The Business Herald’s markets and banking reporter.

Stock Takes: Dick Smith's timing out of sync

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Harvey Norman going strong in ‘mini-boom'.
Businessman Dick Smith.
Businessman Dick Smith.

Dick Smith, founder of the soon-to-be defunct retailer that carries his name, could have chosen better timing to have a pop at Harvey Norman.

Following last week's announcement that Dick Smith's receivers will close the 363-store chain, the Aussie entrepreneur warned that Gerry Harvey, co-founder of his ASX-listed namesake company, should be wary.

"If Gerry Harvey's not careful, he's going to be next," Smith told "I just reckon there's no money in consumer electronics - that's why I sold out 30 years ago, and Gerry should realise that quickly."

But as those words spilled from his mouth, Harvey Norman was pushing the send button on its half-year result, and it was a cracker.

Profit jumped 31 per cent to A$185.5 million, while sales across its franchise stores increased by A$193.8 million to A$2.72 billion.

It doesn't appear as if Harvey Norman will be joining Dick Smith in the pages of corporate history books any time soon.

Harvey told the Sydney Morning Herald that the electronics market was enjoying a "mini-boom".

Collapse inevitable?

The analyst who dubbed Dick Smith's 2013 sharemarket float "the greatest private equity heist of all time" reckons the retailer may have eventually failed even without its brief spell in the hands of Anchorage Capital.

Back in October, Matt Ryan, of Sydney's Forager Funds Management, penned a blog that analysed in deep detail how Anchorage purchased the retailer in 2012 for about A$100 million, using only A$10 million of its own funds, before listing the business the following year with a market value north of A$500 million.

The ballooning debts and cashflow challenges Dick Smith struggled with post-listing were the consequences of financial engineering unleashed by the private equity company in the lead-up to the float, according to Ryan's analysis.

But following last week's news, he said the retailer may have always been headed for collapse.

"I'm not sure if Anchorage ... not owning it would have salvaged the situation," Ryan told Stock Takes. "I do think it was a business that had a lot of problems. It just amazes me that Anchorage were able to make a A$500 million profit in the middle of all those problems."

An Australian Senate inquiry into the Dick Smith collapse is under way.

An apple a day ...

Scales Corporation's result provided a reminder that although the dairy industry faces a grim outlook, other agricultural sectors are booming.

The apple exporter, which listed in 2014, reported a full-year profit of $38.9 million last week, which was 87 per cent ahead of its IPO forecast and more than double the bottom-line result reported for the previous year.

Strong demand and weakness in the Kiwi dollar have been bolstering the fortunes of local fruit exporters.

ANZ rural economist Con Williams told the Business Herald last month that apple growers were going through a "purple patch" with a run of three profitable harvests.

In a research note released last week, Craigs Investment Partners retained its "buy" rating on Scales, with a 12-month target price of $2.85.

The brokerage noted the firm's guidance for earnings before interest, tax, depreciation and amortisation in the 2016 year of $48 million to $55 million appeared conservative.

Scales shares, issued in the firm's IPO at $1.60, have gained 54.5 per cent over the past year to close at $2.34 last night.

Hands down

The New Zealand Superannuation Fund is pushing for a re-think around the somewhat archaic practice of having a show of hands during votes at shareholder meetings.

In its submission to NZX's review of corporate governance requirements, the $28 billion fund said electronic systems should be used to allow voting without the need to appoint a proxy or attend meetings in person.

"The NZX should respect the fundamental shareholder right of one share-one vote by requiring a count of votes by poll and not a show of hands," the submission said. "The current use of a show of hands at meetings undermines this right and is out-dated."

Volatility knocks

Volatility often brings opportunity and fund manager Nikko Asset Management New Zealand has been taking advantage of this year's market turbulence.

In a recent note to clients, head of equities Stuart Williams said the firm had reduced the amount of cash across its portfolios and one of its funds had moved from 18 per cent cash to almost fully invested through adding new stocks and increasing stakes in existing ones.

"Certainly, for an active equity manager, volatility can provide excellent buying opportunities, something which often gets overlooked in the noise of markets," Williams said.

Nikko saw opportunities across the market, particularly with com-panies in the process of expanding internationally and those with expo-sure to the booming tourism sector.

- NZ Herald

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The Business Herald’s markets and banking reporter.

A business journalist for more than four years, he also writes the weekly Stock Takes column.Christopher’s main focus is the local sharemarket and issues facing Kiwi investors. He covered manufacturing and retail in his previous Herald role and maintains a special interest in New Zealand’s growing trade relationship with China.

Read more by Christopher Adams

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