KEY POINTS:
NZX looks like it has done very nicely thanks very much from the sale of part of its TZ1 carbon credit trading business.
While the actual emissions trading side of things, in New Zealand at least, has been somewhat stranded by the new Government's decision not to go
down that route, TZ1 had established an international registry operation which has been actively recording generation, purchase and retirement of "voluntary" or non Kyoto carbon credits.
This has caught the eye of privately owned UK company Markit which is a specialist provider of data, valuations and processing services for the "over the counter" markets where various securities are traded outside of exchanges.
NZX and Markit said yesterday they had agreed a deal in which Markit will buy TZ1 registry in exchange for Markit shares.
TZ1 chief executive Mark Franklin said the Markit shares NZX will receive have been independently valued at US$35.91 million. But wait, there's more ... NZX and Markit will share equally TZ1 Registry's net profits for the next three years with any losses being carried by Markit.
Should the business fail to perform to expectations, NZX will have to return shares to Markit so as to leave it with a residual value of US$19.95 million but if it exceeds expectations, NZX is up for a further payment of up to US$17 million.
Franklin was somewhat coy on how much NZX has spent developing the business but Stock Takes understands it is a fraction of the purchase price. The transaction is still subject to due dilligence and board approval, but it looks like a fantastic deal. The market saw it that way too yesterday, sending NZX shares 62c higher to $5.45.
NICE AS PIE
Plummeting interest rates might be good news for home buyers and other borrowers, but are less so for savers and investors.
If you have term investments of more than six months duration maturing at present, your cash will go from earning 8 or 9 per cent per annum to less than half that.
No surprise then that those stocks which offer decent dividend yields are being increasingly sought out at present and it's not too hard to find those with yields in excess of 9 or 10 per cent which look pretty good in this environment.
But as Hamilton, Hindin, Greene broker James Smalley points out, there are pitfalls. Among these is the potential for dividend payouts to fall as company earnings are affected by the economic downturn. Furthermore any such fall is likely to affect the share price, possibly wiping out any gains.
Smalley reckons some of the listed property funds, those that have PIE status in particular, look pretty good.
"They're extremely tax effective."
Goodman Property Trust, for example, is paying a 10c per unit distribution, but given it has already paid tax, at its current unit price of 97c for an investor with a maximum 33c in the dollar tax rate, that effectively works out to a gross yield of something like 15 per cent.
On the flip side, investors should look at trusts' properties, tenants, debt levels and when that debt rolls over before leaping into them. Virtually all of them have taken big hits to their unit prices during the bear market, and investors need to make a call whether they believe prices now reflect the value of trusts' portfolios.
Nevertheless, Smalley reckons the sector has been somewhat overlooked during the market meltdown. He says some of Hamilton Hindin Greene's higher net worth clients are so pleased with the returns on offer in the sector, they can scarcely believe the PIE regime came in under a Labour Government.
DIVVY RASCALS
Outside of the property PIEs there a number of companies that are, or have until recently been, regarded as good yield plays but current conditions are forcing investors to re-evaluate their status.
Fletcher Building, for example, has been seen in the past as having a decent dividend. At present its yield is 13 per cent. But Wednesday's announcement from Australian rival Boral that it was slashing its profit guidance by up to 40 per cent on concerns about the US housing market, doesn't bode well for Fletchers, which is also significantly exposed to the US. Fletcher Building closed 4c higher at $5.52 yesterday.
SkyCity's yield is over 10 per cent, but it remains to be seen how counter-cyclical its earnings are. December data on pub and club gaming machines suggests that the pokies are not seen by punters as such a good recession-time leisure activity.
There's some hefty-looking yields on offer amongst the retailers, with Hallenstein Glassons at 18 per cent and Briscoe Group 16 per cent, but you'd have to wonder how sustainable those are given the vulnerability of the sector.
SkyCity closed 1c higher at $3.02 yesterday, while Hallensteins was up 2c at $2.20 and Briscoe was up 1c at 75c.
DNZ GOES UNLISTED
Property investment company DNZ Property Group, which used to be Dominion New Zealand, has confirmed plans to list shares in its funds on the Unlisted market in early March.
DNZ used to be largely owned by Money Managers founder Doug Somers-Edgar, although he sold out last year, with octogenarian Timaru tycoon Allan Hubbard buying up some of his shares to take his stake in the company to 50 per cent.
The company manages two funds that between them have a portfolio of office, industrial and retail properties worth in excess of $900 million.
Stock Takes couldn't help but wonder why it had chosen the Unlisted market, where the disclosure and regulatory requirements are less rigorous than those of the NZX.
"Unlisted achieves DNZ Property Fund investors' goals of providing an arm's length and transparent facility for the trading of DNZ Property Fund shares at minimal cost," DNZ marketing manager Simon Curtis told us.
"At this time we see little benefit in the cost and compliance hurdles that a listing on the NZX would entail."
Curtis says the idea is to "provide a facility for existing shareholders in DNZ Property Fund to trade their shares".
DNZ or its various funds used to be one of the investments Somers Edgar's Money Managers put client funds into.
Meanwhile the trustee of Somers-Edgar's Orange Finance, which ceased making payments to investors late last year, says he is waiting on a Korda Mentha report on a management plan to address the company's problems, which include numerous breaches of its trust deed.
CRISIS MANAGEMENT
It looks as though the Reserve Bank's moves to ensure the economy will not grind to an imminent halt because our big banks can't get enough cash to fund their lending operations are working pretty well.
Although none of the banks have so far availed themselves of the Government's wholesale funding guarantee scheme, they have been helping themselves to Reserve Bank cash via its Term Auction Facility which takes place each Wednesday morning.
To date, the banks have accessed $6.7 billion via the TAF since its inception in November. On the other side of the RBNZ's ledger, it has issued $5.2 billion in RBNZ Bills over the same period. In other words
the cash flow is not all one-way traffic and the RBNZ has not been forced to run its printing presses hard to meet demand for the folding stuff.
Meanwhile, talking to media after he slashed the OCR by 150 pips to 3.5 per cent yesterday, RBNZ Governor Alan Bollard said he expected the banks would make use of the wholesale guarantee within the next couple of months to secure some longer-term offshore funding. Treasury's move this week to cut the fees on the guarantee will make this a more attractive proposition for them.
While international financial markets are yet to begin functioning properly again, its reassuring to see the RBNZ's response is largely taking the strain.
TIME TO OWN UP
With the reporting season just around the corner, we are almost past "Confession Season" when those who will be reporting lower profits than previously anticipated let the market know that.
Among those that have fessed up to weaker results are Contact, which last week warned that its underlying full-year net profit would fall by up to 23 per cent, PGG Wrightson, which downgraded its forecast back in December, and Michael Hill International, which owned up early this month.
All in all though, as one fund manager pointed out, the roll call of companies that have owned up to falling profits has been relatively short, which has to be of some comfort to investors given the current climate. Here's hoping there's no nasty surprises at result time.
