Stock takes: Warehouse still playing coy

Word around the market is that since Foodstuffs' failed stand for 10 per cent of The Warehouse, Stephen Tindall has already been approached with another offer for his stake.

There is no doubt that the wolves are circling. But Tindall is sticking to his guns and remains determined not to sell ... for now at least.

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STANDING ALONE

The Foodstuffs stand on June 7 has prompted a few informal complaints to the stock exchange.

Some investors are unhappy that trading in The Warehouse shares wasn't halted as soon as the announcement of a stand was made.

Basically there was a gap of about half an hour in which many investors opted to sell on market - assuming that the 10 per cent would be snapped up and they might miss out altogether.

Unfortunately for them they assumed incorrectly and the stand didn't get near its target.

Those who later sold into the stand directly were given the reassurance of an escalation clause later in the day which will give them further returns if Foodstuffs decides to have another go at a higher price.

Some will argue that is just tough luck for those investors who jumped the gun. And no one who sold at $5 has actually lost money based on current trading.

The Warehouse shares closed at $4.92 last night. It has also been noted that ABN Amro - which acted on behalf of Foodstuffs - has been conspicuous in its buying of The Warehouse shares every time a bit of selling volume builds up.

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BANK SALE

Speculation over the future of the Bank of New Zealand also refuses to go away. Talk of a sale surfaced when owner National Australia Bank commissioned Goldman Sachs JBWere to review its prospects.

National hosed down talk of an imminent sale by suggesting such reviews were "fairly normal".

"This isn't a special case. This is the normal review process for our Bank of New Zealand operation," a National spokeswoman said.

The review reportedly recommended the bank should retain its franchise and possibly increase the capital committed to the business.

But there is now talk that the board has not let that report settle the matter. A sale to the UK's HBOS or HSBC is tipped as an alternative option to beefing up the local presence.

Tough competition and a mortgage battle has recently squeezed margins at a time when interest rates have risen rapidly. The bank does not score as well as its rivals in performance rankings.

Meanwhile, amid concerns about the faltering New Zealand economy, National chief executive John Stewart said at the bank's first half earnings in mid-May that New Zealand was "a tough place to do business".

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CRYSTAL CLEAR

Putting a meaningful value on a high-tech growth stock like Rakon might seem more like an art than a science, but to his credit Mark Lister at ABN Amro Craigs has given it a shot anyway.

His verdict is a target price of $2.84 and a recommendation of "hold". The shares closed at $2.72c last night.

Lister is the first to admit that there are still some big "what if" questions around the stock, and there may be significantly more upside to come.

"This is highlighted by the ease with which a significantly higher valuation can be obtained by changing a few key parameters," he notes.

For example the value leaps to $5.22 if you assume revenue growth of 28 per cent instead of 20 per cent.

With the sector expected to grow overall by 30 per cent a year until 2010, Rakon is extremely well positioned if the GPS market evolves from its present niche to become a consumer mass market.

In other words - despite controversy about Rakon's involvement with military customers - its future is far more closely tied to the prospect of GPS becoming a piece of everyday technology embedded in mobile phones and watches.

Independent forecasts estimate that communication devices will soak up 58 per cent of GPS sales, in-vehicle navigation just 7 per cent, and military and aerospace 4 per cent.

Rakon estimates it has a 50 per cent market share of frequency-control devices sold in the global GPS market. It has a customer base of 400 companies - 200 of these being GPS producers.

Its three largest customers - Motorola, Rockwell and Garmin - account for 35 per cent of sales.

But there are serious risks, Lister notes.

A significant level of expertise, intellectual property and experience rests with key staff members - particularly the Robinson family (executive directors Brent and Darren and founder Warren). The threat of their leaving is a risk but one that is mitigated by their financial interests.

There are also risks in the development of the GPS market. If growth is slower than predicted or if alternative methods of delivering the same services emerge, then Rakon's earning potential could be limited.

There are exchange rate risks - although as an exporter and importer (of raw materials) Rakon has a natural hedge. There are also interest rate risks, and inherent risk from the highly competitive market in which Rakon operates. The dynamics can change quickly within the tech sector.

Lister offers cool-headed advice to would-be investors: if you like the story then you need to be investing with a long-term view. That means watching the stock closely and accumulating whenever there is any share price weakness.

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GLOBAL GLANCE

Goldman Sachs JB Were's US analysts have published a snapshot of global equity markets. Here's the short version:

The Asian sell-off is now comparable to the drop of 2004. But on balance the macro-economic risks facing the region aren't as bad as two years ago.

China continues to boom. Efforts by the Government to curb growth there will have limited success, and GDP is tipped to continue growing above 9 per cent for the next two years.

The moderate US slowdown is not a recession and the rest of the world remains well insulated. The sell-off of resource stocks is short-term and presents a good entry point for stocks leveraged to metal prices and are expanding volumes.

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SELLING AS LOGJAM STARTS TO MOVE

More proof that Graeme Hart has done it again.

On the eve of his great forest selloff, Citigroup's US forestry analysts have produced a note highlighting the strong improvement in worldwide pulp prices.

"Market pulp prices continue to firm around the world as demand growth has accelerated and as North America has announced or implemented the closure (either permanently or indefinitely) of 1.35 million tonnes of capacity."

That equates to about 2.9 per cent of the world's chemical paper-grade market pulp capacity.

There is a downside as new mills in Chile are expected to create downward price pressure in 2007 but looking out further demand appears favourable, the report notes.

Log price returns are now at 2 1/2 year highs with further gains expected as shown by the Korean K-log index which tracks the price of logs into Asia.

Hart bought his initial stake in Carter Holt Harvey in August last year just as prices began tracking up.

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INVEST FOR SUCCESS

Irony of the week: Provincial Finance is still one of the official sponsors for the Institute of Financial Planners and Advisers national conference in Auckland this week. The conference is dubbed: "Success Forum 2006".

It is understood that having paid for its place, Provincial couldn't be removed from the official sponsors list. Well, at least somebody got some money. No doubt the woes of Provincial, National Finance 2000 and the relative risks of investing in the current climate have been a hot topic at the conference, which winds up today.