There are a few things that don't ring true about present market pessimism, reckons Wellington broker Ian Waddell.
If companies are so negative about the economic outlook, how come so many of them are in acquisition mode?
"They aren't buying because they think the market's going down," he says.
There are certainly plenty of deals in play: ING has made an offer for Calan Healthcare, New Zealand Finance is gunning for Mike Pero Mortgages, AMP is still in the hunt for Capital Properties. Dominion Finance is in the process of buying North South Finance. Wakefield Hospital has bought another hospital. Everyone is waiting for Graeme Hart's next move on Carter Holt Harvey (the shares are sticking steadfastly to $2.57, which would seem to include a premium for another offer). There are also plenty of suitors queuing up for biscuit-maker Griffins. (There's talk that Hart's Burns Philp may be interested in buying it and wrapping it up with Uncle Toby's.)
Waddell believes the action so far this year is just the tip of the iceberg. And that means plenty of good growth stories.
"There will be opportunities," he says.
After the strong organic corporate growth of the past few years, there are plenty of companies with strong balance sheets.
A couple of quarters of domestic downturn shouldn't scare serious investors, says Waddell, who doesn't buy the recession talk.
The market is always looking further out than that.
"There are parallels there with the markets in 1983, 1984 and 1985," he says.
"Only instead of the Chase and Equity Corps, it's all the private equity partners. It kind of sneaks up on people and they don't realise, but it's actually happening."
Aussies on the prowl
One of those private equity buyers is Australian giant Pacific Equity Partners (PEP).
On Wednesday, the company closed off on a A$1.2 billion ($1.3 billion) war chest of investor cash, some of which will almost certainly be heading for this side of the Tasman.
The PEP Fund III is the largest fund ever raised by an Australasian private equity firm. It closed three times over-subscribed after being open for just 10 weeks - which included the Christmas and New Year period.
That's a staggering illustration of the appetite out there for these kinds of investments. Companies such as PEP basically play in the same space as Graeme Hart, looking for companies they can fix, restructure or extract synergies from before exiting for a handsome profit.
PEP has just bought Tegel from Heinz and is tipped to be one of the bidders for Griffins. In fact, just about any time a business is for sale in Australasia it is a safe bet that PEP is taking a look.
No worries?
Tower's $160 million purchase of Australian life insurance company PrefSure has sparked a mixed reaction from analysts. Of four who changed their view on the company after news of the purchase on Tuesday, two have upgraded and two have downgraded.
It is understood that rival bidders for PrefSure had been demanding an "earn-out clause", a clause often included to allow buyers or sellers to alter the terms of a deal if the company spectacularly underperforms or outperforms the agreed expectations.
Tower didn't opt for the earn-out clause and that added a little extra risk to the equation, said senior Citigroup analyst Nigel Pittaway. Sydney-based Pittaway downgraded Tower from "buy" to "hold" after the deal.
Although there was nothing particularly wrong with the PrefSure deal on paper, it was a case "of not giving Tower too much benefit of the doubt. They've got to earn that back."
Tower's monumental failure last time it expanded into Australia was one source of scepticism but there was also some disappointment about the performance of New Zealand business in the last result, Pittaway said.
The company has done a few things right lately and Tower Australia is looking much stronger. But, Pittaway says: "There always seems to be some disappointment lurking around the corner."
Despite the cautious approach, Citigroup retains a $2.30 valuation on Tower. Its shares closed at $2.10
Biotech spin-off
Jim Watson - founder, former chief executive and, some would say, spiritual leader of listed biotech company Genesis Research - stepped down from the board last week. But suggestions that he might be deserting a sinking ship are way off the mark.
Watson says he is busier than ever working to spin out a new energy company from the plant science division, AgriGenesis.
The company plans to farm a woody shrub called falix to produce ethanol for fuel and biodegradable plastics.
There is a huge global market for ethanol and, as oil prices rise, so will the premium on alternative ingredients for plastics, Watson says.
Genesis believes its patented technology will allow it to produce the products more efficiently. It is working with the Lake Taupo Development Co, which is looking for farming alternatives to dairying - a major cause of nitrate pollution.
Private investors will be sought for the new company. Lake Taupo Development and Genesis will hold equity stakes.
Genesis shares were trading at 27c yesterday.
Retail rally
Clearly, New Zealand is a nation that likes to go shopping when the sun is shining. Following the Hallenstein Glasson statement last week - that good December weather had boosted sales - shares in Briscoe Group and The Warehouse are rallying. The Warehouse climbed 40c in 10 days to hit $3.90 on Wednesday (although it shed some of those gains yesterday). Briscoe is up a slightly more sedate 9c since the start of the year - still a reversal of December's downward trend.
This week, a survey by ACNielsen (conducted in November) reported that New Zealand was one of the top three countries in the world when it came to retail confidence.
The Warehouse stock was probably looking a bit cheap and due for a rally, said one analyst. It may be that it is in rebound mode having dealt with its unfortunate Australian side project.
But there was definitely some momentum in the sector in the wake of the strong Hallenstein Glasson result, the analyst said.
The Warehouse and Briscoe have still to report their Christmas sales figures so whether the optimism is based on fact will be disclosed soon.
Rural blues
Fans of counter-cyclical investing (I believe the technical term is masochists) might want to watch agricultural stocks closely this year. It looks as though it is going to be an extremely rough one down on the farm.
OK, so it's not often you hear farmers talk about what a great year they are having. But this year the sector looks set to cop a double whammy. The high dollar - which has been hurting for about three years - isn't falling fast enough to help out this season.
Unfortunately, prices for beef, lamb and dairy are also falling. Prices for the three commodities have been at or near record high prices for a couple of years and have buffered farmers from the worst effects of the currency.
So this is crunch year as primary producers cop the worst of both worlds. Meat exporter Affco has already warned shareholders that this is likely to be a lean year (although CEO Tony Egan makes the point that Affco has a strong balance sheet which should help it cope.)
And with farmers likely to have less cash in their pockets, ABN Amro Craigs rural sector analyst Mark Lister has downgraded his profit forecasts for rural services giant PGG Wrightson. Lister has reduced his forecast for next year by 7.1 per cent to $39 million and by 8 per cent for 2008 - to $41.6 million. His forecast for this year remains unchanged at $28 million, although that will be reviewed after the half-year result in a couple of weeks.
<EM>Stock takes:</EM> Year of the takeover
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