KEY POINTS:
Pike River Coal has never been a stock for the faint-hearted. It has been running hot in the past few weeks before a reality check on Wednesday in the shape of an 8.4 per cent fall.
After a rocky start, the project in "tiger country" northeast of Greymouth is on the verge of hitting hard coking coal that is the proverbial black gold on world markets.
After hitting a low of 80c soon after listing at $1, Pike River climbed to a high of $2.08 last week after confirmation of US$300 ($398) a tonne coal prices and the pending entry into the NZX-50. Shares closed yesterday up 4c at $1.89.
First New Zealand Capital's Jason Familton says the share price was getting a little ahead of itself.
"I think it's a little bit of profit taking - it's had a fantastic run. At the end of the day the story remains intact.
"It's going to be producing a resource that's got significant global demand."
Boring is making good progress through the potentially problematic Hawera fault and the tunnel is due to reach the Brunner coal seam in July.
The company forecasts extraction of 200,000 tonnes of coal during this financial year, building to one million tonnes a year for the 17-year life of the mine. Familton said once through the fault there was another element of uncertainty over any water or gas.
"It's really just a potential delay in timing. There's no uncertainty that the resource isn't there.
"It is important that they start producing given where the price is and for the market because of the delays they've already had but that said they will be minor delays if anything."
James Smalley, a client adviser at Hamilton Hinden Greene said Pike River stood out as a good news stock.
As New Zealand's only listed coal company it benefited from concentrated attention of local investors and from July 1 would further benefit from buying by index related funds.
Coal producers in Australia had seen their share prices triple or better in the past year - the difference being Pike was still in its development stage.
"The market doesn't want to get ahead of itself - unlike these producers who do have two or three mines they are only a single mine producer and a single commodity. Things are looking rosy for coal at the moment but what happens if the coking price falls out of bed?"
However, Pike was in an absolute sweet spot, Smalley says.
"They're at the right place at the right time, particularly given further weakness in the New Zealand dollar."
BEST AND WORST
Now that it is in the NZX-50, Pike River Coal tops the league table of best performers for the year to date on that index. It has returns to date of 75.26 per cent.
It is followed by NZ Oil & Gas with a 35 per cent return. Probably also related to the global commodity boom is the strong showing of PGG Wrightson and its sister company NZ Farming Systems Uruguay at third and fourth respectively with returns of 22.17 per cent and 16.67 per cent.
At the other end of the table is Air New Zealand, down 41 per cent, and Fletcher Building, down 39 per cent.
FUEL PRICE AND TOURISM
If fuel price-hit airlines are catching a very bad flu does it follow that Auckland International Airport catches a cold?
Sort of, say analysts although unlike the airlines, there will be an incubation period.
Despite (officially) being an indispensable strategic asset, analysts say there are still other factors threatening the main gateway to New Zealand.
The threat of more stringent regulation of how it sets prices hangs over the airport. The loss of key personnel, legal challenges over property and the fact it's off limits to foreign buyers is bearing on the company.
The promise of a takeover, first from Dubai and then from Canada, pushed the share price up to $3.41 last year. Yesterday it was trading near a 52-week low of $2.11.
One analyst said: "How much you're going to pay for this company is based on operational performance, not corporate activity and current indications on many fronts are not promising."
Jeremy Simpson of Forsyth Barr says higher fuel prices and less disposable income has to be a negative for airports.
"That is a factor impacting on near-term earnings. It still remains a very strategic asset as a major gateway to New Zealand. In the long-term tourism is very strong."
The NZ Superannuation Fund and Infratil agree, having built up their stake to around 11 per cent after the Canadians' departure.
Goldman Sachs JBWere's head of research, Marcus Curley, said the impact from any reduced passenger numbers as a result of increased fares would be felt directly over the next 12 months.
"It's not going to be of the same magnitude of problem for airports because they don't have the same operating leverages as the airlines."
CONTACT NOT CREAMING IT
Low lakes and the issue of whether or not we have a power crisis have been dominating the media for the past fortnight. Contact Energy - with its moves to fire up a mothballed Taranaki power station and the outage at Otahuhu B - has been one of the companies thrust into the spotlight.
Not that its done the share price much good. It has fallen almost 10 per cent since May 28. Contrary to popular opinion, Contact Energy isn't creaming it as wholesale prices rise.
Matthew Henry, energy analyst at Goldman Sachs JBWere, is picking that Contact will struggle to meet the earnings target it set in February: earnings before interest, tax, depreciation and amortisation and financial instruments (ebitdaf) of $566 million - up 4 per cent on a year earlier.
Henry has adjusted his full year 2008 forecasts down - dropping his earnings per share estimate by 8.1 per cent.
However, the shortfall doesn't reflect any fundamental change to the underlying business or industry, Henry notes. So it doesn't materially impact Contact's valuation or investment case.
It is the abnormal power supply situation that is hurting Contact and also the cost related to the shutdown of Otahuhu B.
"Generally higher wholesale prices benefit a generator with a long wholesale position such as Contact," he writes. "However, in the current market, the benefit to Contact is being offset by other abnormal dynamics."
These included the magnitude of intraday volatility and the disconnect between prices in the North and South Island prices due to constraints on the transmission grid and low lake levels in the south.
There is still a chance that Contact could benefit from the high price environment.
That will happen if and when the North/South price differential normalises and transmission constraints ease.
Henry doesn't actually offer a valuation on the stock.
That's because Goldman has temporarily suspended its recommendation on Contact because it is advising BG - the UK gas company seeking to buy Origin. But other brokers have 12 month target prices ranging from $12.95 to $9.57.
The shares fell 10c to $8.56 yesterday.
MASTHEAD ON THE PROWL
What is Masthead's Mark Stewart up to?
The Stewart family's investment vehicle Masthead Investments appears to be making a play for another listed healthcare company.
On Wednesday Masthead took a 15.1 per cent stake in Wakefield Health, snapping up just over three million shares worth $28.7 million and yesterday he upped it further to 16.3 per cent.
The shares were sold by the interests of Selwyn and John Cushing which reduced their stake from 7.19 per cent to 1.96 and Wakefield's second biggest shareholder, AMP, which cut its holding from 13.55 per cent to 10.98 per cent.
The buy-up pushed up Wakefield's share price by 75c to $9 a share buoyed by Fisher Funds also taking a 5.68 per cent stake.
Expectations are that Stewart will raise his stake to the 19.9 per cent limit and sit in a holding position until he's ready to make a takeover bid in a play mirroring his bid for Abano Healthcare.
In October 2006, Stewart bought a 19.9 per cent stake in Abano Healthcare for $1.55 a share.
Then, nearly a year later, he made a partial takeover bid for 51 per cent of Abano at $3.85 a share.
This was rejected by the Abano board as too low and Stewart raised his bid to $5 a share in November only to be gazumped by Australian private equity player Crescent who made an offer for 100 per cent of the company at $5.20 a share.
Instead of forging ahead with his takeover plans, Stewart sold out to Crescent making a tidy profit of $16.7 million or 235 per cent in just 15 months.
So is it only time before Stewart makes a play or is he hoping to flush out another buyer like Crescent who will pay him handsomely for the shares?
Wakefield shares closed steady yesterday at $9.
