Friday, March 31, 2006

Stock takes: Fat Prophets

By Liam Dann

The dollar might be down but it is definitely not out, says Angus Geddes, the Kiwi co-founder of high-profile Aussie investment website Fat Prophets. Geddes - who started investing in 1982 at the age of 12 (he bought stocks in Robert Jones Property) - has been back home this week to deliver a series of seminars.

"What we're seeing now is a bear market rally for the greenback and bull market correction for the kiwi and aussie dollars," he says.

Basically, Geddes is a believer that the economic fundamentals are still in our favour. In fact, he is predicting the kiwi will be up around the US80c mark within five years. He's the first to admit that might sound a little radical right now but he speaks with the confidence of someone who has achieved 30 per cent returns on his portfolio year-on-year since 2000.

Remember the US dollar is still due for a huge downwards correction and world commodity prices are only going to get stronger on the back of growing demand, he says.

So economies such as New Zealand and Australia are particularly well placed. If anything, this dip is giving investors a fantastic window to repatriate some overseas investments.

Naturally enough Geddes remains extremely bullish on commodity stocks - BHP Billiton and Oil Search are a couple he recommends.

He is tipping that oil could hit US$100 a barrel in the next few years and gold could hit US$1000. With gold stocks in mind, he's picking the likes of Lihir Gold and Lion Selection Group in Australia and Oceana Gold down in Otago.

The good oil

New Zealand Refining has had a roller-coaster couple of weeks on the stock exchange. The (ironically) illiquid stock spiked dramatically after moving on to the NZSX-50 last week (as Carter Holt Harvey moved off). It's not surprising that it took a big price hike for the funds to get their required share - it is 80 per cent owned by just a handful of big investors (including Caltex).

But in spite of that, it hit an intraday high of $7.50 last Friday. That's an all-time high.

All that action has had little to do with fundamental economic and corporate considerations - such as the international effects of the price of crude oil, movements in the benchmark Singapore refining margin and so on - but those factors have driven good sustained growth in the stock for the past two or three years.

In the short to medium term, the company may be drawing near the end of a golden run, says one energy analyst. Limited refining capacity around the world mean margins have been extremely good. But these are likely to fall as more capacity comes on.

NZR shares closed steady on $6.78 yesterday.

Go to hell (or maybe just the bach)

Waste Management chief executive Kim Ellis is sounding genuinely bemused and peeved about the negative reaction to the so-called merger with Australian Transpacific Industries.

"If ... the deal falls over, to hell with them, they'll never get an offer like this again and I certainly won't be around to run the company," he told the Herald this week.

That's the kind of straight talking we like. Earlier in the week, he was giving Alan Bollard nightmares with the suggestion that Waste Management shareholders could take the cash and buy a holiday or a bach. Okay, to be fair, he also suggested they reinvest in Transpacific when it dual lists over here. For the sake of the balance of payments, let's hope they do.

Contact sport

Speaking of so-called "mergers", Contact Energy shares continue to rise in defiance of proposed merger plans with parent company Origin. They are now trading at $7.77.

Local fund managers reckon the merger deal gives Contact shares a value of about $7 a share.

Based on that view, they have traded about 30c above that price in anticipation that Origin will have to somehow beef up the deal.

But now - on top of the speculator effect - the prospect of a good old fashioned power shortage has started driving the price. Things aren't about to black out just yet but southern lake levels are low and this is always good news for Contact. The listed energy provider gets enough of its power from thermal sources that such low water levels don't constrain its supply. That leaves it in prime position to cash in on the higher wholesale prices.

It is also going to weigh heavily on the minds of investors who were already rubbing their hands together in anticipation of something to sweeten the deal.

Should I stay or go?

Citigroup has some tough decisions to make after the departure of head of research Mark Benseman for ABN AMRO.

Benseman - now on gardening leave - is the second Citigroup analyst to leave for ABN after Carolyn Holmes joined the brokerage about eight months ago. His departure leaves Citi with a pretty thin research department.

The bank now has to decide what sort of message it sends to the market. Does it spend big money trying to attract a big name or two to signal to institutional clients it is committed to New Zealand?

Citi executives from Australia and Auckland recently met in Wellington to discuss the issue. Odds are the New Zealand contingent did the best to persuade the Aussie head office that they need a heavy hitter or two.

After all, there's quite a bit of money riding on it - institutions want to see a strong research department when they set their fees each year. The local HQ of the US bank did not return calls on the matter yesterday.

Gullivers travails

Goldman Sachs JBWere has just begun coverage of listed travel agent Gullivers Travel giving it an outperform/buy recommendation and valuing it at $2.02. It shares closed up 3c at $1.60 yesterday.

Despite a positive operating performance since listing in December 2004, including two solid results and strategically sound acquisition, the stock price has struggled, the report by analyst Matt Henry says.

That makes the value case pretty compelling.

A 10.8 per cent gross yield at a 65 per cent payout ratio, and a conservative valuation make it a solid defensive stock, he says. But what about long-term growth?

It seems most people now have an overly negative view of travel agents - believing the future lies in do-it-yourself websites. But Henry concludes that negativity is weighing more heavily than it should on the price. While it is easy for Air NZ domestic passengers to book their own flight - getting the best deal on a jaunt through Europe still requires an agent.

Flying fish

You're unlikely to find a clearer example of an export stock booming on the collapse of the dollar than fishing company Sanford.

For some reason, investors were slow to pile in when the dollar first started to teeter but, in the past two weeks, the stock has leapt more than 25 per cent - from $4 to yesterday's close of $5. It could be that the likes of F&P Appliances and Healthcare are just more obvious plays.

But Sanford boss Eric Barrett is on record as saying the company's net profits drop by about $1 million for every 1c change in the dollar. If that formula holds true in reverse, then the outlook is looking a heck of a lot better than a month ago.

Get that hand out

Despite having copped a $25,000 fine, a full-scale investigation by the Securities Commission and facing a criminal prosecution (due back in court on April 11), collapsed broking firm Access has one more thrashing to brace for - a formal telling off by NZX Discipline.

More than 18 months after the collapse of the discount brokerage, NZX Discipline (a separate entity from the exchange) has yet to deliver something called a public censure.

Apparently, the wet bus ticket is pretty much ready to go but exactly who it will be aimed at - now that the company has ceased to exist - is unclear ...


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