Stock takes: All cashed up with no place to go

Opinion

All cashed up with no place to go

What would you do with a spare $3 billion? It's such an interesting dilemma that it must still cause New Zealand's richest former panelbeater to pinch himself occasionally. Of course, now Uncle Tobys has been sold, the pressure is really on to spend some of it.

And if it sounds like a lot of money then consider the fact that Graeme Hart and Burns Philp could probably use it to do a leveraged deal of up to $11 billion.

Early estimates of about $6 billion are well out of date, says one senior banker familiar with Hart's deals.

Wow. That's enough to buy Telecom, which now has a market cap of just over $9 billion.

The idea that Hart might actually be interested in Telecom is a bit far fetched. But I'll float it anyway.

It would certainly be the quickest way to ensure a structural separation of the business. Typical Hart strategy would involve selling off the higher-risk (and potentially higher-growth) retail arm to a big global player.

That would help pay down a few billion of the debt and leave him holding a boring lines company with steady defensible cashflows, good underlying assets and probably plenty of room for cost cutting - exactly his kind of business.

When Telecom was tipped as a takeover target this year, the Government's Kiwi Share legislation presented a pretty impenetrable barrier.

That ensures no foreigner can own more than 49.9 per cent and anyone taking a stake of 10 per cent or more must be signed off by the Government.

Hart is well positioned to get around the first issue - he's a Kiwi and control of Burns Philp rests with his New Zealand-registered Rank Group.

And the carrot of a quick structural separation might be enough to entice the Government to sign off on it.

Obviously, it wouldn't be so great for the NZX and there might be a few Telecom staff who don't like the idea either. But stranger things have happened and often do when Hart is involved.

Other wild ideas for Burns Philp include buying Independent Distillers - which isn't actually that absurd if the obvious buyers such as Lion got cold feet - or the BNZ, which may or may not be for sale.

The ANZ bought National Bank from Lloyds for A$5 billion so the BNZ probably isn't outside Burns Philp's reach.

Any of the above options would be far more exciting than the most likely scenario - which is that Burns Philp finds some obscure staple food company in need of rescue in some far-flung corner of the globe.

Slow burner

Fisher & Paykel Healthcare turned in another great result yesterday which kind of puts the onus on sister company F&P Appliances to follow suit today.

After a profit downgrade in February, the profit range has already been pretty well flagged - somewhere between $60 million and $63 million.

But, at the very least, the market will be looking for some reassurance on the forecasts for next year.

"The market is going for around about $78 million for '07 which is about a 24 per cent earnings increase," said Rickey Ward, a fund manager with Tyndall. "But they'd have to do something quite special to get there."

The lower currency should help them but raw material prices had increased again and the supposedly slowing domestic economy could be another negative, he said.

So the pressure is building on chief executive John Bongard.

"As much as everyone likes him, I don't think he can now afford to have another profit downgrade. I think he'll just start to lose credibility very quickly," Ward said.

One bright spot on the F&P Appliances' horizon was highlighted by Macquarie Equities analyst Steve Hodgson when he returned from a big industry expo in Chicago.

F&P Appliances managed to impress the punters at the Kitchen and Bathroom Industry Show with its new "gas-in-glass" technology, Hodgson writes in his report on the event.

The technology was "better mousetrap" stuff. Although real chefs always prefer to cook with gas, the home-kitchen version has always lacked a way to control temperatures in an exact way.

F&P Appliances seems to have conquered this with new burner technology which is genuinely ahead of the game in the United States.

The flame is controlled by motor-driven fans and is contained beneath a glass stove top.

It's a premium-end product and probably won't add any significant sales growth until the 2008 year, Hodgson notes. But it will add to F&P Appliances' growing reputation as a market leader in the US - and that can't be a bad thing.

Travelling on

Sometimes you wonder what a stock has to do to attract a share-price inquiry from the NZX.

Shares in the listed travel agent Gullivers Travel have piled on more than 50 per cent since the start of the year and, even more dramatically, soared from $1.55 to a record high of $1.95 in less than a month (between April 18 and May 11).

With a market cap of $180 million, Gullivers isn't huge but neither is it such a minnow that its shares should be prone to dramatic swings.

As one senior broker put it: "Shares just don't move like this unless there is something going on behind the scenes."

The rumour swirling around the market is that cornerstone shareholder Andrew Bagnall - who holds a 28 per cent stake - has been talking to interested parties in Australia.

There's nothing quite like the prospect of a takeover from across the Ditch to get New Zealand investors excited. The shares closed down 8c at $1.72 yesterday.

GDBYE & GDLCK

Another week, another share price inquiry from the NZX - this time the heavily hyped text marketing company Plus SMS.

It looks like a dramatic fall in its share price may have been caused in part by the departure of high-profile investor Craig Heatley.

Heatley is understood to have completed - or very nearly completed - a total exit from the fledgling tech company.

It's hard to reason why because not much has changed regarding the company's fundamental story - most of which is still to be told. The NZX-listed, Isle of Man-based company enables the running of global text message campaigns and competitions using single codes.

So far, it has acquired more than 1000 codes including the words "sport" "rugby" and "football" as well as a stack of country codes.

This month, the directors announced plans to bring in a cornerstone European investor - Hewson Capital - which will take a 19.8 per cent stake at the issue price of 50c a share.

Plus SMS is one of those stocks that divides investors and brokers. You either believe the story or you don't. If you don't like the risk then it's not going to be attractive at any price. If you believe the story then right now might be a good buying opportunity.

As one keen market observer commented recently, the company values itself at $150 million but its worth could turn out to be $1.5 billion or it could be $1.5 million.

Despite the bad publicity it has copped from the slump and the less-than-adequate response to the NZX query, there are certainly plenty of investors taking the later view.

The shares closed at 50c yesterday - up 12c in the past two days.