Stock takes: Fresh look

First NZ Capital has resumed coverage of Contact Energy after a five-month break (while its banking arm was involved in the proposed merger with Origin).

Coming at it with fresh eyes, First NZ's Jason Lindsay is relatively optimistic, giving the shares a 12-month target price of $7.85 - compared with yesterday's close of $7.05. He is picking that Contact has had a strong half-year with low southern lake levels creating high spot prices for electricity.

This will have presented significant opportunities for it to use its thermal generation assets. Factoring in extra revenue from increased generation, changes in the hedge position and the higher cost of gas, the estimate is that Contact may have benefited to the tune of $30 million to $35 million at the ebitda level for the second half of this year.

Yes, there are those ever-present risks about future gas supply but Contact may, in due course, contract the lion's share of the remaining Pohokura gas. This combined with the announcement of right of first refusal on 200 PJ of Maui gas and new fields such as Greymouth Petroleum Turangi-1 should ensure sufficient supply to run Contact's existing plants for another 10 years.

There are other medium-term risks, Lindsay warns. Contact has to decide if it will commit its own gas exploration programme, if it will commit to wind generation, proceed with the importation of LNG and proceed with the Otahuhu C power station.

But, in the meantime, Contact "continues to deliver outstanding financial results regardless of hydrological conditions". It is on track to be debt-free by the end of the decade.

Lines lying low

Despite several analysts taking the view that Vector has all its obvious downsides (mainly the threat of Government regulation) priced in, shares in the listed lines company hit a new low of $2.42 this week. That's not far off the issue price of $2.38.

Those shareholders already outraged at the $3 billion-plus the Government has regulated off Telecom's market value might want to ponder the wider shadow that the threat of state intervention has cast over New Zealand stocks. The shares closed at $2.44 yesterday.

It's my ball

Eric Watson seems to have decided that life is easier if you dispense with shareholders and do it all by yourself. As the saying goes: there's no "I" in team, but there is a bloody great "me".

Last month, Watson paid $500,000 to rid himself of pesky shareholders in the New Zealand Warriors. This week, he has moved to buy out the remaining shareholders in investment vehicle PRG. Given the poor performance of the rugby league team and PRG (thanks to British appliance retailer Powerhouse) it's not surprising that Watson hasn't met too much resistance to his buyout plans.

On the face of it, something didn't seem quite right about the fact that this takeover was being played out while PRG shares are on a trading halt. They've been suspended since July 10 because of the failure of the company to file an audited annual result. That is apparently because of an unfinished audit by a third party - relating to the sale of PRG's finance arm.

Is there no shareholder outrage at being locked into the shares (which last traded at $1.55) while Watson makes his offer of $1.22?

Not really, say brokers. PRG stock is just so thinly traded now. Fifty shareholders own 98.5 per cent of the company.

Powering on

Watson's woes obviously weren't at the forefront of Rod Duke's mind this week. In a bullish mood after Briscoe reported improved second-quarter sales figures, Duke described his retail chain as a "powerhouse".

An unfortunate choice of words on the same day that Watson put his Powerhouse retail chain into voluntary administration. "You have a look at the numbers and it's just powering away," Duke added. Well, OK, fair enough. Briscoe is looking pretty solid after all and powerhouse was probably part of the Duke lexicon long before Watson sliced into his first steak.

Sticking to the view

Resin manufacturer Nuplex already qualifies as one of the hot stocks of 2006 with returns to date of just over 45 per cent.

Although there is no doubt that rising raw material and energy costs will be an issue for the company in the coming year, the stock still looks like a good bet in the short to medium term, says Rodney Deacon at Goldman Sachs JBWere. After analysing the results of five operators in the global coatings industry (three Nuplex customers and two US-based competitors), Deacon is maintaining his short-term "outperform" and long-term "buy" recommendation.

His analysis indicates that sales growth in the US is slowing and that - combined with increasing costs - could put some pressure on margins in that market at the start of next year.

But that is likely to be offset by market conditions in Europe where sales growth is tracking ahead of projections. In the short term, Nuplex has the weaker dollar on its side and looks set to report a strong 2006 result (on August 25).

Deacon maintains a valuation of $6.74 on the shares - compared with a closing price of $6.47 yesterday.

Spot of turbulence at the airport

Auckland International Airport's share price has continued to slide after last week's asset revaluation and the subsequent stoush with Air New Zealand. The shares closed at $2.06 yesterday, down 6c since the company doubled its asset valuation on July 24.

The airport has delivered a new pricing proposal to Air NZ, which says it is stunned and shocked by the contents.

Could it be that the tough-talking national carrier has spooked investors by raising the spectre of regulatory intervention?

In this post-Telecom unbundling world, the market is understandably jittery about the Government's intentions for companies with any kind of monopoly.

But this is just the latest round of a dispute that has already been through a tortuous four-year Commission Commission investigation.

In mid-2002, the inquiry concluded Auckland airport was extracting about $4 million a year in monopoly profits and recommended some form of regulatory control be imposed.

It didn't happen, because the Commerce Minister at the time decided the need for price control was outweighed by its negative "net public benefit" to all people, including airport staff and shareholders.

Judging by the intensity of the rhetoric coming out of Air NZ's head office, the airline is hoping a bit of well-timed public outrage may get the issue back on the Government agenda.

But has anything changed since 2002? The Commerce Minister certainly hasn't. Well, Lianne Dalziel did stand down from the role, but she has since been reappointed. And the bad news for Air NZ is that she is still the only hope it has of stopping the airport dictating its own terms in the consultation process.

It is interesting to note that Air NZ's plight isn't getting a lot of sympathy in Wellington.

Opponents of the proposed code-share agreement with Qantas are quick to point out the irony - Air NZ hasn't been quite so keen for the Government to give the commission any power on that issue.

It's lonely at the top

As Feltex went through the last rites this week (in its present incarnation at least), its performance descended into the tragi-comic. Not only is this company looking into the abyss but it could not even hold a press conference together.

Chairman Tim Saunders, perched high and lonely in the cavernous Crowne Plaza conference room, wore an expression of shocked disbelief.

The many people who dialled into the conference heard little or nothing of the speeches or the responses to their questions; Saunders could not hear questions from the floor because the speaker next to his desk was not working; the directors linked to the conference by video link from Melbourne could not hear questions from those who had dialled into the conference by phone.

"I can't hear you, I can't hear you," one frazzled Business Herald competitor, clearly on deadline, cried across the public address system.

The meeting came close to farce as the PR man who had organised the gathering was forced to run between the floor and podium relaying questions to Saunders. And then, in one final irony, he had to suffer the ignominy of having the technical debate with the previously mentioned journalist broadcast to everyone.