KEY POINTS:
Pumpkin Patch shares have rebounded this week after hitting a 20-month low of $3.19 last week. There's a view that after a rough year the shares look like good value again. They have fallen 30 per cent since January.
The valuation is back in the real world, the Citigroup team writes in its latest report on the stock. It upgrades its recommendation from "sell" to "hold".
But Citigroup isn't any more optimistic about the short-term outlook.
It has downgraded its 12-month target price from $3.56 to $3.45 after revising forecasts down by 1 per cent based on latest currency assumptions.
Also, Pumpkin Patch derives about 70 per cent of its revenue from its home markets in Australia and New Zealand, but local trading conditions haven't been great. In fact, Citigroup warns that the squeeze is going on, with rivals JK and Cotton On Kids expanding in both countries.
Still, the key to significant share growth for Pumpkin Patch remains the US and the UK.
Pumpkin Patch is expected to announce plans to accelerate the opening of new stores with its full-year results in September.
Increased confidence about the US market from a typically conservative management team bodes well for the longer-term growth outlook, Citigroup says.
Pumpkin Patch shares closed up 5c at $3.45 yesterday.
Dubai buy
As noted in Stock Takes last week, Dubai Airports is looking like a contender for Auckland International Airport (well done the Dominion Post for running the same snippet as a lead story four days later). Dubai is one of at least two parties believed to now be doing due diligence on the airport.
It gets murkier around the names of other contenders. Spanish infrastructure investor Ferrovial is understood to have had some people in town in the past few weeks but it is still not clear how serious it is. Canada Pension Plan (CPP) has gone quiet since hosing down speculation that it was interested in a full takeover. Could be, of course, that it is up to its neck in numbers.
Then there are the Aussies - Babcock & Brown and Macquarie Airports. Macquarie Airports is still understood to be on the outside of the process (if we can call it a process yet).
It might be talking to Auckland Airport but it isn't doing due diligence. It is likely that Macquarie is already comfortable with the extent of its knowledge about the financial workings of the airport.
Auckland Airport's shares are still holding steady, up 1c to close at $3.30.
That suggests a great deal of expectation that the board will deliver a competitive bidding process.
Digging in
Pike River has surprised many local brokers with the success of its IPO. Some additional interest from Australian institutions was behind the over-subscriptions - taking the amount raised to the $80 million mark. The Australians know their mining stocks and will be spreading their bets by investing in other new operations similar to Pike.
But having soaked up all that demand for the stock, the market doesn't have great expectations Pike shares will soar on listing. Many brokers prefer to keep the initial issue of stock tight to ensure secondary demand in the first weeks after listing. Lead brokers McDouall Stuart - second choice after First NZ Capital opted out of the float - would no doubt make the point that Pike investors should be taking a long-term view.
Holding on
If MFS gets across the line in its takeover of Tourism Holdings, where does that leave chief executive Trevor Hall?
Perhaps the timing might not be so bad, with Hall rumoured to be on the shortlist for the chief executive job at SkyCity.
The Tourism Holdings boss has a gambling connection of sorts as former chief executive at the Lotteries Commission.
Hall isn't actually on the board of directors that was so quick to recommend the MFS bid. There are some in the market who feel he might have to consider his re-consider position even if the MFS bid fails.
But the fact that THL's biggest stake-holders have seen the share price rise from just $1.50 when Hall was named as new chief in January last year should limit the fallout.
Meanwhile, after failing to call anyone's bluff with its statements that its $2.80 offer would not be extended or raised, MFS effectively went ahead and raised the bid anyway last week by agreeing to allow a 6c final dividend.
But the offer still gets a lukewarm response from Marcus Curley at Goldman Sachs JBWere.
The offer now represents a premium of 26 per cent on the close of April 27, Curley notes. That's in line with premiums in recently negotiated New Zealand takeovers.
It is also in line with the mid-point of the independent valuation ($2.87) but it doesn't offer any premium for control, he argues. Curley retains an "underperform/hold" recommendation.
THL shares closed up 1c at $2.70 yesterday.
Rating systems
A keen-eyed Stock Takes reader notes that finance company Capital & Merchant Finance was quick to remove from the main pages of its website references to the strong rating the Australian agency Property Investment Ratings (PIR) gave it.
PIR was the agency that had a 3.5 star "investment grade" rating on Bridgecorp right up until the day it collapsed - so perhaps that's not the kind of endorsement Capital & Merchant wants to show off any more.
The Government says that under new rules for finance companies it will appoint one or two well-known international agencies, such as Standard & Poor's, to do all ratings.
But if finance companies are serious about reassuring the public, they shouldn't need legislation to convince them to take ratings from the likes of S&P.
Tapping new markets
When Shower Fittings company Methven put its stock on a trading halt last week there were plenty of brokers and analysts who thought it was a goner - another smart company snapped up by a motley crew of private equity players.
So at an emotive level the news that Methven is buying its way into a sizeable chunk of the UK market was well received.
Considered dispassionately, the $59 million purchase of Deva certainly comes with some risk. But Methven's record is excellent and there has been no shortage of investors prepared to back the decision.
Shares rose to $2.70 the day after the announcement. They closed yesterday up 8c at $2.68.
Forsyth Barr analyst John Cairns has incorporated the acquisition into his forecasts and comes up with a discounted cash flow valuation of just $2.35.
But that is just a face value figure for the two businesses, he says. It doesn't include potential synergies or the value that will be generated if Methven can replicate its Aussie model in the UK.
The Flexispray story highlights the potential. Now called Methven Australia, Flexispray had a similar market position to Deva (about 6 per cent) when Methven bought it in 2003 and 2004. Methven Australia now has a 30 per cent share of the market across the Ditch.
Cairns says he likes Methven's long- term prospects.
