Stock takes: Lakes of cash to slake government's thirst

The Government's exhortations for the state-owned generator-retailers to operate more profitably don't always appear to be consistent with Energy Minister Gerry Brownlee's view that they and private sector businesses have been squeezing customers too hard.

Meanwhile, you get the feeling the Beehive reckons the state-owned power companies' balance sheets are too lazy. Why else extract such chunky special dividends from them? Perhaps because the Government's own balance sheet is looking somewhat stretched for the next few years.

There was no one available at Meridian yesterday to provide any background but it's hard to escape the feeling that the company's intention to issue retail bonds early next year might have been partly driven by the fact the Government sucked an additional $150 million cash out of the business on top of its normal dividend payout.

PGC: THE CONS

Pyne Gould Corporation shares recovered somewhat from Tuesday's sell-off ahead of trading in the rights which began yesterday.

But one broker observed that even when the cum-rights shares were trading at the 50c mark there didn't appear to be a great amount of interest from institutional investors who at that price would arguably be able to pick up shares more favourably than in the institutional placement that follows the rights issue. In fact there are few institutions on PGC's register already.

The capital raising represents a chance to buy into the company but will the instos take the opportunity?

We hear at least one is, but Stock Takes spoke to a source at another who, having been briefed by the company, wouldn't.

"I didn't understand the structure and they didn't provide suitable answers to our questions we raised regarding appropriate returns and I don't like the messy structure of it, to be honest."

He also said he was mindful of the company's "linkage to the past" - namely Marac's impaired property loans.

Given events in the property market, he wasn't convinced Marac's writedown of property loans would be the last.

Perhaps mindful of these concerns, the capital raising announcement included a mea culpa and apology over Marac's foray into the property sector. 9Clearly there are a number of investors who are not convinced the line PGC has drawn under this episode has a sufficient air of finality about it.

AND THE PROS

Then again, Stock Takes spoke to another fund manager who believed the company had changed its spots.

Having met new chief executive Jeff Greenslade and director and driving force behind the restructuring George Kerr, the fund manager said: "Our conclusion was that this will be one of the all-time great opportunities to buy cheap equity in what could be a vastly different company in three to five years' time", albeit a somewhat risky one.

His reasoning was that while the company had taken big hits over Marac's property loans, its earnings were likely to recover strongly from this.

He was encouraged by the new direction the company intends pursuing, including the unexploited opportunity to cross-sell various products to its sizeable customer base, including thousands of Perpetual Trust clients.

In addition, with a $50 million war chest, Marac would have the ability to play a big role in finance sector consolidation.

The fact that PGC and First NZ have managed to secure sub-underwriters for the $237 million rights issue indicates there are more than just one or two big investors prepared to back the company.

Word is that apart from Kerr himself, the list of sub-underwriters includes some "interesting" Australian names.

AN EDIT OR TWO

Stock Takes thought last week's report on the Securities Commission's effectiveness was a useful document.

It laid out out the concerns a number of people have had about the regulator, even if it did pin most of the responsibility for these perceived shortcomings on the framework within which it must operate.

It did identify areas where the commission could lift its game, such as communication with media and other stakeholders and it was encouraging to see the commission acknowledge this.

We were intrigued, then, to hear speculation this week there may have been some to-ing and fro-ing between the commission and authors before the report was released.

The inference was the commission may have got some of the report's criticisms softened.

The commission confirmed it "did have the opportunity to view the report prior to it being released and to check it for accuracy".

"We picked up some inaccuracies which were corrected."

We can only hope these were factual inaccuracies rather than judgments the commission believed were inaccurate.

ING-LORIOUS AFFAIR

Few people were surprised by the announcement last week that ANZ was purchasing ING's 51 per cent stake in ING New Zealand.

The sale had been expected for some time despite assertions to the contrary from ING itself over recent months.

"We're here to stay," chief executive Helen Troup told Marta Steeman of the Press in June.

Going back to February the company said it was "incredibly committed to the New Zealand marketplace".

"We have been in the NZ market for 20 years and have no plans to leave.

"We have challenges but we expect to be here next year, the year after, in a decade and beyond."

How expectations about ING itself and certain of its products have been confounded.

To be fair, Troup and her staff are staying on even if ING is not, and it appears the decision to sell out was made at a level well above her head.

Still, as investor advocates the Frozen Funds Group's Gerard Prinsen told us last week, this is a company that urged investors not to withdraw their money from the Diversified Yield Fund and Regular Income Fund informing them the cash was safe.

Safe to assume Prinsen and other ING frozen funds investors are taking whatever comes out from ING with a grain or two - if not the whole shaker - of salt.

It remains to be seen how long ANZ will retain the ING brand.

HAWK'S WINGS CLIPPED

Allan Hawkins' Cynotech cancelled its planned dividend payout a couple of weeks back and North Shore financial adviser Alan King points out on his website canopus.co.nz this probably has something to do with fact that the company's $10 million fixed interest issue looks as if it raised less than $2 million.

King reckons the company "made a mess" of the capital raising aimed at providing funds to enable finance arm Budget Loans to recommence lending.

He points out that the coupon was not much more than can be obtained from some major bank debt issues.

That said, he told Stock Takes this week he thinks Cynotech "can be a good little company" so long as it plays to its strengths, which is purchasing and managing distressed finance company loans. Cynotech's shares closed steady yesterday at 12.5c.

F&P HEALTHCARE

Fisher & Paykel Healthcare has been holding up well considering the export-focused stock usually gets sold off when the New Zealand dollar is strong.

The stock fell all the way from above $3.50 to below $2.20 early last year as the kiwi rose to fresh 23-year highs, and it recovered all of that bar a few cents as the kiwi retreated towards US50c in March this year.

Now, with the kiwi back up above US70c it's still above $3.20 even after falling 6c yesterday to $3.22.

"For it to be holding up here is a pretty good effort," remarked Hamilton Hindin Greene broker James Smalley this week.

THUMBS UP

The NZX's 20-minute delay on free access to market announcements finally disappeared yesterday.

You have to register and log on using a name and an email address to look at real-time announcements but so what?

It's hardly a great inconvenience.

Being the modest type, Stock Takes is not about to try and grab any credit for helping encourage NZX to do away with the delay by trumpeting the fact that we have written about this a few times over the last couple of years. Oh no, not us.

This week we were going to have a grumble about a couple of admittedly fairly minor issues we have about some announcements and other information available on NZX's website. However the response we received was entirely reasonable if not downright constructive.

We like that. Thanks NZX.