KEY POINTS:
Rates reaction
Markets hate surprises so it is fair to say Alan Bollard did rather well on that front yesterday. Equity markets were underwhelmed by the well-flagged announcement that interest rates will rise for the first time in 15 months. But, as far as removing some wind from the sails of overly optimistic investors, it looks like the Reserve Bank faces the same indifference from sharemarket investors as it does from consumption-mad householders.
Stephen Wright, of ASB Securities, said a generally higher interest rate environment was unlikely to rattle many local listed equities that carried strong balance sheets.
Rather than grappling with debt, many of the biggest stocks - Contact Energy and Fletcher Building - are struggling with the problem of too much cash.
"I can't think of any reasonable-sized company that is highly geared," Wright said.
Interestingly, the dollar actually fell yesterday, so Arthur Lim, of Macquarie, said there might be some positive flow through to the export stocks. The falling dollar was an ominous sign that international investors were picking the economy to come off the boil at some point as the high rates kicked in.
But, otherwise, Lim said there didn't seem to be any transparent flow through to the market.
Rob Mercer, of Forsyth Barr, said yesterday's rise hadn't changed the outlook for the NZX.
Given that the intent of a rate rise is to remove some cash from the economy it might be expected to dent enthusiasm for some of the retail stocks. But no, said Mercer, that was unlikely to happen. At a household level, wage inflation in the past year was high enough that consumers would cope with the relatively small extra cost that the rate rise might bring.
After the volatility of the past week, the NZX-50 had a steady day, closing up just 0.02 per cent to 4069.41.
Moving on up
Hot tech stock Rakon surged almost 10 per cent on Wednesday after the NZX announcement it had made it into the big league of the NZX-50.
It continued its climb yesterday, closing up 10c at a record high of $4.85.
The strength of this week's rise is a little perplexing though given that this was not really news. The company confirmed that it expected to make the leap after it announced the successful completion of its $60 million issue of new shares last month.
When a stock moves into the NZX-50, a number of large funds that track that index passively suddenly need to buy a chunk so that they can maintain their weightings - typically sending the price up.
The big funds don't actually buy in until Monday when Rakon officially makes the move. The rise on Wednesday was the market pricing in the anticipated extra demand.
But the lag between completion of the share issue (February 13) and this week's price action - suggests there was some serious value left sitting on the table for weeks.
Okay, the process needed to be worked through by the NZX but its formula is no secret - it is the number of free-float shares (in this case excluding combined stakes of more than 50 per cent held by the founding Robinson family) multiplied by the average share price during the past six months.
Whichever way you look at it, the numbers just get better and better for institutions and shareholders who have been given the chance to buy new shares at $4.05.
Zip-Zap
First NZ Capital started coverage of Provenco on Tuesday, highlighting the eftpos provider's potential for international growth as a reason for a target price of $1.20 a share and an "outperform" recommendation.
Provenco shares closed at $1.03 yesterday.
The timing couldn't have been better for analyst Chris Byrne. On Wednesday, Provenco announced a British distribution deal that will give it access to the lucrative petrol station forecourt market.
The company has already installed more than 12,000 outdoor payment terminals in countries such as Hong Kong, India, Belgium and Malaysia and has identified about 9500 forecourts in Britain and Ireland with a generally low adoption of pay-at-pump technology.
Provenco has developed a two-pronged attack, says Byrne. First, it has built, via acquisition, a stable distribution business with good cashflows. Now it hopes to use this to develop higher-risk growth opportunities in the retail oil industry.
About 60 per cent of Byrne's valuation (65cps) is attributed to the distribution business with the rest (43cps) attributed to the high-growth business.
The successful implementation of the long-term international growth strategy will provide upside well beyond that valuation, he writes.
There is a global trend for petrol stations to set up credit card pre-pay options for customers. The reasons for this include security - with high pump prices increasing the incidence of "drive-off" thefts - and speed of payment to reduce congestion at peak times.
Byrne also notes the much talked about merger with Cadmus - the other local payment technology company - is still a possibility, driven by the international ambitions of both companies and the likely scale required to successfully execute those strategies.
Sky's the limit
Marcus Curley, of Goldman Sachs JBWere, says SkyCity is starting to look like a reasonable bet at present price levels.
The gaming company had the misfortune to announce a disappointing half-year profit on the same day as the market was stung by the fall in Shanghai and, consequently, had its share price hammered.
Curley has had a crack at explaining the $20 million fall in SkyCity's Auckland net table revenue, which drove down its half-year profit and unnerved investors last week.
After analysing the year-on-year trading trends - supported by some clues in the latest result - Curley concludes the $20 million fall, based on the "fall of the cards", wasn't exceptional and probably even includes some underlying revenue growth.
Basically in the first half of 2006, net table revenue was $12 million above the theoretical expected win rate. Then, in the first half of 2007, it came in $13 million below the theoretical expected win rate.
"After allowing for some modest underlying growth, a negative retail swing is understandable," Curley says.
So Goldman Sachs has lowered its full-year profit expectations from $105 million to $100 million. But it retains ebitda expectations of about $188 million.
The result has also prompted Curley to take a look at its forecasts for Auckland gaming growth (based largely on expectations of household expenditure and Asian migration). Growth for 2008 has been revised down to 1 per cent (from 8 per cent). For 2009, it is revised down to 2 per cent (from 7 per cent).
However, with only modest changes to medium-term forecasts and the share price hitting cyclical lows, the stock may be starting to look like a good bet.
It closed at $4.73 yesterday, below the Goldman DCF valuation of $4.80.
Curley maintains his "hold" recommendation but says any further price weakness should be viewed as a buying opportunity.
Kiwis on parade
An all-star cast of Kiwi corporate luminaries headed across the Tasman this month to show off their wares at ABN Amro's annual New Zealand Day in Sydney.
Senior executives with NZX blue chips Telecom, Sky TV, SkyCity, Infratil, Auckland Airport, Fletcher Building and Fisher & Paykel Appliances made presentations to Australian brokers and fund managers keen to get up to speed with Kiwi stocks in one easy hit.
The country's two biggest unlisted companies were also there. The one whose presence raised the eyebrows of rival brokers back in Auckland was supermarket co-operative Foodstuffs.
It's never hard to spark speculation when a takeover is in play. Foodstuffs will certainly need funds to take on Woolworths in the battle for The Warehouse. So is it looking at listing or raising capital in the near future?
Well, perhaps not. In fact it's more likely that the normally private co-operative was doing ABN Amro a favour by turning out.
Certainly the Australian institutions are hungry for information about Foodstuffs - so that they can complete their understanding of the battle that is about to go down for The Warehouse.
That's probably why Foodstuffs was one of the stars of the show - or so we understand. The supermarket company wasn't the only co-operative on the bill. Fonterra was also outlining its business.
ABN Amro has this week published a report about the big day - although it doesn't include details of what Foodstuffs or Fonterra said, given that they are unlisted companies.
Fletcher Building's Jonathan Ling is understood to have put in a confidence-inspiring performance. He was able to reassure the audience about a healthy medium-term outlook, despite slowing economies on both sides of the Tasman.
He told the crowd that Fletcher, after nailing another couple of big jobs, now has a record $900 million worth of work in its order backlog. Ling was talking about $690 million worth when the interim result was released last month.
The other listed companies were upbeat about their outlook - apart from SkyCity, which ran through its disappointing interim result and also highlighted continuing difficulties with Adelaide Casino, which is being hamstrung by delays in obtaining the planning consents needed to expand its car park.
Top drops
This column often looks at the top performing stocks of the year to date. Given the bear-like sentiment of the past week it feels more appropriate to check out the worst performers. The list shows that some of last year's biggest risers have slipped back sharply in the past three months.
* Hellaby Holdings -16.1%
* Mainfreight -10.8%
* F&P Healthcare - 8.4%
* SkyCity -7.4%
* Nuplex - 6.1%
* The Warehouse - 6.1%
