KEY POINTS:
The lines are being drawn among market players over whether the takeover of Origin by BG Group will result in a win or a loss for Contact shareholders.
There appears to be a growing consensus that BG won't want Contact and it has been suggested that this could result in them flicking the stake off quickly and cheaply - possibly below market value.
But there are some brokers with plenty of experience in the mergers and acquisitions game who feel there may be a push on by BG to talk the price down.
If the 40 per cent premium that BG has offered for Origin was being reflected directly in Contact's share price then it ought to have surged to about $13.
So at this stage it appears investors are being cautious about assuming they are in line for a big pay day.
Analyst valuations for the stock prior to the BG news were already in the $9.50 to $10.60 range. So yesterday's close of $9.70 wasn't wildly over-egged.
Since the news at least four local analysts have reviewed their valuations. First NZ's Jason Lindsay has a target price of $11.30, ABN Amro's Rob Foster is more bullish with a target of $12.95. Wade Gardiner at UBS and Guy Robinson at CitiGroup are most cautious with $10.46 and $10.25 respectively.
AFTERTHOUGHT
Whether or not the market moved the right way on Wednesday as news of the BG offer broke it might have been nice if the NZX had been notified at the same time as the ASX.
Despite the immediate and highly material impact of the news on the Contact share price, the New Zealand company figured so far down in Origin's thoughts that the NZX didn't get an announcement until yesterday morning.
Contact Energy - which has made it clear to the media that it knew little or nothing about the bid - managed to get something to the local exchange by 2.49pm, about three hours after the ASX posting.
We should all be watching the ASX screen these days of course but it does seem a little slack on the part of Origin.
Asked about it yesterday the NZX was playing it pretty straight: "It is naturally of concern to NZX when a price sensitive announcement is made in Australia and the same announcement is not made in New Zealand in respect of the appropriate New Zealand entity. Where NZX has these concerns they are raised with the issuer concerned."
Sounds like someone at Origin might be getting a grumpy phone call.
TOP STOCKS
Even before Wednesday's spike Contact had already powered its way to near the top of the list of the year's best performing stocks.*
No doubt that at $7.13 on January 22 it was grossly undervalued. After the credit crunch-fuelled global slump it wasn't alone. But because of a dry summer, which put pressure on hydro lake levels and pushed power prices up, it staged a much stronger comeback than peers such as Fletcher Building.
It had put on 11.5 per cent to $9.38 prior to the BG news.
Another high performer this year has been fishing company Sanford - up 12.3 per cent. It has surged in the past week on hopes that the New Zealand dollar may be on its way down.
AMP is also on the list - up 7 per cent. The Warehouse is up 6.5 per cent.
Mainfreight is up 2.8 per cent and GPG rounds out the all-too-short list of stocks in positive territory, up 0.5 per cent.
FINANCE LISTINGS
Geneva Finance's success in getting investors to approve a restructure by way of converting some of their principal into shares for listing on the NZAX will be of interest to other finance companies under pressure.
So far it appears to be the only one of the 18 troubled companies to manage to keep itself going through the turmoil. Unlike others which have gone down the moratorium track, it is not seeking to wind down the business but rather grow it over time.
John Mandeno of corporate finance advisers Grant Samuel - who helped Geneva put together the restructure plan - says he wouldn't be surprised to receive approaches from other companies interested in following Geneva's route.
Mandeno says it's the first time a listing on the NZAX has been incorporated into a corporate restructure.
Mandeno says they had also looked at the unlisted exchange but decided against it because of a lack of regulation.
While the option would not be open to all finance companies Mandeno says it could be a way out for those who have "fallen victims to outside influence" as in the case of Geneva.
BLUESTONE
Meanwhile, Australian mortgage firm Bluestone Group has said it is still interested in buying Geneva's loan book.
Bluestone had been expected to turn up to the meeting on Monday to put their case through a proxy voting arrangement with Kapiti Coast broker Chris Lee. But it pulled out at the last minute.
Bluestone Group executive chairman Alistair Jeffery says he spoke to the trustee in the morning and was told he wouldn't be given the opportunity to speak about the Bluestone proposition.
Bluestone wanted Geneva to push the meeting back by four weeks to discuss an option of it buying the company's loan books for a price that could potentially have given investors 85 cents in the dollar of their money back.
But Geneva said the proposal had come too late and decided it would be in a stronger position to bargain if it also had the capital reconstruction option approved.
It criticised Bluestone's late offer as an attempt to destabilise the investor vote.
Unsurprisingly, Jeffery has been scathing of Geneva's approach.
However, he says he expects to return in the next few weeks and will approach Geneva again to discuss a potential offer.
FLYING LOW
Air New Zealand has been one of this year's worst performing stocks - down 29 per cent. There is no great mystery to the slump. Fuel prices are eating away its margins. As problems go it is one that we can all relate to.
In Air New Zealand's case the issue is exacerbated by the so called "crack spread".
The spreading crack in question is the price difference between cost of crude oil - on which Air NZ hedging is based - and the refined jet fuel price.
So as the gap widens the effectiveness of the hedging decreases.
Marcus Curley at Goldman Sachs JBWere took another look at the airline after this unfortunately named phenomenon forced a profit downgrade last week.
Air NZ indicated operating profit would come in at between $200 and $220 million - a drop of up to 25 per cent on the anticipated $268 million.
Curley has lowered his operating profit forecasts by 22 per cent in 2008 and 29 per cent 2009.
The 2009 forecast factors in increased competition from Pacific Blue and Emirates.
With earnings momentum being a key driver of the stock and little prospect of growth in the near future month he retains a sell recommendation.
However, with a lot of the bad news already priced in he doesn't pick the shares will fall much further.
He has a 12 month target of $1.20 compared to yesterday's close of $1.26.
The airline "remains in good shape to weather the storm with a robust balance sheet and positive free cash flows," he concludes.
LIGHT AT THE END OF THE TUNNEL?
Chart watchers will have noticed that while the NZX continues its volatile cycle of rallies and falls, the last rally - March 27 to April 4 - was stronger than any others this year, lifting the market 7.1 per cent.
And the subsequent fall was weaker - dropping by just 4.8 per cent and stopping short of a fresh low. Given the precarious nature of global confidence as the credit crunch drags on and because the NZX is vulnerable to large swings on thin trading that's no guarantee the worst is over.
There will still be negative sentiment out of the US as the recession works its way through but the most dramatic phase of this correction may be be over.
* An earlier version of this story incorrectly said Contact was the best performer. The error was caused by incorrect information supplied.
