Stock takes: Oil-proof stocks?

War: what is it good for? Absolutely nothing, says a random sample of local analysts - none of whom look much like your average peacenik but know a thing or two about the local market.

The consensus is that no NZX stocks will be able to avoid the fallout if the Middle East conflict escalates and oil prices go through the roof.

The New Zealand market isn't endowed with the kind of fossil-fuel companies that can clip the ticket as the price of the black stuff soars. There's NZ Oil & Gas - but that is an exploration company. High oil prices might make prospects like Kupe more viable but, by the time the gas starts pumping, who knows where volatile global prices will be.

NZOG shares haven't done anything dramatic since the Kupe decision was made late last month. They closed at $1.02 last night.

NZ Refining makes its money on fuel processing and could potentially see its margins rise but that hasn't exactly been reflected in the share price either. NZR shares closed at $6.75, about the same price they were a month ago.

If the political situation in the Middle East worsens, it becomes more a case of picking which stocks will suffer the least from an oil shock.

That generally comes down to who is best able to pass on the costs to their customers.

Retailers look particularly vulnerable as the sector is highly competitive and consumer goods such as electronics, home furnishings, clothing and high-margin luxury food items are among the first things people opt to cut back on.

Although they don't like to brag about it, obvious victims of higher petrol prices such as Mainfreight and Freightways are quite good at adding fuel surcharges which may provide them with a solid buffer. Mainfreight shares closed at $5.65 yesterday. Freightways finished the day at $3.85.

Air New Zealand is also pretty good at adding the odd fuel surcharge, although it claims heavy competition forces it to bear more of the rising cost than it passes on.

Utilities like Vector and Contact are traditional safe stocks as they don't have big transport bills and provide essential services. Tech companies may also have less exposure to rising transport costs.

Down to earth

Normally Telecom would fit the safe-haven category - it earns most of its revenue from services that modern people consider essential. But, unfortunately, its political woes have ruled it out as a safety option for most investors.

Telecom shares fell back through the $4 mark yesterday bottoming out briefly at $3.98 before the bargain hunters came to the rescue to help it close at $4.03. Don't panic, Captain Mainwaring.

Raking it in

The ever astute Carmel Fisher, of Fisher Funds Management, still likes the look of tech stock Rakon. Fisher has been one of the quartz crystal-maker's biggest champions since it listed in May.

Confirmation that she is still buying came this week in the form a substantial security holder's notice. The fund now holds 6.75 per cent.

Fisher has told this column she is in for the long haul. Despite that, there are fellow Rakon holders out there watching closely for the first sign of the fund selling. Rakon closed down 2c at $2.98 yesterday.

Micro market

Is it an indictment of the local market or of Air NZ that on a slow morning yesterday the airline was ranked number two on the NZX website's "biggest risers" list. It was up just 2c.

Air NZ shares closed at $1.13 yesterday, having hit a new post-consolidation low of $1.09 on Wednesday.

Schadenfreude

Feltex shareholders feeling sorry for themselves might want to spare a thought for the poor bugger who approved ANZ's lending to the carpet-maker over the past year or two. He (or she) obviously had a lot of faith in Feltex's management team.

A quick look at the company's 2005 annual report shows the bank chipped in $5 million to help Feltex pay out all its secured bond holders at the time of the IPO (the rest of the $60 million in bond debt was funded with IPO cash).

So ANZ actually managed to increase its debt at a time when Feltex had cash to burn. It then went on to provide a further $17.93 million to fund that year's dividend payment.

The net result is that the bank managed to increase its lending from $80 million at the time of the float to an estimated $129 million today. Somebody has got to be seriously sweating over the future of the company. Feltex shares closed unchanged at 22c.

Making contact

With the chorus of calls for their heads still echoing around the market, Phil Pryke and the independent directors at Contact Energy wasted no time in sending their first "I told you so" letter to shareholders.

"This letter does not attempt to re-argue the case for the merger - that is water under the bridge now," write Pryke et al.

In the next paragraph, they launch into a justification for the merger plan based on Contact's pre-merger price and its subsequent fall since the deal was canned.

On the day the merger was canned, $185 million in shareholder value was lost, the letter notes.

It is a fair point - and one that has been made in this column - that if the shares linger too long below the merger value then some shareholders may start to rue the noble actions of the funds that sent Origin packing.

But isn't the point of opposing these takeovers and "mergers" (even when they offer a premium) that New Zealanders need to take a longer-term view when valuing the assets?

Commentators like Brian Gaynor have pointed out how much value New Zealanders have lost over the years by settling for short-term gain.

Let's all meet back here in a year and re-assess.

Contact closed at $7.10 yesterday.

Crossing the Rubicon

The odd beast that is Rubicon has been given an improved valuation of 90c (up by 8.3 per cent) by Peter Sigley, of Goldman Sachs JBWere. The shares closed at 94c yesterday. The classically named company is effectively a grab bag of leftovers from the old Fletcher Challenge. It is part biotech investor - with stakes in Arborgen and Horizon2 - but also owns a 50.1 per cent stake in the "steady as she goes" wood-processing company Tenon and a stake in Argentinian milling operation FTSA.

One of the key reasons for increasing the valuation is the settlement of a dispute over ownership of Arborgen with Genesis Research and Development. Genesis was eventually paid US$5.5 million for its 5 per cent stake in the company. However, Sigley notes that the settlement doesn't automatically give Arborgen an implied value of US$100 million. The payment also reflects the value of intellectual property transferred from Genesis as part of the deal.

Other positive factors include operational improvements at Horizon2, the resolution of some shareholder differences at FTSA and the ongoing share buyback.

Sigley is sticking to a market perform/hold recommendation on the stock. In the short term, it will be supported by the share buyback. In the longer term, a lot depends on Tenon's ability to perform in the US (something that should be supported by the falling dollar). In the even longer term, the commercialisation of Arborgen's lignin (wood fibre) project will be crucial.

Rank on the road

Graeme Hart and Rank Group are packing up shop and moving ... well, just as far as the building next door.

We hear that the new Rank offices at 148 Quay St will be slightly swankier than those at 136 but it's a good bet that isn't the reason for the move. Neither of the buildings come close to being considered "premium" office space despite being on the waterfront. Given that Hart could probably buy the Sky Tower if he wanted, price can't be the issue either.

This column devotes plenty of space to second guessing Hart's plans - we'd probably try to read his tea leaves if we could find them - so why stop?

Could it be the Rank Team is expanding?

Does fixing up Carter Holt require more space?

A few weeks ago, Stock Takes pondered the reason for Hart's (somewhat more luxurious) yacht spending so long berthed in the Viaduct. We now hear the boat is actually undergoing some major refurbishment. So who knows, maybe the new office just has better feng shui.