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P O Box 20034, Bishopdale, Christchurch. www.headliner.co.nz for 24/7 Markets News 4 APRIL 2013 Volume 34 No 13

Lifting farm Heat on Route into Australian liquidity retail rural stocks page 2 page 3 page 4 page 5

Offer fills prior to Mad Butcher reverse listing By WARREN HEAD The Mad Butcher franchisor business will become the cornerstone investment of listed investment shell company Veritas Investments, pending the OK of its share- holders at a special meeting this month. We’d be amazed if they turn down a prize catch. The interest in Mad Butcher doing a participating in the bookbuild process. reverse listing onto NZX has been The Veritas structure was previously manic. used by Salvus Strategic Investments, After a bookbuild by lead manager which realised its liquid assets and Craigs Investment Partners, Veritas allo- returned proceeds to shareholders. For cated the full $22m of shares available around a year Veritas hunted for a busi- under the combined broker firm and ness with strong sustainable cashflows institutional offer, with the offer over- and growth opportunities, and named Veritas shell awaits arrival of the Mad Butcher business. subscribed by 118% (over twice the Mad Butcher in December. The business amount sought). Included in the $22m of being acquired comprises the Mad firm allocations is $10.4m of equity Butcher brand, franchise system and commitments that were put in place at franchisor rights over 36 franchised MB Easter market high the time of the announcement of the stores. This is the largest network of acquisition. Excluding these equity franchised butcher stores in New Just before Easter, during a bout of equity World Accumulation Index, UK FTSE 100 TR commitments, the combined broker firm Zealand. Note that none of these stores market euphoria, triggered by the promise of and US S&P 500 TR Index are +8.0%, +8.4% and institutional offer was oversub- is actually part of the acquisition. a higher milk payout for dairy farmers and a and +10.8% respectively.” fatter div for unit-holders, the NZX Headliner What does it mean for valuations? asks scribed by 225% (over three times the Darrow told “We looked at 50 Gross Index hit the latest in a series of Leach. ”With the market now trading at an amount sought). a lot of businesses but Mad Butcher was chart-topping performances. The present all- all-time high, our market metrics are being Veritas registered a prospectus for an identified early on as a quite exceptional time high of 4422.75 comfortably surpasses stretched vs. the long-run averages. The offer of up to a maximum of $25m of opportunity, a high cash generative busi- the previous high of 4,333 set in May 2007, 12-month forward weighted PE is currently shares at an issue price of $1.30 per ness.” He liked the ability to generate just before everything turned to custard. 15.8x vs. a 5-year average of 13.7x (median: share. Funds received will be used to high dividend growth. The NZ market has recovered strongly 15.3x vs. 5-year average: 12.9x). part fund the acquisition of the Mad Veritas will continue to seek other post the GFC (Global Financial Crisis, March “Our 12-month weighted ETR is now Butcher franchisor business together suitable acquisition targets. Mad Butcher 2009), with an annualised return of +15.2%, +7.2% (median: +11.1%). This is derived from with the costs associated with the acqui- is to be the ’cornerstone investment’ and says Forsyth Barr analyst Matthew Leach a 12-month target price return of +2.7% and who monitors longer-term trends. Headliner a cash dividend yield of +4.5% respectively.” sition and the offer. Darrow told that any further The small cap stocks have rallied the Our reading of that is it’s now time to The remaining $3m of shares avail- investments would be tightly focused on most since the GFC low, posting the highest think hard about where you think a realistic able under the offer has been reserved food and beverage. The investment annualised return of +20.4%. This is fol- top might be. as a priority pool for NZ resident Veritas strategy is different, he said, from that of lowed by the midcap stocks returning In previous rallies, we’d usually see a shareholders who were on Veritas’ share Hellaby, with its quite disparate types of +15.1%, and the large caps, +14.7%. The linkage with liquidity. A booming housing register as at 5.00pm on 22.2.13 and also investment. The Veritas strategy is to Property Index posted a slightly lower annu- market lifted the sharemarket in its wake. to existing Mad Butcher franchisees. purse complementary acquisitions alised return than the NZX Benchmark index, Forbar currently believe “weight of money” There is no public pool. opportunities for the MB business, as of +13.8%. arguments are overplayed. In arguing this Veritas chairman Mark Darrow said well as other opportunities in NZ. It can be argued that some of the small position they appear to show less tolerance and mid caps are not longer in that cate- for revenue-driven stocks lacking basic invest- the response from investors has been Veritas has an 8.43% holding in Syft gory; shares are trading 182.6% higher ment fundamentals. extremely positive with market Technologies as a residual investment than a year ago, Diligent shares 104.9%. “Significant new issuance over the next 18 endorsement of the Mad Butcher busi- asset with a carrying value of nil. There have been many excellent perform- months is expected to absorb realistic assess- ness acquisition, with eight institutional The MB business is being acquired ances over the last 12 months including ments of the money on the side lines. investors, alongside retail brokers,  Continued on page 4 Summerset Holdings, a new listing in late Fundamentals therefore matter and we need 2011, and now 74.7% higher as it uses cash to see earnings revised higher to maintain or raised to steadily expand its footprint. extend the current rally. “It is therefore time , the top stock in the to emphasis fundamentals not momentum,” Telecom brings down the Sword retirement sector, is up 68% over the year. said Forbar. It’s been a while since Telecom was in the Telecom expects to incur one-off restruc- Alternative milk producer A2 Corp is up OK, let’s put that into the context of the spotlight as much. First came the news that turing costs of $70m to $80m in FY13, asso- 52.6% and having achieved bank status, upcoming energy SOE float. If Mighty River it was launching a sharply priced fibre optic ciated with decisions taken to date Heartland is 61.7% higher. Retailers Power’s prospectus doesn’t promise at least Internet package. Then came the anticipated including impacts of resetting the scope of +60.1%, and Hallenstein Glasson an 8% growth rate in underlying earnings per +40%, show the way in a difficult sector. details of a deep slashing of costs. Gen-i Australia and downsizing costs in New share for FY14 it will not be matching the actual average performance of the 40 or so It updated its intention book material Zealand. companies that have just reported interim one-off costs in H2 FY13 associated with The flow on impact of these changes AUSSIE INDEX EXCELS results. Make that 9% to equate with changes including cutting between 930-1230 onto revenues and non-labour operating However, according to Leach, it is the expected growth in EPS in the year ahead. jobs. costs is uncertain. Telecom believes that Australian S&P/ASX200 Accumulation Index It appears that there’ll be some purging payroll costs (Opex and Capex) will reduce which leads the charge with an annualised at head office, following a couple of weeks of by $90m to $110m on an annualised basis. +17.1% NZD return post the March 2009 low. NZX SECTOR RETURNS POST angst in the wider ranks about loss of jobs. Telecom expects to incur further redun- “Together, the trans-Tasman indices lead the GCF LOW (MARCH 2009) In driving for simplification and a com- dancy and other one-off costs associated major global markets in NZD relative terms. petitive cost base, TEL has moved on struc- with cessation of business activities as it “Global markets are continuing to rally Index Annualised Return tural and portfolio changes. In the last five works through the remainder of its stra- with the Dow Jones Industrial average also NZX Small Caps G +20.4% weeks, decisions have been taken to: tegic change process. Telecom will provide a recently reaching an all-time high and the • reset the scope of Gen-i Australia to its second update once decisions are taken. FTSE 100 and Australian S&P/ASX200 NZX 50 Portfolio G +15.4% original rationale; It expects to reduce its number of full Accumulation indices less than 5% below NZX Midcaps G +15.1% their respective highs. • reduce significantly corporate centre time equivalent employees from 7,530 at NZX 50G +14.9% functions in management, HR, Finance, 31.12.12 to approximately 6,300 to 6,600 “However, the strength of the NZ dollar had positioned the NZ equity market ahead NZX Large Caps G +14.7% Legal and Corporate Relations; and by the middle of this year. Staff levels are of other global indices. In order of magni- NZX Property G +13.8% • tighten the management and operational being reduced by constraints on tude, the annualised returns for the MSCI staff levels in all business units.  Continued on page 3

HOT INVESTMENT NEWS ON WWW.HEADLINER.CO.NZ. PREMIUM MEMBERSHIP FOR THE MAGAZINE + WEBSITE top tier ANALYST’S VIEW

Fonterra lifts farmer liquidity Analysts at First NZ Capital appreciated Fonterra’s stun- Fonterra Co-operative Group did what every half- ning 1H13A. Fonterra’s NZ$693m pre-abnormal EBIT and NZ$467m decent should do — it has stood by its shareholder and NPAT were 26% and 29% better than their NZ$573m and given drought-conscious dairy farmers a cash top-up. NZ$363m estimates, driven by stronger contribution from Fonterra has lifted its current forecast cash payout for product mix, price premiums and cost savings in the NZ the 2012-13 season to $6.12 for a fully shared-up farmer, Milk Products business. based on a higher forecast Farmgate Milk Price of $5.80 However, in their view, there is now greater uncer- per kgMS and a forecast dividend of 32 cents per tainty regarding Fonterra’s strategic path for Australia share. until its review is completed in the next six months. The co-operative also narrowed its earnings per share “This could be a significant swing factor to the overall guidance to 45-50cps. Fonterra lifted interim dividend future performance of group earnings.” from 12 to 16cps, 33% higher on pcp and this aspect of Accordingly, they have downgraded their rating on FSF the result has driven the share price higher, finishing the to NEUTRAL from Outperform, acknowledging Australia as week . . . and underpinned the strength of the NZD. a material point of uncertainty and a preference for Sixteen cents represents 50% of Fonterra’s forecast greater strategic clarity for that market before resuming a constructive longer-term view. dividend for FY13, and the maximum available under Fonterra is extending the brand appeal; it operates an the 40-50% range in its dividend policy. integrated model encompassing milk collection, The higher forecast was on the back of a strong first processing, the sale of dairy ingredients and consumer half performance by Fonterra, which saw net profit brand dairy products. They believe that, as currently the increase by 33% to $459m, following a robust perform- After superb growth in Spring and early summer, largest global supplier of basic dairy commodity into the ance by NZ Milk Products and significant lifts in sales dairy farms face a parched patch. global milk pool, the co-operative could double its EBIT volumes in Fonterra’s Asian and Latin American brands. from NZ$1.0bn to NZ$2.0bn over time by significantly There was a partial offset by the performance of the are getting cash to them faster, as they begin to dry off expanding its existing consumer and business service Australian business. their herds for the winter earlier because of the drought brands (through organic and value accretive acquisition “The new forecast reflects a recovery in global dairy and no longer have milk flowing,” said Wilson. growth) in the global dairy market, as well as from commodity prices over the past two months,” said With the strong first half performance, Fonterra has better cost efficiency. Fonterra chairman John Wilson. lifted interim dividend from 12 to 16 cents, 33% higher “We expect Fonterra to maintain its cost savings Prices have increased in seven of the last fortnightly momentum and growth in price premiums in the foresee- than the comparable period. Sixteen cents represents able future.” auctions on the online trading platform 50% of Fonterra’s forecast dividend for the current finan- FNZC has set a 12-month target price of NZ$8.10. “We GlobalDairyTrade (GDT), up to results day. Just prior to cial year, and the maximum available under the 40-50% derived this from a roll-forward at the higher-end of our Easter, the GDT-Trade Weighted Index was 26.7% above range in its dividend policy. NZ$7.10-NZ$7.73 underlying spot valuation range for where it stood in February when Fonterra issued its last EBIT of $693m was up 26%, revenue, however, was Fonterra/FSF and after factoring in a 5% discount factor forecast. 7% lower at $9.3bn, reflecting lower dairy commodity for non-voting structure for FSF.” “World dairy trade growth is being led by powders prices and the strength of the NZD against the USD, Their target price implies 16.0x 12-month forward P/E (combined whole milk and skim), reflecting strong more than offsetting the higher volumes sold. and 4.0% dividend yield. demand at a time when global supply is constrained. The business says it reacted swiftly to higher price The start of the season was spared the drought. signals for cheese, casein and Milk Protein Concentrate Wilson said: “We had excellent spring and early summer compared with Whole Milk Powder and other powder property growing conditions across most of the country leading prices for most of 1H13. to strong growth in dairy production and “By moving our discretionary manufacturing, we record volumes in the first half. were able to take advantage of this pricing differential,” “However, the dry conditions in the North Island said Spierings. “This flexibility at an operational level Acquisition of since January have created real challenges for our was a significant contributor to NZ Milk Products’ 9% farmers, with many turning to supplementary feeds and rise in sales volumes to 1,474,000 MT. shifting to once a day milking to maintain the condition The commissioning last year of the co-operative’s HSBC Tower of their herds. new Darfield site — where the Darfield Drier 1 can “The drought in the third quarter has been more process 2.2 million litres of milk at peak in one day and Precinct Properties reported the conditional acquisi- severe and lasted longer than anyone might have produce 15 metric tonnes of milk powder per hour — tion of the HSBC Tower at No 1 Queen Street in predicted, and means we are currently forecasting total was one of the factors that enabled NZMP to process the Auckland for NZ$103m and the settlement should milk collection volumes for the full season to finish in higher peak milk flows and deliver a strong perform- occur within the next 5 months. line with last season. ance. The price tag represents an initial yield of 7.7% “Coping with the climate is part of farming. But there Despite the average USD commodity price being (7.2% excluding the rental under-write) and this drew is no denying the stress that a drought causes and, at 16% lower than the same period last year, NZ Milk comment. “Whilst a 7.2% yield appears a “rich” price times like these, farmer shareholders are looking for Products’ focus on performance was reflected in a 65% for a B-Grade asset, we like the strategic nature of support from their co-operative. increase in normalised EBIT to $422m. this acquisition, and the increased weighting to “Despite the drought taking effect in the North Island The report also noted that Australia-New Zealand Auckland where rental growth prospects are higher in January, it was a different story for those in the South business’ earnings declined, with normalised EBIT down than the Wellington market,” said First NZ Capital. Island where the rainfall was higher than last summer,” 32%. This may become more relevant than at first glance. The company takes control of the leasing upon said chief executive Theo Spierings. While the consumer business performance in New board approval (expected in a month), and therefore Fonterra’s milk collections for the season to the end of Zealand was slightly better than last year, Australia’s effectively has ten months (including the six month January were up 6% on the same period in 2012 — consumer business had to contend with a very competi- rental underwrite) to lease up the building. During which in turn flowed into record production, and tive retail environment. the five-month conditional period, the company has another new export volume record achieved in The ingredients business experienced a significant stated that the Board will “review all funding options December 2012. margin squeeze as the competition for milk supply in available including debt, equity and sale of non-core Fonterra has increased the speed of the advance rate Australia intensified. This was compounded by an assets”. paid to farmers for their milk. Together with the higher adverse product mix due to lower demand in the export Precinct has yet to settle on a final funding mix, so forecast milk price, it means on average farmer share- sales of value-added nutritional powders, and more milk FNZC has set out the effect the acquisition would holders will receive $100,000 earlier in the season. “We being channelled into lower value milk powder sales. have under the scenarios. “We believe debt funding the asset is the most attractive of the three options available and under Golden Quarter for Wall St our analysis the company will continue to comfort- ably meet both its debt and interest cover covenants US stocks wrapped up a stellar first quarter with the S&P 500 (helped by expected cap rate compression). finishing at a new high, after flirting with the milestone for “However, we appreciate that the present time is weeks. an attractive time to raise capital (17% premium to The benchmark index gained 6 points, or 0.4%, to end at a NTA) and the company may look to ‘future proof’ the record close of 1569.19, inching above its previous record of 1565.15 from October 2007, reports First NZ Capital. business (allowing for potential capex on Downtown “Despite the new milestone, trading was relatively calm and House and Bowen Campus) by raising capital.” light as investors monitored the ongoing crisis in Cyprus and PCT remains one of FNZC’s preferred sector plays. mulled over new economic data in the United States. “While offering a below sector average yield at 5.1% “The first quarter of 2013 has been far from quiet. The Dow we believe PCT offers superior growth in earnings Jones Industrial Average, which has been trading at record highs (and dividends) within the sector. We assume this since early March, rallied more than 11% and booked its best transaction will be debt funded which increases our first quarter since 1998. The S&P 500 soared 10% and the valuation to NZ$1.03 (from NZ$1.01).” Nasdaq was up 8%.” FNZC’s rating remains Neutral.

Managing Editor: Warren Head. 8 Sheffield Crescent, PORTFOLIO COMMENT P.O. Box 3762, Christchurch, New Zealand Editorial: (03) 357 0442, fax (03) 357 0426, (021) 340 650. • Fonterra Shareholders’ Fund $7.49. • Ryman Healthcare $5.04. FNZC Advertising: Ira Rawiri (09) 360 1026, fax (09) 360 1028, E-mail: [email protected] An MG Publications magazine The 1H13 result highlighted fundamental upgraded RMN to Outperform, calling it Production: [email protected] volatility in earnings, said Forsyth Barr. “the best-of-breed operator in the favour- Subscriptions: FREEPOST 5003, P O Box 20034, Christchurch. In light of elevated valuation levels and able NZ retirement village sector.” Set Freephone 0800 64 96 96 E-mail: [email protected] evident risks to earnings they have a against the backdrop of demographic Copyright 1979-2013. All rights reserved. No part of this work may be reproduced or copied in any form or by any means (graphic, REDUCE recommendation. tailwinds, they believe RYM benefits electronic or mechanical, including photocopying, recording, taping, or information and retrieval systems) without the written permis- • $11.30. sion of the publisher, “Mercantile Gazette Marketing Ltd”, P.O. Box 3762, Christchurch. “The Headliner” is published and circulated 24 MFT’s earnings from a remarkable business model. times a year. All information is provided in good faith with all possible care and attention given to its preparation. Whilst the informa- downgrade reflects some growing pains, • Precinct Property $1.04. One of tion is derived from sources believed to have been accurate and reliable, no guarantee of accuracy can be given and opinions are said First NZ Capital. They stay positive Forsyth Barr’s top sector picks. They are subject to change without notice. Mercantile Gazette Marketing Ltd, its directors and employees do not accept liability for the results of any actions taken or not taken on the basis of information in the newsletter, or for any errors or omissions contained herein either on MFT’s global strategy and its growth positive about LPVs acquiring strategic to matters of judgement or fact. Those acting upon the information and recommendations do so entirely at their own risk. Mercantile oriented culture, but eased NPAT fore- assets at this stage of the cycle given they Gazette Marketing Ltd and/or their directors and employees may, from time to time, have financial interests in respect of some or casts. Their rating is Neutral with lower expect valuations to firm over the all of the matters discussed. In accordance with the provisions of the Securities Markets Act 1988 and the Securities Markets (Investment Advisers and Brokers) Regulations 2007, disclosure statements will be available free of charge from any external target price of $12.20. medium term. adviser or broker quoted in The Headliner or providing a column to the publication. Our full terms and conditions are posted on www.headliner.co.nz. Typeset by MG Publications and printed for the proprietors, Mercantile Gazette Marketing Ltd, Christchurch, NOTE: Headliner itself has no view on any stock mentioned. Stocks mentioned may not suit your risk by Guardian Print, Ashburton. International standard serial number 0110-9790. profile. Reports may be abbreviated and readers are urged to seek independent professional advice.

Page 2 “The Headliner” 4 APRIL 2013 results new listings Long hot summer burns off retailer Hallenstein Glasson’s sales in the first half year were a little sunburnt but a higher dividend of 16cps brightened the market, and the company’s shares moved 13c higher to $5.65. Unaudited net profit after tax for the six months ended 1.2.13 was $10.37m, an increase of 14.9 % over the pcp ($9.03m). Total comprehensive income after fair value adjustments was $10.34m ($9.76m). Group sales were $115.73m, an increase of 6.6% ($108.57m). Group CEO Graeme Popplewell commented: “The first half of the year has seen some significant improve- ments over the prior year. Hallensteins have continued to reposition the brand and that strategy has now begun Snakk Media having to deliver strong results. Net profit after tax for Hallensteins increased 21.2% and we have a very posi- a very busy time tive outlook for that brand. “Storm continued to outperform the market, deliv- Snakk Media (NZAX: SNK), the new screen company, has ering same store growth of 27%, while net profit after got off to a grand start as a listed stock. Firstly, the tax increased 72.7%. Later this year we will open our stock tripled its share price on its stock exchange debut earlier this month, secondly, it has set record-breaking first Storm store in Australia in Chapel Street, revenues for the October to December 2012 quarter. Melbourne. Unaudited revenues increased 210% year-on-year from “Glassons in New Zealand continued to play a NZ$686,000 to NZ$1.439m. Revenue for the entire year leading role in the New Zealand market, lifting net to March 2012 was NZ$1.99m. Now at Headliner we profit after tax 12.8%. retain a touch of hesitation about the new Internet Australia has been a challenge and sales over the stocks — and they still keep rising. Sales are the elixir December, January period did not meet expectations. for the digital era — we just look forward to the day The Storm brand is outperformiing the market. “Given the positive growth we achieved earlier in the when they all make a bottom line profit. Pictured: Store at Merivale, Christchurch. year this was disappointing, however, we remain posi- Snakk is shaping up as a particularly savvy business tive about our future in this market. During the period that has compelling public relations. “Snakk is continuing we incurred NZ$500,000 for store relocation and At a Glance: to prove itself as a future-focused, high-growth company; restructuring in Australia.” HLG incurred a net loss one that is generating tremendous revenue opportunities after tax of $600,000 in Australia. • Glassons New Zealand: Sales +2% (same store sales from the new screens and channels that brands are using to connect with consumers,” said chairman and co- “Our ecommerce business has continued to grow to +2%) Profit after tax $4.60m +12.8% • Glassons Australia: Sales +13% (same store sales -1%) founder Derek Handley. meet the demands of the change in consumer “In less than two short years, Snakk has achieved sig- purchasing habits. Sales on the web have continued to Profit (Loss) after tax -$600k • Hallensteins: Sales +6% (same store sales +8%) Profit nificant financial growth with revenue increasing almost see strong growth and we will continue to invest and 350% in our last financial year. The third quarter results after tax $5.15m +21.2% place emphasis on this channel.” we’ve announced show we are continuing our upward The first 7 weeks of the new season have been a chal- • Storm: Sales +39% (same store sales +27%) Profit growth trajectory.” lenge with record warm temperatures making it diffi- after tax $822k +72.7% What is the business model? Snakk makes money cult to get traction for the winter season both in Property Profit after tax $395k (2012 $423k) -6.6% every time an ad uses its networks to appear on a tablet Australia and in New Zealand. Group sales are down or smartphone. Revenue comes from both the advertiser 1% on the prior year, but as the cooler weather has shows a marked improvement on the pcp of 7.8x. HLG’s paying to use the ad space and the publishers serving started that trend has begun to reverse. HLG do not the ad in this space to its audiences. balance sheet remains very conservative with net cash of The company is also planning a Share Purchase Plan expect the retail environment to show any significant NZ$26m, up from NZ$22m in the pcp. uplift and are working on the premise that conditions (SPP) in April, subject to NZX approval. Snakk said: “The “Repositioning of the Hallensteins brand has worked offer will be available exclusively and for a limited time will be very competitive. Their sales on the internet well for HLG and upmarket chain Storm is showing strong to investors holding Snakk shares prior to the morning continue to grow. growth. Near-term earnings growth will continue to be the offer opens.” Now that sounds alluring but this is driven by Hallensteins and Storm. actually the way all SPPs work. Nothing new here. And DIVIDEND DETAILS “We still believe HLG looks fully priced at current many companies do go on to raise further capital from The results were strong enough to allow HLG to lift levels, even after adjusting for the large cash balance. HLG other investors under a SPP. The cap for individual sub- interim dividend to 16.0 cps (last year 14.5cps) The divi- is trading at a 12-month forward PE of 13.8x, well ahead scription under a SPP has been raised to $15,000. dend will be paid on 19.4.13 to those shareholders regis- of its 5-year average of 11.7x. Trading on a FY13 PE of Funds raised from the SPP will go toward expanding tered as at 12.4 13. 14.4x also puts HLG ahead of the NZ-listed retail sector the company into new regions, growing the sales team, average of 14.1x. “However, this does not take into adding new technology platforms, and exploring strategic account the company’s large cash balance. Adjusting for investment opportunities. ANALYST’S VIEW “The SPP is an exciting time for Snakk investors as it this (and expected FY13 interest income) brings HLG’s gives them an easy and convenient way to buy larger No FY13 guidance was provided and comments are cau- FY13 PE down to ~13.9x . . . still looks fully priced.” chunks of a fast-growing company at an attractive price,” tious on the prevailing retail environment. Forbar have HLG has an attractive net dividend yield of 6%-7% and said Handley. revised FY13 and FY14 sales forecasts marginally lower, generates a high return on capital of ~50%. In Australia, where Snakk currently operates, smart- largely driven by a pull-back in Australia. This is offset by Refurbishment and continued footprint expansion will phone penetration is the second highest in the world at higher forecast EBIT and EBITDA margins in its NZ chains likely sustain top-line momentum, supported by online 42.1%, ahead of the US at 36.6%, and mobile advertising following the strong 1H13 result. sales penetration. revenue is predicted to experience compound growth of The analysts like the good inventory management Their target price has been upwardly revised to 46% annually, reaching $177m by 2017. Snakk listed on which was reflected through lower inventory levels vs. the NZ$5.00 from NZ$4.75. They maintain a HOLD recommen- the NZAX on 6.3.13, and was the first company to list on pcp despite footprint growth. “Stockturn of 8.5x also dation. the New Zealand stock exchange this year.

Telecom brings down the Sword enjoy the same amount of data, with all the added benefits But TEL assures us it will be worthwhile for us to crack of UFB, for not much more than their existing broadband the wallet for another $1100 a year (assuming the young Continued from page 1 plan.” ‘digital natives’ in the house aren’t chewing through more recruitment activity, voluntary and involuntary redundancies The roll-out of UFB to 75% of New Zealanders by 2020 is than 50GB a a month — why not get 50GB for every family and the transfer of roles to other employers associated with a Government-led initiative with four UFB partners currently member?) (Or maybe outside the big smoke Kiwis still spend portfolio rationalisation decisions. installing fibre optical cabling across the country. more time outside and less in a darkened digital state?) Telecom’s adjusted EBITDA guidance for FY13 remains It will be the first major telecommunications company to “Feedback from Telecom trials showed that even with $1,040m to $1,060m. This guidance excludes the one-off offer UFB at scale for homes, small businesses and schools. multiple users on one connection, the overall internet expe- restructuring costs described above associated with imple- Telecom Ultra Fibre will be available to customers in the rience was significantly better thanks to fibre,” said Telecom menting the new strategy. Chorus footprint initially, due to the fact they’re by far the reassuringly. “They were able to enjoy enhanced streaming Chief executive Simon Moutter commented: “This is an largest UFB partner with nearly 70% of the UFB market. media and their upload experience was more stable on important step to build a leaner, more agile organisation This footprint covers parts of Auckland as well as Blenheim, fibre.” with a competitive cost structure, setting us up to win in Dunedin, Hastings, Levin, Napier, Nelson, Palmerston North, • The company has an online calculator (http://www. the market.” Queenstown, Rotorua, Timaru and Wellington, while Ashburton, telecom.co.nz/packages/packages/plansandpricing/datacal- From an analysis position it’s evident that TEL has been Masterton, Taupo and Invercargill can expect Ultra Fibre within culator) to help people understand how much data they fat on staffing subsequent to the split of Chorus. But it’s the next few months, with further regions in line with Chorus’ are currently using and which Ultra Fibre plan is best for unclear whether this means TEL will be lifting EBITDA by roll-out plans. them. c$100m (cost savings) from FY13 on? “Over the past year, broadband data usage among our • Once a customer has registered interest in Telecom Ultra customers has increased by over 70%, placing greater Fibre, a pre-qualification process will be carried out to FIBRE OFFER demands on existing broadband and mobile technology. ensure the service can be provided. Homes, schools and Telecom has launched a next generation broadband called “UFB will provide even better and faster online experiences small businesses will be eligible once fibre arrives in their ‘Ultra Fibre’ in a bid to expand digital business. Telecom said like smoother streaming for multiple users and enhanced street. For schools and most homes, installation will be it has purposely tried to keep Ultra Fibre within reach of business productivity through greater time efficiencies. free but some homes (including those with overhead customers by creating simple, competitively priced plans “There was some hype about helping the country’s next phone lines) may face an installation charge passed on based on a choice of two speeds, a range of generous data generation of digital natives — and future proofing us for from Chorus according to their specific circumstances. caps aligned with Telecom’s existing broadband plans, and technology we can’t even imagine yet.” • For customers who take up Telecom Ultra Fibre, Telecom national pricing. But essentially after a year TEL is now at the point it will retain their existing copper-based phone lines to Telecom CEO Retail Chris Quin says UFB is a national roll- feels comfortable launching a commercial product. It will be service voice, monitored alarms, faxes, EFTPOS, SkyTV and out so it’s appropriate to have national pricing. “Our entry- hoping it all goes smoother than the Chorus rollout where medical alarms. Telecom is looking to introduce a voice level residential Ultra Fibre (Fibre 30 with 50GB) will be $95 costs have soared and there are believed to have been tech- over fibre product later this year with development well per month based on a 12 month contract. We’re confident nical hitches hooking up houses (yes, oddly enough, ‘the cus- under way, which will open the opportunity to transition our pricing will appeal to customers given that they will tomers’ are actually out at work during the usual 9-5 hours). the other non-voice copper-based services to fibre.

“The Headliner” 4 APRIL 2013 Page 3 Offer fills prior to Mad The Mad Butcher story began in 1971 when Sir Peter Leitch purchased his first butcher shop in Mangere. It Routes into Butcher reverse listing was initially called Rosella Meats. He realised that a niche market for a chain of butcheries existed within dairy farming Continued from page 1 Auckland’s lower socio-economic area, prior to the for $40m from Mad Butcher Holdings, owned by interests proliferation of supermarkets. The business was built associated with Mad Butcher CEO Michael Morton. The on a volume based franchisee structure maximising With buoyant global milk commodity founder of ‘Mad Butcher’ Sir Peter Leitch has been retired carcass yields and passing volume discounts through prices, tight supply of dairy products and out of the business for some years. Morton will remain CEO. to customers. As the chain grew the brand was reori- the related upward pressure on next sea- The price tag is below the $42m-$48m valuation range ented to capture the wider middle income market son’s milk price, the level of interest in of Grant Samuel & Associates, the independent adviser. segment. dairy farm investment isn’t likely to dry up We like the investment fundamentals (almost old-fash- any time soon. ioned in an era of digital stocks hell-bent on sales driving MB will deliver “stable earnings from supplier rebates, There is, however, a realisation by many market capitalisation). Forget the history of Veritas as a carcass sales and payments from franchises” said Veritas farmers that the higher milk price payout from shell. They have sensibly expanded the capital to match a in its prospectus. It has a “low cost model, without day-to- Fonterra will be taken up in meeting costs of decent-sized purchase. Implied market cap will be $45m at day exposure to store operating costs and with little expo- the present drought. The lucky farmers are $1.30 a share. Pro-forma net debt is $700k. sure to the capital costs to establish and improve fran- those on irrigated land or in less affected The prospective FY13 revenue is $32.3m and EBITA chised stores”. areas. $5.9m, leading to net profit of $700k from 12 months of “As a result growth in franchised store numbers The dairy farm investor MyFarm is contin- trading by the MB business and 2 months trading of provides incremental revenue which largely converts to uing with new syndications. MyFarm’s latest Veritas. The FY14F EBITA is $6.2m and NPAT $4.2m from profitability.” venture is Kauana Limited Partnership based a year of trading by each of MB and Veritas. That pushes MB has built revenue from $28.09m in 2008 to $32.11m on a 720 cow productive dairy farm 15km north earnings per share to 12cps and price earnings ratio would in March 2012 (2009 was a peak year at $37m) and from Winton. An 820 cow wintering barn be 10.6x. EBITDA from $3.98m in 2008 to $4.77m in March 2012. extends milking by at least 25 days and If the offer size were $25m EPS would be 11c and PE prevents soil damage in wet periods. 11.3x, still well below average market PE of around 15x. How will the business grow? MyFarm will take over the farm on 4.6.13 Market behaviour is usually that an attractive PE level Revenue can really only be driven by store numbers and and forecast average cash returns of 6%-7% p.a. stimulates trading. store revenue. Four new stores will be opened by 30.6.14 starting within 12 months of ownership. Implied enterprise value to FY14F EBITDA is 7.4x. The and 30 further areas of NZ with suitable demographics Such syndication offers are not inexpensive payout ratio is set at 60% of distributable earnings and the have been identified. Veritas doesn’t propose to open in all at $250,000 and can only be taken up by prospective FY14F net dividend yield is 5.7% based on a of these areas but it demonstrates the potential. persons who come within section 5(2CBA) of 7cps div. It could acquire complementary retail. Product expan- the Securities Act. sion beyond meat and an existing range of convenience Dairy farm land is a high-performing asset MARKET POSITION products may be offered. Could MB become a medium- class, but it has been difficult for most investors What Headliner notes about the MB business is that it oper- market rival to the big co-ops? to access. MyFarm has been structuring ates in a core industry (food), parallel to supermarkets (in The future revenue and growth of MB will depend on investor partnerships, with a lower investment which retail investors cannot acquire shares), is already its ability to retain and develop existing franchisees to threshold of $25,000, that can invest in the well diversified by location (the earthquake factor) with 36 promote same store growth and on its ability to identify larger sized syndicates. stores employing 600 people doing 110,000 customer trans- suitable locations for new stores and attract motivated KLP Investments, for example, will be a new actions a week. franchisees. investor partnership formed to invest in I did ponder the degree of quality competition from MyFarm’s latest dairy farm syndicate invest- supermarket operators Progressive Enterprises and DIRECTORS ment, Kauana Limited Partnership. Foodstuffs (that buy in bulk and offer lower prices than a The board has a proven entrepreneurial capability. MyFarmAM Collective Investment Vehicles large number of independents offering speciality cuts). Mark Darrow (independent chairman) was involved in (CIVs) enable qualifying investors to make There are relatively few retail chain butchers and the inde- the 2011 sale of Charlie’s Group to Asahi Group, the smaller and/or more passive investments in pendents have decreased in number over the last 40 years mergers of MITO and the sale of PGG Wrightson Finance dairy farms. They: from around 5,173 in 1971 to 661 in 2011. to Heartland NZ. He is a former managing director of • use a limited partnership structure to pool The prospectus said: “High volumes allow the MB busi- Continental Car Services and Sime Darby, G.M. of Peugeot contributions from Eligible Investors for ness and MB stores to purchase quality meat on favour- NZ and CEO for PGG Wrightson Finance. whom a direct farm investment is not an able supplier terms, thereby offering customers quality Tim Cook is M.D. of Collins Asset Management, an option; neat at affordable prices. This has allowed the MB business Auckland private equity investor in medical technology, • provide a cost-effective and tax-effective way to create a profitable niche by positioning the franchised property, executive recruitment and the motor industry. for Eligible Investors to passively invest stores between the large supermarket chains and smaller He was previously CEO of Primecare Retirement Villages. from as little as $25,000 in a dairy farm syn- independent butcher shops.” Philip Newland is a director of Les Mills Holdings and dicate promoted and supervised by Mad Butcher store customers are said to be “typically litigation funder LPF Group. He has been a director of MyFarm, and; value conscious, driven by convenience and trust in a Geni-I. Pacific retail, Tasman Farms, Abano Healthcare, • enable investors to build a portfolio of dairy strong brand and quality products.” Cullen Investments, and St Laurence (2005-07 resigning 3 farm investments. years before the St Laurence receivership). A separate CIV is used for each farm syndi- SOURCES OF REVENUE Stefan Preston was CEO at Pacific Retail, Whitcoulls cate, and each investor partnership invests in The MB business generates revenue via four channels: and Bendon. He is the principal of Ingenio, an investment one specific farm syndicate as a limited partner. 1. Supplier rebates. company. Such an offer is not able to be taken up 2. Carcass sales margins. Michael Morton and Shane McKillen will join the unless investors are able and willing to invest 3. Advertising fees from franchisee contributions for mar- Veritas board. Morton is a previous GM of Pizza Hut and no less than $20,000, and are persons who keting, banding and promotional campaign. operations manager at , leaving in 2000 come within section 5(2CBA) of the Securities 4. Management fees payable by each franchised store for to join MB as CEO. McKilen established Netco Act. use of the MB intellectual property and systems. Communications, was M.D. at Empower (merged with These vehicles will not suit everyone so we The business monitors and benchmarks each store’s ) and in 2011 jointly funded and commer- suggest you do your own homework and get operational and financial performance such as adherence cialised 42 Below. In 2007 he founded VnC Cocktails. professional advice from your customary to brand guidelines, trading hours, operational and food The offer and the acquisition are subject to Veritas investment adviser. safety policies. shareholder approval at an SGM on 29.4.13

Page 4 “The Headliner” 4 APRIL 2013 australia Attractive entry level n Karoon Gas disappoints The Emu-1 exploration well was thus uncommercial. KAR announced that the Emu-1 exploration well (KAR: 65%) Lend Lease has an attractive entry price, with recent reached a total depth of 4,381 metres and a wireline concerns overstated, says a leading brokerage firm. evaluation programme was nearing completion.” However, Credit Suisse upgraded LLC to OUTPERFORM pressure measurement and wireline log interpretation and set a target price of A$10.98. indicate the primary Campanian and Santonian targets Since its 1H13 result, LLC’s PE relative to the ASX are water bearing. has fallen from 0.76 to 0.69, close to its 12.9.12 low of “We therefore consider Emu-1 as uncommercial and 0.66, 31% below its 10-year avg, and more than have reduced our target price to $7.85/sh (from $8.30/sh) accounting for its Dec half dividend. while retaining our OUTPERFORM rating. Investor concerns have centred around: (1) the Under the farm-in agreement with Pacific Rubiales, de-rating among Au contractors; (2) earnings uncer- US$70m of the estimated US$75m Emu-1 drilling costs tainty (illustrated by the 21% spread in cons. EPS plus 35% of all costs thereafter is paid by PRE. This forecasts); and (3) LLC’s weak operating cash flow. company also has an option to acquire 35% in the “We see these concerns as overstated and/or priced- Bilby-1 exploration well under the same terms. in and we upgrade LLC from Neutral to “Despite the disappointing Emu-1 result, we believe OUTPERFORM with a $10.98 T.P (+20¢).” PRE will exercise its option given the success at Guilty by association? “Since 18.2.13, the Kangaroo-1 and the highly prospective nature of the Australian Contractors’ sector has seen a -0.8x PE Santos Basin,” said Credit Suisse/First NZ Capital. “In any de-rating vs. LLC at -0.7x, given weaker workbooks event, KAR has ~US$220m in cash to fund Bilby-1 drilling (down 9% in 1H13 vs. LLC +13%) and weak lead costs of US$75m. indicators. While Aus Contractors overlap with LLC’s The Bilby-1 exploration well was starting up next. to 40% in line with 2005 levels (38%). Longer term, AU construction business (33% of EBITDA), we refer KAR is expected to spud Bilby-1 (located 25km south of we see LLC’s trend EPS growth at ~8.5% driven by to global contractors and REIT developer/fund Emu-1) around Easter and should take six to eight weeks 50% retained earnings and a 12%+ ROE on redeploy- managers for the remaining 66% of LLC, which have to reach target depth of 4,300 metres. Bilby-1 is tar- ment. seen multiple expansion over the same period.” geting 100–150 mmboe of oil at the Eocene, Campanian “Normalising cash flow is supporting higher divi- Moderate earnings growth reflected in the price: and Santonian levels. dend. LLC is in production mode, which has seen “Our forecast FY12-15 EPS CAGR for LLC of 4.9% is “In relation to the Kangaroo-2 appraisal well, we weak operating cash flows for the past 2½ years. By dampened by a normalising tax rate and slowing understand a suitable rig may not be secured until FY15, we expect cashflow and profit to converge as Australian construction earnings, and lies below the October 2013 with a result due by end-2013. LLC’s major developments complete. This in turn, ASX 200 EPS CAGR of 8.8%. “Reflecting the uncommercial Emu-1 well in the Santos should see a lift in LLC’s pay-out ratio from 42% “Despite this, LLC’s 3 year forward PE of 0.78 is Basin, our risked valuation is lowered to $7.83/sh (from towards the midpoint of its 40-60% payout range. As still 19% below its 10 year average. And while LLC’s $8.27/sh). Our target price is lowered to $7.85/sh (from a result, LLC has the highest forecast div yield + earnings composition has changed over time, contri- $8.30/sh), set broadly in line with our valuation.” They growth within our coverage universe.” bution from global construction has now moderated have an OutPerform rating on the stock. n Solid briefing by n Cooling on Westfield

Westpac Banking Corporation recently convened its inau- Shopping centre operator Westfield is gural divisional briefing for the Australian Financial improving operational leverage to the det- Services division. riment of financial leverage, says analysts. What analysts liked about the briefing was in respect Credit Suisse/ First NZ Capital are to First NZ Capital: “low surprise strategy; it implied reit- neutral on the stock and their target eration of a “returns” (rather than a “growth”) bias price of A$10.80 is below market price. within WBC; the possible emergence of a true multi- WDC has effectively sold a 49.9% branding strategy (rather than just the reality of lots of interest in six Florida assets ($1.28bn brands); evidence of divisional and cross-divisional integra- total value) to O’Connor Capital Partners tion and collaboration (along with results data points). on a ~6.5% yield in line with book values. What the analysts didn’t like was lack of clarity as to The structure has been levered up to 50%, St George’s comparative advantage in SME to drive market on a secured basis and, as a result, pro- share gains in this segment; continued heavy emphasis on ceeds increase to US$700m and associated cost of debt reduces below 4% by CS’s deposit market share gains in a low / negative deposit estimate. spread environment. “While the ~6.5% yield is not, superfi- WBC currently trades on 13.4x 12-month prospective cially, overly impressive we see positives in earnings (6% premium to the major bank peer group vs. a 1) a source of capital at ~7.5% (i.e., CS 2% four-year average premium) and a corresponding book est. IRR on assets sold) vs. through cycle group average of 8-9% Westfield Albany in the NZ Portfolio. multiple of 2.1x. “WBC is our #2 pick amongst the major and, banks behind ANZ (Outperform).” 2) growing active earnings streams. “While WDC’s development capability is unquestionable, WBC’s positives include expanding 2H12 ROE, with dif- Looking at operational vs. financial leverage they said post more transparency on deployment (increased buyback, develop- ferentiation on ROE management with the stated 15% the spin-off of WRT, WDC has engaged a number of third party ment or even special dividend) will be required to increase “floor”, a strong cost restructuring story, albeit now capital partnerships/management roles. “While increasing oper- confidence in short-term ROE recovery (toward 12.5% target) maturing. ational leverage, the associated proceeds have seen financial and in turn EPS growth to generate further upside from here. CS/FNZC see an attractive capital management story, leverage reduce toward 32%, depressing ROE to 11.4% and Further, we caution DPS growth will likely lag EPS growth.” including flexibility around capital management with sub- reducing EPS growth — FY12’s 0.3% FFO growth would have Their $10.80 target price is struck at a June 13 net asset stantial surplus franking credits ($1bn FY12). been 6% excluding impact of sales and buyback. valuation. The rating by brokers is Neutral. The target price is A$30.00 n Woodside Petroleum favours growth n Pacific Brands upgraded Woodside Petroleum has unequivocally stated that it sees approvals beyond Leviathan Domgas, we estimate WPL’s itself as a growth company. However, with 2012 delivering gearing (ND:ND+E) of 8% in FY13 and near net cash in FY14 Following years of underlying revenue decline there are signs of more than $3.6bn in free cash flow and no new major — a $3bn off-market buyback at a 12% discount would improvement for Pacific Brands, under the leadership of new CEO projects sanctioned (Leviathan acquisition will not be increase this to 24% in FY13 and 17% in FY14. With an John Pollaers, who has plans for revenue growth. enough), the question is what to do with the rising cash earnings yield of 7%+ and assumed interest rate of 3% for Gross margin expansion opportunities exist from sourcing and balances? Asks a leading brokerage firm. income, this would be materially EPS accretive; 6% in FY13 mix. Underlying revenue has fallen for the past four years. PBG Browse, Sunrise, Pluto T2 and Leviathan LNG each have (assuming mid-year buyback) and 10% in FY14.” now has detailed strategic priorities to address revenue, their own set of constraints including politics, financials and The analysts urge this is not a game-changer. They main- including optimising its channel mix, geographic expansion, resource availability, says Credit Suisse/First NZ Capital tain NEUTRAL with a TP of $38.5/sh. “Although we would be investment in brands and products, and improvements in the Is it time for an off-market buyback? “With no near-term in favour of a buyback, our DCF would increase only 2.1% to product and customer offer. “While risks remain with its port- large scale project, we believe part of WPL’s cash might now $39.3/sh. That said, we acknowledge that a post-buyback folio brands, and its wholesale customers face challenges, the be better returned to shareholders. Franking credits of FY14 P/E of 11.4x compares favourably to large cap resource revenue growth plans look sound and reflect greater confidence $3.4bn should build further given Pluto and we believe a peers BHP and Rio at 13x. in the company following a period of conservatism,” comments discounted off-market buyback the best means of quickly “We also lower our FY14 EPS by 15% and FY15 by 5% on Ord Minnett. accessing franking credits and taking account of the pre- higher exploration spend and a slower roll-off of low-priced “The cost of doing business has fallen due to the Pacific vailing discount to valuation (~5%).” Pluto LNG contracts.” Brands 2010 cost saving programme and the Bonds/OMNI EPS is up and gearing is acceptable. “Assuming no major Target price is A$38.50. The broker’s rating is OutPerform. restructure, although cost of doing business/sales has risen. Cost of doing business remains a focus. Following a period in 2009 and 2010 when PBG did not pay a only recently opening two of its three hospitals (Ara n dividend, the company is likely to increase its dividend over the Ramsay’s Asian expansion strategy Damansara in March 2012 and Park City in December 2012).” coming years, due to rising earnings per share, increased cash RHC’s 50% share equates to only 4.5% of FY14F Group NPAT. generation, including a property sale, and an increase in payout For some time it has been speculated that Ramsay Health Care “While financially immaterial in the foreseeable future, the ratio from the high 50s towards its historical average of 70%. was looking to get a toehold in Asia — now it has become a entity provides a good base for RHC to pursue growth in Asia “The current share price is trading below our discounted reality with the Australian health group to establish a joint without bearing significant risk. cash flow valuation of $0.97 per share, while the price/earnings venture with Sime Darby Berhad (SIME) that will hold RHC’s “RHC and SIME’s utilisation of each other’s skills in the multiple remains low at 9.4x despite the significant share price three Indonesian hospitals and SIME’s three Malaysian hospitals venture seems appealing, and in our view, this deal confirms performance over recent months. and health college. RHC’s high-quality strategic capabilities — with over A$1.2bn “Following our review of our investment thesis, we increase RHC will also contribute A$120m to the entity to ensure a of available debt headroom RHC could have easily overspent on our normalised earnings per share forecasts by 3.8%, 11.4% and 50:50 economic contribution in accordance with ownership. The acquiring other Asian hospitals that currently trade at c.30x 17.2% for FY13, FY14 and FY15, respectively, due to higher JV will target acquisitions in South-East Asia, utilising RHC’s P.E. The deal has the potential to unlock the value of RHC’s revenue and margin assumptions. hospital operating expertise and SIME’s entrenched relation- Indonesian assets on their own. Ords forecast the dividend to rise assisted by the current low ships in SE Asia. “However, with only A$120m of cash at the moment to payout ratio, and see valuation support despite share price per- RHC expects the deal to close prior to FY13 end, with EPS pursue further acquisitions, the JV is unlikely to become mate- formance. Their December 2013 price target rises to $1.01. accretion to occur from FY15+. The venture would have gener- rial in the near term — acquisitions of only ~A$4m EBIT could The PBG share price has improved significantly over recent ated A$15m of EBIT in FY12. be made with these funds assuming a 30x PE multiple. months, outperforming the ASX 200 and ASX Small Ordinaries Credit Suisse/ First NZ Capital forecast JV EBIT of A$32m FNZC’s Neutral rating and A$32.90 target price are Index by 37% and 34% over the last quarter, respectively. and NPAT of A$28m in FY14F; the large increase is due to SIME unchanged. “The Headliner” 4 APRIL 2013 Page 5 trusts moneymarket US-based trust exceeds benchmark During the six-months to 31.12.12 the NAV per share of F&C US “At the portfolio level there was particularly good perform- Silver lining in Smaller Companies rose by 12.1% compared with a gain of 2.6% in ance from stocks in the consumer discretionary producer dura- the company’s benchmark, the sterling adjusted Russell 2000 Index. bles, healthcare and technology sectors. The retailer Conn’s pro- The share price increased 12.4% as the premium to NAV per duced the best contribution along with claims-adjuster Crawford a drought year share was 2.7% at 31.12.12 compared to a discount of 0.4% at & Co, home oxygen provider Lincare Holdings, which received a 30.6.12. bid, and payments software provider, Bottomline Technologies. Business confidence remains elevated, despite the rising “Smaller companies led the broader US market: in dollar terms There was poor performance in materials and processing securities concern about an extended drought, according to the the 6.4% gain in the Russell 2000 has exceeded that of the although the largest negative contribution came from an energy ANZ National Bank’s latest survey. A net 35% of busi- Standard & Poor’s Composite Index, which rose 4.7%, and the more stock, Willbros Group. nesses expect general business conditions to get better technology-oriented NASDAQ Composite Index, which added only “Looking forward the manager Robert Siddles observes that a over the year ahead. “That’s well above the historical 2.9%,” said First NZ Capital. “This outperformance by smaller com- notable development in the last year has been an improvement in average of +8,” said Cameron Bagrie, chief economist of panies reflects a more optimistic assessment of the economy by the housing market. If this is sustained he believes that it offers ANZ National. “The service sector, which accounts for investors because smaller companies are perceived as being more the prospect of improved economic growth. Political developments nearly two-thirds of GDP, is now the most optimistic, geared to changes in economic growth. are often difficult to interpret but some headwind to growth can overtaking construction.” “During the period all sectors of the market, but one, advanced be expected from cuts in government spending, once these are — the exception being healthcare. The leaders were the more eco- agreed, he thinks. The good news is that if growth is slow then Agriculture remains the laggards, with confidence slip- nomically sensitive sectors, materials and processing, consumer dis- the point at which the Fed increases short-term interest rates ping into the red. This business confidence survey repre- cretionary and producer durables. The laggards along with health- may be delayed, which is good for the equity market.” sents its 25 year anniversary. Over this period the net care were consumer staples and utilities, the more defensive As per normal, the directors have not proposed to pay an balance of the General Business Confidence question has sectors. interim dividend. ranged from a post sharemarket crash low of 69, to a high of 81 in February 1994. “Confidence usually falls in March, as the summer UPCOMING DIVIDENDS AND INTEREST — NEW ZEALAND glow wanes and the reality of work reasserts. After accounting for seasonality, March showed a rise in confi- Company record ex Div imputation dence, which when set against a backdrop of rising angst Name Class Period CPS date 5pm date Payable credit CPS towards an extended drought is an encouraging sign. “A net 32% of firms are optimistic about their own Auckland International Airport INTERIM 5.75 15/03 13/03 02/04 2.2361 business’s prospects. It’s down 6 points on the month prior, though this is wholly reflective of the normal CDI Investments FINAL 1.70 26/04 23/04 10/05 0.6611 seasonal pattern. When benchmarked against the long- Chorus INTERIM 10.00 28/03 26/03 12/04 3.8889 term average of +26, we’re sitting on the “right” side of the Colonial Motor Co INTERIM 9.00 05/04 03/04 15/04 3.50 ledger. Ebos Group INTERIM 17.50 08/03 06/03 03/04 6.8055556 “It’s a similar modest waning picture across the rest of the survey. Profitability expectations, employment and INTERIM 17.00 28/03 26/03 16/04 NIL investment intentions remain positive, though easing from Fonterra Co-operative Group INTERIM 16.00 12/04 10/04 19/04 N/A the month prior. Freightways INTERIM 9.00 15/03 13/03 02/04 3.5399 Residential investment intentions (+46) and commercial Hallenstein INTERIM 16.00 12/04 10/04 19/04 6.2222 construction intentions (+20) remain elevated. Export intentions continue to languish relative to historical norms. Heartland INTERIM 2.00 20/03 18/03 05/04 0.7778 Pricing measures show some signs of picking up (infla- Hellaby Holdings INTERIM 5.00 12/04 10/04 19/04 1.944444 tion expectations were unchanged though pricing inten- INTERIM 1.00 05/04 03/04 17/04 N/A tions rose from 18 to 22). “Neither portend of the infla- Millenium & Copthorne FINAL 2.40 03/05 01/05 10/05 0.9333 tionary genie coming out of the bottle though the construction centricity to pricing behaviour (inflation Michael Hill International INTERIM 2.50 25/03 21/03 03/04 NIL expectations +2.6 and pricing intentions +36) bears NPT INTERIM 0.6995 14/03 12/03 04/04 0.1045 watching. Nuplex INTERIM 10.00 15/03 13/03 02/04 1.40 “Taranaki took pole position in the regional stakes, NZ Oil & Gas INTERIM 3.00 15/03 13/03 05/04 1.1667 topping firms’ own activity expectations, expected profitability, employment and investment intentions. City Entertainment INTERIM 10.00 27/03 25/03 05/04 1.9444 “We can only detect a mild drought impact — so far. Scott Technology INTERIM 2.50 12/04 10/04 23/04 1.0714 Confidence across Northland literally tanked. Team Talk INTERIM 10.00 19/04 17/04 26/04 3.8889 Conversely, a number of the other drought-associated Telecom INTERIM 8.00 15/03 13/03 05/04 2.3333 regions (Waikato, Hawke’s Bay) showed few clear patterns across surveyed measures. Turners Auctions FINAL 8.00 02/04 29/03 09/04 3.1111 “Our combined composite growth indicator — Vector INTERIM 7.25 25/03 21/03 15/04 2.8194 combining indicators from both the Business Outlook Scott Technology INTERIM 2.50 12/04 10/04 23/04 1.0714 survey and Consumer Confidence (a survey we also produce) — is flagging 2.8% growth by the middle of the Overseas year. That’s solid stuff amidst extremely dry conditions.” AMP FINAL AUD12.50 08/03 06/03 11/04 Pacific Brands INTERIM AUD 2.50 28/02 26/02 02/04 ...but BNZ survey shows Foreign & Colonial Investment Trust FINAL GBP2.50 05/04 03/04 01/05 The City of London INTERIM GBP3.63 03/05 01/05 31/05 descending gloom Optimism about where the economy will be in a year’s time has dipped to a six month low of a net 25% positive from 41% in MONEYMARKET INTEREST RATES early-March, according to the Bank of New Zealand’s latest confi- dence survey. Call 30D 2 M 3 M 4M 6 M 9 M 1 Yr 18 M 2 Y 3 Yr 4 Yr 5 Yr “The lengthening drought has clearly dented sentiment in the ANZ Investment farming and farm servicing sectors while also crimping retail spending,” says Tony Alexander, chief economist at BNZ. “However, $10,000+ 3.0 3.0 3.25 3.25 3.75 3.85 4.0 4.1 4.2 4.4 4.75 5.0 there is buoyancy in other sectors such as forestry, residential real F&P Finance $1,000-$25,000 3.75 3.85 4.35 4.85 5.1 5.1 5.1 5.1 5.1 5.1 estate, construction and related industries, and wine. $25,000-$250,000 3.75 4.0 4.5 5.0 5.25 5.25 5.25 5.25 5.25 5.25 “This is the weakest reading since October last year and looking through the responses it seems that the drought is Forsyth Barr Cash playing a big role with farmer responses decidedly downbeat. Management Fund “Retailers are noting poor sales of Winter stock, farmers and $3,000-$19,999 2.0 farm servicing companies are noting reduced expenditure, and $20,000-$49,999 2.5 inward tourism operators express overall negative sentiment on the basis of the high NZ dollar. $50,000-$249,999 3.0 The results therefore show an economy which is taking a hit $250,000+ 3.25 from the lengthening drought, but with enough strength in other areas that sentiment still sits well above the long term average of Gold Band Finance a net 4% pessimistic. This therefore is consistent with growth in up to $4,999 2.0 2.0 3.0 5.5 6.75 7.0 7.25 7.25 the economy in the area of 3% in the coming year or two — Over $5,000 2.5 2.5 3.5 6.0 7.25 7.5 7.75 7.75 though subject to the drought not continuing much into April.” Alexander adds, “With regard to where the positive sectors lie Guardian Trust 2.48 2.48 2.48 2.48 2.48 2.48 2.48 2.48 2.48 2.48 (Subject to daily rate changes)          the obvious starting point is construction which is being driven by the rebuilding of Christchurch and catch-up house construction Heartland in Auckland, with subsidiary industries such as land development Fixed Term Interest Rates doing well. $1000 -$20,000 3.65 3.65 3.9 4.25 4.05 4.45 4.45 4.55 4.75 5.15 5.15 “The wine sector has also produced only positive responses in $20,000 + 3.75 3.65 4.0 4.25 4.15 4.45 4.55 4.65 4.85 5.25 5.25 this month’s survey with the exchange rate problem appearing to be overcome by good production (assisted by the drought). Grain Mutual Credit Finance 5.25 5.75 6.75 7.5 7.5 7.5 and seed farming is firm as is the transport sector. “Forestry is doing well helped by strong demand out of China

and good prices. PGG Wrightson Finance “Residential real estate is still strong with prices rising, buyers Rural Saver on Call 4.0 generally scrambling, and listings in short supply. One factor $20,000+ 4.0 4.25 4.15 4.45 4.55 4.65 4.85 5.25 5.25 behind the rise in the sector is people realising they made a mistake 3-5 years ago buying into predictions of prices falling SBS Bank $1000-$250,000 4.1 4.1 4.2 4.2 4.2 4.5 40%. As one respondent put it: “Those who believed the gloomsters Tower Managed Funds and sold in 2008/2009 and went renting are now in the position Cash Fund 0.57 2.23 2.56 where they couldn’t even buy their old home back!” UDC Finance $5,000-$99,999 3.0 2.75 3.0 3.35 3.4 4.0 4.0 4.2 4.2 4.3 4.6 4.85 5.2 “As pointed out in an interview last week on the Auckland $100,000+ 3.15 2.75 3.0 3.45 3.5 4.1 4.1 4.2 4.3 4.4 4.7 4.95 5.3 housing situation, these errant forecasts back then have cost the country five years of addressing the deepening crisis through mis- Call 30D 2 M 3 M 4M 6 M 9 M 1 Yr 18 M 2 Y 3 Yr 4 Yr 5 Yr taken belief that it was going to disappear.” Page 6 “The Headliner” 4 APRIL 2013 boardroom INDEX

immense contribution to TOWER and wish n TOWER achieving this goal, I feel it is the right page him every future success.” time now to hand over the operational Australia 5 Under the terms of Mr Flannagan’s reins to fresh leadership and head into a TOWER Ltd’s Group managing director Boardroom 7 Rob Flannagan has given formal notice contract a 12 month notice period is new phase of my career in supporting to the board under his employment required. Methven and other enterprising New Currency 8 contract. Mr Flannagan said: “It was Zealand businesses achieve their potential Easter market 1 important to me that I oversaw the n Methven on the local and international stage.” F&C US 6 completion of the strategic review Fonterra 2 implemented by the TOWER Board and Rick Fala Group CEO of the Methven this has been done. TOWER now has a Group, submitted his resignation effective n Lyttelton Port Hallenstein Glasson 3 refreshed board with a clear direction 30.9.13. “The timing should provide suffi- Mad Butcher 1 of where it wishes TOWER to be in the cient time for the company to appoint a Lyttelton Port of Christchurch advised Moneymarket 6 future. It is time to step aside to allow suitable replacement to lead Methven that Rodger Fisher is stepping down as Mood of the Markets 8 a new leader to guide the company in through its next exciting phase and chairman of LPC, effective from 30.6.13. its preferred direction. I look forward ensure an orderly transition of my execu- Mr Fisher will remain as a director Resource Farming 4 to working with the board for a smooth tive role,” he said in a letter released to through to the Annual Meeting in Portfolio Comment 2 transition.” NZX. “The board has indicated its support November 2013. Mr Fisher believes that Precinct Properties 2 Interim TOWER chairman Steve Smith of my remaining a non-executive inde- a new chairman should be in place at Snakk Media 3 said: “Rob Flannagan has led TOWER for pendent Methven director from 1.10.13, the start of the new financial year. To the past seven years. He has guided this where I believe I can, with my fellow that end, the board will be moving Telecom 1 company though challenging times such directors, continue to provide governance, through the process of electing a Wall St 2 as the establishment of the New Zealand strategic insights and practical experience Chairman Elect as soon as possible. “Mr TOWER Group on the sale of the in support of a new CEO for the better- Fisher has been on the board since Australian operations, the global financial ment of our customers, staff, shareholders 2003, and has steered the company Biggest RISEs melt-down and the Christchurch earth- and communities. through a period of sustained growth quakes. “It has been a privilege to have led and significant challenges,” said LPC. Week ending 29.3.13 Price Rise “He has strengthened and built share- Methven since March 1998 and also to be “The board wishes to acknowledge the Fonterra SF $7.49 +54c holder value every step of the way during a part of an inspired team that has major contribution that he has made Fonterra Co-op $7.50 +49c his tenure. We are disappointed to lose sought to turn this business into a global during his time as director and Mr Flannagan but we thank him for his operation. With Methven on its way to chairman.” Mainfreight $11.30 +40c Hallenstein $5.75 +30c European Investment $11.50 +30c n n Change of Name SVG Capital Tender offer Ebos $9.33 +20c The board of Henderson Asian Growth had Following the announcement on 14.2.13 of a £65m tender offer (to complete the Ryman $5.04 +24c previously announced plans to appoint £170m capital return announced in December 2011), the price of SVG Capital’s Aust Foundation $6.80 +14c Schroders Asset Management as manager in tender has now been set at 420p per share, a 2.05% discount to the adjusted 31 AMP $6.43 +13c place of Henderson Global Investors. December NAV of 428.8p (updated for changes in quoted holdings, fees, finance Following a general meeting of the company, costs, foreign exchange and realisations to 15.3.13). Schroders has now taken over as manager of First NZ capital says the price compares favourably to the current share price of Biggest FALLs the portfolio, and the company’s name has 400p, and also to the tender in March 2012, which was at a 10% discount to the Week ending 29.3.13 Price Fall been changed to Asian Total Return December 2011 NAV. “The adjusted NAV represents a 9.6% increase from the NAV of Foreign & Colonial Invest $6.38 -22c Investment Company (ticker “ATR”). 391.2p at 31.3.12, reflecting strong performance since year end, including that of As part of the proposals, the board offered Hugo Boss, which was SVG’s largest underlying investment at the year end at c30% Templeton Emerging Market $11.68 -22c shareholders the opportunity to tender up to of shareholders’ funds. Xero $11.02 -21c 50% of the share capital (74.09m shares) at “SVG Capital has performed well in 2013 with the share price up 42% so far this Asian Total $3.55 -20c NAV less costs (based on the NAV as at 15 year following strong performance from several of the portfolio companies, driven by March). healthy revenue and earnings growth. The board has also reiterated its intent to Scott Technology $2.35 -19c This tender was marginally oversubscribed return a further £300m over the next three years being mindful of “balancing both Westpac $38.11 -19c with 52.64% of valid tender elections. shorter term shareholder returns and longer-term NAV growth.” ANZ $33.50 -15c mood of the markets Subscribe to Continued from page 8 first half to continue into the and the UK. EBITDA widened to 12.6% Auckland-based radiology business. remainder of the year. from 11.6% at KMD as operating “The Headliner” Impacted by a slower travel sector, Retailer results over the week were expenses fell to 50.1% of sales from Magazine & website Jasons Travel Media is signalling a net tidy with both Kathmandu and 51.1% a year earlier. Australian sales loss before tax. It said it has breached its Hallenstein Glassons turning in strong jumped 22.0% to $103.5m as the Subscribe now at only NZ$120.00 interest cover and Debt/EBITDA cove- half-yearly profit results. company opened nine new stores. New (incl GST), for 24 issues of “The nants with the ANZ Bank. The company Hallenstein Glasson’s sales in 1H13 Zealand sales rose 7.9% to $50m, or up Headliner” magazine and has asked the bank to waive the breach were a little sunburnt but still 6.6% 1.3% on a same-store basis. UK sales premium membership (by user and is working through this process higher at $115.73 and NPAT was declined 4.7% to $3.4m. name and password) to our with them. New Zealand sales were $10.37m, up 14.9%. A higher dividend of Postie Plus Group was highly disap- investment news and research slightly behind budget, Australian sales 16cps brightened the market, and the pointed with its wider first-half loss website www.headliner.co.nz company’s shares moved up to $5.75. have fallen well behind budget. with trading impacted by major prob- Add NZ$30 if international subscriber Group CEO Graeme Popplewell lems at its outsourced distribution requiring a mailed edition. Subscribers may RESULTS commented: “The first half of the year centre. With constraints on stock flows Fonterra’s maiden half-year result was has seen some significant improvements to stores, PPG made a net loss of $1.8m also download the magazine online. impressive with the NZ Milk Products over the prior year. Hallensteins have for 1H13, up from a loss of $775,000, or division being the key positive continued to reposition the brand and 1.94 cps, a year earlier. It appears that Please start my subscription for 12 months surprise. Fonterra Co-op’s FY13 that strategy has now begun to deliver the supplier under-estimated resources (24 Issues) and continue thereafter until interim result was impressive at $459m strong results.” required for the volume of goods. PPG countermanded in writing to: net profit vs. market expectation of Kathmandu reported a 13% gain in was able to increase its borrowings to around $385-390m. The result is its 1H13 sales, driven by revenue from its $13.8m but in lifting its gearing ratio to Name...... first under Trading Among Farmers biggest market of Australia. Sales 88% from 54% a year earlier has and was anchored by improved sales climbed to $165.9m in the six months breached bank covenants. The extra $4m Address...... in emerging markets. The gross divi- ended 31.1.13 from $146.7m pcp. Net in debt covered a net cash outflow of dend of 16c foreshadows a 32c full profit rose to $4.3m from $10.3m. KMD’s $2.2m from its operations and a net cash ...... year dividend. However, a leading gross margin was unchanged at 62.7%, outflow of $1.4m...... brokerage Forsyth Barr is warning not which reflected flat margins in Australia Scott Technology’s 1H13 net profit to expect the trends that bolstered the and reduced margins in New Zealand of $2.96m, on lower revenue of Email:...... $26.81m, compared to $29.36m for ■ Payment enclosed bonds: secondary market 1H12, disappointed the market. Yet the company has a strong balance sheet ■ Please bill me BONDS RATING YIELD PRICE with no long term debt and net ■ I hereby authorise you to debit my ASB 8.22% 17.09.2014 AA- 4.26 working capital of $16.59m and AMEX/VISA/DINERS/BANKCARD completed and shipped several large AIAL 8.00% 15.11.2016 A- 4.24 projects during the reporting period. No...... 6.90% 15.11.2016 BBB- 5.49 Chris Hopkins, managing director, Auckland Council 6.42% 24.03.2014 AA 3.27 noted a competitive market and the Expiry Date ...... challenge of maintaining margins given Auckland Council 6.52% 29.09.2017 AA 4.25 the high NZD but said Scott was lever- Signature ...... aging its technology in areas “where we ANZ National 8.50% 09.06.2014 AA- 3.41 Please post coupon to: lead the world”. Subscriptions: MG Publications PO BNZ 8.675% 27.05.2015 AA- 4.53 Scott’s China factory continues to run Box 20034, Christchurch 8543. Label Contact Energy 8.00% 15.05.2014 BBB 3.88 at close to full production. But the elec- your envelope: Free Post Authority tromagnet business has seen a slow- Fletcher Bdg Ind 7.75% 15.05.2016 Unrated 5.40 no. 5003 Christchurch. Or email down in near term project work. Interim Fonterra Co-op 7.75% 10.03.2015 A+ 3.95 div of 2.5cps is payable 23.4.13. [email protected] Fax 03 357 0426. Subscribe online Fidelity 9.25% 15.07.2013 Unrated 5.75 SeaDragon said a large 17 ton order has been confirmed worth approxi- www.headliner.co.nz 8.50% 15.11.2015 Unrated 5.90 mately $3.5m and should be uncondi- Subscription freephone: 0800 649 696 Infratil 8.50% 15.06.2016 Unrated 6.00 tional by 31.3.13. Headline revenues are Tel: 03 358 3219 7.55% 16.03.2017 BBB+ 4.43 now expected to exceed $9m for 1H13. The trading result is marginally below To arrange a gift subscription call 7.35% 15.10.2016 Unrated 5.10 projected EBITDA of $1.071m. the freephone number above “The Headliner” 4 APRIL 2013 Page 7 mood of the markets Lots of liquidity in the NZ sharemarket The New Zealand sharemarket just isn’t slowing Excluding $10.4m equity commitments, the combined down. Liquidity is the key factor and there is plenty broker firm and institutional offer was oversubscribed MARKET TREND about judging by the quick-fire success of capital by 225% (over three times the amount sought). There is placements and raisings related to Summerset, Hellaby no public pool. Veritas will now proceed to seek share- and Veritas Investments in the space of a fortnight. holder approval on 29.4.13 to proceed with the acquisi- The same cash flow kicked in behind Fonterra tion of the Mad Butcher Group for $40m. Shareholders’ Fund and the overall market was pushed The company will be issuing 16.92 million new up by 1.8% in only four trading days. shares at an offer size of $22m and that would take Forsyth Barr said the NZ market is seen by investors total number of shares on issue following the offer and as the place to be, a view enhanced by the yield that the acquisition to 34.60 million. The vendor of Mad still remains on offer. The market closed the quarter Butcher is being paid 50% cash and 50% in Veritas with a 6.9% advance, and set a new record at 4422.75 shares and would hold 44.46% of Veritas. (see story page 1). Normally, we’d attribute the rally to The prospectus for the offer shows Grant Samuel & weight of money but that doesn’t appear to be the case Associates valued the Mad Butcher franchisor business this time. at between $42m-48m. The present share offer is being This week we expect there to be a further injection of held to fund the cash portion of the reverse listing of 29.3.13 15.3.13 funds into the market as a $100m bond matures. Just in the Mad Butcher group. NZX 50 Index 4422.75 4317.99 time for its investors to pay for the upcoming invest- Telecom released plans to shave up to $110m off 90 Day Bank Bills 2.66% 2.66% ment in Mighty River Power, due around mid-month. costs, including heavy job shedding. It also launched its (Unless it is delayed to allow time for Meridian and pricing plans for ultra-fast broadband, with the Govt Stock Dec 2017 2.87% 3.10% Pacific Aluminum to sort out the impasse over power cheapest option available at $95 a month, over Chorus’ ASX all ords 4979.90 5129.30 pricing for the Tiwai Pt aluminum smelter. Meridian set fibre network and is working on products with three Dow Jones 14,557.26 14,514.10 down a definitive ‘bottom line’ for its price position other UFB partners. FTSE 100 6411.74 6489.65 and the Government has intervened with a subsidy in Overseas markets had a strong Easter closing. In the GoldUS$/oz 1,600.30 1596.60 an effort to retain Rio Tinto). US the Dow Jones was up 52.38 points on Thursday at Fonterra Co-operative’s profit result, higher forecast, 14,578.50 and the S&P 500 up 6.34 at 1569.19. early advance payment and dividend increase certainly Employment has increased in 42 US states during things in mind. Firstly, this data is fairly dated; buoyed the market last week, particularly as Fonterra February and consumer spending was the highest in secondly, the drought’s impact has yet to be quantified. dividends underpin the Fonterra Shareholders’ Fund. five months. February building consent data was out last week The Fund’s units rose 7.8% to $7.49, heading off In Britain the FTSE-100 was up 24.18 at 6411.74 and and confirmed that activity in residential housing (+24% Hallenstein Glassons (+5.5%) which showed growth in in Europe the Stoxx 450 was ahead 11.56 at 2624.62. for February vs. pcp) is strong in not only the sales in all segments in its interim result, and Telecom Two CEOs are departing. Rob Flannagan from Tower Canterbury region but Auckland and Waikato as well. (+5.4%), off its launch of Ultra Fibre and an update on and Rick Fala from Methven. Forsyth Barr said the “What isn’t so flash is non-residential work, which the extent of cost savings. former is less of a surprise given the apparent wind- continues to languish albeit with some positive signs The leading percentage gainer for last week was down of the Tower business being undertaken, “the beginning to appear on the horizon,” said Forsyth Barr. , up 20% at 24c, followed by GuocoLeisure, up latter was more eye-catching”. Business confidence also took an unsurprising turn 17%. Scott Technology led the decliners, down 7.5% at The ASX has had a dull patch. The month of down this week, easing back due to ongoing concern $2.35. January saw 6 negative days, February had 7 such days about both the drought conditions and the flow on A week earlier Xero was in the pole position, up and March over 10 days where the market traded impacts of it for the broader economy The ANZ busi- 4.45% to $11.23, after hitting a remarkable $12 a share, lower. ness survey fell from a 19-month high in March. A net an astounding mark for a company yet to make a 35% of firms expect general business conditions to profit. A good percentage performance came from CYPRUS STAYS IN EU improve in the year ahead, down from 39.4% in the Windflow Technology, up 20% at 24c, after raising $4m The Mediterranean island of Cyprus has caused a February survey. in fresh funds and switching on its first export turbine rough patch for European financial markets. The (in the windy Scottish islands of Orkney. Smiths City Cypriot Government has annexed 10% of Cypriot bank GUIDANCE and OceanaGold have also had a stronger period. deposits above €100k to meet the up-front condition of Mainfreight’s share price has steadied after guidance Mykris (-16.67%) and Rakon (-13.04%) led the an ECB bailout. The failure of a mission to Moscow in on profit expectations saw the stock fall 7.6% for the declines that week, and Pumpkin Patch lost 10.6% after pursuit of funding was an unsurprising failure. Russia week. Mainfreight has reduced its FY13 earnings guid- a modestly disappointing result. had no wish to prop up their tax exiles who have been ance. The new underlying NPAT guidance range of Summerset saw its free float market capitalisation diverting capital to Cyprus. Cypriot President Nicos NZ$65m-NZ$67m compares to current market rise sharply with the news that its major shareholder Anastasiades found support in Brussels where no-one consensus of NZ$71m. A slower recovery at Wim had made a partial sell-down of its holding. The share wants a bankrupt state on the doorstep. For the next Bosman, weaker performance at CaroTrans, and decel- price held at around $2.58, which was interpreted as a month, tight controls on banks in Cyprus will restrain eration in Australasian growth has impacted perform- strong vote of confidence from the market both in its withdrawals to €100 a day and choke down on trans- ance through 2H. The company will release its FY13 business model and the sector overall. fers offshore. The crisis rumbles on as financial markets result on 29 May 2013. Hellaby Holdings took advantage of buoyant sense that the same ‘hair-cut-conditions’ could be Abano Healthcare provided FY13 EBITDA guidance markets to raise $50m in fresh capital via a placement. imposed on any failing bank in other EU countries. range of $27.5m-$28.5m. The on-going dental acquisi- Hellaby noted that these funds were not needed to pay tion programme is tracking behind schedule due to the for the current acquisition of Contract Resources (see ECONOMIC DATA timing of the settlement of acquisitions. ABA expects separate story). December quarter GDP data, a healthy +1.5%, was well consolidated revenues of between $207.0m to $209.0m The shell investment company Veritas Investments above the consensus forecast of +0.9%. Christchurch and NPAT of between $2.3m to $2.8m. Abano has a has had spectacular success with its offer of shares rebuild activity began to make itself more apparent in focus on its accelerated dental acquisition programme heavily supported by brokerage firms and institutional numbers, the forestry sector pushed on and household in New Zealand and Australia, and investment into its investors in its $22m bookbuild at $1.30 a share. demand looked tidy. However, we need to bear two  Continued on page 7 currency Free floating exchange rate regime the most appropriate

Last week’s “NZ dollar foreign exchange rate” all-day forum held its trading range. The stronger than expected GDP growth result in Wellington to debate how and why the NZ dollar is considered for the December quarter provided the initial impetus for the over-valued and what may be done about it unsurprisingly con- Kiwi dollar to move back upwards. The second impetus came from cluded that the current free-floating exchange rate regime is the safe-haven investment inflows out of Europe as the Cypriot most appropriate for the NZ economy, warts and all. banking crisis scared investors about precedents being established The debate and free exchange of ideas/theories about the for the creaky Spanish, Italian and Portuguese banks. Evidence of exchange rate between academics, civil servants, bankers and busi- the safe-haven flows into the NZ dollar was seen with a sharp ness folk was the typical talk-fest with most ignoring or oblivious jump higher in the NZD/EUR cross rate from 0.6350 to 0.6550. to the “elephant in the room” i.e. changes to the value of the US The Euro has weakened to $1.2800 against the USD, whereas dollar on the international stage accounts of 60% of the NZD/USD the Kiwi has made gains for the reasons mentioned above. The NZ exchange rate movements and therefore nothing we can do in dollar has also out-performed the AUD cousin currency over the New Zealand to change economic policy (fiscal or monetary) will last week with the NZD/AUD cross-rate returning to above 0.8000 influence the level or direction of the NZ dollar currency value. from lows of 0.7900. Australian economic data continues to be a Only 20% of the movements are due to New Zealand specific mixed bag; however, the Aussie moneymarkets have reduced the economic events, trends and policy announcements and the probability of further RBA cuts in their OCR. Metal and mining remaining 20% is unexplained. The “unexplained” portion would commodity prices, however, are no longer rising and latest Chinese have to be hedge funds and currency speculators taking long or economic figures do not support any large increase in demand for short NZD positions depending on which way global investment Australia’s resources. sentiment is going on any particular given day. Therefore 80% of returns. The cost of that automatic shock-absorber for exporters US economic data continues to improve with the markets the forces that push the NZ dollar up and down on the global are the periods of sustained NZD appreciation due to a weak USD again focusing on the upcoming monthly employment statistics foreign exchange markets were pretty much left out of the or some other global situations that render the NZ dollar attrac- for March which should again confirm the strong pick up in the debate. tive and safe for global investors. Rather sadly, the fundamental economy at the household level of retail spending, residential real Fortunately, it is well understood in the export business com- requirement for exporters to hedge against the currency market estate and thus jobs in the massive service sector. munity (even if only partially understood by the mandarins in forces outside our control (USD weakness) was missing from the The global foreign exchange markets are now happily inter- Wellington) that what the USD itself is doing in world currency Wellington talk-fest. What was agreed at the forum was that to preting stronger than expected US economic data as positive for markets is the major risk on NZD/USD movements. Therefore, USD reduce the periods of NZD over-valuation, we need to increase the US dollar currency as the markets anticipate an earlier with- exporters who cannot change their USD product selling prices Government and private savings levels. A larger savings pool within drawal of monetary stimulus by the US Federal Reserve. A US jobs easily need to hedge forward a considerable way when the market New Zealand would reduce the dependence on foreigner’s savings number above a 200,000 increase for the month of March should provides dips to competitive exchange rate levels. The reality of to fund the shortfall between our total saving and investment see further USD gains against the Euro to $1.2600. Upcoming the NZ economy is that it must have an automatic shock-absorber requirements. Unfortunately, the policy prescriptions to increase international economic developments of the Cyprus-related safe mechanism to protect jobs and incomes when global food com- savings rates are easier said than done! haven flows reducing as the market moves on and stronger US modity prices fall due to demand or supply reasons (i.e. precisely Exporters who have been operating a medium term and disci- economic numbers therefore favour the Kiwi’s current foray above what happened in the GFC in March 2009). plined currency hedging policy and buying forward NZD’s on the 0.8300 being short-lived. In the medium term, a stronger USD The fall in prices of what we sell being matched by NZD cur- regular dips to 0.8200 against the USD have again been rewarded against all currencies points to a Kiwi dollar nearer 0.8000 than rency depreciation provides the offset and thus stable NZD export of late as the Kiwi dollar yet again bounces off the bottom end of 0.8500.

Page 8 “The Headliner” 4 APRIL 2013