Monday, January 11, 2010

Auckland International Airport lands Australian Ports

As the horse from Ren & Stimpy was fond of saying, "No Sir, I don't like it, I don't like it at all."


Picture Right - Cairns Airport

As first glance and without going into detail that is my first take on the purchase by Auckland International Airport [AIA.NZ] of a nearly 25% stake in North Queensland Airports (NQA) who own the Mackay and Cairns Airports in North Queensland.

If you look even closer it appears to be even uglier.

It cost AIA shareholders more than NZ$166 million (plus finance costs) for a quarter share in slightly less than 5 million annual passenger movements VS Auckland's 12 million plus in two regional airports that have intense competition with Queensland Airports Ltd who operate 3 regional airports in North Queensland with the regional hub of Townsville Airport, Gold Coast and Mt Isa.

Ask Infratil Ltd [IFT.NZ] how their stakes in various regional airports have gone over the years and they will tell you it hasn't done their shareholders pockets any good.

Look, I am willing to admit I am wrong if this turns out to be the deal of the century and AIA management turn the two Australian Airports into shopping malls as they have done with Auckland (oh even more debt) and get more people and tenants there, but the history of regional airports around the world is that they are big money wasters unless they can become regional hubs, and even then it is a stretch. Auckland Airport management are relying on budget carriers to fill the gap left by major airlines flying off to bigger hubs to boost the flagging fortunes of the two airports they have just purchased but this cross your fingers sort of stuff has failed to work for similar airports the world over - see the Infratil example for more.

It would have been better to buy a smaller stake in a larger airport like Sydney, Melbourne or Brisbane - key players in their states.

Auckland Airport is a company treading financial waters at present with management willing to pile on even more debt based on the security vast undeveloped tracts of land it owns around it Airport.

It needs to focus on producing better numbers at its Auckland port and reduce debt before trying to big note in Australia.

Many an NZ company has learned before, Australia is a far more competitive market and the near monopoly AIA company need to remember that when spending shareholders moola.

AIA board members do not have the experience of a competitive Airport market and I personally think they are out of their depth because of this.


Disclosure: I own AIA shares




Auckland International Airport @ Share Investor

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Feb reporting season will indicate any economic "recovery"

Figures don't lie - that is of course unless you cant read the creative accounting of Kiwi accountants who like to hide stuff in meaningless drivel and then they do - so when we see the net profits of our listed companies start coming out from late Feb 2010 we are going to know for sure if there has been any "recovery" from the recession of the last 2 years.

The last 2 years have seen mixed fortunes from our listed companies, with most doing OK, some very well and some have had their worst yet years.

For shareholders, Feb 2010 will be good indication of how well, if at all, their chosen investment has done over the last 6 months but indeed how it will perform in the seemingly better economic environment - although I have my doubts as to if things are better - and how well management have steered their way through the recession and what plans they may have to manage themselves out of any business funk they might find themselves or got themselves and their shareholders into.

In the Share Investor Portfolio, which was up by about 20% in 2009, after getting a good arse kicking at the end of 2008, I expect (but don't promise) the following:

  • Auckland International Airport [AIA] - Steady as she goes with little surprise.
  • ASB Capital NO. 2 Ltd [ASBPB] - Largely immaterial, a dividend stock and nothing else.
  • Briscoe Group Ltd [BGR] - Indication of a return to growth with better Xmas trading.
  • Fletcher Building Ltd [FBU] - Writedowns on Formica purchase, better outlook.
  • Fisher & Paykel Healthcare Corp Ltd [FPH] - A good boost to US dollar profit but flat or down in kiwi dollar terms due to the weak US dollar.

  • Freightways Ltd [FRE] - A good barometer of the economy as a whole, epect a small rise in profit.
  • Goodman Fielder Ltd [GFF] - stable revenue but flat profits due to higher costs.
  • Halleinstein Glasson Ltd [HLG] - expect a rise in profit after good xmas sales.
  • Kiwi Income Property Trust [KIP] - profit slightly down.
  • Mainfreight Ltd [MFT] - signs of growth in NZ and Australia but standing still in other markets.
  • Michael Hill International Ltd [MHI] - A good rise in revenue but flat profit due to lower margins.
  • Postie Plus Ltd [PPG] - higher profit due to cost cutting.
  • Pumpkin Patch Ltd [PPL] - Australia doing much better, NZ better than previous 6 months.
  • Ryman Healthcare Ltd [RYM] A steady rise in profit of more than 10%.
  • Sky City Entertainment [SKC] A good rise in revenue and profit due to lower costs, better marketing and a focus on debt payback.
  • Steel & Tube Holdings Ltd [STU] Not sure!
  • The Warehouse Group Ltd [WHS] Flat profit depending on margins made during flat Xmas shopping season.

Related Share Investor Reading: Why did you buy that stock?

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Why did you buy that stock? [Auckland Airport]
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Monday, January 4, 2010

The Warehouse: Big Brands, Big Opportunities

While doing some largely unwanted retail therapy over the Christmas/New Year period my thoughts were naturally drawn to the New Zealand retail sector and specifically The Warehouse Group Ltd [WHS.NZX] and its stated intention at the end of 2009 to sell more "branded products" in its nearly 90 big red sheds.

This indication to the market and Warehouse investors that the company is to go beyond its current retail realm and or perception by consumers that it sells "cheap junk" poses a number of questions rather than answering any.

The Warehouse itself as a brand is currently stuck with the image of a company that sells cheap and nasty stuff that breaks and it does well in this sector.

That image was more ingrained many years ago when the company first started but the perception by consumers is that that image is tardy and that the fact that they sell "junk" still remains.

Incidentally this is also true of a host of other retailers that compete with the Warehouse but the big red sheds seem to be permanently stuck with the moniker of a seller of crap.

This is where the problem of moving the company more upmarket and selling bigger and better brands begins.

The company already sells a number of branded products like Apple's Ipod, Sony Playstation, Microsoft Xbox, but also sells a number of other "brands" that are unique to the company and are in fact inferior rubbish.

However it lacks a full range of branded product across the diverse number of retail sectors it operates in and that presents a problem for the company. Few people are going to go into a Warehouse store to buy a branded product if they know there isn't a full range to choose from or a consistent supply of that product on a day to day basis. Of course this dilemna can be got around by simply supplying a full range of branded product to its customers but so far this has proven difficult for the company to achieve for a number of reasons.

Big name brand suppliers in the main have been reluctant to supply their sought after consumer products to the Warehouse simply because of that image of cheap and nasty and damage that may occur due to an association with their brand and the Warehouse's poor image in some consumers minds. In addition, the discounts that The Warehouse would want to negotiate with brand owners for the large volumes that they would sell often make suppliers baulk because of the lower margins made. This of course would be ameliorated by the volume of their goods that The Warehouse could sell.

This can hurt brands as a whole because the owner of that brand would have spent considerable time and money on an image that fits their target market and to place that product in the shelves alongside a perceived or actual inferior brand can have deleterious consequences for the long-term viability of that brand and the product or products that are sold under that branding.

As I said above though The Warehouse has managed very slowly to garner a few well known and loved brands to stock their shelves. This has taken many years to achieve on the part of CEO Ian Morrice and his management team and it will probably take many more years to get a good range of branded product throughout the Warehouse's range of goods.

An indication of how successful branded selling at the company could go in the future can be seen in the Warehouse' toy department. The company has long been the seller of a large range of toys from all of the big brands and as a result has become New Zealand's biggest seller by far of toys.

This is because that long ingrained image that the company sells cheap and nasty stuff has been replaced by the image that indeed the their toys are cheap but because they are selling branded toys consumers know that The Warehouse is the place to go to buy the best toys at the best price.

The company also has a large range of quality goods in the CD/DVD ("software" rather than "hardware") and book departments and the company has also become the largest book and CD/ DVD retailer.

My point is, even though it is going to take a long time for The Warehouse to shake the tag of cheap and nasty, judging from their track record in specific areas of the retail sector there is no reason why the company would not eventually be thought of as the retailer that sells the best branded goods at the best possible price overall.

This will be good news for consumers but especially good for shareholders as it will provide a boost to revenue and with good management, a boost to profit as well.

Happy shopping.


Disc: I own WHS shares in the Share Investor Portfolio


Warehouse Group Ltd: 2010 Full Year Profit Analysis
Share Investor Q & A: Questions to The Warehouse' Ian Morrice
Long Term View: The Warehouse Group Ltd
Share Investor Short: Warehouse Group yield worth a look
The Warehouse Group: 2010 Interim Profit Review
The Warehouse: Big Brands, Big Opportunities
Warehouse strike opportunity to buy
Long Term Play: The Warehouse Group
Share Investor Short: Warehouse Group yield worth a second look
Woolworths supermarket consolidation an indicator of a move on the Warehouse?
Stock of the Week: The Warehouse Group
Warehouse 2009 interim profit a key economic indicator
When will The Warehouse bidders make their move?
Long vs Short: The Warehouse Group
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The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
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MARKETWATCH: The Warehouse
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Discuss WHS @ Share Investor Forum - Register free
Download WHS company reports

Shop online at The Warehouse


NEW - From Fishpond.co.nz |
Think Bigger, By Michael Hill

c Share Investor 2010


Sunday, January 3, 2010

Metlifecare: Its Assets could be worth more under better management




It is interesting what you might find when trawling through company reports for some reason other than the one you eventually find more interesting. This is the case with Metlifecare Ltd [MET.NZ] as I was looking through their 2009 Annual Report.

As you digest the fruitless 2009 they have had, along with incentives still paid to directors who managed significant losses in 2009 and 2008 one comes across one of the most interesting things in their bloated 80 page advertisement for their directors (most NZX companies are guilty of using ten words when one would do and including unnecessary things like director bios and what they might do in the weekends in absence of hard easily understood data), the net tangible asset (NTA) backing per share - incidentally it can be found on page 75.

The NTA is roughly speaking what shareholders would get if the company were wound up and sold. With Metlifecare their assets, which are mostly in property, are difficult to assess in todays uncertain property market but NTA can be one good indication of what a company is worth if sold in part of outright.

Metlifecare's NTA was a staggering NZ$3.54 as at June 2009 while its shares traded at around $1.80 per share!

At close of trading last Thursday Metlifecare shares were trading at $2.30. Still a significant discount to its asset backing.

This tells us a number of things. Firstly the company is worth more either in part or whole being sold outright and it also tells us that management are not extracting full value for shareholders because they are running the shareholders business in a very poor manner.

It could also indicate that management and or their accountants Price Waterhouse Coopers and their valuers have grossly overvalued their properties in today's repressed property market, so beware before you jump on board the MET bus.

Ryman Healthcare [RYM.NZ] which is Metlifecare's listed successfully run rival, has an NTA of 86c per share with a $2.08 share price by comparison but has managed a record half year profit for 2009.

If asset valuations can be trusted, this company should be on anyone's watchlist as a pure play in the hope that someone decides to sniff around and pick up all or some of the company and salvage it from its mediocre management.


Disclosure : I own RYM shares in the Share Investor Portfolio.


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c Share Investor 2010