Stock Takes: Kathmandu heads for the summit while Methven slips

Methven's share price dropped after downgrading its earnings forecast last week. Photo / Supplied

Considering the economy was in no great shape over the last quarter of 2010, outdoor goods retailer Kathmandu has done surprisingly well.

Gross domestic product data for the December quarter confirmed conditions were still grim, despite the GDP posting a slight 0.2 per cent gain.

The data showed growth in household consumption slowed to 0.2 per cent in the period from a 0.4 per cent expansion in the September quarter. The volumes of spending on durable goods shrank 1.2 per cent and non-durable contracted 0.3 per cent.

But Kathmandu last week posted a 28.4 per cent increase in earnings before interest and tax to $19.9 million, for the six months ended January 31, 2011.

Its net profit after tax increased from $4.4 million to $10.5 million for the same period. The company said it was happy with its trading performance, particularly over December and January and with same-store sales growth of 12.1 per cent for the half year.

"Given the retail environment over the period we clearly consider this is a very solid performance," the company said. It looks like the market agrees. The stock has gone from a 52-week low of $1.53 last November to $2.20 at yesterday's close.

TAP DRIPS

Tap and showerware manufacturer Methven has not been so lucky. Methven's share price dropped like a stone after downgrading its earnings forecast last week. Methven said in November last year it expected its annual net profit after tax to be in line with the previous year's and its net debt to be slightly up on the previous year.

The company now says a potential bad debt in Australia of $700,000, combined with fourth quarter trading weakness in Australia and New Zealand, exacerbated by the latest Christchurch earthquake, is expected to reduce earnings by around 10-15 per cent on last year's net profit of $7.8 million.

In addition, net debt is forecast to increase by 15-20 per cent on the prior year of $17.4 million. Methven last traded at $1.54, down from its 52-week high of $1.90.

SEEKING REDRESS

Australia's Slater and Gordon, fresh from a successful class action against trustees for the failed financial advisory company Fincorp, has teamed up with Auckland law firm Turner Hopkins to try to do the same for the thousands of investors who were cleaned out by the failure of several New Zealand finance companies between 2006 and 2009.

The two law firms will review the viability of taking a representative, or multi-party action against those corporate trustees who were appointed to oversee the activities of failed finance companies such as Hanover and Bridgecorp.

These claims will be in the form of proceedings on behalf of large groups of investors in one or more of the failed finance companies, Turner Hopkins says on its website.

"The claims are expected to allege a breach of trust on the part of the corporate trustees appointed to monitor and supervise the activities of the failed finance companies and protect investors," it says.

"Investors may well be entitled to recover economic losses incurred by them as a result." Slater and Gordon, Australia's biggest law firm, is a listed public company that specialises in class actions, which typically involve a third party putting up money to fund litigation.

Out of the dozens of finance company failures, trustees Perpetual Trust and Covenant feature prominently, but Turner and Hopkins lawyer Andrew Hooker said the firm had not decided which of the trustees it would seek redress from.

"We will wait to make a final decision on who we choose, depending on the sort of response that we get," Hooker told Stock Takes.

"Once we have got a handle on where the people are that have registered an interest, we will sit down, analyse and make a decision," he said. "We may decide to go with one or many cases."

Hooker has in the past acted for individual investors in their claims against financial advisers.

"There are a lot of people out there who have lost a lot of money and this may provide a mechanism for them," he said.

"We are talking about people - average mums and dads - who have lost seven figures, or their entire retirement savings, because the finance companies have gone belly up. There has got to be some redress, somewhere."

DEAL WOBBLES

The Singapore Exchange's controversial A$8.2 billion proposal to take over the Australian Stock Exchange is looking wobbly.

The deal - which has the moral support of the NZX - looks to be fraught with difficulty and the latest price action in ASX suggests that there is a fair degree of pessimism about whether it will proceed as planned.

Shares in the ASX closed yesterday at A$34.61 compared with a theoretical offer price at the time when the deal was announced last October of A$48 a share.

Reuters reports that the Australian Parliament is likely to hold an inquiry into the deal, which could further delay any conclusion until July.

Opposition lawmaker Barnaby Joyce told the Senate on Tuesday that the Opposition would support an inquiry by the Upper House if the deal was approved by the Foreign Investment Review Board (FIRB) and Treasurer Wayne Swan.

The deal needs approval from the FIRB and then Swan, who must rule on whether it is in Australia's national interest. The deal also needs Parliament to approve the removal of a 15 per cent ownership cap on the ASX.

WHIMP INJUNCTION

The High Court at Wellington yesterday granted the Securities Commission injunctions to stop shares being transferred to limited partnerships associated with Bernard Whimp, who has come to the commission's attention through a series of so-called "low-ball" share offers.

The commission said the offers were misleading or deceptive in that they appeared at first sight to be made at above the market value of the shares, but under the fine print the full payment would not be made for 10 years.

Offers for shares in Contact Energy, DNZ Property, Guinness Peat Group, TrustPower and Vector have been condemned by boards and shareholder groups as trickery as they offer more than the market price, but the amount is payable over 10 years and dividends are forgone, making their value below current market value.

Whimp's position is that the offers are not misleading.

The Government is moving to require such offers to have a comparison with the market price. The convener of the Law Society's commercial and business law committee, John Horner, said he was heartened that the Cabinet had decided to include rules to address the issues raised by low-ball offers in the comprehensive review of securities law.

"The tactic of paying above market price for shares, but using fine print to spread the payment over 10 years, was clearly designed to prey on less sophisticated investors," he said.

Until the new rules were in place, Horner said shareholders who received similar offers should seek advice. The commission earlier ordered Whimp to correct the offers.