KEY POINTS:
The last session or two of trading on the NZX has provided welcome respite from the negative sentiment that dragged the benchmark index below November's 4-year lows.
Less-than-dazzling results and grim news from Fisher & Paykel Appliances, Nuplex and PGG Wrightson were drivers, as was overseas despondency.
What
may have helped turn things around somewhat in recent days was this week's relatively solid showing from Pumpkin Patch, a company picked by some as likely to be dragged down by its debt burden.
It probably surprised a few people by reducing debt levels, and while earnings and net profit were down, they appeared to be holding up well given the environment. The US market has been tough for the company and one rumour had it that Pumpkin Patch was taking the unusual step of air-freighting excess stock out of that market. Its shares were down 1c at $1.02 yesterday.
The market took heart yesterday when PGG Wrightson allayed fears about the company's and major shareholder Rural Portfolio Investments' debt positions. Despite a $32.8 million first-half loss, PGG Wrightson ended 7c higher at 79c.
UNHEALTHY PIES
As Stock Takes pointed out a few weeks back, some of our listed real estate trusts, particularly those that structured as PIEs or portfolio investment entities, are offering very respectable tax paid returns given their current pricing.
A month ago Goodman Property Trust units were trading just shy of a dollar each and with their dividend of 10c, that translated to a gross yield of around 15 per cent for an investor with a top tax rate of 33 per cent. Since then it has come off further, closing at 85c yesterday.
Kiwi Income Property Trust has also lost ground during February, although not so much as Goodman.
A report from Forsyth Barr analysts Jeremy Simpson and Matthew Leach asked whether the returns from the sector were too good to be true and identified risks to current level of dividend payouts.
They highlighted "considerable uncertainties" about how bad property values, vacancies and rental levels would get during the next one to two years as well as the sustainability of current payout rates given rising costs including interest and tax. That uncertainty is likely contributing to price decreases but then the contagion effect from their generally more highly geared Australian counterparts could be a factor too.
Take Goodman's Australian parent, GPT Group for example. Yesterday it closed at A50c. A year ago it was trading at A$4.05.
One market commentator reckons Australian investors and institutions, who own large stakes in our listed real estate trusts, mindful of the carnage in their home market are probably selling out of their New Zealand investments.
COTTONING ON
Sir Ron Brierley's Guinness Peat Group lieutenants Gary Weiss and Tony Gibbs are in London this week for a board meeting and it's a given Coats Group will be high up on the agenda.
Apart from the sheer size of GPG's investment in the threadmaker, the news out of crucial Asian garment markets keeps getting worse.
According to official estimates, China's textile and garment exports grew less than 5 per cent last year and are expected to decrease by 5 to 10 per cent this year. Things are so bad the government has come up with a stimulus package for the sector. Reports out of India are similarly glum.
Although they've bounced back in the last day or two, closing 4c higher at 69c yesterday, GPG shares have been plumbing fresh lows for weeks, sliding as low as 64c earlier this week.
Even in much better times, GPG shares traded at a discount to net asset backing. Given the levels of cash the company is sitting on, some investors would like to see some kind of capital management initiative such as a share buy-back. But others point to the risk that the cash may be required to shore up Coats or one or two other GPG investments.
BARGAIN HUNTING
At least one investor has seen opportunity in the drop of Fisher & Paykel Appliances' share price.
Australian fund manager Orbis Investment Management this week upped its stake in the debt-troubled whiteware maker from 7.93 per cent to 8.96 per cent. Portfolio manager Simon Marais said he saw the price fall as a good opportunity.
"I think Fisher&Paykel as an investment is a good company. It has just gone through an incredibly trying time. We think that is the attraction of it."
He believed news of a likely capital raising and the search for a cornerstone investor had been priced into the shares by the market already.
"Even if they don't raise capital we believe they will survive," he said. Marais said he had been investing in the company for around a year.
"What we really ideally look for is an inherently solid company which has fallen on tough times."
F&P Appliances' share price has halved to 50c since it made a profit warning on Monday last week and said it was looking for ways to improve its ballooning short-term debt.
HAMMERTIME NO MORE
Despite the big wodge of cash its management company HRL Morrison was given to invest on behalf of former Finance Minister Michael Cullen's eponymous super fund, the Labour Government did little to endear itself to Infratil last year.
Cullen himself blew the Canadian bid for Auckland Airport out of the sky shortly before touchdown. Infratil had planned to sell its 3.3 per cent stake into the $3.65 offer but the shares are worth a hell of a lot less than it paid for them now and that decline will likely find its way onto Infratil's bottom line.
Also in a bid to discourage the Canadians, the Government sicced the Commerce Commission on to all airport operators, giving it three years to come up with guidelines that would effectively determine the price of airport services.
On top of all that, a last minute addition courtesy of the Greens saw the thrust of the Public Transport Management Act swing against existing bus company operators, changing the regulatory environment under which Infratil had been investing in the NZ Bus business it bought in 2005.
The Act gives regional authorities total discretion over all services, reducing incumbent bus operators' property rights over existing routes.
In other words, Infratil "got totally hammered" chief executive Marko Bogoieveski said this week at the company's investor day in Wellington.
On the bright side, Bogoieveski indicated Infratil was finding the new National Government a more receptive.
Infratil's Tim Brown told Stock Takes yesterday his company was in "a very conservative mode" with respect to managing its capital at present. In spite of the credit crisis it is in a relatively comfortable debt position for the next few years and is focused more on preserving opportunities to invest rather than aggressively pursuing them.
Infratil shares closed steady yesterday at $1.63.
GOOD CHARACTER
Debenture investors in Mark Hotchin and Eric Watson's Hanover and United Finance who have suffered a rather severe haircut, probably found it difficult to swallow the fact that the pair's FAI Finance was granted a taxpayer-funded government retail deposit guarantee the other day. Progressive Party leader Jim Anderton certainly did.
FAI, a consumer finance firm with $18.5 million in debenture funding according to its June 2008 prospectus, is wholly owned by Hanover Finance, itself ultimately controlled by the duo.
"The absolutely top policy guidelines specified by Treasury for considering a Crown guarantee are 'the maintenance of public confidence in New Zealand's financial system; and maintaining the confidence of general public depositors in New Zealand financial institutions'. It is not clear how a guarantee for Hanover companies fits that guideline," Anderton said.
Anderton draws attention to the fact that one of the factors Treasury takes into account when considering applications is whether the individuals in control of the entity in question are of "good character". Obviously it has deemed that Hotchin and Watson are.
