECN's market licence application is currently languishing?

Paul Seymour, one of the founders of NSX, is one of the newly appointed, or in his case, reappointed, directors at NSX.

He and Stephen Pritchard, also appointed to the board this week, founded NSX back in 1996 but it was 2001 before they finally obtained their licence to operate an equity market. They became the first recipients of a new licence in Australia in 60 years, Seymour told Stock Takes this week.

It took them five years. NZX has only been waiting a couple of years for a licence for its AXE ECN business. No wonder NZX is so keen to get its hands on NSX.

Seymour said the new board would be considering NZX's offer and any others either yesterday or today, but he believes it will be difficult for it to succeed given it needs 75 per cent shareholder approval to effect the necessary changes to the company's constitution.

Although he didn't say it, Stock Takes got the impression Seymour and his ally Pritchard are pretty attached to the company and will take some convincing to allow NZX into the driver's seat. "We intend to turn the whole business around and make it profitable," Seymour said.

KAWARAU RESORT WOES ANOTHER HARD BLOW FOR HANOVER

This week's news about the troubles of the Kawarau Falls development near Queenstown is bad for Hanover debenture holders who are awaiting return of their already substantially depleted capital under the company's restructuring plan.

Hanover is reported as being the second mortgage holder on the first stage of the development behind Royal Bank of Scotland.

Even as the Hanover plan was being pitched to investors, PricewaterhouseCoopers noted it relied on some pretty optimistic assumptions of what the market would do. That optimism is looking increasingly misplaced.