Stock takes: The boon in June

The end of June marks the end of the financial year for many businesses, and is a key date for at least some fund managers, according to one of Stock Takes' sources.

June 30 is the day managers' performances are gauged, and in what Stock Takes understands is a longstanding but somewhat frowned on tradition, some will attempt to plump up their portfolios with a little judicious buying as the day wears on.

Our attention was drawn to trading activity in a couple of local bread-and-butter stocks, Fletcher Building and Contact Energy, which had a pretty good day on Tuesday, particularly in the last couple of hours of trade.

Contact Energy was trading around $5.75 to $5.78 during the day until "right at the last second, somebody went in there and mopped up everything at closing at $5.85", said our source.

An even more interesting example, Fletcher Building shares started the day at $6.38, got down as low as $6.35, then right at the end of the session went from $6.45 to $6.58.

Fletcher Building has come off Tuesday's closing high, yesterday finishing up 10c at $6.52 while Contact lost 5c on Wednesday and closed down 4c at $5.76 yesterday.

Our source tells us this kind of "window dressing" is also seen in Australia but then so is "tax loss selling" where shares that have lost value are sold at the end of June to crystallise the loss for tax purposes, before being bought back in following days, hopefully at the same price.

Dual listed Nuplex and Fisher & Paykel Appliances have enjoyed bounces since the end of the month, something our source believes is not entirely unrelated.

THE EX FILES

Although most of the bigger deals have already been done, investment banking sources suggest there will be something of a tail of capital raisings by smaller companies for some time to come.

Other corporate activity being tipped includes work being done on the potential sale of a large multinational's local operations.

We are told this is not Shell's previously announced plan to sell its downstream local businesses.

We also hear word of the potential takeover and delisting of a couple of respectable sized NZSX companies. While that's hardly good news for the market, a couple of sources are also talking about the likelihood of market floats of private equity owned businesses.

There's been no shortage of speculation that debt burdens and softening earnings may force some private equity owners to exit some of their investments. One or two of the names bandied about are high profile businesses too.

"The trick will be doing it in a way that the market feels sufficient comfort," one of our sources points out, in a glancing reference to ill-starred listings including Feltex, Vertex and Fortex, "anything with an 'ex' in it really".

Stock Takes hastens to add that is clearly not applicable to the recapitalised Nuplex which seems to be doing just fine now.

BOND BOOB

There were likely a few red faces behind the scenes as Downer EDI amended its offer of three year, fixed rate bonds this week and gave investors the option of getting their money back.

The offer raised $100 million and a further $50 million in oversubscriptions but it was subsequently discovered that the terms of the offer effectively gave its retail investors a measure of preference over Downer's banks.

The issuing subsidiary Works Finance had not been included as a guarantor under parent Downer EDI's senior unsecured debt facilities. Oops.

Works Finance has now been included as a guarantor of Downer's bank debt so the natural order has been restored but it was felt only fair to give investors the option of backing out of the now technically less secure investment.

Stock Takes understands relatively few investors so far have taken up this option and there are more than enough applications that missed out in the first place to replace them.

The bonds have retained their investment grade rating of BBB- with a stable outlook.

A WONDERFUL SURPRISE

Last week Stock Takes noted what one broker called Hellaby Holdings' "Lazarus-like" comeback from a depressed share price and big yield on its listed debt, not to mention the fact its directors were showing new-found confidence in the business by buying up shares.

This week the company revealed it has reduced its core bank debt by more than a third to $51 million, from $80 million, over the last six months.

That's great news, but Stock Takes can't help but wonder whether the directors' recent purchases of shares was at least partly influenced by their knowledge of the progress the company was making.

If so it would have been courteous at the very least, if not obligatory, to let the market know too before the directors "filled their boots".

Managing director John Williamson told the Dominion Post the company's debt position was only known at the year end date of June 30 - the day before the announcement.

Many readers will be familiar with the pleasant feeling of discovering a long forgotten $20 bill in the back pocket of a pair of jeans they've not worn for a while. We can only imagine the euphoria resulting from the discovery the company was all of a sudden tens of millions of dollars better off.

Hellaby shares closed down 8c at $1.32 yesterday.

VOICE OF EXPERIENCE

"You can't produce a baby in one month by getting nine women pregnant."

Veteran investor and the world's second-richest man, Warren Buffett, 78, demonstrates a sound understanding of biology as well as economics as he encourages CNBC television viewers to remain patient with ongoing US Government efforts to stimulate business activity.

EASTERN PROMISE FOR F&P

Chinese Government-owned whiteware giant Haier appointed two directors to Fisher & Paykel Appliances' board this week following its acquisition of a cornerstone stake in the company a month ago, but this is only one sign of the company's increasingly Asian aspect.

Stock Takes hears Asian fund managers were among buyers of F&P shares as they surged after the announcement of the Haier deal and while that flurry of trading has subsided since, we hear they are continuing to pick up stock.

While the buying probably reflects optimism about F&P's prospects with its new partner, it possibly also has something to do with expectations Haier will at some point in the future look to move to 50 per cent or more and may pay a premium to do so.

The Haier-appointed directors are Zhou Yunjie and Tan Lixia.

Fisher & Paykel Appliances shares closed up 2c yesterday at 68c.