Stock Takes

A closer look at the markets by Tamsyn Parker

Stock takes: Rose patch

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The genie looks like it is out of the lamp after the Prime Minister indicated Genesis could be the first of the state assets to go on the block. Photo / Supplied
The genie looks like it is out of the lamp after the Prime Minister indicated Genesis could be the first of the state assets to go on the block. Photo / Supplied

Despite plunging profits and a share price languishing just above 60c, a Pumpkin Patch investor handed the firm's three female board members red roses at the company's annual meeting in Auckland this week.

The mildly eccentric shareholder's presentation to directors Jane Freeman, Sally Synnot and Chrissy Conyngham (now retired) was met by a round of applause from the audience.

Touching as it was, the gesture highlighted the easy ride NZX-listed company directors tend to get at annual meetings in this country.

To be fair, a few tough questions were asked during the event, held at the Ellerslie race course.

But do the directors of a company that only a few weeks earlier reported a 50 per cent drop in underlying net profit really deserve applause and flowers?

Goldman Sachs downgraded its recommendation on the children's apparel retailer's stock to "sell" this week, saying it did not expect to see a recovery in its share price until at least the 2013 financial year.

Pumpkin Patch shares, which were worth almost $5 in 2007, closed down 8c at 62c last night.

RUBBING THE LAMP

The genie may be out of the lamp with Prime Minister John Key hinting Genesis may be first SOE to be partly sold, if he wins the election. That's sure to further concentrate minds in the energy industry and among potential new shareholders about the "Huntly challenge".

Genesis has as its main asset the Huntly power station which is a big earner when hydro lakes are depleted and the country is reliant on its giant stockpile of coal to help keep the lights on.

But when cheap hydro power is plentiful and relatively cheap - as it has been for the past three years - the enormous cost of keeping the big coal-fired units maintained and ready for action hurts Genesis which has historically not been a big dividend payer.

For years Genesis has been pondering who pays for the dry year insurance Huntly provides. Asset swaps have helped, but the company would appear to be the most challenging of the power companies to sell.

But then again if the price is right ...

FAMILIAR RING

National's plans to use cash from state-asset sales to fund schools and hospitals bears a striking resemblance to a Labour proposal from the 1990s.

The Herald reported on March 22, 1990, the then Education Minister Phil Goff was in support of using $300 million from the sale of Telecom for capital expenditure on schools. But this slice of history seems to have eluded the now Leader of the Opposition as he struggles along the election trail 21 years later.

In response to John Key's suggestions last month the funds from the SOE-selldown could go to hospitals and schools, Goff said governments for the past century had paid for these institutions out of core spending "without having to flog off assets".

Telecom was sold in 1990 to two United States companies for $4.25 billion in a trade sale.

CODE BREAKER

What's in a name? Not all that much if you're Chorus, who listed under the somewhat confusing ticker of CNU on both the NZX and ASX this week.

Stock Takes assumed CHO would have been the obvious choice but according to Chorus' Melanie Marshall that particular ticker was already taken across the Tasman and the company wanted consistency on both exchanges.

Marshall said with CNU at least the 'C' could stand for Chorus and the 'N' for Network. But the U? Marshall gave a quizzical response, saying it was a letter "that worked". Stock Takes is taking suggestions on what it could stand for.

NO SWEET DEAL

Stock Takes understands that the big-wigs at Singapore's Cerebos Pacific are less than amused by the $3.40 to $4 range put forward by Comvita's consultants, Grant Samuel, in its valuation of the company's shares.

That's understandable, because those prices present a premium of between 26 per cent and 38 per cent to Cerebos NZ's $2.50 a share offer for Comvita, a company that specialises in making health and skincare products from manuka honey.

Stock Takes understands there is now a 50/50 chance Cerebos will walk away.

But if Cerebos does up up the ante, any revised offer is likely to be substantially less than the bottom end of the range put forward by Grant Samuel, a source within the Cerebos camp said.

Comvita's independent directors are urging shareholders to reject the hostile bid. Since the offer emerged last month, the shares have been as high as $3 - a 20 per cent premium to the offer price.

VACANT SPACE

Argosy Property Trust's first-half after-tax profit out this week was $15.7 million, below Goldman Sachs' forecast for $17.1 million by Buffy Gill who blamed reduced occupancy and higher interest costs.

Gearing now stands at 45.3 per cent after the management contract was internalised, "only partially offset by asset sales to date".

Forsyth Barr Research's Jeremy Simpson highlighted the largely diversified $900 million-plus real estate portfolio and said the first-half was close to what he had projected. But he is also pondering empty floors and being more in hock to the banks. "Near-term issues remain falling occupancy and high gearing," he noted, retaining his "accumulate" recommendation.

Gill noted Argosy was holding its full-year dividend guidance of 6c a unit but gave new guidance for 2013, based on a favourable tax ruling on a leasehold payment. Gill put a "hold" recommendation on Argosy.

- NZ Herald

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