Friday, May 05, 2006

Stock takes: Dead cat bouncing

By Liam Dann

Even a dead cat bounces ... or so the old broking expression goes. And so it goes for Telecom shares which closed at $5.06 yesterday - down 49c but still up slightly from the mid-morning low of $4.95.

In the end there were a few disappointed traders as the sell-off failed to drive the share price to bargain-basement levels.

Independent broker Brett Wilkinson was hoping there would be some buying opportunities around the $4.80-$4.75 mark.

"I thought there might be a bit more panic actually," he said.

The great unknown now is the point at which the stock becomes a bargain. Wilkinson did end up doing some buying yesterday around the $5 mark.

But Macquarie Equities investment director Arthur Lim warns there is still plenty of potential downside in the short term.

The thing to remember is that the big international funds will determine where the share price finally settles, he says.

They are likely to take a few more days to decide whether they want to stay in the stock with the threat of regulation hanging over it.

In the end they could go either way, says Lim, who remains optimistic on Telecom's longer-term prospects.

But anyone investing on the basis that Telecom's price has bottomed out needs to bear in mind that they are taking a punt on a big unknown.


Oh the irony ...

Small investors relying on the NZX website yesterday for news on their Telecom stock price faced a frustrating time as the heavy traffic made the page almost inaccessible for long periods. Users of dial-up internet stood next to no chance.

If only we all had faster, cheaper broadband.


Who's next?

Shares that copped some fall-out because of investor jitters about Government regulation included: Auckland International Airport which shed 2c, and Vector, which lost 4c cents. Is the threat real? Is this Government on a mission to wipe out monopolies before the end of its third (and possibly final) term?

Well, maybe, but when you consider the groundswell of public attention the unbundling issue has received this year it was inevitable the Government would have to act.

Regulation of infrastructure is a notoriously unsexy topic which television news shows are loathe to tackle. So perhaps a good rule of thumb is when Close Up and Campbell Live start focusing on a company's regulatory future - as they did towards the end of the Telecom debate - then its time for shareholders to start worrying.


Tax wars, round two

Having come out of his corner swinging, GPG's Tony Gibbs was never going to let his stoush with the Revenue Minister (on the proposed changes to taxation on overseas investment) just peter out ... so to speak. Following on from last month's war of words with Peter Dunne, Gibbs has attempted to reignite the debate with a politically charged letter to shareholders. The letter invites people to send views directly to the Prime Minister - and kindly provides the email address. Presumably the theory is that if GPG's large Kiwi shareholder base can successfully tug on Helen's heart strings she's the one with the executive power to sort out some sort of exemption. Well, it worked for farmers when the Government proposed its ill-fated fart tax. If and when it ever happens, a Gibbs-led hikoi to Parliament will surely be a sight to behold. That address for the PM is: pm@ministers.govt.nz if you have any strong views you'd like to share.


Backpacks and bedpans

After making the news for its part in the $275 million leveraged buyout of Kathmandu last month Goldman Sachs JBWere's New Zealand-based fund - Hauraki Private Equity No 2 Fund - has followed up with a $20 million investment in retirement village owner and operator Vision Senior Living.

The fund takes a 28.5 per cent stake in the business which currently has 600 residents in four rest homes and plans for big expansion. With all the hype about Australian private equity investors like PEP its great to see a New Zealand-based fund being so active.

Maybe they read last week's Stock Takes item about the bright future for the aged-care sector.


Air New Zealand sticking to the skies

Times are so tough in the airline industry that it might just be better to stay on the ground ... at least it appears that's the way Qantas is looking at it. The Australian national carrier has revealed it is considering diversifying into other forms of transport - like roads and rail.

The Sydney Morning Herald reported this week that Qantas was considering broadening its freight business as part of a move to reduce its exposure to soaring jet fuel prices.

Despite the general state of cuddliness between the two airlines Air New Zealand says it will be sticking to the skies. Land New Zealand just doesn't have the same ring to it.


Maturing well

Any fermenting doubts about the success of the Delegat's float have been well and truly corked with its shares forging on from the opening day close of $1.57 (after listing at $1.40).

The stock closed at $1.62 yesterday suggesting - in similar fashion to the Goodman Fielder float - that their may have been a little too much negativity in the market.

OK, in Delegat's case the dollar story has really come to the party but a fall in the currency from US$70c levels was hardly unpredictable.


Strong run

Another company in the middle of a strong run is Allied Workforce, which specialises in supplying workers for pretty basic blue-collar and administrative jobs on a contract basis. It was struggling against some negative sentiment just two months ago but has leapt up by about 30 per cent since then to close at $1.45 yesterday.

The theory that Allied would benefit from the slowing economy seems to be kicking in as rising costs put the heat on big companies. Employers like Fonterra and Air New Zealand are almost certainly looking at ways to avoid taking on full-time staff as a collective whammy of external factors starts to bite.


Suburban Paradise

The successful launch of the colossal Cantabrian property development - Pegasus Town - has prompted Goldman Sachs JBWere to upgrade its forecasts for Hirequip.

The listed equipment hire company is not to be confused with rival Hirepool, which has been tipped this week as a possible candidate for listing.

An equipment hire company might not look like an obvious beneficiary, but Hirequip owned the land on which the instant town of 5000 residents is to be built.

It has a number of other non-core assets including an interest in a Marlborough marine farm, dairy farm interests and an apartment development north of Auckland.

The Pegasus Town project made national headlines last month when the first auction of properties raised $122 million in less than seven hours.

That success has prompted Goldman to take another look at Hirequip's sale agreement.

The deal was for a potential $30 million, with $10 million paid upfront.

But the total payment had been conservatively estimated to come in at $23 million. Goldman now believes Hirequip is almost certain to get the full $30 million.

The only downside is that extra money may mean receipt of the funds is delayed, meaning a reduction in forecast profit for 2007 with an increase in the forecast from 2008 onwards.

Goldman is maintaining its $1.12 valuation. The share closed at $1 yesterday.


Anchors aweigh

Mooring Systems, the listed manufacturer of ship docking technology, has become something of a market darling in the past 12 months with a string of high-profile international sales boosting revenue and - just as importantly - boosting its global profile. But staff at the Christchurch-based company were a bit bemused at the strength of the share price surge related to last week's US Navy deal.

It rose nearly 5 per cent to the $4.60 mark, where it was still berthed yesterday.

It's not that it isn't a good deal. After all it does offer the company an opportunity to show off its capabilities to one of the biggest potential customers in the world.

But some media reports seem to have suggested that the deal might be worth $45 million to Mooring. That's way off the mark, and it be would unfortunate if that misunderstanding was driving the share price. For the record, a company called Oceaneering International has secured a US Navy contract worth a potential $45 million through to 2010. Mooring has just signed a deal to continue working for Oceaneering on the project.

That's a good thing, but in terms of measurable value, deals such as the $3.1 million sale of automated mooring units to a port in Oman (announced in March) probably offer more useful insight. With any luck there will be plenty more of those deals to come.

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