KEY POINTS:
New Zealand's biggest finance company, the ANZ-owned UDC, has been keeping a low profile for some time but has found some reasons to be a little more visible of late.
General manager Malcolm Tillbrook probably preferred to keep things low key while he worked to turn the business
around.
The company's assets and bottom line shrank during 2005 and 2006, years when the overall market was growing by 15 per cent or more annually.
Tillbrook attributed the losses to a botched restructuring of UDC's sales force before his arrival.
However, while many of its smaller rivals are now struggling, all the more so with Capital + Merchant's failure yesterday, UDC is looking much healthier with its September year net profit rebounding by 26 per cent to just under $50 million.
The diversified lender, which is big in plant and equipment and motor vehicle loans, has been tipped as a likely beneficiary of the long anticipated consolidation in the finance company sector, and as it happens, it already has been, although hasn't been making a big song and dance about it.
It announced back in June that it had been appointed the preferred wholesale and retail finance supplier for Ford and Mazda in New Zealand.
What was left out of the announcement was that it had acquired a large chunk of Ford's local finance operation Primus Financial Services, which according to last year's KPMG finance company report was New Zealand's 14th largest finance firm with total assets of $388 million as at December 2005.
Tillbrook yesterday confirmed UDC had taken over Primus's wholesale funding assets, which are about a third of the total.
UDC is also New Zealand's biggest issuer of debenture stock, with almost $2 billion worth, according to McDouall Stuart's recent finance company report.
While McDouall Stuart point out that maturing debentures will exceed repayments of loan principal over the next 12 months by a sizeable amount, Tillbrook points out that UDC's reinvestment rates are running at a healthy 85 per cent.
It also has a very handy $100 million undrawn credit facility from its parent.
Given its Standard & Poor's AA rating, UDC is probably the safest finance company in the country but that's reflected in the relatively low rates it offers on its debentures.
However, Tillbrook says ensuring consistent reinvestment rates is an ongoing priority, "and we're confident that our deposit rates will reflect that".
Chips on the table
Property investment and management company Blue Chip's results for the nine months to September are due out.
The company's Mark Bryers was yesterday standing by his promise that the numbers will show his ASX listed company is in sound health, and it was Blue Chip's detractors who would be wearing the egg. "I'm not going to be looking like a fool."
Blue Chip's shares closed at A34c on the ASX yesterday.
Strong exchange
It's been a busy couple of weeks for market operator New Zealand Exchange and chief executive Mark Weldon.
Highlights include the unveiling of the Fonterra listing proposal, the announcement of a more ambitious bid to grab a share of Australian counterpart ASX's business via the AXE-ECN joint venture and the acquisition of a stake in managed funds services outfit Appello.
This time last year, Weldon, who has avoided taking any credit for the Fonterra proposal, talked about a number of factors, including KiwiSaver and the PIE regime, lining up positively for our capital markets and it looks like things are progressing well.
This week, he and about 40 top business people, government ministers and officials got together in Wellington to talk about the future.
Media were excluded from the forum but Weldon spoke to Stocktakes yesterday about what the forum covered and was obviously heartened that it took place at all.
"Five years ago, this conversation would not have happened, it would not have been on the policy or political agenda and there would not have been a gathering of people from places like Fletcher Building, Infratil, First NZ Capital, Treasury and the MED, it was a wide range of people who intersect on capital markets."
A central topic was the current tax code, its interaction with the capital markets and, ultimately, the tax base.
Weldon said a particular issue was the tax code's implicit bias that New Zealand's biggest businesses were predominantly exporters.
With companies like Farming Systems Uruguay and Fisher & Paykel Appliances moving beyond that simple model, work was required to remove some tax obstacles.
There was also talk about New Zealand's resident withholding tax regime, something overseas companies that invest in Australia, say, don't have to contend with.
Building a broad base
Fletcher Building - which has been on a strong sharemarket run since its annual meeting early this month - has received a vote of confidence from Matthew Henry at Goldman Sachs JBWere. At yesterday's close of $12.22 the stock is almost bang on Henry's discounted cash flow valuation of $12.20.
Henry expresses renewed confidence in the defensive qualities of the stock, highlighting its diversity across a wide variety of sectors and geographies.
A breakdown by sector and region shows that 61 per cent of Fletcher Building's ebit (earnings before interest and tax) still comes from New Zealand. But that breaks down to 32 per cent of ebit from New Zealand residential, 17 per cent from New Zealand non-residential and 12 per cent from New Zealand infrastructure. Australian residential accounts for 13 per cent of ebit, non-residential 9 per cent and another 3 per cent comes from other Australian activities.
Meanwhile non-Australasian operations now generate 7 per cent of ebit - with the US at 3 per cent and Asia at 4 per cent.
"A key driver of Fletcher Building's acquisition policy has been to diversify earnings away from the New Zealand construction cycle," Henry writes.
He retains his hold recommendation on the stock and gives its a 12-month price target of $13.30.
Plot thickens
Masthead's tilt at Abano Healthcare promised to be an intriguing battle, and it continues to live up to expectations.
In the latest exchange Abano yesterday announced to the market that it had incorrectly listed Trevor Janes as an independent director of the company.
Janes is also on the board of Abano's 5.65 per cent shareholder Salvus Strategic Investments, and is also an investment adviser for the Accident Compensation Corporation, another Abano shareholder.
While Salvus has indicated it sees Masthead's $5 a share offer as being on the light side, Abano said Janes maintained he had had nothing to do with Salvus's view on its Abano stake, and was therefore able to participate in the board's deliberations on Masthead's or any other offer, "on the same basis as the other directors".
That's unlikely to please Masthead which welcomed Janes being ruled out as an independent director.
"It was clear to us all along that Mr Janes had a conflict of interest," said Masthead's Mark Stewart.
Meanwhile, acceptance of Masthead's offer has been low, with less than 1 per cent uptake, Abano said yesterday.
Abano chief financial officer Richard Keys said shareholders were not comfortable with the nature of the bid.
"The present level of acceptance is less than 150,000 shares."
Masthead's offer closes on December 10. Abano shares closed up 2c at $4.67.
Facing fury
Corporate governance of the listed property sector came under the spotlight once again this week. An angry mob of investors in the one-time Calan Healthcare, now ING Medical Properties Trust, advanced on the board. The spectre was reminiscent of the scene from Shrek where farmers chased the ogre, carrying flaming torches and pitchforks.
The board looked shocked and uncomfortable - and lacked volume. They had a poor PA system and their many elderly investors complained about indistinct mumblings. One can only hope for more volume at next year's AGM.
These ING meetings are getting like the old Trans Tasman Properties AGMs for a standoff between directors and investors. Good for media. Bad for the sector. Bring on the good prince next time, ING.
