KEY POINTS:
Wrightson's Craig Norgate this week blamed the credit crunch for the yanking of bank funding for his $220 million plan to buy into meat processor Silver Fern Farms.
But even in these volatile times, PGG Wrightson's share price has been lurching around far more dramatically than might otherwise be expected.
Stock Takes is told company insiders believe PGG Wrightson's steep losses in the days leading up to the announcement the deal had been postponed were due to short selling of its stock by a couple of "second tier" local institutions.
Short selling, apparently, is not big in New Zealand.
It is still permitted here, but since September 22 it must be reported to the NZX.
NZX yesterday confirmed that "there is some shorting going in that stock" which had been duly reported.
"That's what we expect to see when there's a lot of uncertainty around the value of the stock and people take a position on it but there's nothing there that would give us any cause for concern," said a spokeswoman.
PGG Wrightson's stock did bounce back quite sharply after the Silver Fern Farms deal was postponed, rising 29c to $1.89 the day after in what one market watcher reckoned was "a classic short covering rally". Over the eight days before the announcement it skidded 60c to a low of $1.60.
While short selling indubitably played a part in the stock's gyrations it seems likely that it was also influenced by investors who simply didn't like the Silver Fern Farms deal and were relieved when it was kicked into touch. PGG Wrightson shares closed 4c lower at $1.85 yesterday.
CHASING STEEL
OneSteel and its advisers say it isn't, but pretty much everybody else reckons there is some degree of opportunism to the Australian company's $4 a share offer for the remaining 49.73 per cent of Steel & Tube stock it doesn't already own.
Sure, as OneSteel says, Steel & Tube has been trading at volume weighted average price almost 25 per cent below the offer for the last six months. But hello! The markets have not been kind to many stocks over that time.
A year ago the stock was trading at almost $4.50. It's not unreasonable to assume it will return to this level and even surpass it if and when things calm down again. OneSteel reckons it's offering minority shareholders a chance to free up cash to put into more exciting investment opportunities.
But if OneSteel thinks Steel & Tube remains a good bet and is prepared to sink a further $175 million into the company, why wouldn't Steel & Tube's minority shareholders reach the same conclusion and stay put?
The "synergies" OneSteel says it hopes to capture from owning 100 per cent appear to be the cost savings of not maintaining Steel & Tube's market listing and board costs. Big deal.
Anyway, OneSteel's advisers have been in touch saying heavy turnover of 485,000 shares at a volume weighted average of $3.78 since the offer was announced indicates it is being viewed favourably by investors.
But for every buyer at less than the offer price who believes they will make a profit by selling to OneSteel, there's a seller who wants to lock in the recent gains for fear the offer won't go through.
Additionally the offer is clearly a vote of confidence in Steel & Tube from a company that knows the business well, so why wouldn't its stock rally on that basis alone? Steel & Tube shares closed unchanged at $3.80 yesterday.
THE FIRST OF MANY?
OneSteel's offer for Steel & Tube does suggest the Australian company believes, like AMP, that equity markets may be at or near their bottom.
In fact OneSteel's offer could be the first in a fresh wave of Australian corporate activity.
Even if billions of Australian superannuation dollars have been lost in the recent market ructions, there's still fresh cash coming into the sector and New Zealand stocks, including some good quality ones, are looking pretty cheap.
Let's hope New Zealand shareholders maintain a long term investment view or the NZX could be thinned out further before too long.
BUILDING FRIGHT
Goldman Sachs JBWere recently revised its New Zealand construction industry forecasts. Guess which direction they went.
"To anyone following the NZ housing market over recent months, it should come as no surprise that the major revision is the expectation of a lower trough for NZ residential," say analysts Matt Henry and Buffy Gill.
Goldman Sachs was expecting housing consents to fall by 14.9 per cent in 2009; it is now expecting a 31.7 per cent decline. But it also believes the recovery will come sooner.
"The housing bubble has started to deflate. It remains an open question whether it will continue to just leak slowly or burst completely," say Henry and Gill.
Despite Fletcher Building's increased diversification, the New Zealand residential market remains its bread and butter, they say.
"Therefore the material decline in our NZ construction assumptions has a significant impact on our Fletcher Building earnings forecasts."
Goldman Sachs' 2009 earnings per share forecast has been cut 13.4 per cent to 68.3c and its 2010 forecast by 6.1 per cent to 79.4c.
They have maintained their "hold" recommendation on the company and say it represents "fundamental value for long term investors at current levels".
Closing 4c higher at $7.20 yesterday, Goldman Sachs has a 12 month price target of $8 on the stock and expect a 6.2 per cent dividend yield for the 2009 year, giving an expected 12 month return of 16.6 per cent.
Fletcher's solid but unspectacular outlook would be spiced up by the prospect of corporate activity which was always in the offing even when it was riding high over a year ago.
The freshest whisper Stock Takes hears is the prospect of a merger with one of the big Australian building products outfits.
OPTIMISTS HEAD FOR BARGAIN BASEMENT
The credit crunch got as bad as it's ever been in the US and Europe over the last week or two with a frightening and rapid string of bank collapses and the dramatic initial rejection of the US Government's US$700 billion ($1 trillion) bailout package along with the ongoing paralysis in credit markets.
Although the Dow sank like a stone on Monday, the New Zealand market once again didn't fare too badly and bottomed out 50 points above its July three-year low of 3040.
While there are certainly plenty of local "bears" expecting further deterioration, there's also more than a few optimists out after great bargains.
Online sharebroker Direct Broking says they had people queuing up at their Wellington office wanting to sign up, even as the US market was tanking.
"These sort of events cause concerns for people that hold investments already but it's also clear that people see them as opportunities," says Direct Broking's David Speight, who pointed out that the likes of Warren Buffett (not actually a Direct Broking client) was also snapping up bargains, including GE, at present.
Private sector institutional investor AMP Capital Investors is cautiously optimistic. AMP has been running a prudent position in domestic and global shares for the past year, head of investment strategy Leo Krippner said.
"But with the falls in shares, particularly global shares, we've started buying the positions back. We just think the prices have come down enough now that they do reflect the potential decline in earnings that we're likely to see from the softer global economy with this credit crisis feeding through."
FOX NEWS HAS SCHIFF FOR BRAINS
For some amusing and apocalyptic views on the credit crisis, check out interviews with US fund manager Peter "Dr Doom" Schiff on YouTube.
Schiff's appearance on Fox News' Bulls and Bears show in 2006 is particularly entertaining viewing as he is mocked by Fox's hosts and other pundits for his remarkably prescient commentary on the US housing market.
Who's laughing now?
Visit: http://www.youtube.com/watch?v=EoB4BS7CGAw
