KEY POINTS:
Broadcasting industry sources were bemused yesterday as it emerged that state-owned Television New Zealand has been looking at the radio assets of CanWest MediaWorks New Zealand.
The publicly listed company that owns TV3 and half the country's commercial radio stations is up for grabs as controlling shareholders in
Canada look to sell out of South Pacific assets.
TVNZ yesterday played down comments to the Business Herald from well-placed sources but acknowledged that it employed "an analyst" to look at the assets.
"We decided to look to see if the arrival of such a large media asset held any opportunities for us, but decided it did not," said a TVNZ spokeswoman.
She said TVNZ never got to "first base" and had not sought a copy of the CanWest memorandum. But Business Herald sources insist that TVNZ's interest is more than a passing fancy. TVNZ would never get Commerce Commission approval to buy TV3, but the commission would probably approve TVNZ taking radio assets.
Given TVNZ's low debt, it could easily borrow $150 million-$200 million for CanWest Radio without begging for Government cash. But the nationalisation of half the country's commercial radio stations by a troubled crown company like TVNZ would be verboten, surely. CanWest MediaWorks shares closed up 1c to $2.39.
Taking off
Goldman Sachs JBWere has upgraded its valuation of Auckland Airport to $2.65 a share from $2.36 based on higher landing fees and better returns from its retail operations. Analyst Marcus Curley says Auckland Airport and the airlines are unlikely to reach agreement on landing fees and so AIA "is likely to set politically (government, Commerce Commission and public) acceptable aeronautical charges".
Goldman Sachs says AIA has probably underestimated retail revenue per international passenger by 16 per cent over the next four years.
The brokerage has increased its profit forecast by 5 per cent over the next five years and lifted its short-term rating on the stock to outperform. AIA closed at $2.31
All that glitters
The best performing stock of the year so far this year has been Michael Hill International, which is up nearly 18 per cent.
That gain is mostly because of the company's huge lift in first half earnings guidance to $15.7 million net profit, from $11.7 million last year.
Also helping the stock's gain is the fact that it is so thinly traded, meaning anyone who wants a stake usually has to pay up.
But as Macquarie Equities retail analyst Warren Doak points out, this can play out both ways.
"It's an illiquid stock and so it's prone to quite extreme moves both up and down."
The stock closed unchanged at $8.05 yesterday and is nearing Macquarie's valuation at $8.25.
Meanwhile, James Pascoe's A$70 million ($79.5 million) takeover of Australian jeweller Angus & Coote this week is unlikely to change much in the Australian jewellery market, where Michael Hill earns the bulk of its revenue.
James Pascoe, owned by Kiwis David and Anne Norman, will add the 300 Angus & Coote stores to the 145 Prouds stores it has in Australia, a move that won't increase competitive pressure in the market.
Still doing all white
Any weakness in the Fisher & Paykel Appliances share price - such as that caused by yesterday's profit warning - should be seen as a buying opportunity, says Forsyth Barr. The stock fell as much as 25c to $3.55 before recovering slightly to $3.60.
Analyst Greg Main said investors had been predicting some weakness in the US market - because of lower housing starts and weaker consumer spending - but the forecast profit drop was larger than expected.
Nonetheless, FPA has fared marginally better in the US market than the whiteware industry as a whole.
And Main expects the company's US earnings to pick up in the second half of this calendar year. "In the past when US housing starts have slowed down, when the recovery comes it's normally very strong."
Forsyth Barr is likely to cut its current valuation on FPA from $4.25 to between $4 and $4.10, but will retain its accumulate on the stock, which after yesterday's drop has a gross dividend yield of around 7.5 per cent.
"It's a bit of a longer-term hold if you're going into this stock, but we believe there's still value there," says Main.
'Tis the season
A few results have dribbled in this week, but the earnings season really gets under way next week with a couple of top-10 companies reporting. First NZ Capital expects a rare profit drop from market star Fletcher Building, forecasting first-half net profit to fall 2 per cent to $188 million.
But the brokerage is unconcerned, saying the result is due to a $10 million insurance charge, and retaining its target prices for the stock at $12. "A continuing theme of greater resilience in its earnings profile through geographical and market sector diversification and internal investments is likely to be emphasised." Fletcher Building shares closed at $11.47 yesterday, down slightly from its all-time high of $11.55, first reached last week.
First NZ expects better earnings to let Sky TV pay a higher interim dividend - 5.5c per share compared with 4c last year. Net profit is forecast to rise 34 per cent to just under $40 million on the back of continued subscriber growth and small increases in average revenue per user. But with Sky TV trading near First NZ's price target of $6.25, much of that upside already appears to be priced in. The stock closed at $6.37 yesterday.
Tech wreck
One fact repeatedly pointed out since Theresa Gattung's resignation last week as Telecom chief executive is that the company's share price has dropped by half during her tenure.
This is indeed true: the highest share price during Gattung's time was $9.55 in April 2000, just below the all-time high of $9.80 the year before. Closing at $4.88 yesterday, Telecom shares are nearly half that.
But to blame the drop entirely on Gattung is unfair. She started at the height of the tech boom, when prices of anything to do with the internet were rising for what in hindsight turned out to be no good reason. Gattung's tenure could be criticised on several fronts, but the tech wreck isn't one of them.
River float
Small Wellington brokerage McDouall Stuart is looking for another broker to join it in the float of the Pike River coal mine, with the prospectus said to be due this month. It needs another bank with a strong retail client base to help it get the stock out to the several hundred shareholders that are required under NZX listing rules. Pike River is majority-owned by NZ Oil & Gas, which closed up 2c at 91c yesterday.
Opus' day
The race is on for the mandate for the initial public offering of engineering company Opus - revealed in the Business Herald last month. It is understood there are four investment banks seeking the mandate. First NZ Capital, UBS, Macquarie and ABN AMRO pitched last week and a decision is expected soon. It seems everyone has a different view on who's left in the running, but apparently none of the four has been ruled out.
Opus - originally New Zealand's Ministry of Works - made earnings before interest, tax, depreciation and amortisation of around $20 million last year and is forecast to make around $24 million in the current year.
Putting that on a multiple of 7 to 8 times earnings, the company will have a market cap of about $170 to $190 million, but only $40 million to $50 million of that is expected in the IPO scheduled for this year.
Contact sport
Also performing strongly this year is Contact Energy, which is up over 5 per cent, despite falling 11c to $8.75 yesterday.
Common wisdom is that the merger between Australia's AGL and Contact owner Origin Energy will prompt some corporate activity in Contact.
The first scenario is that the merged entity will sell off its 51 per cent stake in Contact to fund other acquisitions in Australia. The second scenario is that AGL and Origin will make another attempt to take over Contact.
The first scenario is unlikely - why would Origin give up something it was so keen to take over last year?
While the second scenario is possible, two previous attempts to take over Contact have failed and it's likely the minorities would want a hefty price for their shares.
A third scenario is that the merged entity could extract cash from the Contact balance sheet, with the possible result that special dividends would be paid to all shareholders.