Stock takes: NZX face slap

Paul Glass of fund manager Devon has lured three key staff from Brook Asset Management to join him. Photo / Supplied

The decision by EnergyHedge to use the Australian Securities Exchange to trade energy derivatives is a slap in the face for local operator NZX.

Busy building its new clearing house the NZX told investors and market players this year that energy derivatives was one of the first products it hoped to launch.

But it seems the patience of the energy generators has worn thin. EnergyHedge's John Woods says it made the decision to ditch talks with the NZX three or four weeks ago because it was worried about timing and liquidity.

Stock Takes asked whether it had anything to do with the departure of former NZX head of market products Geoff Brown. But Woods said changes with staff were an internal matter and did not affect its decision.

It also seems an odd look for three State-owned enterprises - Meridian, Mighty River Power and Genesis - to be choosing an Australian company at a time when the Government is trying to support capital market growth here.

Does this mean the Government doesn't have any faith in the local market operator? SOE Minister and the man behind all the capital markets announcements, Simon Power, didn't wish to comment. His press secretary referred all questions to Energy and Resources Minister Gerry Brownlee.

EXPENSIVE LESSON

Australia's Macquarie Group must be kicking itself for not locking in the portfolio managers at New Zealand fund manager Brook Asset Management for longer periods of time.

Brook is to lose three key staff over the coming months after rival fund manager Devon, run by former Brook owner Paul Glass, revealed he had poached the team.

Glass who with Simon Botherway sold the other half of the business they founded to Macquarie at the end of 2008 had year-long restraint of trade agreements placed on them.

But it seems the same wasn't true for Brook executive director Mel Firmin, and portfolio managers Chris Gaskin and Slade Robertson.

Firmin and Robertson are to join Devon by the start of July while Gaskin will shift over at the start of September.

Macquarie is thought to have paid $22.5 million for the business which manages around $1.5 billion in mainly institutional money.

Neither Macquarie nor Brook managing director Mark Brighouse wanted to discuss the departures.

RATING DOWN

The bad news for Brook was compounded by rating agency Morningstar which immediately downgraded both the Brook Alpha fund and Brook Tasman from "highly recommended" to "avoid".

Morningstar analyst Chris Douglas said the departures of the three staff were a big disappointment.

Douglas said without Robertson at the helm of the Alpha fund he had real questions about its viability.

"The firm's two remaining analysts Michael Locke and Andrew Mortimer are capable and experienced but do not have the portfolio management experience required."

UNHAPPY CAMPERS

The departures don't seem to have come as too much of a surprise.

Stock Takes hears there were rumblings of dissatisfaction from within the Brook camp even before the resignations were announced.

But market players are divided over whether the money will also leave Brook and flow into Devon.

Stock Takes expects at least some will shift to Devon but one source suggested some investors might be getting sick of moving their money around.

It's not the first time Glass has been involved in building up a business and then selling it on.

Glass and Botherway were involved in Spicers Wealth Management before selling it down to set up Brook.

Glass, who also launched a new fund this week with the same name and a similar mandate to the Brook Alpha fund, set up Devon this year after buying the asset management business of Goldman Sachs JBWere.

FORBAR FORAY

Forsyth Barr is making a foray in the mergers the acquisition market with the appointment of a new four-man investment banking team.

Guy Williams, Robert Bogers, Rob Buchanan and Rory MacEwan have all joined the brokerage firm.

The team previously worked for rival Craigs Investment Partners but left last year when it became clear that Deutsche Bank would buy up half the business and use its own team to do deals in the M&A space.

Forsyth Barr managing director Neil Paviour-Smith says it has traditionally been focused on initial public offerings, equity trades and debt listings but the new hires will allow it to expand into the M&A and corporate advisory space.

The new four will bring Forbar's capital markets team up to 13, similar in size to the two big players in the market First NZ Capital and Goldman Sachs JBWere.

Stock Takes was surprised to hear there was room in the market for another player given the lack of activity in this area.

But Paviour-Smith said he expected M&A action to pick up and Forbar was looking to the future. "This isn't a move for the next 12 months. This is a long-term move."

TOWER UP AND DOWN

Tower's half year result has had a mixed reaction from analysts and investors. Stock Takes would expect at least some investors to be happy about the announcement of the first interim dividend to be paid since 2002.

But the company's share price has drifted down since the result which showed a 5.6 per cent pickup in net profits to $28.1 million.

Before the result was revealed last week the company's shares opened on $1.91 but yesterday they closed on $1.84.

Citigroup analyst Nigel Pittaway has downgraded its rating of the company from "buy" to "hold" and reduced its long-term share price from $2.25 to $2.10.

But Morningstar analyst Nachi Moghe said it was a solid result and kept his rating on hold.

"The business rebuilding process undertaken by Tower over the past few years is starting to deliver solid earnings momentum and the decision by the board to pay an interim dividend is a vote of confidence in the insurer's near term outlook. Tower is well positioned to quickly move on expansion opportunities and at current share price levels we retain our hold recommendation," Moghe said in a research note.

Stock Takes notes that Tower has been well positioned to buy a business and expand for some time but has yet to find anything it wants.

FRIDAY BLUES

Stock Takes couldn't help noticing that two troubled companies took the opportunity to release bad news late last Friday.

Allied Farmers, which bought the Hanover and United Finance assets in December, revealed another write-down of the loans while South Canterbury Finance told the market it had been given a rating downgrade by Standard & Poor's.

Allied's Rob Alloway said it only found out about the extra write-down - which now means the loan book has gone from a value of $396.2 million to $124 million - on Friday morning.

He did not believe the timing was bad for investors. "We think people pay attention to the market all the time. It only took a couple of minutes after the announcement and people were phoning me."

Some in the market have questioned the level of write-downs calling them over the top and in favour of the Allied Farmers' investors who were shareholders before the Hanover and United Finance crew came on board.

Any fall in the value of the assets will result in bonus shares being issued to those investors after June 30 next year.

But Alloway says it has always been open about the bonus share scheme and it wants to do everything it can to preserve the value of assets.

Allied shares closed down 0.1c yesterday on 5.2c. They were trading around 10.5c when the Hanover investors came on board.

SOUTH CANTERBURY

South Canterbury Finance's revelation of its rating downgrade was couched in an interesting way.

Instead of calling it a downgrade the finance company said its long-term rating had been "adjusted".

Ratings for finance companies have only been mandatory in New Zealand since March and it's not likely many mum and dad investors would have clicked the B+ rating was a downgrade.

Meanwhile South Canterbury chief executive Sandy Maier says it has decided not to accept a bid for around $300 million worth of its loan book because the company is "having better luck" liquidating the assets itself. Let's hope that continues to pan out.