KEY POINTS:
Off-the-record gossip gets a bad rap because of its potential to damage markets.
That's fair enough when it means some shareholders miss out on important information - but it can have its upsides when leaks are handled well.
For example, the leaks in advance of this week's parliamentary
select committee recommendations for Telecom have been a spectacular success in terms of providing much-needed stability for the market.
The high-level leak last month - which emanated from within the committee and also from Telecom's upper echelons - primed the market for a slightly tougher than expected line on accounting and operational separation.
A report in the Business Herald on November 7 even inspired a research report by Andrew White at Goldman Sachs JBWere.
In the wake of the media coverage, Telecom shares - which had been on their strongest run since the original unbundling decision - eased back from a recent peak of $4.80. They had lost 33c by the time the select committee reported on Tuesday and actually rose 4c cents on that day.
Which is a far better result for investors and for the reputation of the NZX than it might have been if the news had come as a bombshell and the shares had lost 33c on the day.
Of course, anything is preferable to having the information stolen and swapped amongst cycling buddies before being dumped on an unsuspecting market.
Telecom shares closed up 7c at $4.59 yesterday.
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ANALYST OUTLOOK
The Telecom split also failed to fire up analysts - none of whom has felt inspired to alter their valuations or recommendations on the stock.
Given that most were already taking a pretty grim view, that isn't really surprising. The note put out by the UBS team in Sydney was typical of the general tone this week.
They found no material surprises in the announcement. Although structural separation was avoided they still see plenty of downside risks such as Vodafone competition and other new mobile entrant Naked DSL pricing coming in below expectation and other regulatory variables.
Yes, Telecom did rally through October on the back of global sector re-rating, the stronger currency and Yellow Pages sale expectations but it has still underperformed by 3 per cent compared with the rest of the New Zealand market, they note. Basically, the sector strength just provides a good opportunity to sell.
"Risk-adjusted valuations do not look attractive," they conclude.
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GIVE IT A TWEAK
As the deadline for the Independent Liquor bids draws near (it's tipped to be December 6) the spin is coming faster than a Shane Warne flipper on the fifth day.
As noted last week someone (from a bidding camp other than Lion Nathan) has been suggesting that the Ercegs will never sell to the Australasian brewing giant because of the aggressive way it treated Independent in the early days.
Now another well-timed rumour suggests Lion Nathan's due diligence has given the company a true appreciation of the genius of the late Michael Erceg. Maybe that's why they were so tough on him back in the early days of Independent Liquor. If you can't beat them, buy them.
They've certainly been tough on others before with no ill effect. Remember when Lion bought Mac's from Terry Macashin?
When Macashin was starting the boutique Nelson brewery, Lion and DB thwarted his moves to source beer bottles in NZ. That's why the Mac's bottle is the shape it is today - because he had to resort to using cider bottles. Then a few years later Macashin successfully sold his brand to his bitter "rival" Lion.
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DO IT YOURSELF
It's been all quiet on The Warehouse front for a couple of weeks now and Stephen Tindall's tone at the AGM certainly indicated he is in no hurry to solve the ownership stand-off that has eventuated with both Woolworths and Foodstuffs holding 10 per cent.
If he is content to mull his options over the summer break, here's one for the pot: How about retaining ownership and raising the cash for a grocery expansion with a rights issue?
When Warehouse shares were unloved and trading below $4 this year, raising fresh capital on market wasn't much of an option. But ironically Tindall's own plans for privatisation and subsequent play by Woolworths have lifted them to the point where a rights issue might be a worthwhile option.
Warehouse shares closed down 3c yesterday at $6.72.
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GOOD BET
SkyCity has been oversold on concerns about "a lack of short-term earnings growth momentum", writes ABN Amro's Carolyn Holmes.
Even though ABN has downgraded its operating forecast (they have previously been too optimistic, Holmes notes) the stock is still trading at a 13 per cent discount to its current discounted cashflow (DCF) fair value.
While recognising that the group faces a tough time in the next few years, as the local economy slows, the smoking ban kicks in for Adelaide and high levels of capital expenditure mean higher interest costs and depreciation, the Auckland casino remains strong.
ABN's current DCF valuation of $5.82 factors in conservative long-term gaming revenue growth of just 3 per cent a year from 2013 and a contraction in Auckland revenue margins from 45 per cent to 43 per cent.
But the slightest improvement in those variables - a 5 per cent increase in gaming revenue from 2013 and a 44 per cent margin for example - would lift the DCF valuation to $6.41.
So for that reason Holmes is upgrading to a "buy" and has lifted the target price to $5.72 (from $5.39).
SkyCity shares closed up 7c at $5.12 yesterday.
The current price provides also an ideal opportunity for a predator to pounce but given the prospect of continued industry rationalisation, Holmes is picking the discount to DCF will close over the next 12 months as investors focus on SkyCity's underlying value.
Key risks to the ABN target price include gaming tax rates and net migration numbers.
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SANTA STAYS GRUMPY
The word on the street in Wellington is that the finance and expenditure select committee will report back to Parliament next week with recommendations on changes to the law covering tax on foreign investments. GPG shareholders should be happy as it is understood the proposed exemption for the company - which is London registered but New Zealand-listed and owned - is safely ensconced in the bill.
Of course the Santa-esque GPG director Tony Gibbs is refusing to bow down and praise Beehive gods for the exemption. As he told the select committee, he isn't about to support the legislation in principle just because politicians have decided to just cut off a toe rather than the whole leg.
GPG shares closed at $2.44 yesterday.
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NO WATERFRONT STADIUM? NO PROBLEM!
So Fletcher Building won't get the so-called "blank cheque" from the Government to build foundations for a new waterfront stadium. That doesn't seem to have bothered investors.
News of the potential waterfront contract pushed shares through the $10 mark last month but the Eden Park decision hasn't resulted in any subsequent sell-off.
Perhaps that's because Fletcher Building isn't too worried about the Eden Park decision. Well-placed sources say the company is quietly confident it will get the contract for that anyway.
Then again it could just be that there are other factors putting upward pressure on the stock. Takeover talk out of Australia in the wake of the bid for Rinker, for example.
Fletcher shares rose 14c on Wednesday after Rinker rejected a takeover offer from Mexico's Cemex. The higher the price paid for Rinker, the juicier the valuation on Fletcher - or so the logic goes. The shares closed yesterday at $10.14, up 14c.
