Adam Bennett's Stock Takes

Adam Bennett is a Herald business writer

Stock takes: Rakon divebomb prompts NZX inquiry

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At its peak in 2007, the company was trading at a price to earnings ratio of 35. Photo / Martin Sykes
At its peak in 2007, the company was trading at a price to earnings ratio of 35. Photo / Martin Sykes

Once again we feel it's worth commenting on crystal maker Rakon but want to avoid recycling the same intro we've used in the past.

Suffice to say the stock that used to be "the bomb" has again bombed in recent days.

It hasn't approached the 63c all-time lows hit a year ago but still fell as far as 90c this week, a decline of 20 per cent in a couple of weeks.

It was revealed yesterday that NZX was curious to know whether Rakon had something it might like to share with the rest of us. It did not.

First NZ Capital analyst Jason Familton says the stock has been hit by "questions around the growth assumptions".

"There's been a few doubts in the market for a little while and that's been reflected in the price."

It has to be said the growth assumptions around the company were heroic - when its shares peaked at $5.67 in May 2007 the company was trading at a price to earnings ratio of 35.

Yesterday, they closed up 8c at 99c.

TAKES ONE TO KNOW ONE

Stock Takes narrowly avoided discharging a cloud of semi-masticated cornflakes and milk yesterday morning reading of Todd Energy's accusations of bullying levelled at its Pohokura gas field partner Shell.

In the High Court at Wellington, Todd is claiming damages of $274 million from Shell and third Pohokura partner OMV, arguing the other two cost it revenue by limiting the field's production to below capacity.

Todd's Richard Tweedie was reported in the Dominion Post as saying he was in no doubt production was limited in order to affect downstream prices.

"It is truly a David and Goliath struggle - a little New Zealand company trying to act in its and New Zealand's best interests versus the might of a large multinational only interested in itself and going to any lengths to get its way."

Stock Takes believes Todd and Tweedie are big enough and ugly enough to look after themselves.

As it goes, we remember Todd throwing its weight around a few years back as it sought to buy out King Country Energy, opposed by community-owned King Country Electric Power Trust. Now that was more of a David-and-Goliath situation.

As for the accusations of self-interest - coming from a representative of the wealthiest family in the country, that's a bit rich.

The Pohokura partners have been bickering among themselves for years as each seeks to maximise the return on its investment in the field. Fair enough, that's business. But we mistrust Todd's attempt to publicly cast itself as the underdog courageously blowing the whistle on price manipulation in the energy sector all while draping itself in the flag.

MOODY'S BLUES

The international ratings agencies, whose opinions on the ability of businesses to repay their debt mean they wield a great deal of power, have come in for some strong criticism in the aftermath of the global financial crisis.

They gave relatively high ratings to debt instruments and institutions that tanked badly and almost dragged the world economy around the U bend.

Then there was a focus on the allegedly unethical hard-sell tactics they employed.

Their reputation is hardly likely to be burnished by news out of Australia of insider trading charges laid by ASIC against a former Moody's associate analyst Daniel Joffe.

Joffe is facing 10 separate charges of insider trading alongside his friend Nathan Stromer, who is accused of making share and derivatives purchases driven by information Joffe obtained in the course of his work with Moody's. These include, among others, Stromer's purchase of 29,580 shares in Auckland International Airport in August 2006 when he had inside information about a possible takeover bid.

Given the takeover rumours only began to appear in the business media about a year later, this was getting in on the game pretty early on.

When Stromer bought the shares they were trading at around the $2.10 mark. A year later when Stock Takes first noted the rumours that were subsequently borne out by offers from Dubai and Canada, they were 50 per cent higher at around $3.30.

OPPORTUNITY

Australian steel-maker OneSteel's 2008 $4 a share bid for the 49 per cent of Steel & Tube it didn't already own was seen by many as somewhat opportunistic.

While the offer was above the company's market price, that was after it and other stocks had been battered in the opening episodes of the global financial crisis.

OneSteel pulled the offer as markets continued to fall and Steel & Tube's fortunes continued to flag. This week it reported an 85 per cent fall in first-half profit to $3.2 million and signalled expectations of only a gradual improvement.

The result saw its shares plumb lows around $2.50 last seen in May 2008 although it has bounced a little since.

Meanwhile, OneSteel is faring somewhat better. It reported first half earnings of A$117 million, almost a 50 per cent fall on a year earlier as increased sales and improved prices in its iron ore division offset a collapse in earnings from its steel recycling, manufacturing and distribution business. Steep as the fall in earnings was, it was not as bad as expected.

Depending on its view of Steel & Tube's outlook, which it has to be said hardly looks rosy just at the moment, OneSteel has what looks like an even better opportunity to succeed with an offer at a sharper price if it chooses to make one anytime soon.

Steel & Tube shares closed yesterday down 3c at $2.56.

BURGER BOOST

We concluded last week's Stock Takes item on NZAX listed fast food firm Burger Fuel by saying we wouldn't write them off. We're glad we didn't, as just a few minutes after that item was completed the company announced to the market it had opened its first store in Saudi Arabia.

Unfortunately, by the time we saw the announcement later on Thursday evening, it was too late to include the good news.

Still, Burger Fuel's Josef Roberts, who contacted us the next day, was gracious about the omission.

Actually he was in a pretty good mood about his company finally getting a Middle Eastern presence after such a long time trying. What's more the store was performing well in its first few days of business.

Burger Fuel's shares have gained 2c over the past week and closed yesterday at 32c.

UP AND DOWN

Just in case you missed it, stock exchange operator NZX has reduced the gain it booked on the sale of its TZ1 carbon registry to UK outfit Markit by $19.9 million.

We thought we'd mention this again as the announcement was made at 13 minutes to six last Friday and it may have escaped some people's notice.

NZX may not know this, but last thing on a Friday is the time companies will often release information when they have to but don't want to.

Anyway, while the writedown of the TZ1 gain is substantial, it still leaves more than $30 million of the previously announced $52.1 million profit which in turn resulted in NZX reporting a first half profit more than 1000 per cent - yes that's 1000 per cent - higher than the same period a year earlier.

At the time NZX boss Mark Weldon told us the gain on the TZ1 sale which was settled by way of Markit stock could be as much as $15 million to $20 million higher or lower, depending on how the business and Markit itself performed.

The writedown last week was made due to "the lower priority given to carbon trading on the global political and corporate agenda post Copenhagen in late 2009".

NZX shares, which closed at $2.18 a few minutes before last Friday's announcement, closed down 5c yesterday at $2.05.

THANK YOU & GOODBYE

Well that's it from me - after almost five years with the Business Herald and three years writing and compiling Stock Takes I'm moving on to report for the Herald from Parliament.

A big thanks to all of those who've helped with the column - my colleagues at the Business Herald, those sources I've spoken with frequently, and the more mysterious ones who've anonymously tossed the occasional juicy tip my way.

Thanks also to Stock Takes readers, particularly those who've been in touch to say what they have and haven't liked about the column.

I leave you in the more than capable hands of Tamsyn Parker.

- NZ Herald

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