Stock takes: Red sheds down

The Warehouse was hoping that the DVD of the movie Avatar would work some magic. Photo / Supplied

Opinion

Shares in discount retailer The Warehouse Group hit a one year low of $3.49 this week after the company reported a drop in third quarter sales.

The discount retailer had been hoping for some of the Avatar effect to work some magic. But it seems the DVD and Blu-ray release of the box office hit on April 28 was not enough to save the day.

The Warehouse said the third quarter shortfall was almost entirely because of slow music and DVD sales. It has also blamed a late start to winter for slow sales in its clothing and heating ranges.

In a research note, First NZ Capital's Sarndra Urlich said the result was "very disappointing", particularly when compared with fellow retailer Briscoe Group, which recently reported four quarters in a row of improved sales growth.

Urlich, who has a neutral rating on the Warehouse, said the "Red Shed" arm of the business was particularly weak. "While poor performance in the context of a recessionary backdrop is excusable, it is somewhat frustrating to see sales weak even further in the current environment."

The only part of the business which has picked up is the Warehouse Stationery "Blue Sheds" but they only make up 5 per cent of the group's earnings. Urlich, who has a 12-month target price of $3.87, said the company looked "somewhat expensive" from an earnings multiple perspective.

But she believes investors are unlikely to sell out of the company while Australia's Woolworths remains interested in buying a bigger stake.

WOOLWORTHS KEEN

Woolworths confirmed its keenness this week with chief executive Michael Luscombe telling the Australian Financial Review that his company was in regular discussions with the Warehouse's 52 per cent stakeholder Stephen Tindall and hoped to eventually strike a deal.

"We certainly continue to have constructive discussions with the major shareholders and I'd hope in time we can find a way for Stephen Tindall to be comfortable with a change in ownership," he told the newspaper.

Woolworths bought a 10 per cent stake in the Warehouse four years ago but was blocked from making a takeover bid by the Commerce Commission over concerns that it would lessen competition in the supermarket sector.

The Warehouse has since dropped its foray into groceries through the Extra format. Some believe this could clear the way for another bid. Warehouse shares closed at $3.60 yesterday after recovering some ground.

PACKAGING KING

It's come as no surprise that New Zealand billionaire Graeme Hart is being talked of as a bidder for the US$4 billion ($5.8 billion) packaging company Pactiv Corp.

Hart has been getting his business in order and a move of some sort had been widely expected.

Last month Hart revealed plans to raise US$1.75 billion to allow his Reynolds Group to acquire United States firm Evergreen Packaging and Carter Holt Harvey's Whakatane Mill, all of which are ultimately owned by him.

Talk had been of Hart looking to float part of his business but perhaps he wants to build it up a bit more before selling it.

ALL THAT GLISTERS

Goldman Sachs JBWere has been confirmed as the investment banker in charge of the sale of the assets for the Yellow Pages Group.

The appointment is being seen as a bit of a coup given the lack of merger and acquisition activity in the market.

But Stock Takes can't help thinking that it's going to be hard work flogging off a business in a market where there are few buyers with the cash to make the purchase.

During the heady bull market days a potential market sale like YPG would have taken just three or four months to complete.

But that's not the case any more.

One only needs to look at the acquisition of Shell's downstream assets by Infratil and the New Zealand Superannuation fund which took more than a year to complete.

AUSSIE ACTION

Boutique Kiwi investment bank Cameron Partners, which missed out on getting in on the YPG sale, has managed to score itself some work in Australia.

The firm, which is headed up by Rob Cameron - chairman of the Capital Markets Development Taskforce - has been making the most of its three-year old partnership with Rothschild to provide advice on the sale of Queensland's forestry assets.

The A$603 million ($742 million) deal will see Hancock Queensland Plantations, a company managed by Hancock Timber Resource Group on behalf of institutional investors win the right to grow and harvest the trees.

The Crown plantation land on which the majority of the business sits will remain in government ownership.

The sale includes about 35,000 hectares of freehold land, which is about 10 per cent of the total estate.

BROWN EXITS NZX

The sudden resignation of Geoff Brown, head of market products at NZX, has come as a surprise to many in the market with some former workmates saying they were not aware of his intention to leave.

Brown had been with the stock market operator for eight years and was seen as the right hand man of chief executive Mark Weldon.

A spokeswoman for the NZX, which did not give a reason for Brown's departure, said he just decided it was "time to move on and pursue other issues".

She would not confirm whether Brown had another job to go to.

"There are no issues there on a management level, it's just a very personal decision," she said.

Brown was away on annual leave on the day of his resignation and did not return calls to his mobile.

Some market commentators believe his role may have become unclear in recent months.

Brown oversaw the financial team at the NZX until the appointment of a chief financial officer last month.

His departure comes at an interesting time for the NZX, given it is on the verge of launching its much talked of clearing house and a raft of new products including a new dairy derivative market.

Surely the man in charge of market products would be the best person to see this through?

His departure marks the 20th person to leave the stock exchange operator this year out of around 160 staff.

BECOMING CLEARER

NZX chief executive Mark Weldon says the new clearing house should be up and running by late July, nearly nine months after it was expected to go live.

The exchange has previously been reluctant to put a date to the launch and had until recently been telling journalists that trading in dairy derivatives, which can't go ahead until the clearing house is in place, would go live by "mid-year".

Weldon expects the clearing house and derivatives trading to become big money-earners for the NZX.

That's just as well as it's not making much money off new listings at the moment.

The only listing to go ahead this year has been Geoff Ross' candle business Ecoya.

Weldon, who predicted a number of new listings earlier this year, said it was fair to say that they had failed to materialise.

He believes the upheaval in Europe over sovereign debt issues may be putting some off.

NZX's share price has fallen from a year high of $2.28.

Yesterday the shares closed at $1.70, just ahead of a year low of $1.69 hit in July last year.

DAIRY PLAY

The sale of Rural Portfolio Investment's shares in New Zealand Farming Systems Uruguay to Olam International has sparked speculation the Singapore firm may be wanting to gain more control of the business.

One commentator said he believed it was not if but when the company would look to raise its stake to 50 per cent.

The Singapore listed agri-investor, which also owns a 24.99 per cent stake in New Zealand's Open Country Dairy, has shown itself to be a patient and canny buyer.

It managed to acquire its first 14.35 per cent stake in NZFSU from Hunter Hall Investment Management at 41c per share and has paid the same price to lift its stake to 18.45 per cent.

Olam said its interest in the company was part of its strategy "to enhance its participation in dairy farming in low-cost producing countries that will provide a significant cost advantage".

Olam is certainly not short on cash, the deal will be funded internally, something which NZFSU could be keen to take advantage of.

Shares in NZFSU closed steady at 40c yesterday.