Stock Takes: New deals in buoyant market

Chairman Peter Brook is in wait-and-see mode. Photo / NZME

Opinion

Burger backers get indigestion

Investors in BurgerFuel seems to be taking the same wait-and-see approach as the firm's executives, who expect to know in the next few weeks whether it can push on with its US expansion. BurgerFuel's share price slipped 15c on Tuesday on the back of the company's annual result and signals it may call off its push into the US. That $1.70 price is in line with its lowest point since the firm revealed its deal with Connecticut-based Franchise Brands. BurgerFuel's share price skyrocketed more than 150 per cent to $3.79 on news of that 2014 agreement, which would see the NZAX-listed firm work with Franchise Brands to help its planned US foray. It is now waiting to see whether Franchise Brands wants to continue being involved.

"Although it could be possible for BurgerFuel to move forward in this market independently of Franchise Brands, we feel the potential support available from a large United States-based organisation is essential to our success in this market and at this stage, we are not prepared to move forward without that support," chairman Peter Brook and chief executive Josef Roberts said on Tuesday. BurgerFuel's share price lifted 5c on Wednesday. Yesterday, however, shares were back down to $1.70.

Wealthy shareholders tapped for more capital

Are we entering a period of extensive capital raising? That's what seems to be going on after action in the last few days. Just this week alone, Stride Property announced it would seek to raise $150 million to $185 million to float new business Investore.
As well, luxury home fragrance and specialty natural skincare business Trilogy International said it would raise $50 million to repay debt and fund future growth and acquisitions. Part of that $50 million is for new equity. Moves like this are no surprise. The NZX has been a strong performer and now we're seeing these companies raise equity capital to expand. Expect more.

There will be strong investor appetite for this, one expert said. "The market is going to be tapped for equity," he said. Why? Great returns, it seems. Over the last 12 months the New Zealand market is up 18 per cent, one of the world's best performers. So it's no surprise to see increasingly wealthy shareholders being offered new deals. In the last three years, the market rose 15.8 per cent annually. Spectacular compared to those low bank returns.

Rocky ride

The bumpy ride of airline investors was plain this week following the mass shooting in Orlando and growing fears Britain leaving the EU could badly affect business travel.

In the United States, American Airlines and United fell nearly 5 per cent in the immediate aftermath of the Orlando massacre, one-year lows.

International Air Transport Association figures show global airline share prices fell by 3 per cent in May, and have now fallen by nearly 11 per cent since the start of the year. Airlines are facing increased pressure on yields in a competitive environment and rising oil prices.

IATA says while Brent crude oil prices broke through the US$50 ($70) a barrel mark at the end of May, the market still expects prices to remain at reasonably low levels for the foreseeable future - below US$55 a barrel until mid-2018.

Airfares have fallen by around 5 per cent year-on-year in constant exchange rate terms in 2016 so far.

But with oil prices up more than 80 per cent since January, the stimulus to demand from lower airfares is likely to fade in the second half of the year.

Qantas buyback

Qantas is eyeing returning more capital to shareholders after this week announcing it had completed a A$500 million ($523 million) on-market share buyback.

Last November the airline - which two years ago recorded losses and its credit rating fell to junk status - completed a A$505 million capital return and share consolidation.

Since June 30 last year the number of ordinary shares on issue has decreased by 12.6 per cent.

The Qantas board will make a decision on future capital management before it announces its full year results on August 24.

While it has been rewarding investors this year it hasn't paid a dividend since 2009 but that's also a possibility this year.

Decision time

Qantas' capital return comes as Air New Zealand faces a decision on the same issue.

Air New Zealand will sell 19.98 per cent of its stake in Virgin Australia to privately owned Chinese conglomerate Nanshan Group for A$267 million or A33c a share. That leaves Air New Zealand with a 3 per cent stake. UBS said Air New Zealand should also get its A$131 million shareholder loan to Virgin repaid.

"After both events we believe Air [New Zealand] will most likely return net proceeds from the VAH shareholding sale to its shareholders via special dividend. While exact timing is difficult to judge, we expect this to occur before the end of August."

But Deutsche Bank analysts take a different view. "Air [NZ] still has $2.3 billion of new aircraft capex ... and a deteriorating operating landscape so while there may be capacity for a special dividend we would not be surprised to see the board adopt a cautious approach to capital management, for now."