Stock takes: Fast food chain takes bite out of recession

Even Pizza Hut, previously a poor performer for the group, has begun to pick up the pace. Photo / Supplied

Restaurant Brands, the local operator of fast food chains KFC, Pizza Hut and Starbucks Coffee, has gone from strength to strength during the recession.

The company's share price hit $1.98 last week - its highest level in eight years after it forecast a 67 per cent rise in annual profits to $19.5 million.

The profit upgrade was its second in six months. Chief executive Russel Creedy says the company's profits have been boosted by growth in its KFC stores which have grown close to 10 per cent every quarter for the past year.

Restaurant Brands has 85 KFC stores and gets 70 per cent of its revenue from the chain. Even Pizza Hut, previously a poor performer for the group, has begun to pick up the pace.

Shares closed yesterday up 3c at $1.91.

CONFIDENCE COLLAPSE

South Island businessman Allan Hubbard's decision to tip more assets into struggling South Canterbury Finance was meant to help restore confidence in the company but that seems far from the case.

The value of one of South Canterbury's listed debt securities has plunged in the past week as investors dive out on the belief that they may not get their money back.

Around $187,000 worth of SCF010 has traded in the past week, with investors prepared to take a 40 per cent loss on their initial capital. The bond doesn't mature until December 2012.

The finance company is covered under the Government's deposit guarantee scheme at present but there are concerns it may not qualify for the extension which kicks in on October 12.

South Canterbury does have the minimum credit rating of BB required to get the extension but some believe its high level of related party lending would rule it out.

Hubbard sold his family's shares in Helicopter New Zealand and Scales Corporation into South Canterbury on March 1 but Stock Takes understands they are still up for sale and need to be realised by June.

In theory, South Canterbury could just give up the fight and allow the Government to step in to pay back its debenture holders.

But sources say it may not be that easy as South Canterbury also has a $90 million preference share which would not be covered under the Government guarantee, as well as a number of international investors and local charities that have loaned over the million-dollar mark which would also lose money.

Meanwhile Torchlight, Pyne Gould Corporation's vulture fund which has a $75 million first ranking security over South Canterbury, also appears to be waiting in the wings to snap up any of the better loans South Canterbury may want to sell.

Stock Takes understands Torchlight has raised close to $100 million from institutional investors in preparation for taking advantage of the fallout from the finance company crisis.

SMALL VICTORIES

Retail shareholders have won a small victory with sharemarket operator NZX canning its preliminary index memos.

The memo service, which was available only to subscribers, was behind the NZX's trip-up over Allied Farmers last month when the stock exchange sent out the memo early in the week and then changed its mind over the inclusion of Allied in the NZX-50 index.

The flip-flop saw the company's share price soar and then collapse and is under investigation by the Securities Commission. NZX received a barrage of criticism for sending out the price-sensitive information to the selective group and not making it available for all shareholders.

A spokeswoman for the NZX said it would no longer be sending out the precursor memos and would now send only a final memo of index changes seven working days ahead of the change.

It would also be releasing a general statement to the stock exchange if there were any changes to the indices.

Yesterday's statement was put out because of the publicity involved in the Allied debacle even though no changes were being made to the NZX-50 index.

A review of the methodology behind inclusions in the index is still under way and is expected to be finalised by the end of the month.

ALLIED IN OR OUT?

The NZX has said it will consider the index status of Allied Farmers in its June review once the company has had six months trading since its acquisition of the Hanover and United Finance loan books.

The short timeframe was one of the reasons NZX gave for its change of heart last month. But the fall in Allied's share price since its write-down of the Hanover assets may also weigh against the company.

Yesterday its shares were trading at 7.3c. The company's half-year result also revealed that the direct cost of doing the Hanover deal was around $1 million.

While that doesn't seem much compared with the total asset book they were acquiring - valued at $396 million at the time - it is a fair chunk of the $15.7 million loss Allied reported in its half-year.

Allied has also had to put aside around $4 million for the potential cost of issuing bonus shares to its original investors.

One of the conditions of the acquisition was that if the Hanover assets turn out to be worth a lot less than the purchase price then the original investors will receive compensation for their dilution in the form of a share top-up.

One analyst believes that could be triggered as soon as June when the Hanover assets are due for revaluation.

MEGA MERGER

Advisers in New Zealand are nervously awaiting the news of whether the Australian competition watchdog will approve a merger of AXA with National Australia Bank, the owner of BNZ.

The Australian Competition and Consumer Commission has indicated it will decide by Wednesday whether the deal will be allowed to go ahead but some believe it may delay the decision for a second time or require some assets to be sold before the deal can be done.

In New Zealand, AXA owns Spicers Wealth Management while the BNZ recently acquired the private wealth management business of Goldman Sachs JBWere.

Some question how the two businesses could be melded together. If it went ahead the BNZ would gain back the investment management business it sold to AXA just a few years ago.

AXA would also gain a strong sales distribution force for its growing KiwiSaver business through BNZ's branch network. But the ACCC may yet decide the tie-up creates too big a banking power.

ACTION STATIONS

Commerce Minister Simon Power finally acted this week to shore up confidence in the KiwiSaver market after weeks of controversy over Huljich Wealth Management's "top-ups".

Power has called on his officials to report back within the month on proposals to increase the reporting for non-default schemes, ensure the reporting is comparable and increase the pressure on trustees to monitor the schemes.

While that seems proactive, the issues were due to be addressed next month as part of the Securities Act review, which has been delayed by four months.

One positive to come out of the move has been an indication by Power that we could know soon whether the Government will go for a "super regulator" by combining the regulatory powers of the Securities Commission, Companies Office's National Enforcement Unit and exchange operator the NZX.

Power said he was likely to give some clarity next month and might use his speech at the annual Infinz dinner to do so.

Last year his speech at the dinner signalled his intention to toughen up regulation on trustees. Pressed on whether he wants a super regulator, he said he did not want to get ahead of the Cabinet but "I've got some considerable interest in it".

DILIGENT COMEBACK

The share price of market minnow Diligent Board Member Services is finally climbing out of the doldrums.

After listing at $1 in December 2007, its share price plunged to just 7c after the resignation of chief executive Brian Henry. Henry stepped down after failing to disclose involvement with EnergyCorp, which went into receivership in the late 1980s and resulted in his bankruptcy.

The company's share price has climbed since the second half of last year and yesterday closed steady at 45c. But the company still has a long way to go to recover to its listing price.