Shares

A year ago we pointed out the impact the mining boom was having on Brisbane-based group, Campbell Brothers, when earnings jumped to more than $34 million.

Coles In Disgrace

Oh the ignominy of it all: a struggling corporate so bad that not even two of the most aggressive private equity groups in the world, KKR and CVC, want it.

Qantas Down, Just

Qantas's glittering run came to an end yesterday with the shares suffering their first fall in the seven days of trading since APA pulled its offer once and for all and the airline's board lost chairman, Margaret Jackson and director, James Packer.

Health Changes Continue

So what will Sigma Pharmaceuticals do now? Healthscope has confirmed its bid for Symbion. Theball's in Sigma'scourt if it wants to be a player in the healthcare sector rationalisation now underway?

Coles’ Bidding Team Shatters

Coles Group shareholders are facing the collapse of the$20 billion auction for their company after US private equity group, KKR joined another group, CVC, in the exit lounge.

LIM’s Nickel Shortfall

Takeover target LionOre Mining International has downgraded its nickel production forecast for calendar year 2007, only a fortnight after reaffirming the target of 44,300 tonnes.

ABB Bitten By Drought

As expected, ABB Grain was hit by the drought in the first half of its 2007 financial year with the performance of its wheat and barley grains businesses hurt.

QCH Takeover Battle Continues

Staying with rural business, the takeover battle for Queensland Cotton stepped up a gear yesterday with a counter bid from Singapore-based Olam International which topped last week's higher offer from Louis Dreyfus.

Qantas-APN

You have to be more than a bit cynical about the rush to lift valuations of Qantas by broking and investment bank analysts who six months ago thought (bar probably one) that the airline was an ‘underperform’, a ‘sell’, or at best a ‘neutral hold’.

Market Correction Ahead?

Share markets could be at risk of a correction in the short term.

Greenback’s Strength Surprises

The US dollar hits a six week high against the euro and a three month high against the yen and key US interest rates bounced to their highest level since January.

Oil Prices Out Of Kilter

Don’t be confused by world oil prices and petrol prices at the moment.

At Last, The Real Qantas Story

At last some straight talking from Qantas management, shorn of most of the hyperbole of the past three years about threats and dangers to the company’s future.

Gone were the chicken little ‘the sky is falling’ alarms about costs, oil prices, foreign airlines, terrorism, SARS and you name it.

In their place we have what appears to have been the basis of a fairly rational, level-headed assessment of where the airline stood after the APA bid debacle and the now derisory $5.45 a share offer.

Instead of meeting the predictions of a rattled chairman in Margaret Jackson, who as late as this week was wondering when the share price would fall, the shares hit record levels.

After withstanding the sale of hundreds of millions of shares by hedge funds and other speculators (more than 750 million in almost three weeks), the QAN share price broke free this week, rising gently and then accelerating yesterday to its highest level ever on the back of the briefing by the airline’s management to major shareholders.

The shares jumped past the $5.45 of the APA offer to climb to $5.54 and close at $5.46, up 4 on 114 million shares.

That’s $5.54 price is actually higher than the first offer price of $5.60 from APA which was made before the final 15c a share dividend was struck.

APA took that dividend away (which could have cost them the bid) and cut the price to $5.45. The effective price yesterday based on yesterday’s close was $5.69.

That’s a firm rejection of the APA offer and the board and management’s active support of it.

It confirmed the opposition to the bid from the likes of Balanced Equity Management and the now departed head of UBS Asset Management. Their investors in Qantas are all a little richer now for the opposition, as is the Qantas management group, although not as rich as the pot of gold promised to them by the APA offer.

Yesterday’s briefing backed up the comments from CEO, Geoff Dixon this week to staff about the airline being in a ‘sweet spot’.

A 17 page presentation formed the basis of the ‘making up’ briefing with big shareholders in Sydney, many of whom had sold early and were now buying back in, forced to by the bid failure and their slow realisation that the airline’s share price was going to rise.

It was a rare burst of unvarnished commentary from the CEO which clearly confirmed the healthy state Qantas now finds itself in, and how close it came to being ‘stolen’ by the APA offer of $5.45 a share.

Think of the briefing yesterday in another way: think of it as the first major update from management for the members of the new APA dominated board, had that New York hedge fund not botched its acceptance of the offer.

That management group included CEO Dixon, his number two the airline’s Chief Financial Officer, Peter Gregg and other senior managers.

Think of Mr Dixon using the same briefing notes and presentation, as released yesterday, to tell APA just what a bargain they managed to snare and how much comfort the news would be to the banks which financed it.

In fact shareholders would be entitled to ask why wasn’t this document, or something like it, included in the Target statement in the APA bid?

As you will see below for instance the presentation reveals a review of the Frequent Flyer program has been going on since last year. That wasn’t highlighted in the statement and now it seems to be a big part of the revamp.

Of course minority shareholders who had held out against the offer, would not have been involved or probably informed of the detail in this update, had APA won.

Yesterday Dixon used the word “favourable,” rather than the phrase, ‘sweet spot’ to describe where the airline finds itself at the moment and into the immediate future.

“We think we can handle most of what’s coming at us,” he was quoted as telling analysts and investors in Sydney yesterday.

He said the airline is benefiting from rising ticket sales and a “strong” domestic and global economy and “these favourable conditions should last for the next 12 to 18 months”.

Analysts at UBS, Macquarie Bank, JP Morgan, Goldman Sachs JBWere and other leading firms have this week upgraded their ratings on Qantas shares to “buy” from “hold,” or are about to release new recommendations, probably later today after they assess yesterday’s briefing.

There was no mention of a new profit upgrade yesterday. Qantas has already increased its earnings forecast twice after the board endorsed the buyout, saying pre-tax profit may almost double to $1.23 billion in 2008, from $671 million earned in 2006.

Analysts said Dixon told the meeting Qantas didn’t see the need to upgrade its forecast for the current financial year to June.

Among the points made in the briefing were:

The Qantas board will consider returning capital to shareholders through a special dividend payment, a share buy-back or splitting the company (demerger was used in the graphic).

Analysts said there was no elaboration of what was probably the most important part of the meeting: more details of possible options after that long board meeting last Thursday which saw Ms Jackson announce her departure and that of Mr James Packer as a director. These will happen at the annual meeting in November. The briefing again emphasised that the APA plans for Qantas would be followed.

APA had planned to increase Qantas’ debt to return $4 billion to shareholders within a year of taking control; Mr Dixon was reported as using a figure of $3.5 billion earlier this week and Merrill Lynch says it could be $2.2 billion.

Demerger could mean splitting off the freight business, Jetstar or selling the frequent flyer program, all of which were mentioned in the briefing presentation notes.

Qantas said it was “reviewing” the ownership of the 4.9 member loyalty program.

That could actually be revamped and returned

Coles Bid Steps Up

Well, Wesfarmers and its number crunching private equity partners go into the data room at Coles Myer today to begin due diligence on the floundering retail giant that will produce a bid well above $17.25 a share.

SP AusNet’s Alinta Interest

It’s not only AGL Energy that is sniffing around the possible break up of Alinta by either Babcock and Brown or Macquarie Bank.

SP AusNet says the Alinta assets its majority owner, Singapore Power, is interested in would be a good fit with SP AusNet’s business profile.

Singapore Power has previously said it is interested in regulated or contracted assets. It is in a bid with Babcock and Brown for Alinta that may or may not succeed, such is the complexity and at times confusion surrounding the deal.

SP AusNet managing director Nino Ficca said yesterday, “That is consistent with the sort of profile that SP AusNet has”.

He told a corporatefile Open Briefing on the ASX:

“We’ve established a Board committee to oversee an independent review process for the assessment of this opportunity. The process includes the appointment of independent advisors to assist in the review.

“The assets that may be acquired by Singapore Power and subsequently offered to us are consistent with our existing portfolio of energy transmission and distribution assets. As with any acquisition, we’ll assess the assets in terms of their capacity to increase value for our security holders.

“The opportunity to expand our operations outside the geographic boundaries of Victoria, as well as into gas transmission, is one we’ve been working on for some time.

“The assets are considered to be of the same high quality as our existing assets and are predominantly regulated.

“Should Singapore Power be successful in the bid, and we choose to acquire some or all of the assets, our funding requirements will be assessed at the appropriate time.”

AGL Energy said earlier this month that it will buy the remaining 67 per cent of the AlintaAGL retail business from Macquarie Bank Limited for a net consideration of $345 million, should Macquarie successfully acquire Alinta.

Under the agreement, AGL Sales, a wholly owned subsidiary company of AGL, will buy the remaining interest in AlintaAGL’s retail business, and will procure that AGL will sell its 33 per cent interest in AlintaAGL’s co-generation assets to Macquarie.

AGL is currently the beneficial owner of 33 per cent of AlintaAGL’s retail business, which comprises 566,000 gas customers and 1, 600 electricity customers.

AlintaAGL owns the Western Australian retail business formerly owned by Alinta as well as cogeneration assets at Alcoa’s Pinjarra and Wagerup alumina refining plants.

AlintaAGL was set up following the Alinta AGL merger and subsequent demerger six months ago. AGL Energy is also in talks with Babcock over the AlintaAGL venture. Under an agreement reached between Alinta and AGL in 2006, any change of control at Alinta allows AGL to trigger an option to move to 100 percent ownership of AlintaAGL.

SP AusNet last year missed out on Queensland gas distributor Allgas. It is still interested in the Bass Strait power link which has been put up for sale by its owner, National Grid.

SP AusNet said it earned an “attributable net profit” of $178.297 million for the year to 31 March, down from $367.555 million in the prior year. (These figures were reached after one-off items)

But the company said a more accurate net profit from continuing operations was $161.246 million, up 18 per cent.

SP AusNet listed on the ASX at the end of 2005, said that profit from continuing operations result beat its prospectus forecast by 3.2 per cent.

The bottom line result included $17.1 million of profits and income tax adjustments for the 2005-06 year.

The company is 51 per cent owned by Singapore Power.

It declared a final distribution to security holders of 5.635 cents, taking the total payout for the year to 11.27 per cent, representing a yield of 7.7 per cent.

Revenue for the year was $1.019 billion, up 38 per cent and 2.2 per cent above forecast, while earnings before interest and tax (EBIT) was in line with its forecast at $424.7 million.

That gives an EBIT margin of around 42c in the dollar. It’s no wonder they load the balance sheets of utility companies up with debt for big deals and major asset buys with gross margins like this.

It gives you a hint of the attraction Macquarie Bank and B&B see in Alinta.

SPN shares edged half a cent higher to $1.47.5, near the all time high since listing 18 months ago of $1.50.

Behind The Big Nickel Bidding War

No wonder Norilsk Nickel and Xstrata are fighting over LionOre Mining International; according to the international investment bank, Credit Suisse, world nickel prices could continue to rally and even reach $US65,000 a tonne this year.

World nickel prices have jumped 155 per cent over the past 12 months as stocks have fallen 75 per cent to equal around two days of global consumption.

There are 11 nickel mining projects being built around the world but only three including BHP Billiton’s late and over budget Ravensthorpe project in Western Australia, will start production before 2010.

The world price, which is essentially the LME price, closed Thursday at $US46,800 a tonne for three months metal, while the cash price ended at $US50,300, with stocks of the metal down to perhaps two days supply and not much more.

Nickel for immediate delivery rose to a record $US54,050 a metric ton in London on May 15.

That makes the price drop around 8 to 9 per cent on fears of de-stocking by stainless steel producers. But that’s not deterring the rival bidders for LionOre.

Norilsk Nickel raised its bid for LionOre Wednesday night to $C27.50 ($A30.76) per share, valuing the Canadian miner at around $C6.8 billion ($A7.6 billion).

The Russian company’s revised bid is 10 per cent above a revised second offer from Xstrata, which last week made a bid of $C25.00 per share, valuing LionOre at $C6.2 billion.

According to reports Jeremy Gray, head of mining research that Credit Suisse in London, believes the recent sharp downturn in the price of the metal (from more than $US50,000 a tonne for three months metal on Monday of this week to Wednesday’s close) was an over reaction.

He believes the market seems to anticipating a severe correction in the nickel price, because of fears that stainless steel producers will cut the amount of nickel used in their steel products and sell surplus stocks to take advantage of the near record prices.

OST-SSX-BSL Merger Deal Delayed

The complex merger and split up of Smorgon Steel between OneSteel and BlueScope remains alive, but just how alive is the key question after the ACCC delayed its decision on the deal yesterday.

AWB Earnings Down

As expected AWB, the country’s largest wheat exporter, was battered by the drought and the impact of its dealings with the former Iraq regime of Saddam Hussein.

Sigma’s Slow Start

Australia’s biggest pharmaceuticals group, Sigma, has struck some first quarter earnings problems.

Fletcher’s Big World Play

Two days after its chief executive was in Australia talking about how it was interested in big acquisitions, but not necessarily in Australia because of thin margins, NZ’s biggest construction company, Fletcher Building, has given itself world scale by buying US-based Formica Corporation for almost $NZ1 billion.

What About A Statement, QAN?

It hasn’t taken long but the Qantas board and management are up to their old tricks again, telling people other than the shareholders things about the airline when they should be trying to be as transparent as possible.

Warrants OK Again For Super Funds

The Federal Government has acted on a promise last year to remove any uncertainty over the use of installment warrants by superannuation funds.

Situations: ABS, Steel Deal

Despite the continuing strong performance by the broader stockmarket, ABC Learning Centres, a darling for much of the past two years, has had a pretty miserable 2007.

QCH Says ‘Yes’

Did the good rains last week and a slight improvement in weather conditions produce a higher counter offer for Queensland Cotton from Louis Dreyfus, the world’s largest cotton trader?

Relax, China Isn’t Going To Crash

So far this year the Chinese economy and share market have continued to roar ahead.

Gold’s Good First Quarter

Gold prices are within $US60 to $US70 an ounce of the 27 year high of $US730 an ounce reached just over a year ago.

Thumbs Down For APN Buyout

Barring unforeseen circumstances the $2.98 billion privatisation of APN News and Media is a dead duck after Perpetual confirmed it would be voting against the proposal at Friday’s shareholders meeting.

Market Likes OST Deals

A strong day for steel group and emerging iron ore exporter, OneSteel, with the shares jumping 23c in a strong market to reach yet another all time high of $6.51.

China Tries Again To Cool Economy

China has further moved to try and rein in the overheating economy we highlighted last week with another interest rate, another increase in reserve ratios for banks and a widening of the float band for its currency.

China’s Private Equity Coup

Last week China revealed plans to allow more money to be invested in overseas markets, starting with Hong Kong.

Qantas Board Again Misses The Mark

It’s disappointing that after a board meeting which spanned two days, the Qantas board couldn’t make a statement about how the airline’s profits were going.

Petrol Prices Up

US petrol prices reached a seventh straight record on Saturday as prices across the country converged on or moved past $US3 a gallon.

Lion Nathan-FGL-David Jones

Unlike its larger rival Fosters, brewer Lion Nathan managed to eke out higher earnings from its basic business, beer in Australia.

Copper, Gold Turning?

There’s a whiff of nervousness about the copper market.

Bye Bye APA, Qantas To Fly?

Qantas chairman, Margaret Jackson, has bowed to rising pressure and will retire at the annual meeting later this year, making her the first casualty of the failed $11.1 billion bid for the airline.

Coles Sales Bad, Bring On Sale