Stock takes: Key remains a market mover and shaker

John Key's comments boosted South Canterbury bonds. File photo / Dean Purcell

Prime Minister John Key's indication that his Government will probably extend the retail deposit guarantee is good news for finance companies and their investors.

Such good news, that South Canterbury Finance's SCF020 bonds, which mature in June 2011, raced up in price early yesterday from Wednesday's 18 per cent yield to 12.5 per cent.

South Canterbury chief executive Lachie McLeod had told Stock Takes that it was uncertainty over the guarantee that was driving the high yield on the bonds. South Canterbury's bonds that mature within the term of the existing guarantee were trading at far more healthy prices at the time.

Clearly, Key's comments to a business audience in Melbourne were price sensitive and you have to ask whether this was the appropriate forum to disclose this information.

Remember David Cunliffe, who was Communications Minister at the time, getting into NZX's bad books three years ago for his comments to Bloomberg about Telecom's dividend policy?

NZX referred that to the Securities Commission for investigation after determining they were "material, and price-sensitive, but were not released to the whole market".

Stock Takes wonders whether Mark Weldon's NZX will, consistent with its stance over Cunliffe, refer this matter to the commission. It had yet to get back to us by deadline yesterday.

In the past the commission has criticised former Prime Minister Helen Clark for her September 2001 advice to shareholders in Air New Zealand to hang on to them just before the Government's bailout of the stricken airline.

Spokesman Roger Marwick said the commission, which having investigated Cunliffe's comment recommended that anyone with sensitive information, such as ministers, "exercise caution when commenting on matters that might affect the price of listed securities", said it was not concerned by Key's comments as they only amounted to "an indication that it will be considered by Cabinet".

"There's been no decision," Marwick said.

Key has clearly indicated a bias in terms of what that decision will be which in itself has affected the price of listed securities.

Given his experience in the capital markets Stock Takes can only assume Key was cognisant of the likely effect of his comment.

HALF EMPTY, HALF FULL

As the Business Herald's Tamysn Parker reported on Wednesday, analysts are far from unanimous on what to make of Fisher & Paykel Appliances' market update this week.

First NZ Capital's Greg Main downgraded the stock from buy to neutral mainly on the lack of dividend payout. He also pointed out risks around the company's North American business and problems transferring manufacturing capacity from Mexico to Thailand.

Taking a dimmer view, UBS downgraded the company from neutral to sell.

On the other hand Macquarie and Forsyth Barr both upgraded the company to outperform with Macquarie's Brooke Bone citing the potential of the China market as well as the resolution of the company's financial headaches.

Turning up a little bit later, Morningstar's analysis is that F&P's guidance was "disappointing".

"We were expecting a lift in profit estimates on the back of a falling US dollar.

"Effectively FPA has downgraded earnings by approximately $35 million," said Morningstar based on the assumption of an average US61.5c exchange rate over the first four months of the current financial year.

It downgraded the stock to "hold" from "accumulate" given the disappointing guidance and management uncertainty created by chief executive John Bongard's departure.

Fisher & Paykel Appliances' shares closed down 1c at 79c yesterday.

HARD-HITTING TYSON

Could ING crusader Craig Tyson be the new Simon Botherway or Paul Glass? This was the question being asked around Auckland lately after his strong stance as an active professional fund manager, unafraid to speak his mind.

Tyson, investment manager of ING NZ, came out swinging against the management board of Kiwi Income Property Trust at the annual meeting and its blustering chairman Sean Wareing.

Tyson reckoned Kiwi Income had failed to read the market and flog buildings when the sun was shining and repay loans when the clouds scuttled in.

One market pundit, however, was scoffing with derision.

"It's a bit rich coming from ING considering its record lately," he said referring to the two frozen ING funds.

Nevertheless, Stock Takes looks forward to hearing more from him. He turns on a good show at AGMs: eloquent, well-informed and possessing that knack of asking the hard questions in a professional, polite yet somewhat hard-hitting manner. Not since that double act from the Brook boys have we seen performances like this. Keep it coming, Craig.

THINGS HAVE CHANGED

Stock Takes hears not everybody at JBWere is happy with life under the ownership of National Australia Bank.

The word is a couple of advisers have jumped ship - to Macquarie - which as you'll recall was at one point tipped as a likely buyer of the business off Goldman Sachs.

What's more, we hear other JBWere staffers are also considering moving.

The situation has some parallels with Australia where a number of JBWere brokers have left, following NAB's acquisition, in one case to form a new firm.

Apparently in New Zealand and Australia JBWere advisers are not enjoying the additional disclosure and compliance requirements that go with the bank's ownership - essentially it means a lot more paperwork.

ONWARDS, UPWARDS

Contact Energy's full year result, while well down on last year, was slightly ahead of Morningstar analysts' estimates and management guidance.

While Contact's management didn't provide any guidance, possibly due to "macroeconomic and market uncertainties", Morningstar reckons the worst may be behind the company now but the best may lie some considerable time in the future.

"On balance we think earnings will pick up from very depressed levels over the next few years, but not return to peak levels experienced in full year 2006 and full year 2007 any time soon."

Furthermore, following the board pay-rise debacle, the company had stemmed customer losses "and might see some gain in electricity customers this year through various promotional and marketing activities".

While Morningstar doesn't see Contact as a growth stock, its "fairly reliable and stable" 4.4 per cent dividend yield means it will suit "income oriented investors with a modest risk appetite".

Contact shares, which peaked at $9.70 in May last year on the prospect of a BG takeover of majority owner Origin Energy, closed down 6c at $6.19 yesterday.

ANOTHER RAISING?

Goodman Group's selldown of its stake in New Zealand listed Goodman Property Trust (GMT) this week wasn't too much of a surprise in one sense. Goodman Group had been strapped for cash for some time and was tipped to be considering a sale of its GMT stake firing speculation that such a hefty transaction would inevitably drive the trust's unit price lower.

As it happens, Goodman Group's most recent capital raising across the Tasman appears to have driven the wolf from the door.

So why the sale, albeit a more modest one which reduces its stake from 28 per cent to 17 per cent, at this point?

One of Stock Takes' sources believes the Macquarie-run placement to institutions presages a capital raising for GMT.

The selldown helps clear the way for a capital raising which most of its contemporaries have already done.

Up until now the lack of cash of its cornerstone unit holder may well have been an obstacle.

Now, Goodman Group has some cash and, with a smaller holding, doesn't have to front up with as much anyway.

Based on experience, should GMT successfully raise more capital, that will take the pressure off its units which, closing yesterday 2c higher at 99c, are still down on their 12 month high of $1.22.

"Watch this space", says our source.