Tamsyn Parker 's Opinion

Tamsyn Parker is the NZ Herald Assistant Business Editor

Stock takes: Ryman hitting bubble territory?

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A major shareholder believes unless Tower boss Rob Flannagan comes up with a strong strategy the firm will be vulnerable to a takeover. Photo / Martin Sykes
A major shareholder believes unless Tower boss Rob Flannagan comes up with a strong strategy the firm will be vulnerable to a takeover. Photo / Martin Sykes

TOO EXPENSIVE?

Ryman Healthcare's share price is making some in the market feel nervous that it is hitting bubble territory. Shares in the retirement village operator reached new highs this week after taking a short breather. The company's shares closed up 7c yesterday at $6.65.

A number of analysts are questioning its price. Craigs Investment Partners analyst Stephen Ridgewell downgraded his recommendation to a hold last week despite a strong financial result from the company.

"Ryman delivered another cracking result for FY13 and is on track to deliver again in FY14. However, the shares have been re-rated strongly over the past three months, and we downgrade to hold on valuation grounds. While we see better value elsewhere, Ryman remains our preferred pick in the sector," Ridgewell said in a note.

He has a target price of $6.

UBS analyst Wade Gardiner also said in a note that it was a good result with higher than expected new sales but kept his sell recommendation with a target price of $5.10.

"This was a good result but it needed to be given the growth implied by the share price. We estimate the current price assumes 18 years of future development at the current build rate. We remain uncomfortable paying for this level of growth," Gardiner noted.

Goldman Sachs analyst Matt Henry has questioned whether Ryman is the most expensive stock in New Zealand.

TAKEOVER TARGET?

Tower shareholders will be expecting clear guidance from the company at its half-year result briefing on Tuesday.

Tower boss Rob Flannagan has already indicated he will talk about how the proceeds from the recent sales of its life insurance and investment businesses will be spent, including how much capital the company intends to return to shareholders.

But one major shareholder says unless the management can come up with a strong strategy for the remaining business it will be vulnerable to a takeover.

Paul Glass, principal at Devon Funds Management, which has a 7.56 per cent stake in Tower, said the New Zealand insurance company had a low valuation compared to Australian general insurers and also had surplus cash on its book.

"When you look at it compared to Australian general insurers and you look at its surplus cash - a general insurer could pay a very significant premium to the current stock price.

"I think it is very vulnerable as a takeover target unless management deliver a strong story."

A takeover would be a solution for major shareholder Guinness Peat Group, which owns 34 per cent, and has made no secret of its plans to exit all of its investments outside of its thread-making business Coats.

There are a small number of players in the general insurance market in New Zealand and only a few of a size which could make potential takeover bids.

Australian company IAG which owns NZI, State Insurance and AMI, is the largest and has a 40 per cent market share. But a takeover bid would be unlikely to succeed given the competition issues.

Second-largest provider Vero Insurance, owned by Australia's Suncorp, would have more chance of success with its 23 per cent market share.

HIGH TRADE

Trade Me Group has seen a high level of turnover in its shares in recent weeks with a number of its substantial shareholders either increasing or decreasing stakes.

Australian fund manager Hyperion Asset Management has emerged as a large shareholder, if not the largest, increasing its share in the company to 12.51 per cent. Any shareholding over 10 per cent can typically be perceived as a strategic blocking stake as takeovers require at least 90 per cent of shareholders to accept any offer before they can go unconditional. Brisbane-based Hyperion did not respond to an email request asking for the reasons behind its position.

But Forsyth Barr analyst Rob Mercer played down the significance saying it was not uncommon for overseas fund managers to own more than 10 per cent of a company because of the small size of New Zealand's listed companies relative to the amount of money those managers look after.

Mercer said Trade Me's shares, which have increased in value from $3.92 at the start of the year to a recent high of $5.43, were looking fully priced.

But he said the business was relatively defensive, had a reliable yield and an undergeared balance sheet.

UK based fund manager Baillie Gifford has also emerged as a substantial shareholder with a 7.95 per cent stake.

Trade Me shares closed down 11c yesterday at $5.32.

MORE CAPITAL

Property company DNZ became the latest firm to raise capital this week through a $60 million placement. The placement was done at $1.68 a share - less than a 2 per cent discount to the last trading price of $1.71.

The stock is understood to have been mainly placed with institutions with only 10 per cent being sold via retail brokers. A further $20 million is hoped to be raised from existing shareholders through a share purchase plan.

Three new institutional investors are believed to have come on board through the placement including an international institutional investor.

Meanwhile, Stock Takes understands another two capital raisings are expected to be announced in the next week - a smaller $50 million raising and a larger one of between $200 million to $300 million. The larger one could come from healthcare sales and distribution company Ebos Group which is expected to reveal plans for a major bolt-on acquisition in Australia.

Ebos shares hit $10 yesterday putting its market capitalisation at $529.6 million.

MERIDIAN APPOINTMENT

New Zealand's investment bankers are expecting to hear either tonight or on Monday who will be appointed joint lead managers in the partial privatisation of power company Meridian Energy.

Six groups are understood to have made pitches to Treasury this week in the bid to play a leading role in New Zealand's largest initial public offer.

Meridian has been valued at more than $6.5 billion and the float could be worth as much as $3.2 billion. More than $20 million of fees are expected to be paid to the joint lead managers.

Mighty River Power had three joint lead managers but Treasury has not confirmed whether it will appoint a similar number to Meridian.

Mighty River Power's share price has had a tough week - dipping below its $2.50 issue price prompting some to say it wasn't priced right, given it was just the first of a number of asset sales.

If it had gone closer to the bottom of the $2.35 end of the range or even below, its post-listing share performance might have looked more attractive for those considering Meridian.

A little hair-cut on the first cab off the rank may have been a small sacrifice to make to ensure a better take-up of Meridian.NEW SALT New boutique fund manager Salt becomes official from today. The former equities team of BT Funds Management (Westpac's investment business) have gone out on their own with a deal to run $650 million of BT's money.

Joint managing director Paul Harrison says they picked the name Salt because of its historical link with currencies - an ounce of salt was once traded for an ounce of gold.

Salt rations given to Roman soldiers were known as "salarium argentum," the forerunner of the English word "salary". With its sizeable seed money from Westpac the firm seems likely to get off to a strong start.

Harrison said the four-man team expected to appoint a chief operating officer soon and would beef up its investment analyst resourcing over time.

- NZ Herald

Tamsyn Parker

Tamsyn Parker is the NZ Herald Assistant Business Editor

Tamsyn Parker is the NZ Herald Assistant Business Editor. A business journalist for ten years, she has worked in the UK and NZ for the New Zealand Herald, the National Business Review and a specialist publication on investment products for financial advisors. She writes the Stock Takes column on investing in NZ and is passionate about helping readers learn more about money and investment.

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