Stock Takes: Tower falls

This week's aftershocks hurt Tower's share price. Photo / Mark Mitchell

Insurance company Tower Group has seen its share price drop this week following the aftershocks in Christchurch but the company says it is well within its reinsurance limits.

Tower has a policy of having reinsurance cover for two major future events. The quakes in Christchurch last September and in February this year both constituted major events so the company took on more cover in March to maintain its reinsurance position.

"As a company, we always carry reinsurance for two events in front of us - that is just our policy - so we have had two events now and we are now trying to figure out how big this earthquake was this week and whether that may create another event, we are just not sure yet and it's too early to say," Tower's managing director Rob Flannagan told Stock Takes.

Tower, as a matter of policy, does not disclose its reinsurance limits.

"We have an obligation under Stock Exchange rules that if we are going to hit our cap or go through our cap, we have to advise the market immediately, but we are nowhere near that position," he said.

"If there is a concern about our financial stability or financial provisioning or anything like that, we have obligations to advise the market and we are not in that position.

"It's a question of the quantum and quite frankly it is very early days and we are just trying to work it out.

"It just takes time, unfortunately."

Tower shares closed yesterday 1c lower at $1.60, down from the 52-week peak last December of $2.09.

POWER PLAY

There must have been a bit of push and shove during the book-building process organised to take care of the small parcel of shares left over from Contact Energy's $351 million rights issue because Contact's biggest shareholder - Origin Energy - was prepared to pay a big premium to get hold of the extra stock.

Origin almost scooped the pool of the bookbuild's shares - taking 3.3 million of the 3.8 million shares made available - taking its holding to 52.6 per cent from 51.4 per cent.

Origin paid $5.05 a share for its Contact shares under the pro rata rights issue, but was prepared to pay 80c per share more for the stock that was left over. One theory has it that Origin's renewed interest is not purely run-of-the-mill.

The aggressive play for more shares in the stock build may well be a precursor for a bigger play later in the year, when the Government's plan to partially privatise some state generating assets starts to crystallise.

Origin, which bought its half share in Contact in 2004, is not a great fan of partial ownership, and taking full control of Contact would make sense for the company, tax-wise.

Origin attempted to take full control in 2006 but failed to garner sufficient support from shareholders.

Given Contact's less-than-stellar performance over recent years, and the likely opportunity for investors to become part of a New Zealand-controlled utility later this year, Contact's shareholders may well be less dismissive this time around.

TICK FOR HEARTLAND

Ratings agency Standard and Poor's has ticked Heartland's plan to buy PGG Wrightson Finance. S&P said it had its 'BB/B' issuer credit ratings PGG Wrightson Finance on "CreditWatch" with positive implications.

The CreditWatch action reflects the potential equalisation of PGG Wrightson Finance's ratings with those of Heartland's. In S&P's opinion, Heartland's overall business diversity will benefit from this acquisition, and the business and distribution arrangement with PGG Wrightson would provide an established platform for Heartland to grow its rural sector business. Shares in Heartland closed steady at 74c yesterday.

SHARES ARE BACK

About four in 10 global fund managers polled in HSBC's latest Fund Managers' Survey continue to hold an overweight view towards equities in the second quarter of 2011, while another 44 per cent shifted their views to neutral.

All fund managers were overweight towards equities in the first quarter of 2011, the bank said. On the other hand, 13 per cent of respondents turned bullish towards bonds and towards cash in the second quarter when no fund manager held overweight views towards these two asset classes last quarter. Glen Tonks, head of wealth at HSBC New Zealand, said while fund managers planned to diversify exposure into bonds and cash, 44 per cent remained bullish towards equities.

HSBC remains cautiously optimistic on "risky" assets. Liquidity also remains a positive factor for equity markets, as central bank rates remain low in developed markets. "We have seen NZ investors this year increasing exposure to structural growth emerging markets, with the 'BRIC' markets and Asia [excluding] Japan receiving good inflows," he said.