Stock Takes: Charlie's stocks taste the juice at last

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It has taken six years, but shares in beverage company Charlie's have more than doubled in price.

At yesterday's close of 31c, Charlie's is a far cry from the 15c a share when it debuted, following its controversial reverse takeover of Spectrum Resources, in 2005.

Backdoor listings can get a bad name, particularly when they turn nasty - just take Plus SMS, for example.

Charlie's, founded by Marc Ellis and Stefan Lepionka (pictured), looked as though it would be tarred with the backdoor listing brush in its early days but the stock has improved markedly over the last few years. Its share price, however, has been volatile, going through a 7.6c to 32c range over the past year.

The Charlie's brand was launched in Australia in 2008, the company landing a deal with Coles supermarket chain last year for eight of its brands in 750 outlets.

And this week, Charlie's said it had secured another Australian agreement, this time for its Premium Phoenix Organics brand to go on to the chilled shelves of 750 Coles outlets nationwide.

PIKE RIVER HOPES

As expected, state-owned Solid Energy has registered its interest in acquiring the assets of Pike River Coal's West Coast mine.

Solid Energy's chief operating officer, Barry Bragg, said the company had a natural interest in Pike River Coal given its history and experience of coal mining on the West Coast.

"We believe we have the knowledge, experience and track record to mine the resource safely and economically," he said.

Solid Energy has long-term agreements with KiwiRail and Lyttelton Port of Christchurch, so it has the capability to transport the coal from the West Coast to the port for export. It also has an agreement in place to rail coal from the Pike River mine to Lyttelton.

"We believe Solid Energy is uniquely positioned to develop and implement a sound mine management plan that would allow the mine to be successfully operated, but we know that there is no short-term fix to get the mine up and running again," he said.

BANKING ON PROFITS

The string of banking results out this week has shown signs that the economy has turned the corner, says KPMG's acting head of financial services, John Kensington.

"They show that the banks have come through the worst of it and that the economy is now starting to improve slightly," he told Stock Takes.

All the banks that have reported their interim results for the six months to March 31 have shown earnings growth. Results so far have also shown that borrowers were actively deleveraging - or paying off debt - during 2010 and into 2011.

"It is a very difficult environment with people reluctant to get out there and take on new lending," Kensington said.

"They have been deleveraging, which means there are not many lending opportunities."

Kensington also said banks were finding that their existing customers were coming under competitive pressure from the other banks.

National Australia Bank's Bank of New Zealand yesterday reported cash earnings for the six months of $283 million, up $28 million or 11 per cent compared to the half year to March 2010, thanks to good revenue and deposit growth.

Lending growth for the bank remained modest due to the subdued housing market and many businesses remained focused on deleveraging rather than expansion.

"We are, however, optimistic about the longer term economic outlook with favourable stimulus provided by the Rugby World Cup, the Christchurch rebuild and favourable commodity prices," chief executive Andrew Thorburn said.

BNZ's revenue for the half year rose to $865 million from $814 million.

Among the other banks, Westpac New Zealand's cash earnings rebounded by 68 per cent in the six months, despite the subdued economy, reflecting a reduction in loan impairment charges and improved margins. The bank's cash earnings, the equivalent of net profit after tax, for the six months to March 31 rose to $210 million from $125 million in the previous corresponding period, thanks to a $71 million reduction in impairment charges and a $50 million lift in its core earnings.

Earlier in the week, ANZ New Zealand reported an underlying profit of $605 million for the half year to March 31, 63 per cent up on the $372 million reported in the prior comparable period.

CLOUD OVER GENTAILERS

Integrated power generators and retailers are known in the industry as "gentailers". According to ratings agency Standard & Poor's, changes to the structure of the electricity sector are likely to drive mixed credit trends for New Zealand's gentailers - Contact Energy, Genesis Energy, Meridian Energy and Mighty River Power - in the next 12 to 24 months.

"The four integrated gentailers rated by Standard & Poor's have, so far, prudently managed the operational transition to the new market structure," Standard & Poor's credit analyst Parvathy Iyer said. "But we believe that the associated competitive and market risks are yet to be fully tested."

One of the first tests is the pending completion of the transfer of Tekapo A and B hydro assets from Meridian to Genesis Energy. "A significant challenge for all of the rated gentailers is how they manage the increasing market risks and their respective risk-management practices associated with the evolving market structure, including financing of new projects," Iyer said. "This is particularly pertinent given that financial headroom has deteriorated over the past couple of years."

S&P said there were other emerging risk factors for the sector, including the emissions trading scheme, the possible partial privatisation of the three state-owned gentailers, and the volatility in wholesale electricity spot prices.

Investors will be increasingly conscious of the gentailers' credit quality and that the three SOEs among them have been earmaked for partial privatisation.

Genesis Energy last month completed a 30-year capital bond issue, which raised $275 million, to help fund the purchase of Tekapo A and B. Contact Energy, which is just over half-owned by Australia's Origin Energy, is in the throes of raising about $350 million through a rights issue. Contact's shares closed yesterday at $6.01.

AGRIA SATISFIED

Contrary to speculation in last week's Stock Takes, which was to the effect that Singapore's Agria could over-accept offers to sell shares in rural services group PGG Wrightson, the company has left it at just 50.01 per cent, despite a virtual stampede of shareholders willing to take up their 60c per share offer.

Agria received acceptances representing a combined 78.16 per cent of PGG Wrightson's shares, a figure that had been scaled back to the desired level. Stock Takes' theory was that 50.01 per cent ownership would not be enough to initiate a restructure of PGG Wrightson, which seems to be what the parties - such as Livestock Improvement Corp - want.

TOURISM VALUE

In the "they would say that, wouldn't they" department, First NZ Capital, which is advising Tourism Holdings, reckons the partial takeover offer from Ballylinch undervalues the company.

Ballylinch's 67.5 cents per share offer was highly unlikely to be successful in its current form, Jason Familton, an analyst at First NZ Capital, told the investment website, sharechat.co.nz. He values the shares at 92c a share compared with yesterday's closing price of 74c.

"We anticipate the directors will recommend to reject the offer and that the independent appraisal report will come out with a valuation range significantly higher than the current offer."