Stock takes: Blinded by science

Further proof this week that good science does not equal good returns. The long-suffering Genesis Research & Development saw its share price fall this week following news that it had been recognised in the International Institution of Chemical Engineers annual awards for work developing a cheap alternative source of plant-based ethanol - an increasingly popular alternative to petrol.

The Shell Energy Awards - a category for producers of renewable fuel sources - said the Genesis BioJoule project "demonstrated the viability of producing ethanol ... from shrubby willow which can be grown in marginal land throughout temperate climate regions of the world".

Of course there are a number of "what if's" about ethanol and even more questions about the chances for commercial production of shrubby willow - given that the industry is dominated by US corn and Brazilian sugar growers.

But getting noticed by Shell can't be a bad thing. Even if Genesis can't take over the world it might be able to follow in the footsteps of another local ethanol producer - 42 Below - and flick the intellectual property off for a tidy profit.

Genesis once traded above $7. The shares closed last night at 22c.

Spring is in the air ... so what about the urge to merge?

Payment solutions company Cadmus decided it isn't ready to go all the way with Aussie rival Intellect, and will buy only one division rather than going for a merger.

But the big question on everyone's lips is whether it will now get it on with its larger New Zealand rival Provenco.

With all the charm of two shy teenagers the local eftpos companies hinted at the possibility of a merger this week without plucking up the courage to talk to each.

Here's a rough paraphrase of conversations our reporter had with both parties:

Reporter: Hey Cadmus, everyone says you fancy Provenco.

Cadmus: Maybe, it's kind of cute ... I probably would go round with them but that doesn't mean I'm gunna ask it or nuffing.

Reporter: Hey Provenco, Cadmus says it fancies you.

Provenco (blushing): Really ... I..I ... don't know.

Reporter: Do you want to get round with it?

Provenco: Maybe I would ... it is kind of cute but that doesn't mean I'm gunna ask it or nuffing.

Let's face it, the two look like a perfect match. They really need to join forces to have a better shot at large scale international success.

And there are some heavyweight matchmakers involved - such as Stephen Tindall and Peter Maire. So isn't it just a case of who'll make the first move? Go on, you know you want to.

Any port in a storm

For a deal that looks likely to be mired in political debate and which may require a Fonterra-sized act of Parliament to happen, the market has been pretty bullish on Port of Tauranga in the past couple of weeks.

The news - that it has been talking merger possibilities with Ports of Auckland - sent the shares skyrocketing from $5.05 up as high as $6.12 last Thursday.

Since last week's announcement, most analysts have revised their target valuations on the stock and they now range from Macquarie's $5.30 up to $6.20 at First NZ Capital.

If the deal does clear the political and regulatory hurdles it needs to progress, there may be even more upside to the price, but right now it looks like there is a pretty optimistic premium priced in.

A couple of news stories this week have highlighted just how volatile the stock is and its vulnerability to collapse if the tide starts to go against a deal. The shares plunged 20c on Wednesday after Auckland Regional Council chairman Mike Lee proclaimed that the ARC would not accept anything less than a 50 per cent stake in any merger. Earlier, sources close to the negotiations had said a three-way split was being proposed - between the ARC, its Bay of Plenty equivalent and an NZX listing. When it comes to market disclosure, politicians and listed companies are seldom a good mix. The shares bounced back yesterday to close at $5.95.

Return of the King

Spurned Dorchester Pacific director Brent King is still building a stake in the company via his new listed investment vehicle Viking Capital.

Viking this month raised its stake in Dorchester to 7.9 per cent from 5.4 per cent.

King is a founder and former managing director of Dorchester. He took it from a shell to a company that focused initially as a lender to small and medium businesses and gradually expanded into other areas, including investment banking, personnel, recruitment and investment advice.

He later sold out of the business and stepped down as managing director last year but made a bid to return to the board in August. Shareholders didn't want him. King obviously still likes something about Dorchester, although it's worth noting that it's not just his money he's using to buy in this time. Viking also has stakes in 42 Below and ICP Bio. Its shares closed at 28c yesterday, up 3c on its June issue price. Dorchester shares closed 3c down at $2.30 yesterday.

Wheels of fortune

Sealegs has been the butt of plenty of jokes around the market for a few years now. Fronted by two survivors from the dotcom era - David McKee Wright and Maurice Bryham - the company manufactures boats with wheels. Ashtray on a motorbike anyone? How long would these guys have lasted in the Dragon's Den? But while it hasn't made a profit, Sealegs does appear to be making slow and steady progress.

And whatever you think of their chances, McKee Wright and Bryham do seem committed to doing the hard yards - as opposed to pulling a fast one on naive investors.

This week Sealegs posted an improved deficit for the six months ended September 30, and the company said it expects to break even next year.

Its operating loss for the period was $499,343 - 31 per cent better than a year earlier. Revenue doubled to a record $2.6 million.

Sealegs has received 18 new amphibious-boat orders from customers in South Korea, Britain and Kuwait, representing about $1.4 million in forward revenue.

And its share price has been on a mini-run, up from 19c at the start of the month to close at 25c yesterday - the highest it has been since June 2005.

Regulatory roulette

Auckland lines company Vector was always supposed to be a safe and boring kind of stock. The kind that traders don't notice and that institutions and "mum and dad" investors love because it ticks along slowly and delivers pretty good dividends. Its chart for the year shows it has been anything but.

News on Friday that a truce had been reached with the Commerce Commission has hopefully restored some stability to the stock.

The theme of "regulatory roulette" persists as a major feature in the local market, writes Goldman Sachs JBWere analyst Matt Henry in his research note on Vector. Henry concludes that Vector now has an "earnings neutral" solution to the regulation issue priced in. The dividend income (a net yield of 5 per cent for 2007) and the valuation metrics are in line with other NZX defensive stocks and regulated network companies in Australasia, he writes.

The neutral regulatory assumption has prompted Henry to revise his valuation upwards by 16c per share to $2.57. Vector shares closed at $2.55 yesterday.