Stock takes: Fast-food company loses weight

Burger Fuel lost 15c, or 33 per cent, on Wednesday to close at 30c. Photo / NZ Herald

It's time to take a look in on one of Stock Takes' staple small caps, the NZAX-listed Burger Fuel.

The stock caught our eye the other day when it featured as top of the NZX's "Biggest Decliners" table. It lost 15c or 33 per cent on Wednesday to close at 30c.

There didn't appear to be any particular reason for the fall. The trade that did the damage was only 5000 shares and was the first one in a couple of weeks. A liquid stock this is not.

Stock Takes is not sure whether any media covered its first half result in December, in which it reported a net loss of $296,000 as revenue rose 19 per cent to $4.19 million.

The roll-out of new stores has been curbed somewhat by the recession, perhaps nowhere more so than in Dubai where its first store was originally to have opened by the end of 2008. It still hasn't. But there is talk of a new store in Queenstown soon, Stock Takes hears.

We may have had some fun at Burger Fuel's expense in the past but even with the steep fall on what is admittedly negligible turnover, at 30c the company's shares are not at their lows.

While trading at a steep discount to their issue price of $1, they have done so for a while without collapsing entirely. We wouldn't write them off just yet.

DEBT RECKONING

While the activity on the sharemarket has yet to get out of first gear this year, debt issuance by corporates has been fairly heavy of late.

Recent offerings include those from Meridian Energy and Mighty River Power. Issues from Fonterra, Transpower, The Warehouse and others are imminent.

James Smalley for Hamilton Hindin Greene reckons the treasury departments of these and other companies have probably decided now is the time to lock in debt funding at relatively low rates before the expected RBNZ tightening later this year.

However, Smalley says the prospect of a rising OCR means investors should consider keeping their powder dry and waiting for higher rates.

That appears consistent with advice from Chris Lee Sharebroking to investors who have Fletcher Building capital notes maturing next month. Fletcher Building is offering 7.75 per cent for investors who choose to roll these over.

"This interest rate is not acceptable in our view."

Smalley also believes there will be rewards for investors who wait for the current retail funding guarantee to end in October and the extended guarantee to kick in for those firms who make the grade.

He reasons there will be a lot of finance firms with "a massive brick wall in their funding book".

"For a lot of them, one would almost think their survival is going to depend on getting a lot of that money to roll over."

Even those that gain coverage under the extended guarantee may well be offering extremely attractive rates to secure cash.

"For investors, that could be a very happy time; you'll be able to get good rates essentially risk-free under the guarantee.

"Why lock yourself into something now?"

BERNARD IS NO SAINT

It appears Stock Takes was on the right track last week in pointing towards the Christchurch family the Whimps as we tried to discover who was behind Marchmont Securities' low-ball, and apparently deftly targeted, offer for Strategic Finance debentures.

We understand the cheque sent to Strategic to cover the fee for releasing its register to Marchmont bears the name B. Whimp and Strategic therefore suspects Bernard Whimp.

Whimp is currently banned as a director, although the ban expires in October.

A year ago he applied to the Supreme Court for leave to appeal against his conviction for burglary and removing documents of a company in liquidation and failing to deliver them up.

A company he controlled was placed into liquidation and Whimp was required to leave the premises.

However, he returned the same evening and removed property belonging to the company. He was given notice requiring him to return the property but didn't, court documents say.

The application to appeal was dismissed.

We also understand Strategic has been fielding calls from investors angry that their contact information had been provided to Marchmont. Strategic, like any other finance company, is legally obliged to provide the information on request.

BROKING NEWS

Rumours are rife of yet more consolidation in the broking industry, with reports suggesting Deutsche Bank is set to take a stake in Craigs Investment Partners, whose principals not that long ago completed the repurchase of 50 per cent of the firm from Royal Bank of Scotland-owned Dutch outfit ABN Amro.

The NBR reports that the announcement of a deal is expected within a few days and suggests the price Craigs will receive for a 20 to 30 per cent stake is quite attractive relative to what it paid ABN Amro to buy back 50 per cent just a year ago.

Word is Deutsche is interested primarily in using Craigs as a platform to develop its investment banking capacity.

That makes sense to one of our sources who heard a transaction involving a 20 per cent stake was in the offing.

He points out that Deutsche's ability to compete with the big boys of local investment banking, Goldman Sachs and First NZ Capital is hampered by its lack of distribution.

A tie-up with Craigs - New Zealand's biggest retail broker - would be likely to give Deutsche access to a client base on to which it could unload debt and equity arising from investment banking deals.

However, another market watcher notes Deutsche Bank has a rather patchy record in terms of its commitment to the New Zealand market and over the years has been hot and cold about its presence, something that probably wouldn't help attract top talent if it is indeed looking to expand.

BANK QUEST

Pyne Gould Corporation's bid to gain a banking licence for finance subsidiary Marac must surely have taken another blow.

Stock Takes is probably not alone in assuming there is some kind of connection between the disappearance and reappearance in a distressed state of Marac's chief risk officer and the disclosure of a $2.5 million loan made under irregular circumstances which remained covered up for six years.

We expect this is not the kind of thing the regulatory authority likes to see in a would-be bank.

It's not as if the pursuit of its banking licence was proceeding smoothly before this, either.

There was the small matter of $59.5 million in write-offs on Marac's property book last year which helped force PGC's $270 million recapitalisation a few months later.

Meanwhile, market sources have noted the lack of certainty over who will replace Sam Maling as chairman when he steps down, which was to have happened when new board appointments were made.

That was to have been completed by the end of November, a timetable that was subsequently shifted to early this year. There has been no further word.

And market-watchers are looking at the latest round of write-downs from other finance companies with property books and wondering if Marac will be next.

PGC, whose shares closed a cent lower at 44c yesterday, will announce its first-half result on February 26.

CREDIT FOR CRUNCHER

As Prime Minister John Key readies his Government's response to the Capital Markets Development Taskforce's report, fledgling Wellington internet equity research house valuecruncher.com has come out with its own take on at least part of the taskforce's findings which it found "disappointing".

Valuecruncher's chief executive, Mark Clare, notes the taskforce's identification of a lack of research on small-cap local stocks but takes issue with the solutions offered, including public and private funding of additional research, perhaps to be paid for by a small levy on trades.

Given the number of companies not currently covered by analysts, "unless the plan is to make a significant investment in research, and that doesn't seem possible, why are we bothering?" Clare asks.

He would rather see "base financial information and valuation resources" provided by third parties such as his company, made available directly from NZX's website.

Valuecruncher provides "interactive analyst reports, based on a discounted cash flow valuation approach" mostly on overseas stocks but it also covers some NZX listed stocks.

Users can modify the firm's own assumptions and the valuation will be updated automatically.

The company was plugged last year by Harvard strategy writer Umair Haque as "on the leading edge of a revolution - a revolution in what finance has been for the last several centuries, and what it must become in the 21st". Golly!