KEY POINTS:
The Yellow Pages $300 million bond issue is fast becoming a $150 million to $200 million bond issue as the issuers struggle to find a market in an increasingly risk-averse environment.
Yellow Pages confirmed this week that they'll be offering returns of at least 11 per cent per
year but market sources say that it may have to be more like 11.5 per cent. Even at that level there are plenty of sceptics in the market given the fact that the bonds will be unrated and well below investment grade.
At issue is how much debt Yellow Pages Group is carrying since it was purchased last year by a private equity partnership of CCMP Capital Asia and Teachers' Private Capital for $2.24 billion. Educated guesses are picking a ratio somewhere between 9 and 10.5 times ebitda.
With many investors shy of putting money into finance companies right now, Yellow Pages no doubt hopes there will be cash in the market looking for a home. But the sceptics argue that the retail banks look better value.
There's always a catch
Finding an easy arbitrage play on the NZX is not as simple as it looks.
A Stock Takes reader suggested this move as a way to make a good short term return.
"Telecom is about to spend about half of the proceeds of its recent Yellow Pages sale on a buyback of one-for-nine shares at $4.88 a share.
"So, buy 10,000 Telecom shares at yesterday's closing price of $4.35. That'll set you back $43,500.
"And on October 5, Telecom will pay you $4.88 a share for 1111 of the shares you bought. That's a profit - before brokerage - on the $4832.85 outlay on those 1111 shares of $588.83 in fewer than seven weeks. But wait. There's more. You also collect a quarterly dividend of 20c a share (actually 14.5c fully imputed), on the whole 10,000-share parcel in the meantime." Sounds enticing but, says one seasoned broker, history suggests that Telecom shares are likely to fall in advance of the buy-back so that by the time the investor was in position to sell the shares and realise the gains, any significant profit from the buy-back should have been wiped out. Markets don't always act as they should, of course, especially in troubled times. Having said that, there will be plenty of investors eyeing Telecom on fundamentals with its shares trading back below the $4.50 mark.
As usual the analysts are divided on Telecom's long-term future. Of those who have updated their target price this month, there appears to be an even split (four each way) on whether Telecom is a good buy at yesterday's price of $4.33.
Kingmaker
Having nabbed a 6 per cent stake, Lloyd Morrison seems to have put himself in the kingmaker's position in the complex play for Auckland International Airport. Not for nothing was he dubbed the Herald Business Leader of the Year last year - actually it was mostly for the shrewd deal he pulled off to take a controlling stake in Trustpower.
But getting all the parties in line on the airport is going to be a real challenge.
Chairman John Maasland confirmed yesterday that there is now just one other party doing due diligence - Canada Pension Plan. No surprise there.
Morrison has been talking to both CPP and Dubai Aerospace this week.
One scenario is for the foreign buyer to take a minority stake. If the buyer could get the support of two local councils' 23 per cent (Auckland City 12.5 per cent and Manukau 10.5 per cent) and Infratil at 6 per cent then they really only need a minority stake of more than 20 something per cent to create a controlling consortium.
It's an idea that would have to be more politically palatable to the wider public. Auckland Airport shares closed down 3c yesterday at $3.17 after the company delivered a pretty average result in line with expectations.
High energy
Meanwhile Matt Henry at Goldman Sachs JBWere has taken another look at Infratil in the wake of the quarterly result last week.
The result itself showed a first quarter profit of $45.9 million compared with $7.7 million for the same period a year ago - inflated by the consolidation of Trustpower's earnings and the reporting of a big increase in the value of financial derivatives required under new accounting standards.
But it has highlighted Trustpower, Wellington Airport and Infratil Energy Australia as the group's key assets for value-creation in the short to medium term, says Henry. Infratil Airports Europe - Luebeck, Glasgow and Kent - still shows no signs of creating value in the near future. From a financial perspective the new carbon trading regime sounds much more exciting.
Any New Zealand price will be benchmarked to the European price. Based on that assumption Henry estimates a full year 2008 European forward price of $38/CO2 being factored in to New Zealand electricity pricing. That sounds complex but - here is the easy bit - that would equate to an extra $1.80 a share of value for Trustpower and 54c a share for Infratil. Infratil shares closed at $1.13 yesterday. Henry has a 12 month target of $3.44.
Clear signal
Sky TV is usually viewed as a defensive stock, says CitiGroup's Kar Yue Yeo. And that makes it especially relevant in the current volatile market environment.
Also, the company's annual result last week came in at the high end of expectations at $78 million and the key performance indicators are looking good, Yeo says. It also plans a share buy back that could return up to $60 million to shareholders. So no worries then?
Well, sort of. Yeo still has some serious concerns about the regulatory risk hanging over the stock.
The Culture and Heritage and Economic Development ministries, headed by Helen Clark and Trevor Mallard, have begun a broadcasting review which looks at, among other things, "the availability of premium content such as broadcast sport events".
Yeo has a range of scenarios from a worst case - which would see Australian style legislation to enshrine key sporting events on free to air - to a best case where the Government doesn't intervene at all. That creates a range of share price scenarios from $3.56 to $6.83.
The research is set to be completed at the end of this month, with public consultation from September to November and recommendations to be made to the Cabinet in December.
For now Yeo is retaining a target price of $5.45 buy also maintains his sell recommendation.
Sky TV closed at $5.70.
Singing for the boutique fund suppers
Peter Huljich - who with Don Brash and John Banks launched a boutique investment fund this week - clearly isn't too worried about signs of economic turmoil.
Huljich Wealth Management was launched on Wednesday night at swanky Auckland eatery Clooney, with a five-course dinner hosted by Boh Runga. Dame Malvina Major sang between courses. In short, no expense was spared.
Despite that, no one was shying away from the realities of what's ahead for investors.
In his speech to the guests Brash suggested that the current credit crisis was already rivalling the Asian crisis of 1998 and could yet be on par with the big crash of 1987.
Of course for investors with cash that means the time for bargain hunting. Peter Huljich, who has a strong track record with his own family's investments, clearly sees himself playing in that space.
