KEY POINTS:
The Government says it will move to close a loophole in its new PIE (portfolio investment entities) tax regime that might have allowed land-holding companies like Auckland Airport to spin off more tax efficient property companies from their core business.
PIE rules come into force on October 1, meaning passive investment vehicles such as managed funds will be taxed at a lower rate.
"It appears that, because PIEs can invest in land, some land-owning companies that run active businesses are contemplating using a gap in the new rules to structure the land part of the business as a PIE," the release from Finance Minister Michael Cullen and Revenue Minister Peter Dunne says. "The Government will introduce legislation at the earliest opportunity to prevent that happening."
Auckland Airport management never actually had a spin-off on the agenda and it is highly unlikely they would have made any serious moves before the PIE regime became law.
Nevertheless the idea had piqued the interest of brokers and analysts who could see potential in all sorts of companies, including energy companies and big retailers like The Warehouse.
With the shadow of takeovers hanging over both Auckland Airport and The Warehouse, it is difficult to tell what effect this might have on pricing - if the prospect was ever worthy of pricing in the first place. Auckland Airport shares closed at $3.07 yesterday, largely unruffled by the formal collapse of the merger deal with DAE. The Warehouse closed at $5.74.
No options
Walking away from Telecom with more than $4 million in payouts (on top of a base salary of $1.25 million) doesn't sound like a bad result for Theresa Gattung. Of course that's pre-tax and includes nearly $300,000 in holiday pay accrued over several years of working too hard. Then there's a $550,000 restraint of trade agreement that makes it difficult for her to get a relevant new job in this country for some time.
Love her or hate her, Gattung has spent the past eight years running the country's largest listed company. It would be small-minded to expect her to leave with a gold watch.
The controversial bit is the performance payouts totalling more than $2 million. No shareholder is happy with Telecom's performance in the past year.
It may be that the cash performance bonuses were put in place to offset the fact that most of Gattung's share options are worthless.
Last year Gattung had 226,088 options lapse with a hopelessly unrealistic strike price of $6.77. She is holding another million that will expire on October 1 this year. The minimum strike price on that bunch was $4.70. Tantalisingly close - Telecom shares closed at $4.37 yesterday.
Another million options expire in July 2008 with a strike price of between $5.01 and $5.93.
For the sake of all the other long suffering shareholders, at least - let's hope she gets the chance to cash a few of those in.
Shipping blues
With the hunt on for defensive investments, port companies might look like a stable berth in turbulent financial waters.
But Marcus Curley at Goldman Sachs JBWere has taken a look at both Port of Tauranga and the Lyttelton Port company and concluded both look pricey.
Port of Tauranga delivered a respectable result last week with net profits up $7 million despite the blow from losing Maersk container traffic.
But Curley's key takeouts aren't so positive. First up, volume growth was pretty limited. Total tonnage was down 3 per cent because of reduced coal imports and container volumes were only partially offset by higher log exports. That trend is expected to continue next year with a further decline in coal and only marginal (4 per cent) growth in logs. Then there is the capital expenditure, which looks likely to be needed (somewhere between $50 million and $80 million) for dredging to enable the port to compete for larger container ships. If it doesn't spend on dredging, the company could make a capital return, but that isn't likely to be very efficient with the company trading on a higher than normal price to earnings ratio (P/E), Curley warns.
He has upgraded his ebitda forecasts by 2 per cent next year and 4 per cent in 2009 because of increased container volumes from a couple of new services (Hamburg Sud and US Lines). That lifts the DCF valuation to $5.65 a share from $5.30.
But that is still not enough to justify the market premium of about 25 per cent.
So Curley downgrades from "hold" to "sell". In fact, he is picking a 12-month return of - 13 per cent as value moves back towards the discounted cashflow level.
The current pricing is a hangover from plans to merge with Ports of Auckland. After the merger plan failed the price held on to some of the premium that had been built in.
Curley sees further M&A activity as the only threat to his gloomy recommendation. But that looks unlikely while at present prices.
POT shares closed up 5c at $7 yesterday.
On the mainland ...
Lyttelton Port company also cops a "sell" from Goldman Sachs JBWere's Curley. It reported a net profit decrease of 4 per cent - to $9.6 million - thanks to increased maintenance costs.
That result was in line with expectations. Like Tauranga, it reported lower volumes because of reduced coal imports and a big drop in motor vehicles. After the extra maintenance costs the underlying ebidta was up by $300,000 to $32.8 million. The company didn't talk about a possible merger with Port of Otago but did suggest the industry would "benefit from rationalisation".
Curley has revised his net profit forecasts down by 6 per cent for next year and 4 per cent for 2009. That sees him drop his discounted cashflow valuation by from $2 to $1.95 a share. His 12-month target drops 2 per cent to $2.11 a share. Either way that's not enough to justify yesterday's closing price of $2.25
Opportunity lost?
The failure of ABN Amro to sell off even $100 million of Yellow Pages debt has provided a stark reminder of how shaky the market is - even with the NZX-50 bearing up pretty well in the past couple of weeks.
Shortly after Telecom sold the directories group back in March investors were chomping at the bit to get in on the bond issue at a rate of about 10 per cent, recalled one senior (and unconflicted) broker this week.
Of course there are those who suspect the "market turmoil" plea has simply provided a convenient excuse for Yellow Pages. That's the line one tech-savvy reader is taking.
Writes John Ryan: "The lack of interest has got nothing to do with the state of the investment market. People might be cautious, but they're not stupid. Any investment in paper media is a sure way to lose money, and they're dreaming if they think things will be different when the markets calm."
For the record, Stock Takes and a few other enthusiasts such as Rupert Murdoch and thousands of APN shareholders reckon there will be money in print media for a while yet. Not that we're biased.
Ryan goes on: "The online directories market is over-saturated, and Yellow Pages is the new kid throwing money around it can ill afford to. Besides, Google has already trimmed back Yellow's hits on thousands of keywords. It's not about to let a bunch of newbies cut into its online advertising revenues. Its traffic stats are telling: alexa.com/data/details/traffic - details?url=yellowpages.co.nz."
Yellow Pages is likely to come back to market. When it does the risks may be lower, but the returns will be too.
Sure to rise
Goodman Fielder has been on a strong run in the past few weeks, putting on about 25 per cent since the end of June. In the same period the NZX-50 has shed 2 per cent.
The "bread and butter" theory would have it that Goodman is a safe place for investors to park their cash during turbulent times. But the stock has also been buoyed by speculation that Graeme Hart isn't planning a hurried exit from his 20 per cent stake in the stock when his self-imposed "no sell period" comes to an end in December.
There would seem to be no obvious reason for Hart to sell immediately. Despite some big acquisitions in the past two years he is still sitting on a good-sized cash pile. Goodman shares closed at $3.20.
