This newsletter generally focuses on growth-oriented shares because they tend to produce better returns over time and the gains are more tax efficient – at least in NZ where there is no capital gains tax. I usually like to see a company paying a dividend, however, because that shows the company is making real money and feels comfortable enough about the quality and sustainability of its business to pay out valuable cash to shareholders. This week, however, I am going t ...

Having scale can bring plenty of benefits for companies and having scale internationally offers even more. Engineering consultancy Opus International Consultants (NZ: OIC) has found that out in the past year or two. With work loads down in the UK but up in NZ, thanks to the Christchurch earthquake, OIC was able to shuffle its people around the world to where they were needed and could be productive, or sometimes move the work of where the staff were. Writing about O ...

Occasionally I will change the format of the newsletter to go into more depth on a particularly significant topic. This week I have decided to reproduce a summary of findings about the resource cycle by Professor Ross Garnaut, a professor in Economics at The University of Melbourne and Distinguished Professor of Economics at The Australian National University.His key point is that the ‘super cycle’ of resource prices that began in the early 2000s inevitably will end, mainly because China’s ...

I get nervous when a company’s profits are widely forecast to rise strongly, making its shares appear cheap, yet its price continually weakens. That is the situation for the resource majors at present with the likes of BHP and RIO seeing steady share price declines, without a commensurate decline in earnings expectations. Even the most pessimistic of earnings forecasts don’t explain this. RIO is likely to show a single-digit increase in earnings per share in the yea ...

I noted recently that some types of retailers, particular general merchandisers and department stores, are struggling because of changing consumer patterns. These patterns are being influenced by consumers’ increased comfort levels when buying online. taking up offers such as electronic coupons or accepting location-based alerts to cellphones. It is not too far a claim to say that some forms of retailing may disappear, much as the corner stores have disappeared in the ...

The global financial crisis delivered some sharp shocks to many people and businesses, but most setbacks have been relatively short-lived. One significant change that affects almost everyone and which seems to be extended, if not permanent, has been in retailing. Japan was a precursor to this, having its own financial crisis caused by a property bubble and imprudent borrowing and lending as early as 1989. Job losses and a new sense of prudence by consumers led to a ...

It never ceases to amaze me how the price of shares in even very good companies move from loved to loathed, only to move back into the loved category once again. These patterns occur over years rather than days or weeks, so knowing this only benefits the patient. Profiting from this knowledge only comes if you combine patience with the ability to think counterintuitively and make decisions without succumbing to emotion. Much of what I do is designed to help people achi ...

It’s been a fantastic decade for resources and the ‘supercycle’ of prices rises is not yet over. However, the rate of growth is likely to slow as some of the biggest consumers, notably China, see their economies mature. The Chinese government recently stated it would lower its GDP growth rate to 7.5% for 2012 and possibly beyond, from an annual target over the past 10 years of 8%. A report by the World Bank and a Chinese government agency forecasts China’s growth rate is likely to slow to 7% b ...

I am a tennis fan and enjoy watching the big names play at the Australian Open in Melbourne from time to time. I went this year, after a break of three or four years, and of course couldn’t wait to enjoy the delights of Lygon Street, the dining street famous for being populated almost entirely by Italian restaurants. This time, while it was still very enjoyable, I was surprised to see that many of the Italian restaurants had disappeared, to be replaced by a variety of As ...

I’ve learned the hard way that, when my opinions differ from what my valuation models are telling me, I should trust the models. One reason for this is that my 9 Key Criteria of Corporate Excellence and related valuation and timing tools help identify high quality companies when their shares are cheap. Usually the shares are cheap because most other investors hate them. Most investors are vulnerable to the herd instinct and tend to get into popular investment sectors ...

Retirement village company developer and operator Ryman Healthcare (NZ: RYM) reported a profit of $84m before revaluations for the year to March, up 17% on the previous year. Valuation gains took the profit to $121m, up 21%. The company announced 4.5c per share dividend, taking the total dividend for the year to 8.4c, up 17%. ...

Recommendation: The result justifies the enthusiasm investors have shown for this share in recent months and its price has hit yet another record high. It has crept up above my recent TAKE PROFITS recommendation at $3.09 but, having had a look at the latest result, I still don’t see where the value is. The shares are trading at 19.4 times their latest earnings, against a long-term average of just over 15. The gross yield is a very modest 3.9% and my PGEG (price growth divided by earnings growth over five years) stands at a very concerning 1.58, when 1.0 indicates fair value. However, with the momentum of the shares strongly upwards at present, it makes sense to wait until the shares dip 10% from whatever high point they reach before taking profits. HOLD (latest price $3.35) but be prepared to TAKE PROFITS on a sustained correction. HOLD at $3.35.

Beverage company Coca-Cola Amatil (AU: CCL) has forecast underlying profit in its first half to June will be 4% - 5% higher than the same period last year.  ...

Recommendation: The growth rate is lower than expected and reflects tough trading conditions. The company is expanding further into alcoholic beverages and this offers attractive growth and margin improvement options. Even conservative forecasts for the full year and 2013 show CCL generating relatively low but steady growth, which is what is has achieved for many years and makes it such an attractive investment. GROWTH BUY at $12.69.

Housewares retailer Briscoe Group (NZ: BGR) has announced a special dividend of 10c a share. This follows its report of a 6.5% gain in first-quarter sales to $102.5m, although it warned of a flat sales result for the full year after seeing a Rugby World Cup boost last year     ...

Recommendation: In my retailing feature in March (MIR 670) I mentioned that BGR’s dividend could be relied upon “because the company’s CEO Rod Duke owns 75% of the company and therefore he has the ultimate incentive to ensure the company is in a position to make payments”. As 78% owner of BGR, his share of the special dividend will be a pleasant $16.7m. A special dividend suggests the company has more cash than it needs but also that the near future is likely to be ‘steady as she goes’. No takeover appears likely, for example. HOLD at $1.69.

Retirement village operator Metlifecare (NZ: MET) has announced plans to buy unlisted companies Vision Senior Living (mostly owned by Goldman Sachs) and Private Life Care (owned by Retirement Village Group, which is a major shareholder in MET). ...

Recommendation: The deal involves a combination of shares and cash and, while it gives MET greater scale, it will also take on a lot more debt. Much depends on how the new assets perform and shareholders should wait for the independent report. HOLD at $2.03.

Crystal chip maker Rakon (NZ: RAK) said gross profit (EBITDA) fell 47% to $13m for the year to March and its net loss for the period was $0.4m against a profit of $8.5m last year. ...

Recommendation: The company continues to suffer from the continued strength of the NZ$ but it is also struggling to lift sales to key telecommunications clients in a sluggish world economy. The softening NZ$ of recent times might help it in the current financial year but there are a lot of other headwinds which make me cautious about the company right now. AVOID at $0.50.

Explosives and fertilizer producer Incitec Pivot (AU: IPL) reported a net profit excluding one-off items for the six months to March of 214.4m, down 22% from the previous corresponding period. ...

Recommendation: The company has seen a slump in its fertilizer business, where earnings were down 56%, which was only partially made up by a 21% growth from its explosives division. However, both businesses are expected to return to normal patterns in the second half. That won’t stop the company turning in a lower full year result but the following year is looking pretty good. HOLD at $3.06.

Building products company CSR (AU: CSR) reported a net profit before significant items of A$90.7m for the year to March 31, slightly higher than last year's A$90.2m. Trading revenue was 6% lower at A$1.8bn. ...

Recommendation: The company was helped by a boost in its property business, lower tax rates and lower interest costs but its aluminium and glass businesses were weak. Although its bottom line was solid, I am concerned to note its EBIT was 26% lower at $156.7m. CSR is probably going to continue to have issues until the Australian property sector shows some life and recent trends suggest that time could be some way off. SELL at $1.66.

Gambling and entertainment company Sky City Entertainment Group (NZ: SKC, AU: SKC) has lowered its expected full year to June earnings forecast from the high $140 millions to the low $140 millions. Last year it made $131m. ...

Recommendation: The company is seeing lower customer volumes through some of its venues, particularly Adelaide, which appears connected to a poor retail environment and lower disposable income among some parts of the population. Meanwhile, its proposed gaming-machines-for-conference-centre deal with the NZ government has become a political football and I would not be surprised if the terms to the agreement are revised or even dropped altogether. That would cause investors to downgrade their expectations for next year as well. I put a HOLD recommendation on SKC shares at NZA$3.66 after its strong interim result, partly because not all of its venues were performing well, and certainly see no reason to improve upon that. HOLD at $3.74.

Shopping centre owner Centro Retail Australia (AU: CRF) said it would contribute $85m to an in-principle settlement payment of $200m over a class against Centro Group and its auditor PricewaterhouseCoopers more than four years ago. ...

Recommendation: Centro had been accused of misleading and deceptive conduct by not disclosing in its 2007 financial report that it had at least $3bn of interest-bearing debt due within 12 months. The settlement will put an expensive distraction behind the troubled property group and CRF says it can make its payment from existing cash reserves and by issuing new securities to some of its securityholders. This will cause a 6.5% drop in its net asset value per security to $2.33. CRF has been a survivor of some tough times but its exposure to property in general (soft) and retailing property in particular (very soft) is not encouraging. AVOID at $1.89.

National Australia Bank's (AU: NAB) reported a record six-month profit of $2.83bn to March, up 6% on the previous corresponding period.  ...

Recommendation: Banks are making profits despite low interest rates because rates from offshore providers are so much lower. NAB has captured market share by offering rates that undercut competitors and, while this has trimmed margins, it has boosted the bottom line. I still have concerns that banks are exposed to heavily overinflated property values in Australia and there may be bad news to come one day. AVOID at $24.57.

The logistics company (AU: TOL) has indicated that gross profit (EBIT) before one-off items could fall to $400m - $420m for the year to June, compared with $436m last year. It is also reviewing the future of its struggling Footwork Express, Toll Marine Logistics Asia and Toll Refrigerated businesses. Thanks to a poor operating performance, Toll is to write down the value of the Japanese logisitics company Footwork Express by $146m - $166m. Footwork has suffered from ...

The New Zealand Shareholders Association, of which I recently became a member, is encouraging shareholders to vote against the re-election of Sir Ron Brierley to the board of ailing investment company Guinness Peat Group (NZ: GPG, AU: GPG). The company’s AGM is on May 24 in Auckland. The association cites GPG’s poor performance of recent years, which saw several top executives including Sir Ron being edged out of the company and a process instituted of gradually winding up ...

When the company (listed on both the NZX and ASX with the code TME) released its prospectus in November, I felt the shares were fully priced but I recommended investors take up shares in the float on the basis that decent companies don’t come to the market often and the shares would likely by supported by the “enthusiasm by investors for a familiar brand” (MIR 657). The shares were offered at $2.70 and, after a slow start, have been heading relentlessly higher, hitting a ...

Few share prices have performed over the past year as poorly as wool scourer and carpet maker Cavalier (NZ: CAV). CAV shares have fallen by 50% as it has suffered from a high $NZ, high input costs and low demand. Its first-half results to December saw a slump in net profit of 58% to $3.6m on revenue that was down 8% to $108m. Operating margins and cash flows were well down and the company cut its interim dividend and has given no assurance that it will pay the year-end ...

The fast food purveyor, with high visibility brands such as KFC, Pizza Hut and Starbucks, has had a rough time in the past year, with its share price falling by a third. This might look shocking in the short-term but a longer term viewpoint shows it enjoyed a massive run up in the preceding couple of years, when its share price tripled. To put it another way, at today’s price, an investor would still be sitting on a 100% profit since October 2009, plus some generous di ...

While not in the same league as the majors such as CBA and ANZ, this bank (AU: BOQ) was one of the fastest growing in Australia in the boom banking years. It was helped in this regard by Queensland being the fastest growing state in the country. Unlike the rest of the world, these good times lasted well into the global financial crisis period as Australia was insulated from problems associated with falling house prices and tight credit thanks to its booming resources sec ...

Like many healthcare shares, FPH survived the GFC pretty well, therefore it has been a disappointment to many since that its shares have trended down for some time. Currency has had a lot to do with it, since FPH earns much of its revenue in US$ and the NZ$ has been trading at elevated levels. Another possible issue is healthcare reform in the US, which might lower government spending and limit growth in sales for FPH and other product providers. The recent spike i ...

In October last year (MIR 652) I reviewed two companies that had similar characteristics, but one was much younger than the other. Those were specialist clothing retailers Billabong (AU: BBG) and Pumpkin Patch (NZ: PPL). I rated the shares a HOLD at A$3.30 and 77c respectively but warned subscribers to SELL on any further weakness in either share. As it happened, things did get worse and PPL continued to trend down, bottoming in early December at 57c. BBG bottomed ...

While it is a conglomerate, offering insurance, farm services, safety products and so on, Wesfarmers’ (AU: WES) two core business are coal and retailing. Both of the latter are having issues at present and this is dragging down the company’s share price. As we discussed in the main article, retailing in both NZ and Australia may be slowly recovering, however the nature of that recovery is patchy. Generalist retailers like department and variety stores no longer su ...

Share in the ailing food business (GFF) rocketed this week after Singaporean palm oil business Wilmar International snapped up 10.1% of the company and announced it might buy more. The shares went from 51Ac to 68Ac in a day (a gain of 33%) on the news and are still sitting at elevated levels. I must have been tempting fate when I reviewed GFF just two weeks ago (MIR 667), saying “I would not be surprised if another corporate raider has a go at the company…” However ...