KEY POINTS:
Port of Tauranga shares hit a record high of $7.00 yesterday. That's not a bad effort considering they were trading below $4 before the announcement of plans to merge with Ports of Auckland in October.
They spiked to more than $6 after that announcement but, despite a brief wobble, have continued to rise since the merger was scrapped in March.
Strong commodity prices for dairy and logs are good news for the Bay of Plenty port which handles the bulk of those two lucrative exports for the nation. So a good run for the stock is not unexpected, but if it weren't for the merger talk the latest rise would almost certainly be coming off a lower base.
In this bull market the M&A spotlight is increasingly becoming a win-win for investors as it highlights unrecognised value in companies.
It no longer matters if the takeover or merger actually succeeds.
The trend has been evident in several stocks over the past 12 months.
Contact shares, which rose sharply after parent company Origin unveiled takeover plans, never slumped (as some of those backing the deal, including the independent directors, predicted).
The same effect can be observed across the Tasman, with Qantas and APN News & Media both holding up well despite takeover bids falling over.
Investors, it seems, are getting smarter, or at least tougher, when it comes to expecting more value from takeovers.
Red Shed Rout
It will be interesting to see how this trend plays out with regard to The Warehouse. In the past few weeks the share price has slumped as speculation mounts that Commerce Commission delays mean one or both of the prospective bidders (Woolworths and Foodstuffs) have been knocked back.
Since hitting a high of $7.32 in April the price has drifted back to close at $6.25 yesterday.
In Australia the great bidding war for Coles - which had really helped drive expectations for The Warehouse - has also gone flat.
Three private equity firms have quit a consortium bidding for the retail giant. KKR and CVC Asia Pacific quit this week and Bain Capital pulled out yesterday. This leaves a rival bid from Wesfarmers in pole position.
Despite the fact that The Warehouse was trading below $4 a share before it became a target early last year, it is likely to stay safely above $5.75 - the price of the takeover offer made by Stephen Tindall and Pacific Equity Partners last year.
It would be surprising if they weren't still interested if they get another go at that price.
The real test will be how far the price can hold up above $5.75 if no other bidders are allowed to participate.
At the moment it looks as if the market fears the worst and a lot of downside risk of a negative commission decision is being priced in.
Thanks For Clarifying
Ferrier Hodgson's independent appraisal of the MFS bid for Tourism Holdings draws the stunning conclusion that shareholders should either: 1) sell into the offer or 2) hold on to the shares.
Right, bets well hedged, then.
OK, to be fair, that very equivocal conclusion does point out that price isn't the only consideration and that if the takeover is rejected then THL is likely to keep expanding its rentals business in Australia and become less reliant on its tourist attraction assets such as Waitomo Caves and Kelly Tarlton's.
So ultimately the decision depends on faith in management to deliver growth.
That being the case, the board's quick-fire recommendation that shareholders accept the bid is hardly a vote of confidence.
Tourism Holdings shares closed steady at $2.76 yesterday.
Growing Market
The strong stock market and falling property yields appear to be attracting more first-time investors into equities.
Sargon Elias - Australasian head of CFD trading company CMC Markets - was in the country to catch up with his team this week. CMC set up in Auckland about a year ago.
Business is booming, Elias says. Although CMC doesn't talk about its client numbers, Elias says growth is running about 300 per cent ahead of the initial expectations the global firm had when it set up in New Zealand.
Unsurprisingly for a trading platform that allows investors to leverage themselves heavily and requires them to actively manage their portfolios, most of the initial clients were sophisticated investors, Elias says.
But in the past few months more property investors have been looking to get in to equities and coming to CFD trading as a first port of call.
Perhaps for those used to the highly leveraged world of property it is less of a leap to trade shares with borrowed money.
Whatever the reason, it's got to be positive for the market (and arguably the economy) if the balance is shifting from property to equities among New Zealand's more proactive investors.
Fisher Future
Despite its currency-driven doldrums, Fisher & Paykel Appliances is showing some signs of life, writes Goldman Sachs JBWere's Rodney Deacon after digesting last week's annual result.
The result - a net profit of $61.2 million - was about 3 per cent lower than a year earlier (after adjusting for one-offs). Revenue came in slightly lower than expected. Ebit was slightly higher thanks to the finance division, although that was offset by higher interest charges.
But Deacon is holding his recommendation (short-term: market perform and long-term: buy) and tweaking his valuation up by 2 per cent - to $4.42. That valuation change reflects in part new tax rates and credits announced in the Budget.
Management didn't provide a forecast for next year because of the uncertainty it sees about currency, interest rates and raw materials.
Despite that lack of confidence, Deacon is cautiously optimistic about the year ahead.
"While FPA is by no means out of the woods yet, there appear to be signs in some areas of its business that things are slowly getting better."
F&P Appliances' finance division shows an improving trend and if raw material costs stabilise and the company can get some traction with new products it is launching in the US, then the second half of next year could prove more fruitful, he says.
Deacon's profit forecast for next year (adjusted for one-offs) is $67.1 million.
Appliances shares closed up 11c at $3.89.
High-flyer tipped to be clipped
It has been one of the most spectacular share price revivals in NZX history but the soaring Air New Zealand share price now has some analysts picking the stock is getting ahead of its fair value.
The shares closed at $2.97 yesterday - up 175 per cent from a low of $1.08 last August.
Clearly they are no longer the bargain they once were.
Having surpassed First NZ Capital's latest valuation of $2.75 the broker this week downgraded its recommendation on the stock from "neutral" to "underperform".
The stock has now pushed on past the valuations of most local analysts.
But one who believes there is still plenty of value in the stock is Forsyth Barr's Rob Mercer.
He has upgraded his earnings forecasts and valuations after last week's news from the company about higher load factors and yields.
He now values the stock at $3.36 - up from $2.70. He is forecasting full- year 2007 ebit to be $285.1 million, lifting to $432.5 million next year.
As well as the generally buoyant trading conditions Mercer believes the stock will be underpinned by special dividends which he picks will become a feature of Air New Zealand's profit results in the next few years.
The airline is in the "enviable position of having fully implemented its fleet upgrade at a time when there is a shortage of long-haul widebodied aircraft", he writes. That means it will be able to make capital distributions of surplus free cash flow while other airlines are still investing in new fleet.
He estimates it could pay around $1.32 per share ($0.44cps pa) in dividends over the next three years without increasing net debt. This would place it on an annual gross yield of around 23 per cent (based on a share price of $2.80) before settling back to a sustainable annual gross yield of around 10 per cent.
Epic result
The public offer of shares in Epic, which is taking a 1.2 per cent stake in London's Thames Water, has closed over-subscribed.
Subscriptions were accepted for about 95 million $1 shares. Foreign currency movements meant only $95 million, rather than the expected $96.7 million, was required for the stake.
So in effect those who have managed to get in on the float are getting more for their money.
The Thames stake is a seed asset for Epic (Equity Partners Infrastructure Company). Thames Water, Britain's largest water utility company, is expected to deliver a first-year yield to Epic investors of 9.1 per cent after tax.
Epic will initially be an unlisted public company but hopes to move on to the NZX in the next 18 months or so, and will look to make more infrastructure acquisitions over that period.
