Stock Takes: Trustpower's rating on the rise despite surplus slip

Trustpower's rating has been upgraded from underperform to neutral. Photo / Dean Purcell

A lower six-monthly surplus for electricity generator and retailer Trustpower has failed to dampen the expectations of Credit Suisse analyst Jason Lindsay.

Trustpower's surplus after tax for the half-year to September 30 was $63.8 million compared with $72.5 million for the same period last year.

In a research note, Lindsay said he had upgraded his rating on the company from underperform to neutral after a soft but expected result.

Lindsay had expected lower wholesale prices and a more competitive retail environment to have an impact on earnings.

Trustpower said the full-year result was expected to be in line with its 2010 result of $274 million in earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf).

Lindsay is forecasting it to be slightly lower but market consensus is for Trustpower to have an ebitdaf of $286 million.

Despite the upgrade Lindsay expected conditions to remain tough for the company.

"We expect retail competition to remain intense for the next 12 to 18 months. Growth in earnings is likely to be significantly lower than investors have come to expect of Trustpower in the medium term, with growth in earnings coming from a recovery in the wholesale price, and retail tariff growth in the medium term."

Shares in Trustpower closed up 5c yesterday on $7.40.



BROOK ASSETS FALL

Brook Asset Management's funds under management are thought to have taken a hammering in recent months after the departure of some of its staff.

Some have speculated the company's investments have fallen from close to a billion to around $300 million.

Managing director Mark Brighouse confirmed to Stock Takes this week that its funds under management had fallen but would not say by how much.

He said the company did not make that kind of information public.

Brighouse played up the positives of having less money to manage and said that meant the company could now focus more on its performance.

The firm has a full team in place now and is backed by its owner Macquarie, he said.

FOR SALE?

Brighouse is adamant Macquarie is a long-term owner and says it has been acquiring other businesses around the world that are similar to Brook.

But there is still talk around the market that Brook and Macquarie's New Zealand private wealth management arm could be bundled up for sale, with Pyne Gould Corporation's asset management business Perpetual a possible buyer.

PGC's director George Kerr is understood to have had close ties with Macquarie in the past and is thought to be keen to build up Perpetual.

NOT FAIR VALUE

Meanwhile, eyebrows have been raised by PGC's value recognition of its investment in PGG Wrightson.

PGC is the second largest shareholder in the agricultural service provider after Chinese investor Agria.

As of yesterday its stake was worth around $72.2 million.

But PGC, whose subsidiary Marac is trying to become a bank, reckons it is worth a lot more.

Its latest annual accounts for the year to June 30 value the stake at $113.7 million despite the market value on the day being just $73.8 million.

"It is the company's view that the market value is not a reasonable proxy of the fair value," it states in the notes to the financial statements.

"An independent valuation has been used as an alternative value in use calculation to support the carrying value."

So the market has got it wrong? PGW shares closed down 1c on 51c yesterday while PGC's shares were unchanged at 42c.

MONEY GO ROUND

It seems PGC's Torchlight Fund has already found a use for some of the $100 million it received from the Government in the payout of South Canterbury Finance creditors.

The private equity fund has ploughed $6.5 million into helping shore up infrastructure investment company Equity Partners Infrastructure Company (Epic).

Epic is managed by Torchlight Investment Group, which is owned by PGC.

The money was invested through a placement done at 90c per share and was used to repay loans.

Epic, which owns stakes in companies connected to Britain's Thames Water and motorway services group Moto, has come under pressure after Moto decided to stop paying dividends for the next 18 months to focus on a growth strategy.

Epic has also told its shareholders it is undertaking a strategic review to look at whether it will continue making dividend payments.

NO CRISIS HERE

New Zealand's Kiwifruit crisis seems to have had little impact on any of the listed companies linked to the industry.

Both Satara Co-operative Group and Seeka Kiwifruit Industries were placed on a trading half before the news of a break-out of Psa was revealed on Monday.

But it seems they needn't have bothered. Not a single share in either company has traded since it went public.

Turners and Growers, which is also involved in the industry, didn't go on a trading halt but has made it clear it has not been affected.

"There is no indication of this bacteria on any Turners & Growers orchards or any orchards growing ENZA kiwifruit varieties," the company said in a statement.

So far the disease outbreak has also been mainly linked to the Bay of Plenty region although it was confirmed yesterday that some areas outside the Bay are being tested.

Turner's Kiwifruit are based in Northland's Kerikeri.

Turners was trading at $1.44 before the bacteria news became public and has since lost 4c. Yesterday it closed on $1.40.

A SILVER LINING?

One analyst said he was not surprised there had been little change in the Turners share price as the stock is tightly held.

Guinness Peat Group owns around two-thirds of the company, while banana company Bartel Holdings has around 12 per cent. ACC also has a 6 per cent share leaving less than 20 per cent likely to be traded.

Some have also suggested the situation could have a silver lining for Turners - if there is a reduction in supply next year it could reap the rewards of higher priced kiwifruit.

NOT COOKED YET

There has been no word on the sale of Tegel despite the offer period closing more than two weeks ago.

Australian private equity player Pacific Equity Partners is said to be keen to sell the business and a price of anywhere between half a billion and upwards of $900 million has been talked about.

But a source close to deal said there was nothing to report other than that the process was on track.

NEW BOSS

Guardian Trust has appointed a new boss after the departure of Greg Campbell to Vodafone.

John Botica joined the trustee and investment management company last November and will step up to the top job.

Campbell is the new chief marketing officer at Vodafone replacing Mark Rushworth.