KEY POINTS:
While Real Groovy's managing director Chris Hart denied that the emergence of Australian music retailer JB Hi-Fi in New Zealand had been a factor in his business' difficulties, anecdotal evidence gathered on Wednesday after Hart's company was placed in receivership would suggest otherwise.
Mind you, JB Hi-Fi, like
most other retailers is itself facing tough times.
Melbourne-based Goldman Sachs JBWere analyst George Batsakis has trimmed his recommendation on the stock from BUY to HOLD.
Although JB Hi-Fi's recently released first quarter sales and profit were well up on a year ago, Goldman Sachs' team is forecasting "the toughest Christmas trading conditions seen since the early 1990s recession".
That said, Batsakis remains positive about the company's longer term prospects "given superior store format//business model, low cost base, new store roll out as well as growing sales/profits from immature stores and new product categories.
JB HI-Fi' s ASX-listed shares were at A$10.01 in late afternoon trade yesterday.
Vector/Contact
Lines company Vector has decided against proceeding with its proposal to boost directors' pay, with chairman Michael Stiassny, who was up for a $40,000 pay rise to $220,000, saying that given the local and global economic conditions "the directors no longer believe asking shareholders to approve fee increases is appropriate".
An admirably responsible stance indeed and in hopes it might provide some influence on other firms, Stock Takes forwarded Vector's announcement to Contact Energy, which is proposing a 95 per cent hike for its directors.
"Thanks for that," said Contact spokesman Jonathan Hill. "Our resolution will stand, for the reasons set out in the Notice of Meeting and as per the Mercer recommendation."
Mercer is the human resources consultancy Contact engaged to evaluate the proposed rise in fees. Stock Takes contacted Mercer to ask whether it had ever been commissioned to evaluate a proposed increase in directors' remuneration and found it excessive.
Mercer declined to answer that one, wheeling out the old "commercially confidential" line, even though we emphasised again and again we were not looking for specifics.
Meanwhile, Hill reiterated Contact's position that its directors' fees "are well below the market for similar-sized companies (Telecom, Fletchers, for example) and the resolution simply brings those increases back into line with the market".
Contact's majority owner Origin will use its 50.01 per cent voting rights to ensure the increase is approved at next Thursday's annual meeting.
Risk-free at last
"The Government cannot legislate to eliminate risk. And even if we could, we wouldn't, because without it we would have no entrepreneurship, no investment, no innovation and no growth to ignite our transformational ambitions for New Zealand."
So said Commerce Minister Lianne Dalziel in response to Herald columnist Brian Gaynor's open letter to her criticising the lack of investor advocates on the Government's newly established Capital Markets Task Force a couple of months back. She'd made similar comments in the past as finance companies toppled in quick succession.
But then the Government on Sunday did legislate to eliminate risk, or at least used the existing provisions of the Public Finance Act to do so, with its initially fairly indiscriminate deposit guarantee scheme.
What do you say now, minister?
"Under normal circumstances and as a general principle that continues to be our position," Dalziel said this week. "But as the Prime Minister outlined in her speech on Sunday these are not normal times."
True enough, and Stock Takes pleads guilty to the slightly unfair use of hindsight to demonstrate how things have changed.
Business time for RBNZ
It's been an interesting week watching the Reserve Bank, usually a very staid and demure organisation that takes an extremely measured approach to just about everything it does, lift its skirts and scurry to get this deposit guarantee scheme off the ground while making significant on-the-fly adjustments from day to day.
Wednesday's tightening of criteria for non-bank deposit-takers certainly looks as though it was responding to a chorus of dismay that the scheme might see the taxpayer paying to clean up after finance company collapses.
That chorus was only marginally louder than the cries of anguish from finance company investors who've already lost out only to see the Government move to do exactly what they'd hoped, but too late to help them.
Already now having to ready itself for its upcoming role as prudential regulator for the non-bank deposit-taking sector, the new deposit guarantee scheme loads up the RBNZ's plate even higher.
As has been observed elsewhere, the international banking crisis will result in a wave of extra new regulations that may make the response to the Enron and Worldcom issues - Sarbanes Oxley and IFRS - look like a beginner's level Sudoku puzzle.
There's no reason to assume there won't be a similar effect here. That's probably not what an incoming Government with plans to rein in spending on bureaucracy needs.
Two birds, one stone?
The National Party's proposal to direct the New Zealand Superannuation Fund to invest more cash in New Zealand to provide some much needed economic stimulus has reopened an old debate.
Why wouldn't you want to direct more of the fund's cash into New Zealand businesses, infrastructure projects and the like which, by all accounts, could do with the money? On the other hand, this money is intended to help alleviate the huge problem of keeping large numbers of retired New Zealanders in a state of relative comfort in a couple of decades' time.
We're going to need all the money we can get to do this and being overweight in one particular market, even if it's our home one, is not consistent with investment industry best practice.
Can we come up with an artful balance between these two positions which will kill two birds with one stone?
This is what the fund's former chief executive, Paul Costello, told the Business Herald in 2005.
"One of the most valuable aspects of the fund is the clear mandate from the Government to maximise the return over time to meet pension costs. The fund has been set up to run at arm's length from the Government and the legislation provides a high degree of protection from future governments either using the money for other purposes or directing it to invest to meet other objectives (improving transport infrastructure) where the returns might not be commercial.
"This avoids the confusion that can arise in trying to balance the expectation of high investment returns with the expectation that the fund's assets will be used for meeting other strategic objectives. Where these two objectives are blurred, the usual result is that neither is satisfactorily met."
Within a sniff
After significant delays, Pike River Coal is tantalisingly close to producing its first coal. By Monday morning, its 2.3km access tunnel beneath the Paparoa Ranges northeast of Greymouth was just 5m short of its target Brunner coal seam.
"Once the final few metres have been completed, the project's status will change for both practical and accounting purposes to that of an operational coal mine," says McDouall Stuart analyst John Kidd in a research note this week.
Production will be modest initially while access is enabled for the project's heavy mining equipment, which is expected to be up and running by next June and will eventually be capable of producing a million tonnes of coal a year.
As previously noted, delays in constructing the access tunnel have saddled the project with extra costs.
Meanwhile, growing concerns over the global economic outlook have weighed heavily on coal prices over the past three months. As a result Australian coal stocks have fallen by almost 50 per cent and Pike River has also lost ground.
Has the company now missed the boat even before it has produced its first coal?
Kidd doesn't think so. While he says some investors will inevitably look to exit the stock and lock what are some pretty hefty gains since the company's IPO last July, he believes it has further upside yet.
While the gloomy global outlook will limit demand for coal, it will also limit the development of new supplies and the infrastructure to transport coal, particularly on Australia's East Coast, "which acts as a fulcrum for marginal Asia - Pacific coal supply".
Yes, prices are on the way down, but they are coming off high levels, and Pike River is also set to benefit from forex movements.
"Current uncertainties" have led McDouall Stuart to reduce its target price on the stock to $2.35 a share but that's still well north of yesterday's close of $1.29 and Kidd continues to recommend it as a BUY.
