Friday, August 31, 2007

Share Investor's Friday Free for all

Airport Merger with DAE finally crashes

The merger of Auckland International Airport(AIA) with Dubai Aeronautical Enterprise (DAE) has hit crosswinds with DAE finally realising that their deal to control around 60% of the company looking like it is about to crash and burn.

DAE said legal action filed by Air New Zealand seeking a judicial review of AIA's landing charges constituted a "prescribed occurrence" under the terms of the merger agreement.

DAE have stated if the parties were unable to come to an agreement by the end of five working days of mutual talks, either party could terminate the merger agreement.

As many, including myself have commented DAE look likely to fly the coop.

There are other prospective buyers of AIA in the wings and there is a possibility that a Canadian Pension Plan maybe ready to launch a bid.

Shares ended down to NZ$3.02 on the news today.

Don't leave town or sell your shares yet.

Finance Companies Folding

Finance companies continued to collapse with gay abandon this week. Five Star Consumer Finance disappeared with $80 Million and today a subsidiary of Dorchester Finance was wound up by Dorchester directors.

Dorchester claim the parent company isn't in trouble but we have heard that before haven't we.

The Securities Commission has asked all finance companies to respond to them with a state of their affairs. 18 stragglers were the last to report at 6.30pm today but we have yet to hear the health or otherwise of these companies. It looks likely that we will hear of others going south next week.

Micheal Cullen, the Labour Minister of Finance, has come out to reassure the public that the Finance company mess hasn't spread to the banking sector. His comments are far from reassuring. They scare me.

Two Titans bow out

Sir James Fletcher , the driver behind the incredible growth of Fletcher Challenge from the 1940s-1980s bowed out this week.

Born into privilege and wealth James Fletcher took the reins of his fathers building company in the mid 1940s and turned it into what was to become one of New Zealands largest companies.

His management style , capacity for hard work and ability to communicate with and respect people are aspects of upper management that are sadly lacking, with a few notable exceptions, in this country today.

Nick Nobilo, the founder and head of Nobilo Wines will be remembered for introducing New Zealanders to wine and also for transforming large areas of West Auckland into quality Vineyards where exports of his product have now become commonplace.

Another hard grafter, this immigrant had a vision, had a backbone and got down and let his hands get dirty. Sadly these traits seem to be missing from many of us today.

Burger Fuel share price rises

Josef Roberts explained to me this week that his companies share price was dropping because of poor liquidity and negative world markets. The price was trading at .65c at the time. Burger Fuel shares were up to 70c yesterday and closed today at the same price. Go figure.

Wasted Opportunities

Transpacific Industries, the Australian parent of Waste Management, reported a 117 per cent rise in net profit on the back of a year of aggressive expansion.

Transpacific, an Australian company, bought Waste Management a few years back at what alot of market commentators and directors of Waste Management said was a good price for shareholders. I was one shareholder who thought the price paid was poor and clearly I didn't want to sell.

My stance was vindicated with today's Transpacific announcement.

A shame my detractors seem silent now and so are the former directors of Waste Management.

Short term thinkers can only see just that. Short term.

NZX finishes up

The benchmark NZSX-50 index closed up 0.3 per cent, or 11.37 points, at 4118.97.

Contact Energy(CEN) was down 12c at 915 after swinging very wildly this week and reporting a good profit. Fisher & Paykel Healthcare(FPH) was down 2c at 338, F&P(FPA)Sky Television TV(SKT) shed 3c to 558.

Port of Tauranga (POT) lost some of yesterday's gains to close down 10c at 700 after reporting a stellar profit increase yesterday, Air New Zealand(AIR) rose 5c to 206, Freightways(FRE)was up 5c at 395, and Mainfreight(MFT) lost 2c to 707.

Sanford (SAN) was up 15c at 455, Tower(TWR) rose 7c to 231, Rakon(RAK) was up 7c at 489, and The Warehouse(WHS) rose 3c to 564.

ANZ shed 60c to 3350, Westpac was up 45c at 3145, AMP gained 14c to 1215, Lion Nathan(LNN) rose 5c to 1055, and Goodman Fielder(GFF) was up 10c at 300 after earlier this week reporting a solid profit result. It is at near historical highs.

Till next week.

*Disclosure: I own AIA, FRE, FPH,GFF, MFT, SKC, Shares

c Share Investor 2007

Thursday, August 30, 2007

IPO Quality indicative of poor economy

The poor number of IPO's listed on the New Zealand Stock Exchange in 2007 reflect the lack of confidence that the business sector and therefore market investors have in the NZ economy.

This is a good indicator of where our economy might be going, considering share markets usually anticipate real economic factors months before they happen.

Michael Cullen's tax, spend and welfare splurge has finally come home to roost. His huge taxpayer funded surplus has meant Kiwis have used credit to buy consumer goods instead of the cash that is theirs and the Labour Government's contribution to the current finance company mess must be stated clearly.

The quality of some IPO's listed this year have left investors a little bit cold. Xero [XRO.NZ] the software company listed at over NZ$1 and now languish at around 70c, Burger Fuel International [BFW.NZ] listed at $1 and are currently getting grilled at .70c (up 5c today!!!) Pike River Coal [PRC.NZ] , the biggest IPO this year started trading at $1 and is now selling at just above 80c.

We have had several prospective IPOs canceled this year because of investor nervousness. One of them, AMP's listing of their Summerset Retirement Village unit has been canned but ING's Retirement unit will still be listed later this year, even though some of its directors have been involved in major business failures and losses for investors in the past.

The New Zealand share market is lacking a big IPO that would possibly kick off a new wave of investing. One remote possibility would be this countries biggest company, the Dairy giant Fonterra. There has been talk around the traps from time to time about this happening but nothing concrete or with any substance as yet.

It would make perfect sense to list Fonterra, especially now as the Dairy business is doing historically well, more investment is needed to increase capacity and listing would allow farmers to free up capital more easily than currently and using the proceeds to reinvest in their business, pay back debt or buy that new Holden or Ford.

IPO's can be a good indicator of how well the business community sees the economy going. The dearth of good ones in 2007 indicate that the brakes have already been applied to the economy.

Lets hope the impact isn't too hard.

The resumption of some good IPO's will be one indicator of a turnaround.

Related Amazon Reading

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c Share Investor 2007

Wednesday, August 29, 2007

Business Gobbledygook puts up Barriers to Communication

At the end of the day, when all is said and done, with all things considered, in the fullness of time and taking the long-term view-urrrggghh-all we want is a straight answer in the simplest way possible.

Nowhere is this more appropriate than in the business world. While speaking to customers, talking to employees, and communicating a message to shareholders. Your message should be clear, precise, unambiguous and be free of unnecessary verbosity and complicated language and "corporate-speak".

My piece today was inspired by two news items of late and they rekindled this subject which has been in the back of my mind for years. The first situation was some of the language used by Telecom New Zealand(TEL) to explain to customers why they had mismanaged a software upgrade to their Xtra Internet unit and the other news story was about Sky City Entertainment's(SKC) explanation of areas of last weeks complicated 2007 FY profit announcement and the confusion that it caused amongst analysts.

In the first instance with Xtra, a spokesman explained that customers were not let down or disappointed with the break in "service" but were instead suffering from "negative surprise". Callers to the Xtra helpline were told in clipped tones when they got testy with Telecom employees over the wait for resumed service that they were experiencing "service disconnection anxiety".

What this kind of language does of course, is to first of all fudge the real issue and spin the heat off the main protagonist, Telecom, and make the customer feel guilty, secondly it has the added bonus of frustrating the customer so much that he gives up on the reason for his call in the first place. This is exactly why this process is used of course because the offending company really doesn't care that much at all about your problem but cant really come out and say that straight.

Telecom are well known for using this kind of spin to run their business, within and outside the company when communicating with customers. For a communications company Telecom NZ don't communicate well at all and indeed there always seems to be a "negative surprise" waiting at the end of the line when one calls the 123 Help line.

Elmar Toime had to spin for his life today to explain issues surrounding last weeks Sky City Entertainment profit announcement:

"The information that was available when I stepped in as manager wasn't enough to assign budgets to individual responsibility areas of the business."

Translation: I didnt do my homework properly.

The SKC profit announcement contained such gems as this one:

"A strategic development plan has been completed for SKYCITY Adelaide which has verified the value of this business and established the path for delivering incremental shareholder value from this property."

Huh? we really mean we will try and increase profit but it is going to take a long time and may never happen under my watch.

Don't laugh:

"...a peer review of the Auckland gaming performance and strategy has been undertaken and plans put in place to actively address opportunities..."

Does Management usually inactively "address opportunities" ?

The word incremental seems to have been carefully chosen because here it is again:

“Most importantly, we are now positioned to ensure that this delivers incremental value to our shareholders and a sustainable future for our people."

Websters dictionary meaning: A slight, often barely perceptible augmentation. In conjunction with the management speak word of the year , the meaningless "sustainable," this sentence really means that profit growth will be small and management don't really know what outcome that will have for the business.

I could trudge through this announcement and pick up more unnecessary management bullshit but even I have a life to lead. You get my point though don't you. Why jazz up communications to shareholders with hackneyed management spin and written clutter?

To be fair to Toime and his company though, this sort of language and company announcement is not rare in New Zealand or overseas. Some companies are much worse and some are better. Mainfreight(MFT), a listed New Zealand trucking company is one enterprise that doesn't indulge in this stuff and I am a well informed and happy shareholder as a result.

When a business, profession or individual chooses to communicate to others in an unnecessary way, as I have explained above, one has to suspect the motives of the communicator. Their verbosity and over complication is probably hiding something. When communicating to shareholders it could be glossing over profits or company prospects, in the case of Telecom ,spin and complication is used to frustrate or fob off customers because of shortcomings in the business structure and with professions such as lawyers, doctors and real estate agents complicated communication is often used to exclude others for economic reasons. If one cannot understand what others are saying someone usually gets paid to decipher this information and it is usually you that pays!!

Politicians are masters at it and we all know they have to be because the skeletons they are hiding require a fair degree of verbal and written dexterity.

In business though, it is most important to "cut the crap" and get to the point quickly and in the most efficient way one can.

In my opinion one can tell the quality of a business by the way they communicate to shareholders, customers and employees. If the communication is fast and efficient the company is likely to be run in the same way.

Of course the opposite is also true.

Related Share Investor Reading

A Rare Breed
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Disclosure: I am a shareholder in SKC and MFT

c Share Investor 2007

Tuesday, August 28, 2007

Burger Fuel Director explains Share Price drop

Josef Roberts, a Director of Burger Fuel (BFW) has kindly answered a question that many of you out there would like to ask him.

I put this to him in an email today:

Do you have any comments with regards to the dropping share price and your initial valuation of the IPO?

Josef replied:

Not really – as you know at present there is nervousness in world markets and general tightening of the economy, but in our case it’s mainly due to a situation of low stock liquidity; so just a few small trades can cause the stock to drop if someone needs cash or wants to accept a lower offer. The actual trades are very low.

I don't share Josef's opinion as to the share price drop. I would agree with him that liquidity would affect the share price somewhat but if the market had an overwhelming positive feeling over Burger Fuel's IPO valuation then the low stock liquidity would have presumably shot the share price well above the NZ$1 IPO price as the reality of the market negativity over Burger Fuel's market cap has seen the share price dip to 65c as of today.

c Share Investor 2007

2007 Full Year Profit: Goodman Fielder Pie Gets Bigger

Goodman Fielder Ltd [GFF.NZX] the Australasian food company, has announced a solid profit for Full Year 2007. Net profit on a pro-forma basis, to include a full 12 months performance, was $243.2 million, up 23 per cent on 2006.

Revenue was up 2% to slightly over AU$ 2.4 Billion with strong contributions from Australia but flat input from New Zealand.

During the year Goodman added multiple brands to its stable of everyday home staples that include: Vogel's Bread, Kiwi Bacon, Irvine's Baked Goods and Tararua Dairy products. GFF note that they have integrated the companies that they have bought well and are poised to get good growth from these acquisitions.

Goodman Fielder's Brands set the company apart in this part of the world. They dominate many aspects of the food staples families use everyday, especially breakfast. It is comparable to Kraft, the US food conglomerate, in this respect.

The share price has appreciated markedly over the past few weeks as investors seem to be rushing towards so-called "safe havens" in this time of market turmoil. GFF was dual listed on New Zealand's NZX and Australia's ASX at the end of 2005 at AU$2 a share and has traded consistently on the NZ exchange at a range of NZ$2.10 to just over $3.

A slow but unspectacular growth story with solid revenues wont see much of an increase in share price but there has been recent talk of Australia's Coca Cola Amital being interested in buying the company for its broad range of brands that would compliment some of the strong brands that Coke manages.

The interest of Asian business in Australian food groups is another good reason to hold onto those GFF shares. Apparently those in the food business in Asia see this region as some sort of food holy grail:

What's going on? "A lot of Asian tycoons are seeking to take strategic positions in an area they think will be the next money spinner," says Richard Beaurepaire, head of research at consultancy Bain & Co. in Sydney. "They understand that food will become a scarce resource in Asia over the next few years as the land and water to support the region's 3 billion or so increasingly prosperous, urbanized people are not there." Australia, which likes to style itself as the Supermarket of Asia, produces abundant food that can be shipped fast to its neighbors.(

I like Goodman Fielder for the loyalty of customers for the brands that it sells. More often than not this loyalty can last a lifetime and can get passed on through generations making owning a such a company a good lifetime bet.

Goodman Fielder shares were up 3c today at NZ$2.95.

Disclosure: I own GFF shares.

Goodman Fielder @ Share Investor

Goodman Fielder to improve bottom line in 2009
Why did you buy that stock? Goodman Fielder
Goodman Fielder hit by high commodity prices
Goodman Fielder a Hedge against an economic slump
Goodman Fielder pie gets bigger

Goodman Fielder Financials

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c Share Investor 2007

Monday, August 27, 2007

NZX Share Trades with Strings Attached

While trying to put a market order in today on the NZAX for Burger Fuel (BFW) it appears an individual cannot make his own mind up just what the market price for a particular share is on a given day.

I wasn't fully aware of this, only just in passing but for shares trading between 10c - $1 you have to bid a minimum of .7 multiplied by the closing price of the share on the previous day. Shares above $1 are multiplied by .8 , shares between 5-10c .6 and below 5c .5.

This little market manipulator came into force early July 2007 and really pumps my blood warmer than a ten year old relieving himself in a public pool on a cold Winters day!

I mean where do Mark Weldon and co get off, it is a Market Limit , what that means to this capitalist pig is that the market is supposed to decide what a share or company is worth on a given day, prospective shareholders are the market and it should be up to us to decide what value we place on a company.

I can understand why this little handbrake may have been applied-to stop a market from sliding too quickly on a bad trading day-but surely this kind of market manipulation must be open to all sorts of jiggery-pokery?

I'm quite sure the upper offer market limits are not enforced similarly so why the hell do weak companies need their hands held as their share prices get hammered on any given day?

Quite frankly they don't and Mark Weldon and the NZX board would be wise to take another look at this recent hamstringing of a so-called free share market and let the market decide what New Zealand listed companies are worth.

Incidentally, I wanted to bid $NZ .20c for 5000 BFW shares as the share price as of today has fallen almost 15% to .65c today. I have lowered my value of the company as I see further costs related to increased borrowing for the company and possible franchisees having an affect on medium term growth, expansion and obviously profit.

c Share Investor 2007

Friday, August 24, 2007

Auckland Airport's incentive scheme should fly out the window

It seems to this humble soul that the good folks who manage Auckland International Airport (AIA) live in a world where up is down, on is off, black is white and well... you get the picture.

One of the biggest contributors to the drop in Full Year 2007 profit at AIA announced a few days ago was the employee incentive scheme. Such a scheme rewarded employees if the company share price did well, with share options.

As most know the share price has indeed risen over this last year and that has been due to first rumours of a takeover and now a firm offer by Dubai Aeronautical Enterprise and other suitors kicking the tyres.

Now usually when a companies share price rises it is due to the company doing well financially and most of that can be put down to good management. In this case though the share price has risen because of a takeover offer and indeed the share price would have gone down in the absence of this offer as AIA was headed for a flat profit this year anyway.

To be rewarded when a company share price goes up in the first place is a little dodgy because there can be many reasons why this is the case. You can bet company management don't get docked payments for share price falls! In AIA's case the share price rise has nothing to do at all with management doing well.

In the real world, incentives are given for financial results and that is just the way it should be in this case. The fact that profit dropped substantially-by more than 10%- because of undeserved employee share options being handed out is simply an outrage that shareholders shouldn't have to put up with.

The passionless way that this option free-for-all was reported in the media just leaves me guessing as to why this options rort isn't being questioned.

I know this sort of thing seems acceptable by those who are board members of public companies and is a widely carried out practice in New Zealand and abroad but it is something that really rankles my hackles-a wonderful turn of phrase if I do say so!

It is up to shareholders to make their displeasure of this practice known to company management. I am not one to say incentives should not be paid, they should, but only for increased financial results. The bigger the profit increase the bigger the incentive payout I say.

Seems management at Auckland International Airport don't know what the word incentive means. If an individual or company gets paid for a decreasing profit then what is the motivation to do better?

Simply nothing.

c Share Investor 2007

*Disclosure: I own AIA shares

Thursday, August 23, 2007

Restaurant Brands: Delivering increased profit in October 2007

The profit season in New Zealand rolls on, and by and large things look good company wise considering the sad state of the economy. One company set to announce their profit in October, Restaurant Brands Ltd [RBD.NZ] the operator of the KFC, Pizza Hut and Starbucks brands in New Zealand looks set to show an increase in its earnings.

Of course this wouldn't be difficult considering the bad results they have been posting these last 24 months.

RBD's KFC unit has shown another re-growth because of vast sums of shareholder money being thrown at it but it is still off its all-time sales figures way back in the 20th century, still, having said that KFC is still the main and only profit driver for the restaurant group and it is the greasy stuff that will give RBD another shot at breaking its $1 share price barrier again-it listed in 1997 at $2.20 and briefly once touched that price in 2002.

The main problem for RBD though, apart from bad management and poor service, is the competition from its smarter and more motivated rivals.

KFC's position as the number one purveyor of chicken product is being plucked at by several rival chains. Red Rooster and Nandos are picking off KFCs customers piece by piece.

Starbucks has always struggled here and is basically a tax right-off for the company and it has never turned a profit since arriving on these shores in 1999. Operating costs are way too high and revenue hasn't yet matched these expenses.

The biggest threat to RBD though and its Pizza Hut brand, are the inroads that Dominos has made on its sales and profit. In a profit announcement by Dominos today its CEO Don Meij stated:

However, New Zealand EBITDA improved, growing from $1.5 million to $2.7 million. "In New Zealand, Domino's Pizza continues to go from strength to strength, with its EBITDA contribution up 80 per cent during the year."

October's announcement will probably see another big dip in sales for Pizza Hut and everything management have done so far to compete with Dominos has been a dismal failure.

Hopefully shareholders will also find out whether the board have managed to find a new head for the company. Vicki Salmon was pushed out at the beginning of the year and the company dearly need a new direction, any direction really so they can move forward and make some drastically needed changes in operations at head office down all the way down to store level.

In a related matter, Burger Fuel Worldwide [BFW.NZ] the recently listed "gourmet" burger maker, has failed to have its shares traded at all for the last 5 days. We wait in anticipation for a movement soon.

RBD shares closed down 1c to NZ 84c today.

Restaurant Brands @ Share Investor

Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum

Download RBD company reports

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c Share Investor 2007

Wednesday, August 22, 2007

Financial 101: Learn before you Leap

Recent bad news about credit squeezes in the sub-prime lending arena overseas and the New Zealand equivalent of sub prime, finance companies, and collapses of them, have got me thinking.

What possesses people to put their money into these "investments" ?

Whether it be ignorance or stupidity I think that what we are talking about is financial education, that is, how much we know about investing, money, finance and economics and all that entails.

There are many ways of learning about the details surrounding financial matters, whether it be at home from parents, at school as a subject, learning from those around you and experiences as one goes through life.

Clearly learning from experience is a good thing but it can also be costly to an individuals back pocket and lifestyle if one doesn't have a basic grasp of the knowledge of how money works as a foundation to build your financial experience on.

Honestly it should be up to parents to teach children how to use money wisely, what saving means, and how compound interest works. The earlier the start the better. Sadly not all parents are created equal so it could be suggested that learning about things financial should be taught in school.

Far be it from me to suggest that state education is the answer to this problem, it usually gives rise to problems rather than fixes them but in the absence of anything better and from personal experience, I think teaching the minimum of basic finances at school in conjunction with teaching at home can give a child a good start in their financial life. This will keep them in good stead for the rest of their lives and help make their working and social lives all that much better.

Its true I tell ya!!

I learnt the basics of money, saving and investing from an early age, from a life crafted by the necessities of making money stretch and saving "for a rainy day" because I was born into a poor family. We cant all have the advantageous start to our financial education that I had though !

Primary school though taught us the basic Mathematics through rote times tables, therefore learning how to count and multiply figures and how basic interest was calculated.

At High School, in economics classes, we learnt supply and demand, the cost of money, the element of risk and the benefits of saving, entrepreneurial skills and the wonders of compounding interest: what compounding meant when you saved and borrowed. These things I remember to this day and I apply them nearly every day in all aspects of my life.

What I would like to know though is what has gone wrong?

Are people these days getting taught the basics and if they are why are some of them ignoring those basics?

Surely our old friend greed must come into play here. When an individual looks at a high interest rate, and doesn't look at the prospectus (not that these always tell the full story) it seems forces other than financial acumen are at play here.

Ignorance is not bliss when it comes to investing money but many of us choose to ignore the warning signs of a bad investment simply because they can only see the "big returns" promised in the little advert in the Business Herald pages. Reading the details of the investment and assessing the risk of high returns would have most of us use that advert to wipe our bottoms with.

Probably the most irritating part of these collapses in Finance Companies is that many of those investing in them are referred to them by so-called financial experts, who all get very handsome kick-backs for their advice too. Most of these people who advise could write their credentials on a pin head and it appears that many of them function in their positions because they have gregarious and outgoing personalities! A large franchised financial advisor of dubious quality, Money Managers, doesn't even require that its franchisees have a financial background. Excellent stuff !

The lack of basic financial acumen and basic business understanding from our business writers also leaves those that should be run out of Dodge with cutting columns a good escape from Coventry and Dodge. Save a handful of writers like Fran Wilde, Jenny Ruth and others we are left with dirge written by the likes of Rod Oram to line our chicken coups and toilet floors with.

I despair, yes dear readers, despair, the lack of financial education in this country. The lack of it leads to people that you read about in headlines that have lost life savings to these Finance Company collapses. Old women losing 50 years of retirement savings, families losing money saved for education of children. Then there are those that we may not hear about, those that found that losing a lifetimes hard earned savings has changed their lives irreparably and they meet an ultimate end by their own hands. It happens and probably has over the length that these 6 finance companies have gone to the wall.

I have been a little disturbed lately by those in important positions of Government and bureaucracy who should be setting examples with their financial knowledge saying and doing stupid things when it comes to things financial. New Zealand Labour Politicians removing the risk of borrowing money by giving interest free cash to students, the responsibility of saving for a house by gifting taxpayer money to "those in need", making it easier for folks to declare and get out of bankruptcy in order to avoid paying debt and much more financial stupidity too numerous to list here.

Global State banking institutions bailing out private and public companies who lent money to bad borrowers is surely madness and teaches us nothing. It appears nobody is responsible for the risks that they take with money anymore. Our Politically Correct times saves individuals and companies from learning that bad decisions have consequences and that others will bail them out financially when things get tough. Given this whacked out financial theory those that take the risk should clearly share the rewards as well. Yeah right!

Lacking a financial education can have serious effects not just on your back pocket but on your future and life.

It is "just money" that I am talking about but we do know that it makes the world go around. All the cliches are there. There is more to life than money but it takes hard work to earn that money and it doesn't make sense to throw it away because you don't have confidence in what you are doing because you were not taught how to handle your finances.

Being wise with your moola can give you a good lifestyle and help make your life easier and the other parts of life more rewarding. Knowing that your money is working harder (and safely!) for you than you worked earning it in the first place is one of the functions of being educated about the finer details of finances, saving, investing and business and learning this at school along with the basics from home is a bloody good start.

Related Share Investor Reading

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c Share Investor 2007

Tuesday, August 21, 2007

Watch for Dead Cats Bouncing

It seems global markets have all of a sudden forgotten that they have plunged over the last few weeks. At the best of times sharemarket psychology is difficult to come to grips with but we appear to have a patient with bi-polar disorder here. Mr Market moves in mysterious ways.

Gains have carried over two days now and credit woes, crunches and squeezes seem to be distant memories for investors.

What has changed to give investors enthusiasm and verve to go out and spend cash on equities again?


As a whole, investors are still unclear as to the extent of the credit driven market woes and any reversal of the previous selling of stocks seems premature until the full picture develops.

I don't necessarily think that it is a mistake to buy beaten down stocks but it seems a little odd to me that the market as a whole seems to by discounting the last two weeks all of a sudden like nothing has happened.

It is likely that volatility and downwards pressure will continue on global markets until we know more about the reasons for recent falls.

Watch out for that dead cat bounce.

c Share Investor 2007

Monday, August 20, 2007

Sky City Entertainment Group Ltd: 2007 Full Year Profit Commentary

Sky City Entertainment Group Ltd [SKC.NZX] reported on Monday an as expected 18 per cent fall in annual profit.Sky City made a net profit of $NZ98.4 million in the year ended June 30, compared with a $120.1 million profit the year before. Revenue was up just over 6% to $815 M.

The company said in May that it was comfortable with analysts' estimates for an annual profit around $98 million. Future guidance for profit growth in the next year is estimated at 10-12%.

Sky City Auckland Casino Ebitda dipped slightly, Adelaide was down by nearly 10% and Darwin continued to steam ahead with a nearly 7% rise while the dairy farming led boom down in Hamilton lead to an increase in Ebitda by over 12%. Holy cow!

There is little detailed information as yet about promised updates to the market about disposal of under performing assets such as the cinema division and Adelaide Casino. These two assets have been named for possible sale but only if offers exceed the company's "internal view of value". So we know nothing more here than we did 3 months ago when asset sales were initially signaled by management. Today's announcement was supposed to bring detail of which assets would be disposed of.

There has however been an indication of interest by some parties in the Adelaide Casino and speculation during the last few months over various cinema companies kicking the tyres over at Sky City Cinemas.

As indicated here a few months back, any asset divestment proceeds will either be used to reduce debt and/or be returned to shareholders. The appropriate capital management strategy will depend on assets divested and the level of proceeds realised.

There was also mention of the overblown accusations by TVNZ of corruption at Sky City Casinos and managements counter of effective structures within the company, while not perfect , were able to ameliorate any dodgy practice that individuals might try from time to time.

Elmar Toime, executive director and acting CEO seems focused on cost cutting and efficiency of the business, something that he did well when he cut costs at the former bloated State Postal provider, NZ Post in the 1990s.

While management are looking for a replacement for the dear(read expensive)departed Evan Davies , in my humble opinion Toime looks good to get his shoes under the big desk.

A dividend of 12c has been declared.

The markets early reaction to the news today sent the share price up 17c to $4.37. Sky City Casino(SKC) are currently at $4.21 3.25pm August 20 NZ time.

Disc: I own SKC shares in the Share Investor Portfolio

Sky City Convention Centre @ Share Investor

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Sky City Convention Centre Expansion a Money Loser: Part Two
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SKC Convention Centre power-point slide illustrations & SKC submission to Auckland City Council

Sky City Entertainment Group @ Share Investor

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Guest Post - Michele Hewitson Interview: Nigel Morrison
Failed Sky City bid for Christchurch Casino good news for Shareholders
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Sky City Annual Meeting & 2011 - 2012 Profit Forecast
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Discuss SKC @ Share Investor Forum
Download SKC Company Reports

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Sunday, August 19, 2007

Sky City Casino: Setting the record straight over Corruption Accusations

With Television New Zealand making accusations of "loan sharking" within Auckland's Sky City Casino complex, motivated by the deep left within the Green Party, for most of last week, it seems the truth, as reported by them maybe somewhat further from the truth.

Accusations were made that Sky City Staff were "skimming jackpots", "prize fixing" and heavily involved in loan sharking seem the views of a "journalists" over active imagination if the following response by Sky City to the accusations from TVNZ are anything to go by:

SKYCITY Sets the Record Straight
TV One news has made allegations this week regarding the integrity of SKYCITY’s operations and its staff with particular reference to alleged loan sharking at SKYCITY Auckland.
SKYCITY has continually provided comment and facts to TVNZ which they have chosen to ignore.
SKYCITY takes any allegations seriously and takes action immediately.
In accordance with these investigations, and advice of the DIA, a person was suspended from the SKYCITY property on Tuesday. This person was not a member of SKYCITY staff as stated by TVNZ. SKYCITY is unable to provide further information on this person due to privacy.
SKYCITY has no evidence of any improper dealings by our staff or in our VIP spaces which are continually monitored by security and surveillance.
SKYCITY is continuing its investigations and has zero tolerance for impropriety of any nature by staff. If TVNZ or any party has facts on which SKYCITY can act, then we encourage them to tell us directly.
SKYCITY wishes to inform all media of the information previously shared by SKYCITY Auckland’s General Manager, David Christian, with TVNZ:
SKYCITY has extensive polices and leading-edge technology in place to identify and manage undesirable behaviour. For example:
• Extensive surveillance systems are in place and are monitored at all times by highly trained personnel.• There are close working relationships with the DIA, who are on site, and with the NZ Police.• Information is regularly shared with relevant parties - DIA, NZ Police.• Suspicious activity is investigated by SKYCITY’s security and surveillance department and if appropriate reported to the relevant agency.• Suspicions of loan sharking are always investigated. This can lead to exclusion or trespass.• Training programmes are in place to support our staff in dealing with undesirable behaviour. Security personnel receive additional specialised training.• SKYCITY has a professionally skilled team of harm minimisation and host responsibility staff.• Gambling helplines are promoted throughout our casinos.• SKYCITY relies on information from our own investigators, staff, customers, the NZ Police, problem gambling service providers and the government inspectors operating on site. If TVNZ or its viewers have any information relating to undesirable behaviour, then we encourage them to speak to us or the DIA directly and we will take any appropriate action immediately."
SKYCITY reiterates that the casino industry in New Zealand is strictly regulated and supervised by DIA and the Gambling Commission.
SKYCITY respects its license to operate and values its reputation for being a responsible gambling provider - a strong commitment to the safety and security of our staff, visitors and customers underpins all of SKYCITY’s operations at all times.
(16 August 2007, Sky City corporate website)

It seems to this market watcher that hysteria has been whipped up by TVNZ just to fill some dead airtime. The TVNZ propaganda machine is an over the street neighbour to Sky City and there are rumours circulating that many staffers from the State Broadcaster have lost considerable sums having a flutter during long lunch breaks and boozy late night sessions after work. It must be remembered that it wasn't long ago that employees of TVNZ were caught out using TVNZ credits cards to rack up huge food and beverage bills at expensive eateries around the town.

Clearly there is a small story here but as is often the case a so-called journalist blows it out of proportion just to make a name. Dont let the facts get in the way of a good story huh?!

It seemed fit to re-print the Sky City reply as I have not seen a printed response to TVNZs muck raking.

These things should be cleared up before concentrating on the real, factual story, that is the Full Year 2007 profit announcement tomorrow 20 August(NZ time)

Until then.

c Share Investor 2007

Disclosure: I own Sky City Casino Shares

Friday, August 17, 2007

Global Market Meltdown: What is Warren Buffett Doing?

As we approach Global Stock Markets, the volatility that surrounds them can create opportunities for making a purchase rather than a reason to sell.

I am reminded of what Warren Buffett looks for when buying companies and the cheaper share prices that we are now experiencing are making one of Buffett's tenants of investing more focused as the markets get lower:

His investment criteria included companies with "good returns on equity", little or no debt, "simple" businesses that he could understand, and consistent earnings, Mr Buffett said in his latest annual report. (Warren Buffett 2007 Berkshire Hathaway Annual Report)

Sure , Buffett is talking about companies that he buys having a good return on equity as an operating business. As an investor in cheaper shares though one can use falling share values to buy good companies and as an investor make better returns on your "bargain" purchase therefore making your returns all that much better.

Buffett has been hoarding his cash like your grandma over the last few years and many potential targets would have revealed themselves over the last few weeks of turmoil:

Warren Buffett says the current market chaos and turmoil will probably create buying opportunities for him and Berkshire Hathaway:
"You get more excited when there's a lot going on, you can't help it. And frankly, it will probably present more opportunity to us because when dislocations occur things get more mispriced and that sort of thing...
"So it can be a time of opportunity. It won't be for sure, but generally speaking, when there's a certain amount of chaos in certain sections, the fallout, and its unpredictable where the fallout will be, but the fallout sometimes offers some real opportunities."
(CNBC Aug 15 2007)

Shares of health insurers, steel makers and department stores are down by as much as 18 per cent than they were in May, when Buffett said he would "figure out a way" to raise up to $US60 billion for the right deal. WellPoint Inc, Nucor Corp, Kohl's Corp and dozens more companies are now closer to meeting his investment criteria.

He has disclosed purchases a few days ago that his company has bought a new stake in Bank Of America and increased his stakes in Wells Fargo and Bancorp in the last quarters SEC filings.

As these companies have been beaten down over recent times you might expect the Sage of Omaha to be sniffing around them again.

Warren Buffett's history shows that he has done well during market turmoils as he tends to be doing the opposite to everyone else.

He bought beaten down stocks during the 1970s bear market lull and it paid off handsomely as the 1980s began a bull market not seen since the likes of the 1920s. His mentor Benjamin Graham made money off the 1930s bear market by doing exactly the same thing.

I guess we just have to learn from history. Markets have always had these volatile "corrections". Currently most investors seem gripped in the fear mode and it looks unlikely that the slide will be ended until some certainty comes back to the market.

Buffett and his mentor Benjamin Graham were able to ride these market blowouts and actually make it a positive. Their history and reputations as value investors are largely made during these times of turmoil.

Take a lesson from Warren. Keep cool, keep your head, keep your shares(if they were good ones to begin with!) and look for the bargains that will come.

c Share Investor 2007

Thursday, August 16, 2007

Market Musings on the NZX

Market watchers in North America and Europe may well be asleep as I write this. If you were down in this part of the world you would be watching your portfolio drop once again after NZX investors took their lead from you who are asleep at present. The NZX is down 60 points as I write with the ASX down 165.

My portfolio is down almost 20% from this years highs and the bulk of that drop has been in the last two weeks.

Fear has gripped our market and our dollar cross with the US dollar has fallen from an all time high of over 81c to less than 70c as I write because foreign investors are moving their Kiwi investments offshore for "safer" risks.

I am not selling and will not sell but my main problem at the moment is when to buy more of what I already hold. There are 4 stocks out of the 11 that I hold that have fallen below their original purchase price but they seem to becoming cheaper and cheap by the day. I wait with my finger poised on the buy button on my computer screen.

One stock I am looking at more closely, now that the Summerset Retirement float has been cancelled today, is my holding in Ryman Healthcare (RYM) the Retirement home operator. It is looking tasty but could go lower.

Opportunities also abound in NZs Blue chips. Telecom New Zealand(TEL) is due a 14c dividend soon and is trading well down. Fletcher Building (FBU) has been given a right troweling as of late, with a 23c dividend due and Sky City Casino (SKC) has its chips down a few days before their full year announcement on Monday 21 August.

Auckland International Airport (AIA) has news that just over 6% of its shares have been purchased by Infratil (IFT) in conjunction with a Government Retirement fund, a potential blocker of a merger between AIA and Dubai International Aerospace. Strangely AIA shares are up today.

Steel and Tube (STU) the steel maker and supplier, have announced a 10% profit decrease today on increased business costs and increased revenue. A 14c dividend waits in the wings for STU shareholders.

Fisher and Paykel Appliances(FPA) has announced that they are moving their electronics division to Thailand. It will share a factory roof with the washer division that announced plans to move there earlier this year. 96 jobs will go from South Auckland with a saving to FPA of 6 million dollars.

Meanwhile the Labour Government is in trouble with its voters because the partially State owned and listed airline , Air New Zealand (AIR) has been carrying Australian troops to get them to theatres of war in the Middle East, something that cuts against the beliefs of Labour ministers and a minority of over vocal New Zealanders. The share price landed sharply.

On a much lighter and perhaps tasty note, for the third day in a row Burger Fuel(BFW) has failed to trade.

c Share Investor 2007

Wednesday, August 15, 2007

Telecom New Zealand Hangs Up.

Telecom New Zealand's [TEL.NZ] profit announcement last week reveals a company in gradual decline.

There are many reasons for this, not the least of them being the fact that management have always had a siege mentality to competition, that is, they tended to respond to rivals in a reactive rather than a proactive way. Their customers suffered on monetary and service levels simply because Telecom's monopoly position allowed them to do so.

When Government moved to untangle their monopoly their shortcomings were revealed to a greater extent than we already knew. Overwhelming arrogance seemed to be the order of the day.

Underspending in infrastructure over the last 18 years has left the company in a position where it now would have to spend multi billions just to get their networks and infrastructure up to speed to present day technology so they could offer their customers anything close to high speed broadband or mobile technologies that allow modern fast content.

The shortsightedness of the past seems to pervade Telecom's culture to the core. I say this because the companies answer to falling profits and revenue in the fixed line business was to sell the Yellow Pages unit to a Canadian Pension Fund for NZ$ 2.2B earlier this year. Roughly half of the proceeds will be dispersed to shareholders.

The Yellow Pages unit was one of Telecoms most profitable divisions, contributing over $200M in before tax profit and set to increase revenue and profit in years to come. The new owners have increased their own advertising for their product and are concentrating on growing their online presence.

As a business owner myself I would be ditching declining businesses rather than flogging off the most profitable.

To be sure $2.2 B is a nice little wedge of moola but it is a short sighted of management not to look towards its future in a more considered manner.

Most of Telecoms other businesses are either mature or near maturity. Fixed line is in decline, Mobile is reaching saturation and "Broadband" or what Telecom call broadband is constrained by their 19th century copper wire outlook in a 21st century world.

Lessons that should have been learned in the 1990s: lack of investing back in the business, slow to respond to competition etc, still haven't reached managements brain stems and look unlikely to do so unless coerced by Government intervention.

Management even suggested last week that Taxpayers should fund the badly needed infrastructure needed if New Zealanders "...wanted broadband quicker...".

For a communications company, Telecom New Zealand are not communicating the right message. Its customers continue to get an engaged signal and its clear message to the public at large is that they just don't care.

Telecom NZ @ Share Investor

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