Stock takes: Making the grade

PGG Wrightson's announcement this week of another earnings forecast downgrade shouldn't have come as too much of a surprise given the challenges of making the combination of PGG and Wrightson work, the fallout from the abortive Silver Fern Farms deal, and the tough operating conditions for the dairy sector.

This was the latest in a series of downgrades that began in December when it revised earnings from the previous $46 million to $51 million range to $39 million to $45 million.

Wednesday's notice advised of a downgrade to a $30 million and $32 million range down from the $36 million to $42 million range advised earlier this year.

But hang on a minute, when did it advise of the change from the $39 million to $45 million range to $36 million to $42 million?

Stock Takes searched the company's announcements over the last six months and found nary a mention.

We went to the company and were told it was disclosed to analysts. Great, so the analysts get the information to pass on to their clients but the rest of the market misses out.

The company got back to us again later on Wednesday afternoon and said it was disclosed in April when refinancing deals with South Canterbury Finance and Westpac were revealed. The relevant information our attention was drawn to was a $2.5 million increase in interest costs for the year.

Okay, but does this constitute adequate disclosure of reduced earnings expectations?

PGG Wrightson shares closed near a two-month low at $1.13 yesterday.

SACHS AND THE CITY

The Business Herald ran a story earlier this week reporting staff at Goldman Sachs "can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year".

Profits, said Phillip Inman writing for the Observer, have soared because of a lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products.

How did Goldman Sachs survive and thrive during the biggest market meltdown in decades while its big investment banking rivals dropped like flies?

According to Matt Taibbi writing in Rolling Stone, Goldman has profited handsomely as a direct result of the bust and has had more than a little to do with engineering it and the bubble - in fact a number of bubbles - that preceded it.

Conspiracy theory? Read the article and judge for yourself, it is at the very least well written and worth the time. Blogger Tyler Durden at zerohedge.com has a helpful link.

While the Observer's Inman suggests Goldman may potentially have the power to "derail financial regulation reforms", Taibbi says the investment bank's influence over lawmakers and regulators means reforms detrimental to its interests are unlikely.

Stock Takes understands staff at Goldman Sachs' New Zealand operation will also be receiving fulsome rewards for their efforts over recent months.

NEW LEASE OF LIFE

Stock Takes understands all is not well in the camp of Metlifecare, particularly between one bossman and another.

Richard de Haast, chief executive of the Macquarie-controlled NZX listed business leaves next month and says he will be looking at various opportunities, including some consulting work.

Word is that new chairman Charles MacDonald is taking a more hands-on approach to the business than former chairman Jim McLay - and this prompted de Haast to hand in his resignation. A new chief executive is yet to be appointed and de Haast leaves at the end of July.

SECOND TIME AROUND

Second marriages, it is said, represent the triumph of hope over experience. The same might also be said for second moratoriums for failed finance companies.

Shares in NZAX listed Property Finance Group (PFG) were suspended this week after it failed to produce preliminary results on time. That's not good timing for its subsidiary Property Finance Securities (PFSL) which will, this coming Monday, seek approval from debenture investors for a new moratorium after the last one went bung.

PFG had sought an exemption from the NZX over its late filing arguing unsuccessfully that should PFSL's 3400 investors do as they are asked on Monday and let the company off the hook for months of unpaid interest, its March year result would look different than otherwise.

Meanwhile, PFSL trustee Graham Miller of Covenant Trustee Company appears to have serious misgivings about the new proposal although this was expressed with his trademark circumspection in his letter to investors - who are owed $71 million - earlier this month.

There was nothing in his letter to suggest how he feels about the new plan's proposal that the company cease reporting to him on a monthly basis in favour of a regime where a "monitor" - initially accountancy firm Grant Thornton - will let him know when he needs to pay attention.

Given the Companies Office said it was concerned about a lack of oversight of finance companies in moratorium, it's hardly confidence inspiring that PFSL, which has effectively already failed twice under its existing management, be allowed to weaken Miller's supervision.

PFG has told PFSL investors that they are likely to get slightly more money out of the proposed arrangement than receivership but it's worth noting the company was been pinged by the Securities Commission a few weeks back for overstating the upside of the new proposal while downplaying the benefits of receivership.

SUMMIT TO CHEER ABOUT

One of the brighter ideas from February's job summit to never see the light of day was the joint Government/banking industry equity investment fund to take stakes in sound, privately-held companies unable to access capital via the sharemarket.

The proposal disappeared in a puff of minor recriminations between the Government, Treasury and the banks over who had walked away from the idea first.

At the time, investment banker Rob Cameron, who chaired the summit forum from which the idea sprang, said there were private sector players ready to make profitable investments in privately-held companies who would take up the slack.

Direct Capital yesterday said its Direct Capital IV fund had raised $201.5 million from investors and was well on the way to achieving its expected $250 million.

It's hardly the $2 billion suggested as the size of the job summit fund, but it's not bad.

Direct Capital invests in private companies valued between $25 million and $150 million and it estimates this market to be five to seven times larger than the NZSX.

SHARE PRICE TAKES INVESTORS TO HELLABY AND BACK

Stock Takes has been taking an interest in some of the debt listed on the NZDX market as an interesting indicator of the fortunes of some issuers.

As one of our sources put it "the further a yield gets above 15 per cent, the closer it is getting to zero".

However, a big blowout in yield does not necessarily signal a death spiral. Case in point, Hellaby Holdings. Its June 2011 bonds, issued at a coupon of 8.5 per cent were traded at a yield 55 per cent at one point earlier this year - not a good look.

In a similar vein its shares fell off a cliff in February to a low of 40c against their high of $2.15 in September last year. Later in February it said full-year operating earnings would fall 38 per cent as the economy contracted.

The investment company, which owns automotive, equipment, packaging and footwear retail businesses including Hannahs and No 1 Shoes, has enjoyed what one broker described as "a Lazarus-like resurgence". Yesterday its shares closed at $1.15 and the yield on its notes was a far more respectable 15 per cent.

The broker notes the company's directors have been "filling their boots not just with shares but notes as well".

It is worth noting, he says, that directors buying shares and debt in their own company is not foolproof sign of improving fortunes, "remember the boys from Feltex just before their profit warning?".

Still, whether the company's fortunes are improving or it is simply bouncing back from being hugely oversold, it's not a bad comeback.