KEY POINTS:
Briscoe Group, like other listed retailers has been among the stocks hit worst by the current slowdown but its first half result last week contained some positive surprises, says Goldman Sachs JBWere analyst Rodney Deacon.
The company's net profit of $3.1 million was at the upper end of
the range of estimates and ahead of Goldman Sachs' $2.3 million forecast.
That reflected slightly better than expected gross margins and cash operating costs, says Deacon. Still, it represents a 71 per cent fall on the same period a year ago.
Deacon sees signs that Briscoe is cutting employee expenses which, he says, is about the only cost lever the company can pull. While New Zealand stocks' high yields have been cited as a reason why our market should have withstood the global equities sell off better than other markets, that only works so long as companies can maintain payouts.
That's difficult when earnings are falling, and perhaps, unsurprisingly, Briscoe Group reduced its interim dividend from 3.5c to 1c.
Goldman Sachs has increased its 2009 full year profit forecast for the company by 18 per cent to $10.1 million and its 2010 forecast is 26 per cent higher at $11.7 million, but that's still not enough of an improvement to alter the "Sell" rating it has on the company.
"We believe the outlook for Briscoe Group shares is still challenging. This is reflected in our current 12-month expected return of 5 per cent, well below the market at 17 per cent. Furthermore, a cut in future dividend yields could be negative for market sentiment."
The shares closed at 91c yesterday.
BETTER THAN BUFFETT
In defending Guinness Peat Group against Business Herald columnist Brian Gaynor's criticism of the company's performance, strategy and executive remuneration, director Tony Gibbs points out GPG has been a better performer over the last eight years than legendary US investor Warren Buffett's Berkshire Hathaway.
He's supplied the media with data showing GPG's total shareholder return over the period was 11.9 per cent per annum against Berkshire's 9.2 per cent.
Gibbs was responding to Gaynor's observation that over the two years to August 31, GPG was the second worst performing stock among the market's top 10 with a negative gross return of 29.4 per cent.
Professing his reluctance to get into a slanging match with Gaynor, Gibbs told Stock Takes: "I believe Brian has been incredibly selective in choosing that period."
While Stock Takes believes Gaynor is not being unreasonable in focusing on the most recent period, Gibbs says GPG is a long-term investment company.
Net asset value is probably a better measure of performance for investment companies than share price and since 1990, when Sir Ron Brierley and his lieutenants including Gibbs took over at GPG, its net asset value per share has grown at an admirable 18.4 per cent per annum.
The market cap of our top 10 stocks has only grown at a rate of 1 per cent per annum over that period, says Gibbs.
But market watchers say Gaynor does make some valid points about the company's lack of transparency.
They agree that it is a factor in Guinness Peat's shares consistently trading at a wide discount to their net asset value.
SAGE OF ISLAND BAY
Come to think of it, GPG and Berkshire Hathaway do have a few things in common.
Both are associated with iconic capitalists.
Berkshire has Buffett - the Sage of Omaha - while GPG has Brierley - the Boy From Island Bay.
Both companies are essentially investment businesses and share similar investment philosophies, focusing on gaining meaningful stakes in undervalued companies whose businesses they understand and whose management they can influence.
Both have significant insurance businesses.
They are, however, of somewhat different scale.
Berkshire's market cap is US$200 billion, while GPG's is $1.98 billion. Buffett and Brierley's personal wealth is likewise in different ball parks.
Buffett is reputedly the world's richest man with roughly US$62 billion to his name.
Sir Ron was valued in this year's NBR Rich List at $180 million.
Meanwhile, Berkshire's annual meetings are legendary affairs, this year drawing an audience of 30,000 eager to hear what Buffett has to say about the markets.
GPG's meetings are a different kettle of fish, being held in London far from its retail investor base.
Sir Ron's address to the meeting is not released to the market, which is something Gaynor criticised.
Other market watchers, who are otherwise fans of GPG and Sir Ron, told Stock Takes they agreed with Gaynor on this point.
However Gibbs says Brierley doesn't actually give an AGM address and anything he has to say is in the company's reports.
GPG's AGMs, he says, are a far cry from Brierley Investments meetings in the 1990s when investors would queue around the room and out the door for a couple of hours afterwards for a chance to shake hands with their hero.
GPG shares closed down 4c at $1.31 yesterday.
ACRONYMIOUS STATE
Dominion Finance Holdings' management are disappointed with Perpetual Trust's decision not to allow subsidiary Dominion Finance Group's fate to be decided by debenture and note holders.
Yesterday chief executive Paul Cropp said some debenture holders - who are incidentally also shareholders - may yet have the heft to force Perpetual's Louise Edwards to let management's proposal for "an orderly realisation of assets" go to an investor vote.
There's clearly some acrimony between the company and Edwards who this week called in the receivers.
Meanwhile, one or two transactions revealed in the company's recent annual report - the one that turned a $9 million March year profit into a $108 million loss - have sparked some media interest.
The report discloses a $5.18 million loan to a company called WAFD Ltd whose sole director is Dominion director and shareholder Barry Whale.
Dominion says WAFD is "a solicitor's nominee company" and Whale has no beneficial interest in it or any control over it.
Whatever the reason for this transaction and formation of the company - on the last day of the 2008 financial year - if Stock Takes' sources are to be believed its name demonstrates those involved were aware of looming or present difficulties
Yesterday Cropp said he did not know what WAFD stood for, but our sources suggest it may have been an acronym for "What A F*****g Disaster".
KEEPING IN CONTACT
Since Origin Energy looked like it had successfully fended off BG Group's A$13.8 billion ($16.9 billion) takeover bid, shares in its 50.1 per cent owned subsidiary Contact Energy have been on the rise.
Contact shares initially surged to $10.15 in May when BG said it was interested in Origin but sank to lows just above $7 when BG's offer went hostile.
They began to recover in mid-July after BG said Contact was not part of its strategic rationale and it would pursue a divestment strategy for the stake.
With Origin, late last month announcing plans to develop its coal seam gas assets - the prize BG covets - Contact shares have resumed their upward march.
They closed as high as $9 on Tuesday on speculation that Origin may look to increase its stake.
Yesterday Contact shares closed 1c higher at $8.83.
BENEFITS OF LIQUID ASSETS
A new brewing company has swum against the economic tide by raising the cash it wants plus half as much again.
Westcoast Brewing had a $2 million target but ended up with an extra $1 million in oversubscriptions.
Chief executive Paddy Sweeney said his firm "never became bogged down with the train wrecks that the finance industry have been experiencing".
Sweeney said his policy of "surrounding yourself with people who are smarter than you are" had served him well. The company's directors and advisers include former Four X chief executive Barry MacAlister, the inventor, says Sweeney, of top-selling Australian brew Four X Gold and "one of the true gurus of the brewing industry".
The money raised will be used to expand operations at the company's brewery, establish export markets, fund its West Coast Bar and Grill in Christchurch, buy another bar in the city and open a couple of bottle stores.
