Carpet-maker Cavalier has copped a downgrade from analysts at First NZ Capital. Not, thankfully, for any of those unfortunate Feltex-style shenanigans. No, it turns out the stock has simply performed so well in the past month that it has gone through the research team's valuation, forcing a downgrade to neutral.
First NZ only began coverage a few weeks ago (something that might well have given the thinly traded stock a boost). But the most obvious reason for the dramatic rise - 10 per cent in just 10 days - is the exchange rate. Although Cavalier still does most of its business domestically, the fall in the kiwi relative to the aussie is still good news.
Of course, Feltex actually does a lot more of its business in Australia so it should technically reap even more of the benefits but we aren't likely to see that reflected in the share price, given its present predicament.
First NZ analysts certainly are not recommending that stock as a good buy right now so it is interesting to see that the broking arm of the same firm has been a big buyer of Feltex stock for clients in the past two weeks.
The buying - more than a third of the total done since June 26 - has certainly sparked some market talk.
They're either very smart, very dumb or they know something that no one else does, ponders one market watcher.
Cavalier shares closed at $3.50; Feltex at 24c.
Debt market
Sometimes it's not just new company listings that markets need to retain investor loyalty. With the completion of Fonterra's large capital notes return ($500 million handed back to non-farmer investors), the NZX is now in dire need of another big debt issue to soak up some long-term investment dosh, says one senior market player.
Frankly, there is only so much of that spare cash that can find a new home in the NZX's handful of top stocks before they start to look overvalued on a yield basis, he says.
The trouble is that - as Fonterra has discovered - the big companies are finding cheaper finance options elsewhere.
Nevertheless, a gap is growing in the market providing opportunities for savvy local companies to raise some quick capital.
The likes of infrastructure company Infratil (on a steady growth path and able to make good use of extra cash) would be well placed to launch a new issue of bonds or notes. Infratil shares are still on a strong run back from the mid-May slump that followed the lower-than-expected annual profit.
The company - which owns bus company Stagecoach, a major stake in Trustpower, Wellington Airport and three European airports - is increasingly being viewed as one of this country's blue-chip stocks, says Mark Bringans, CMC Markets local head of CFD sales. Of course that might be partly by default but the company's long-term chart does show an excellent track record of growth over the past four years.
Free brokerage
Yes, it is true: Goldman Sachs JBWere is offering to sell your shares for free. There's a catch, of course: they want to give the proceeds to charity. The idea - called Shares for Good and based on a British model - is that, when investors complete a transaction and find themselves left with a handful of shares that aren't worth the brokerage fees to sell, they can gift them to charity.
The scheme is organised by Sharon Hunter's Robin Hood Foundation. Goldman has volunteered to collect the shares and organise them into commercially viable parcels. For more info check out www.sharesforgood.org.nz
Buy me
Word from a well-placed source has it that Trade Me multi-millionaire Sam Morgan has begun to invest his new-found wealth. A search on the Companies Office website shows that so far he has taken a small stake in software company Sonar (specialising in tools for managing staff) but that was a while ago now. He was appointed a director a few weeks after the Trade Me deal was done and it won't have soaked up much of his $227 million fortune. Let's hope he's got a few more hot prospects up his sleeve. Come to think of it, why couldn't TVNZ get him on Dragon's Den.
Golden touch
When the words "merger" and "scheme of arrangement" flashed up on the NZX website this week, it looked briefly like another Contact/Origin style battle could be in the offing. After all, the Takeovers Panel's John King has forewarned us to expect takeovers disguised as mergers until the legal loophole is plugged. But no, despite being dual listed and its assets being New Zealand goldmines, Oceana Gold - which will merge with smaller mining company Climax - is Australia-based and largely Australian owned. It's not our issue and, even if it were, Oceana is too small to get on the radar screen of key players such as Simon Botherway at Brook Asset Management.
Watching Telecom
Another week and another rally. It's not surprising that, with $500 million of Fonterra cash looking for a home, Telecom should benefit. Bargain hunters began wading in at the lower end of the $4 range. But despite the impressive rise of 27c in four days, it is too early to say whether the stock has bottomed out. It appears to have hit a wall at the same level as its original post-unbundling low of around the $4.30 mark. The next couple of trading days could show whether a corner has been turned or whether this is just a bounce on the long ride down. The shares closed up 2c at $4.29 yesterday.
Too much hype at hyper-market?
The fuss around Foodstuffs snapping up 10 per cent of The Warehouse has overshadowed analysis of the company's immediate prospects for growth. Good on Terry Tolich, of Goldman Sachs JBWere, for doing some (self-described) navel gazing about the prospects of the hyper-market concept.
The analysis involves some qualitative judgments, Tolich warns, but the use of McKinsey's six key predictors for market entry leads to the conclusion that The Warehouse faces a big challenge to expand its presence in grocery. The predictors are:
* The "relatedness" to the market it is entering: As in how far is The Warehouse straying from what it already does. On this count, it gets a tick. It is still retail after all.
* Complementary assets and capabilities : Another positive considering its sizeable network of stores and logistical expertise.
* Order of entry: As in, the pros and cons of being the first to open a hyper-market. Tolich believes this is neutral. There is no permanent advantage from being the first mover in the sector.
* Degree of technological innovation: In this case interpreted as the point of difference the new concept offers to consumers. That is also neutral, says Tolich. There is no evidence yet that having grocery and general merchandise under one roof means any great benefit to shoppers.
* Size of entry relative to minimum efficiency: Negative. The Warehouse's grocery operations remain tiny by comparison with Foodstuffs and Woolworths. That means it is likely to receive less favourable buying terms than the incumbents.
* Industry life cycle: Another negative. Given the general rule that a company's chance of success is higher the earlier in the industry life cycle that it gets started, The Warehouse is way off the pace on grocery.
The first supermarket was introduced in New Zealand in 1957.
So, in conclusion, while the Sylvia Park store does look like a credible alternative to the established formats, the big picture view is that it won't be a quickfire, silver bullet for the company's growth issues.
Tolich has also taken a look at last week's earnings upgrade. It did provide some of the first evidence that store upgrades over the past year were starting to win back shoppers: "If anything faster than we had anticipated."
But there was some investor over-reaction to the news.
Tolich retains his cautious outlook giving the stock a valuation of $4.66.
Warehouse shares closed yesterday at $4.80.
<i>Stock takes:</i> Wall-to-wall carpets
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