KEY POINTS:
The 28 per cent fall in Telecom's third quarter net profit reported last week didn't appear to bother investors too much, in fact, the company finished 5c higher on the day, and gained a further 7c the next.
Goldman Sachs JBWere analyst Tristan Joll says the result would have generated "mild relief" given the company's warnings of a weak quarter ahead at the half-year.
The company retained its existing guidance of a full-year net profit in a $730 million to $700 million range, although Joll expects something near the bottom of that range.
Aspect Huntley analyst Andrew Doherty, however, estimates a full-year figure of $738 million.
But despite his more upbeat forecast, Doherty is more bearish than Joll on the company's longer-term prospects.
Telecom's future largely depends on how well it can execute the Government- imposed reorganisation that splits the telco into three divisions and the opening of its network to competitors.
"Significant internal and external changes continue to cloud the outlook. Cashflow and margins remain healthy but the business is not as strong as it once was."
Doherty has trimmed the estimate of the company's "intrinsic value" from $4 to $3.70, reckons the company will cut its dividend next year and has cut Aspect Huntley's recommendation from hold to reduce.
Joll, however, has retained Goldman's hold recommendation based on his belief that despite the competitive environment there is little likely downside in Goldman's forecast numbers.
He also says the company's network renewal programme will eventually provide it with a sustainable competitive advantage in New Zealand, and its shares are currently trading in a "rational price range based on a range of measures and market perception of the challenges that lie ahead".
Telecom shares closed up 12c to $3.97.
MULTIPLE SIGNIFICANT UNCERTAINTIES
Pity the unfortunate debenture investors in MFS Pacific Finance. It's been a week since the company's management told them to accept a moratorium proposal with uncertain prospects or face the certainty of losing more than half their $256 million in a receivership.
MFS Pacific's parent, troubled Australian investment group Octaviar, to which the majority of funds raised from New Zealand investors was funnelled, is dangling a carrot. It will make a $23.1 million initial payment, should investors vote for the moratorium on May 19.
That works out to about 9c in the dollar. After that, in theory, they would get quarterly repayments over the next three years until all the principal is repaid.
Forget about any interest.
But you have to wonder whether Octaviar is likely to last long enough for investors to get much more than the initial payment.
Last week, the same-day details of the moratorium proposal were revealed, Octaviar's new chief executive, Craig White, quit after just three months.
Earlier in the week Octaviar announced a A$221 million half-year loss and warned of "multiple significant uncertainties" about its future as a going concern.
HOT ON THE TRAIL?
Given Octaviar's difficulties, it seems unlikely that it or any of its subsidiaries are likely to stand by the undertaking it made to financial advisory firm Vestar's clients, whose cash was put into a number of now failed finance companies including Bridgecorp and Capital + Merchant.
Octaviar bought Vestar, or Northplan as it was known then, for $52 million, of which $42.5 million was paid in cash and the remainder in MFS shares.
Recently Octaviar said it may have to write down the value of the business to nothing. Why then, would Christchurch-based investment group Gould Holdings be interested in buying it, even at what is likely to be a tiny fraction of the last sale price?
Gould Holdings director of strategy Jeff Staniland this week indicated his company was likely to sidestep any liability for Octaviar's nebulous promise to investors. That aside, you would have to assume Vestar has suffered near-terminal brand damage.
On the other hand, Stock Takes assumes not all the finance companies and other investments Vestar put client cash into have gone belly-up. Given Vestar's reported finesse in securing generous commissions from finance companies, could it be still enjoying regular income from trailing commissions?
RALLY BLOWS A FUSE
Contact Energy's share price rally after news of a potential bid for majority owner Origin Energy has well and truly fizzled out. After hitting a record high of $10.16 a week ago on the announcement of a A$12.9 billion takeover proposal from UK-based utility BG Group (British Gas) for Origin, Contact's shares have continued to slip, yesterday closing at $9.03.
The markets appear to see BG's bid for Origin at A$14.70 a share cash, nearly a 40 per cent premium to the company's prevailing price, as a generous one.
VIKING ATTACK
Last week wasn't a good one for listed finance company Dorchester Pacific.
The company's shares fell to a record low of 36c after it issued its second profit warning in three months, said it expected a $5 million after-tax increase in provisioning on its property loans, and said chief executive Andrew Walker was moving on after just two years.
It's safe to say Dorchester is not the only finance company facing a revaluation of its property lending portfolio given what's happening in that market. The company now says its March year profit will be $3 to $4 million, down from $6 million previously advised.
This has all given fresh ammunition to Dorchester founder and disaffected shareholder Brent King of Viking Capital.
King has for some time been critical of Dorchester's direction, which has raised eyebrows, as he has been steadily selling off his holding, and getting ever decreasing prices for the shares.
Walker reckons his work at Dorchester, putting in place a simplified structure and effectively downsizing the company, was sensible given the deteriorating market conditions.
However, Walker points out he is going to "friends and family" rather than heading for the hills, taking up a role of investment and portfolio management at Kevin Podmore and Mike O'Sullivan's Auguste Holdings, the ultimate owner of a 75 per cent stake in St Laurence and a 20 per cent stake in Dorchester, which in turn owns 25 per cent of St Laurence.
NO BASKET CASE
While the likes of the Shareholders Association's Bruce Sheppard, a man with Viking tendencies of his own, have joined Brent King in bagging Walker's performance and that of the company, Kapiti Coast broker Chris Lee reckons that Dorchester is far from a basket case.
Lee believes the company will likely write down the value of its property loans by a far heftier amount than indicated last week in a bid to clear the decks, and he reckons that's what a number of finance companies should be doing.
However, even with the deeper writedowns, he says the company's net asset backing will still be above $1, and he points out it has $33 million in cash on hand.
With its shares closing yesterday at 40c, someone so inclined could virtually take it over using its own money, says Lee, adding that this would not have escaped the attention of Podmore and Hugh Green who between them hold 40 per cent of the company.
TOP OF THE STOCKS
NZ Oil & Gas shareholders were quite rightly outraged last week after Stock Takes incorrectly listed Contact Energy as the best-performing stock in the NZX-50 this year.
A technical error meant the oil and gas explorer was omitted from the list of stocks on which our calculations were based. As it turns out, Contact's slump this week has seen it drop to third spot anyway. For the record, as of yesterday's close, the NZX-50 list of top performing stocks for the year to date is as follows:
* NZ Oil & Gas, total return 43.48 per cent
* Sanford, 12.35 per cent
* Contact 9.59 per cent.
Stepping outside the NZX-50 to include all NZSE companies shows that Mr Chips has been the star performer. It is up 86.62 per cent thanks to the takeover offer by Simplot Australia and this weeks earnings upgrade. Pike River Coal is second, up 47.59 per cent.
Investors are no doubt excited by the soaring international price of coking coal.
- Liam Dann
