Tamsyn Parker 's Opinion

Tamsyn Parker is the NZ Herald's Money Editor

Stock takes: Mega warning

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Kim Dotcom's Mega is proposing to merge with TRS investments in a $210 million deal.
Kim Dotcom's Mega is proposing to merge with TRS investments in a $210 million deal.

The Shareholders Association has warned investors to be wary of the market speculation surrounding TRS Investments - the company which this week announced it would merge with Kim Dotcom's Mega in a $210 million deal.

Chairman John Hawkins said trading in TRS shares had been "illogical" since the announcement.

The deal was revealed on Tuesday sending TRS shares soaring 900 per cent from 0.01c to 1c. On Wednesday they traded as high as 1.9c and closed on 1.1c.

TRS has said it would undertake a 148 to 1 consolidation of TRS' existing share capital before the deal is done.

Hawkins said if that was taken into account the shares were trading at an equivalent value of $1.63 to $2.81 when in the range of 1.2c to 1.9c, despite the deal having a nominal value of 30c per share.

"Speculation isn't illegal. But if people get caught up in the hype they can't expect to be bailed out."

Hawkins said the trading in TRS shares "seemed to defy logic".

The stock has seen a high level of trading in the last few days.

Hawkins said it was a pretty big stretch for the shares to go from 30c to a figure north of $1.50.

"The Shareholders Association is concerned people are speculating without looking at what little information is available. This is a conditional proposal only. There is no certainty it will succeed. People need to do their homework."

Hurdles to pass

The deal must receive shareholder approval and get the stamp from regulators including the NZX.

TRS Investments' controlling shareholder Paul Choiselat won't comment on whether he will give the thumbs up to the deal. Choiselat, who is facing market manipulation charges in Australia, has a controlling stake of 73 per cent.

Meanwhile, the NZX has also declined to make any comments on the deal.

A spokeswoman said the NZX did not comment on specific issuers or issuer proposals. Instead it has pointed to a guidance note on back-door listings which notes that the notice of meeting which must go to TRS shareholders has to be approved by the NZX.

Listing on the sharemarket not only gives companies access to capital but also has a certain kudos with potential investors. Market players have said it will be interesting to see if the NZX gives a tick to the deal.

Stock Takes imagines there will be talk around political circles about how the deal might be curtailed. The last thing John Key will want to see is Dotcom gaining any more authority.

Shaping up

Hirepool has announced a shake-up in its senior management team in what could be seen as preparation for the company's pending possible float.

Last week it emerged that the equipment hire company may be floated on the NZX before June by its owner private equity company Next Capital.

The company would potentially have a market capitalisation of around $300 million making it a sizeable listing for New Zealand.

This week the company officially announced it had appointed Brian Stephen as chief executive of Hirepool following the integration of Hirepool and Hirequip.

Stephen is a former chief executive of Hirequip and had been the chief operating officer of Hirepool during the integration of the two firms.

He will be succeeded as COO by Colin Sinton, a former Hirepool employee returning to New Zealand from Australia.

Ian Lewington, a former chief financial officer of the already listed Tourism Holdings, will remain as Hirepool CFO. Current Hirepool chief executive Mike Foureur, who joined the business in 2013 to lead the integration of Hirepool and Hirequip, will continue to be involved in the business as a non-executive director.

Glass sale?

Another private equity player is also said to be considering the sale of a New Zealand business through a stock exchange float.

The Australian Financial Review reported this week that Crescent Capital was taking pitches from investment banks to list glass manufacturer Metro GlassTech on both the New Zealand and Australian exchanges.

Crescent took a 40 per cent stake in the Kiwi business in 2012 after the company struggled in the wake of the property market downturn.

Former owner Catalyst Investment Managers bought Metro GlassTech for $366 million during the boom times of 2006 but breached financial covenants in 2011 forcing a capital restructure process that resulted in ownership being transferred to its lenders for the sale price of $181.5 million.

But times are looking up with the building sector booming in both Auckland and Christchurch.

Metro GlassTech reported an $8 million profit in the year to March 31, 2013 with $135.6 million revenue.

Nuplex rating cut

Craigs Investment Partners has downgraded its rating on Nuplex Industries from buy to hold citing a steeper than expected cyclical downturn in Australia's manufacturing sector.

Last month the speciality chemicals maker disappointed investors after it declared a half-year profit down on the previous year and warned its full-year earnings would be at the lower end of its forecast range.

Craigs analyst Dennis Lee said in a report analysing the result that the market in Australia and New Zealand had undergone "a structural change" since 2010, as Nuplex's high margin customers, in packaging adhesives, textiles and inks, reduced production in response to a manufacturing sector that's trimming local output in favour of importing finished goods

He said there was a risk of "further escalation in restructuring costs if more drastic changes are necessary to contain Australia and New Zealand earnings leakage".

"The cyclical downturn particularly in Australia was steeper than expected and this has accelerated the speed of structural reform in the manufacturing sector," Lee said.

Despite the result Nuplex shares closed on a three-year high on Tuesday at $3.60. The stock is rated a hold by four out of six analysts surveyed by Reuters, with an average target price of $3.65. Its shares closed down 1c on $3.52 yesterday.

Kathmandu standout

Outdoor clothing and equipment retailer Kathmandu is proving to be the stand-out performer for New Zealand's listed retailers.

The company posted an 11 per cent increase in its half-year profits this week despite the drag from the high New Zealand dollar against the Aussie.

That's in stark contrast to Hallenstein Glasson Holdings and Pumpkin Patch which both had significant drops in net profits.

Hallenstein's half-year result was down 40 per cent on the previous year, while Pumpkin Patch's net profits before reorganisation costs were down almost 80 per cent.

Mark Warminger, a fund manager at Milford Asset Management, said Kathmandu was operating in a growing sector, and had been boosted by increasing store numbers and taking market share in Australia.

The company was also playing into a demographic which had disposable income and the company did not appear to be coming under pressure from the online shopping movement.

Conversely Warminger said Pumpkin Patch appeared to be facing issues with its price points and branding, and stiff competition from the internet.

Kathmandu shares closed down 7c at $3.58 yesterday.

- NZ Herald

Tamsyn Parker

Tamsyn Parker is the NZ Herald's Money Editor

Tamsyn Parker is the NZ Herald's Money 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 is passionate about helping readers learn more about to make their money work for them.

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