Brian Gaynor 's Opinion

Investment columnist for the NZ Herald

Brian Gaynor: Small but interesting... and missing out

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Lack of attention for lesser lights is at least partly their own fault

The meeting of amphibious boat-maker Sealegs was a shambles. Photo / APN
The meeting of amphibious boat-maker Sealegs was a shambles. Photo / APN

One of the most disappointing features of the NZX is the lack of attention given to small companies.

Their annual meetings used to attract the media, stockbrokers, investment analysts and sharemarket traders and investors. Today, these meetings are sparsely attended with no sign of the media, stockbrokers and only the occasional portfolio manager or analyst.

The computer screen and stock exchange releases have replaced face to face contact as the main sources of investment information.

This is unfortunate because there have been several interesting small company meetings over the past 10 days.

Smartpay, formerly known as Damba Holdings and then Cube Capital, held its annual meeting on September 20 at The Spencer on Byron Hotel, Takapuna. About 30 shareholders turned up to hear newly appointed chairman Ivan Hammerschlag and chief executive Bradley Gerdis outline their plans for the company.

In 2006, Cube Capital acquired Smartpay - a distributor of prepaid electronic vouchers and card products - and changed its name.

In 2009 it bought the payment division of the former NZX listed ProvencoCadmus from receivers.

The acquisition was a failure, mainly because of the high funding cost of its eftpos terminals.

Bradley Gerdis is a young South African-born Australian who arrived on the scene this year. He has managed to raise $20 million of new debt on much more favourable terms than previous borrowings, and $13 million of new equity.

Gerdis and Hammerschlag are no-nonsense individuals who believe the eftpos terminal provider has good prospects in Australia. Hammerschlag wouldn't engage with shareholders who complained about the company's past performance, and he cut off fellow director John Nimmo when he tried to talk about past mistakes.

Smartpay is now firmly under the control of the two Australians and they want it to list on the ASX before Christmas.

The company will probably move from New Zealand if Gerdis can take advantage of the opportunities he sees across the Tasman.

However, technology in the payments sector is changing rapidly - including the ability to make payments directly from mobile phones - and this is a challenge to Smartpay's traditional eftpos operations.

The following afternoon Sealegs, formerly known as Iddison Group Vietnam and IT Capital, was scheduled to hold its annual meeting at the company's factory in Albany.

Something was clearly wrong when we arrived, because a stern looking Computershare employee was refusing entry to anyone who wasn't a shareholder.

The meeting started late and chairman Eric Series quickly explained that it would be postponed because of a legal challenge from an anonymous shareholder.

Under Listing Rule 3.3.5, all NZX companies must give 10 business days' notice of the closing date for director nominations.

Sealegs lodged this notice with the NZX on September 3 with a September 6 closing date. This was clearly in breach of the 10-day requirement.

The shareholder did not lodge the complaint until the morning of the meeting, indicating substantial discontent within the company particularly as there is a strong possibility that the legal challenge was initiated by an insider.

Sealegs' directors and executives looked on glumly as Series gave an informal address to the small number of shareholders present.

It was patently clear that the board had an acrimonious meeting earlier that day as the chairman made several references to a difference of opinion between him and some of the company's executives.

Series, an urbane Frenchman from Neuilly, southwest of Paris, is passionate about rugby. That is one of the main reasons he invested in New Zealand, and why the All Blacks endorse Sealegs' products.

He owns 49.5 million shares, or 39.9 per cent of the boat builder, most of them bought at 20c.

Series' disjointed address showed clearly that he has realised it is extremely difficult to run a successful manufacturing operation from New Zealand.

He said the company would now focus on the commercial, rather than the leisure, market and it would appoint other companies to manufacture its boats under licence.

The meeting was a shambles as many shareholders found it difficult to hear Series because there were no microphones. Shareholders should turn up for the reconstituted annual meeting later this year, particularly as the results for the six months to September should be available then.

The Ecoya meeting this week was a complete contrast to Sealegs. The conservative Northern Club was positively hip as the scent of candles floated through the air, young girls helped shareholders to their elegant linen-covered tables and directors Rob Fyfe and Grant Baker wore smart suits and ties.

Director Rich Frank had just flown in from his home in Beverly Hills and commented that he had to miss the Emmy Awards to attend the Ecoya meeting.

Chairman Geoff Ross gave his usual polished performance. He said the company had excellent prospects and the Trilogy skin care products now generated more sales than the traditional Ecoya candles.

He told shareholders that revenue for the six months to September was expected to be up 16 per cent from the same period in the previous year.

Full year sales were expected to be $26.6 million, an increase of 18 per cent over the previous year, and operating earnings would be above breakeven for the full year.

Ross also said the company would be looking to acquire an additional business in the next 12 months and this would be partly funded by raising new equity.

The following day, Jasons Travel Media held its annual meeting at the company's modest head office in Newmarket.

Jasons is an honest and hard-working company with an extremely low sharemarket value. It has dropped off the radar since Steven Joyce departed.

Joyce, now a National Government Cabinet minister, played a major role at the company between 2005 and 2009.

Jasons' problem is the two words in its name - travel and media. Both industries are are depressed and extremely competitive and Jasons' earnings before interest, tax, depreciation and amortisation (ebitda) have fallen for four consecutive years with directors forecasting a further decline in the year to next March.

But John Sandford, who is the company's largest shareholder, has just been appointed chairman, and CEO Kevin Francis has completed only one year in that position.

Sandford, Francis, new director Jamie Hall and two senior executives spent a great deal of time explaining the strategies the company had adopted to cope with the depressed environment, and all expressed confidence in the company's future.

The unfortunate feature of the Jasons' meeting - and those of most small listed companies - is that so few shareholders bother to attend. There were no more than 10 or 12 non-staff shareholders at Jasons' meeting, and no media, brokers or broker analysts in attendance.

These small companies often turn out to be the NZX's best achievers.

But listed companies also have a responsibility to promote themselves to the investing public.

The Sealegs debacle demonstrates that the company does not understand the NZX rules and wanted to exclude some non-shareholding analysts from its meeting.

Jasons Travel Media didn't lodge its notice of meeting with the NZX, nor did it post the meeting notice on its website.

Ecoya is the only one of the four companies to actively promote itself to the investment public and, as a result, it had several media and investment people at Tuesday's meeting.

The simple lesson from this story is that it will be difficult to convince investors that your company is first class in promoting itself to customers if your communications with shareholders and potential investors is deficient.

Disclosure of interest: Brian Gaynor is an executive director of Milford Asset Management, which holds Ecoya and Sealegs shares on behalf of clients.

- NZ Herald

Brian Gaynor

Investment columnist for the NZ Herald

Brian Gaynor has written a weekly investment column for the Weekend Herald since April 1997. He has a particular passion for the NZX and its regulation. He has experienced - and suffered through - the non-regulated period prior to the establishment of the Securities Commission in 1978 and the Commission’s weak stewardship until it was replaced by the FMA in 2011. He is also a Portfolio Manager at Milford Asset Management.

Read more by Brian Gaynor

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