KEY POINTS:
New Zealand Exchange's regulatory arm is getting tough with listed finance companies ... sort of.
A week ago it demanded they give monthly updates of what it saw as key numbers - debenture reinvestment rates, debt levels, expected income for the following month and loan book concentration
- starting on April 30.
However, it did give these firms a bit of wiggle room, they had until Tuesday this week to publicly say why they didn't believe this was a good idea, which many of them did.
Dorchester Pacific, for example, argued that the narrow set of data requested "without regard to the other metrics provides an incomplete and potentially misleading picture".
New Zealand Finance effectively said that if this information was so important the Securities Commission would already be requiring all finance companies, listed or not to disclose it.
By Wednesday, NZX looked to be backpedalling a bit, saying it would engage in dialogue with those companies that said they didn't consider the information asked for to be relevant, in order to ensure they were complying with existing continuous disclosure requirements. Sounds like business as usual.
Stock Takes believes NZX's standing as the frontline market regulator is not helped by what looks like an attempt to play hardball, while giving firms the option to duck the swinging arm, which most did.
NZX says the resulting "open dialogue", ie firms telling the regulator to, um ... see a taxidermist, "is healthy for the market and serves the best interests of investors".
"Let's get together and feel alright," sounds good from Bob Marley, but not from a securities regulator.
But while having some doubts about its approach, Stock Takes believes NZX should be applauded for at least attempting to seize the nettle.
Especially when it "urges Trustees and the Securities Commission to consider requiring of unlisted finance companies a similar level of examination of their disclosure practices".
The flow of timely key information from finance companies to their investors is generally pretty woeful, and has allowed the management of quite a few stricken firms to keep on gambling for survival, using other people's money, for inordinately long periods, deepening eventual losses after time is finally called.
The lack of information also contributes to a climate in which rumours flourish.
The entire sector, not just those companies on the sharemarket, needs more sunlight shone in its direction.
A NICE PROBLEM
New Zealand Oil and Gas' 139 million options - which expire in June - are now in the money.
The options have a strike price of $1.50 and NZOG's shares broke through that level last week and yesterday closed down 4c for the day at $1.58.
McDouall Stuart analyst John Kidd points out that if all these options were exercised, NZOG's equity would be boosted by $208 million, an event of "enormous magnitude" for the company.
It would also be one of, if not the biggest equity raisings on the NZX for the year.
With NZOG having a market cap of about $410 million, the extra capital would propel it into the NZX-50's top 20 and generate additional interest in the company from institutions.
The key question says Kidd, given that the company has no immediate need for the cash, is what it would do with it?
A nice problem indeed. There are, erm, "numerous options available", including share buyback, capital reconstruction, distribution, an acquisition or even some combination of these.
Kidd has a discounted cash flow valuation of $1.72 on the company, and a 12-month target price of $1.95. He clearly fancies NZOG with whom his own firm has worked closely in the past, acting for it on a number of past capital raisings.
GILDING THE LILY?
ANZ National Bank's 7 per cent increase in first-half net profit announced this week, while somewhat softer than the very sturdy growth over the past five years or so, looked pretty good when compared with its Australian parent's 7 per cent fall.
A sizeable contributor to the increase was the performance of the bank's institutional division's markets team which generated a big lift in profit thanks to the recent market turmoil. On the retail side, the ANZ business recorded a 12 per cent increase in net profit over the same period a year ago, while the National Bank saw profit ease by 2 per cent.
However, the bank restated figures for the March 2007 half in Wednesday's numbers, removing a $10 million gain on the sale of Mastercard shares. Using the original figures from last year, the 12-month decline for National Bank retail was 6 per cent while the increase for ANZ was a modest 2 per cent.
The bank said it stripped out the Mastercard gain this year as it was a one-off and didn't reflect underlying business. Why leave it in for last year's numbers in the first place? Whatever the reason, it did have the effect of increasing the March 2007-half numbers from what would have been 6.5 per cent gain for National Bank to 11 per cent and what would have been a 2.2 per cent decline for ANZ retail to a rosier 7 per cent increase.
