KEY POINTS:
Rodney Deacon at Goldman Sachs JBWere has taken a timely look at Fisher & Paykel Appliances' finance division.
With finance companies folding like All Black locks in the past few weeks it seems reasonable to assume that the whole sector must be feeling some of the fallout effect.
His conclusion - lest anyone rush to withdraw their cash before they reach the end of this article - is that even allowing for a slowdown in re-investment rates, funding for the company's loan book looks secure.
There is a possibility that funding costs could increase in 2008 if additional borrowing is needed.
The finance group already has approval to borrow and banking facilities are under-utilised, Deacon says.
In a worst-case scenario F&P Appliances might have to temporarily draw down more of its debt facility to fund the finance subsidiary.
"But this would merely use what we believe is otherwise a fairly lazy balance sheet," he says.
With little risk of failure from lack of funding, Deacon leaves his earnings estimates and valuation unchanged.
However, he does note that every 50 basis point increase in the cost of funding the finance loan book would translate to an 8 cents per share or 2 per cent decrease in his 12-month price target.
That currently sits at $4.52. F&P Appliances closed up 1c at $3.58 a share yesterday.
So, despite the company still being hampered by higher raw material cost, weaker activity in New Zealand and US housing markets and the high value of the dollar, some careful cost management, the relocation of plants offshore and the launch of new products should enable the company to grow earnings, Deacon says.
He retains a buy recommendation on the stock.
Cleaning up
People generally don't put togs on to take a shower, so the link between these two looks a bit spurious. But good on Methven for getting into the spirit of Fashion Week by teaming up with Rachel Hunter to show off her new bikini range and its fancy new "beauty" shower in one well co-ordinated event last night.
No doubt they managed to spice up the evening for a few brokers and analysts who might otherwise have not found time to dedicate to the star of the New Zealand plumbing industry.
The beauty shower that Methven is showing off is aimed at the US market where the company is still just testing the waters (so to speak) and is trying to carve itself a premium niche. But after spending $60 million to buy a big slice of the British shower and tap fittings market last month, investors are no doubt hoping Methven will be sexy enough on its own. Methven shares closed up 6c at $2.58 yesterday.
Spring fever
Meanwhile, there was a sniff of excitement on the F&P Appliances share register on Wednesday. Melbourne-based fund manager IOOF appeared suddenly with a 9.9 per cent stake. A hint of takeover action, perhaps. Well, no.
While that may have looked like yet another aggressive move on a top New Zealand company by an Australian predator, IOOF's Bob Linehan explained the holding was one belonging to long-time Fisher & Paykel investor Perennial Investments Partners.
IOOF has a controlling stake in Perennial and Wednesday's substantial shareholder notice referring to Perennial's stake was a case of dotting the i's and crossing the t's.
Milk battle
With the might of a Fairfax media empire swinging in behind its product, you'd think A2 Corporation shares would have boomed this week. But, no - sadly for investors - it didn't happen.
The Dominion Post and Independent have led the charge on the campaign against ordinary milk, highlighting the diabetes-related health concerns of a couple of scientists and advocating a move to the A2 variety championed by the NZAX-listed minnow.
An anti-milk campaign in New Zealand right now has as much chance of gaining traction as the anti-oil lobby in Texas or Finns against mobile phones.
It's no surprise that Fonterra and the Feds aren't having a bar of it.
The scientists and management team at A2 are good people who believe in a cause and may find a profitable niche in big consumer markets like the US, Asia and Europe.
But let's hope whatever marketing tool they use in the US delivers more punch than the press coverage they've had this week.
A2 Corp shares were trading yesterday at 27c, down 3c on their opening at the start of the week.
Abano action
New Zealand shareholders are regularly chastised by business commentators for not hanging tough (like their Aussie counterparts) when it comes to takeover offers.
But the tough stance being taken by Rotorua Energy Charitable Trust (RECT) on the Abano Healthcare bid is causing some market observers to question just what they are expecting from would-be acquirer Masthead. RECT holds a 10.5 per cent stake.
"The current offer doesn't make us want to sell," Stuart Burns of RECT told the Business Herald last week. "We see a lot more value in Abano still to come and I suppose that's what Masthead is looking at too."
Market records show RECT was happy to sell 122,055 Abano shares at $2.90 each in February 2007 and 250,000 shares at an average price of $2.72 per share between October 16, 2006 and February 1, 2007. It also sold 416,457 shares at $1.55 per share to Masthead on October 16, 2006. So what's happened to Abano in the past year to make RECT turn its nose up at $3.85 now?
Well, to be fair, the opportunity to extract maximum value from a keen buyer is probably what has happened.
Abano shares closed down 4c at $3.76 yesterday.
The Warehouse wrap
Woolworths and Foodstuffs must have been smiling last week as The Warehouse put its grocery store expansion on hold. Announcing its annual result chief executive Ian Morrice said that the three existing stores aren't doing the business in their current format.
Morrice said he still held out hope for the format and could continue the expansion a year from now. But there must also be a chance that the plug will be pulled. That's good news for the upcoming case against the Commerce Commission.
The Commerce Commission has argued that neither grocery chain should be allowed to buy The Warehouse as it will lessen competition in the grocery sector.
It has based its case on the hypothetical potential for The Warehouse to be a third grocery player - effectively detaching its argument from the reality of competition as it stands now.
The first case against the commission - lead by Woolworths - is scheduled to get under way on October 23 in the High Court at Auckland. Meanwhile, analysts have had a chance to digest the result and reassess their value of the stock.
Warren Doak at Macquarie is typical of the two-tier view. He values the stock at $4.97 but has a 12-month price target of $7.50, underpinned by a likely takeover. Citigroup and ABN Amro carry target prices of $6.80 and $6.82 respectively.
Carolyn Holmes at ABN Amro says: "Assuming [Stephen] Tindall is a seller and is looking to maximise shareholder value, the corporate machinations are far from over. The risk is that Tindall is not a seller and attempts to take The Warehouse private at a level close to the current price, at which we would not sell."
The shares closed steady at $6.05 yesterday.
New Stock Taker
This is my final week as editor of the Stock Takes column as I move into the role of business editor. It has been a lot of fun to write. The Business Herald's senior market writer, Adam Bennett, will take over from next week. Readers can look forward to the continuation of this popular format and the influence of Adam's own wry sense of humour and astute observation of the local markets.
