Welcome to IRG Ltd

22nd May 2010

New Zealand share prices were at their lowest point in three months as world markets continued to take fright over events in Europe. Markets in general, the local bourse included, had grown more nervous after Germany stepped up efforts to ban specific types of short selling in an attempt to thwart speculators. There was also some reluctance to trade in the local market in run up to Finance Minister Bill English’s second budget. Telecom, which announced that chief financial officer, Russ Houlden, had resigned, traded at $2.05 – a new 52-week low. Houlden’s departure adds to a growing list of top executives to leave the troubled telco over the last few months. Local oil-related stocks were weaker. Oil explorer and producer NZ Oil & Gas fell sharply was oil prices declined. NZ Refining was also down after it said its gross margins were under pressure again. Among the few stocks to gain were fishing company Sanford and retail giant, The Warehouse.

Financial turmoil in the European Union drove Australian stocks to their lowest point in nine months. Profit-taking pervaded the market as big investment funds opted to play safe. Mining and financial stocks bore the brunt of selling. Mining giants BHP Billiton and Rio Tinto were both well down. Gold mining stocks, which in the past have tended to benefit from market uncertainty because of the bullish impact it has on gold prices, were weaker. Leading gold miner Newcrest and its takeover target Lihir, were both soft. Fortescue Metals dropped after it said two of its three expansion projects were being put on hold because of the proposed federal government’s “super” tax on resource profits. The “big four” banking stocks were all sharply weaker on the back of deepening problems in the European Union, which stemmed originally from Greece’s sovereign debt blowout. National Australia Bank, Westpac, ANZ and Commonwealth Bank were all sharply weaker.

15th May 2010

Retail giant Harvey Norman (Au: HVN)
reported sales from its complexes, commercial
divisions and other sales outlets in Australia, NZ, Slovenia and Ireland were up 2.2 percent at A$4.6 billion in the nine months to March 31. Like-for-like sales for the nine months ended March 31, compared to the same
period last year, increased by just 1.4 percent, which was about half market expectations. HVN noted that the sales data had been negatively affected by the strength of the Aussie dollar. Australian retailers are facing tough times, in a comparative sense, because the government’s fiscal packages introduced last year are now no longer part of the equation. In addition, interest rates are likely to keep rising on both sides of the Tasman, dampening consumer
demand. HVN has powerful brands and advertising and is an excellent retailing stock. It maintains a strong balance sheet and has good cash flows. The
current flat sales patch should prove temporary.

Tourism Holdings (THL) is the largest provider of holiday rental vehicles in Australia and New Zealand under the Maui, Britz, Backpacker and Explore More Brands. Most of its rental vehicles are provided by THL’s manufacturing company, Ci Munro, which is based in Hamilton. THL’s net trading loss from its continuing businesses was $1.4 million over 2008-9, reflecting the dire trading conditions prevalent within the industry at the time, plus restructuring costs. The company’s fortunes started to turn later in 2009 and for the six months to 31 December 2009 it reported a net profit of $1.4 million compared with a loss of $0.3 million in the previous corresponding period. The 2009-10 year net profit is forecast by the company to be $3- $4.5 million. The strong New Zealand dollar will make life difficult for THL, but the company can be expected to benefit from the 2011 Rugby World Cup.

(Disclosure Statement: A disclosure statement can be obtained free of charge by calling IRG 0800 474669, or by email info@irg.co.nz.)

7th May 2010

A proposed new tax for miners, Greece’s sovereign debt issues, and weak markets in the United States put the skids under Australian stocks during the week.
The mining sector was particularly hard hit by the announcement of the Federal government's proposed 40 percent resource super profits tax.
However, key mining BHP Billiton and Rio Tinto were showing signs of bouncing back towards the end of the week, indicating the initial sell-off was an over-reaction. Likewise, the increasingly important Forestcue Metals rebounded strongly. The new tax, if adopted, will not be introduced until 2012.
Merger partners Lihir Gold and Newcrest both eased in line with a weaker gold price and on the proposed tax changes.
In banking, Westpac weakened despite reporting a 30 percent rise in first half earnings. Westpac said the outlook remained challenging. The other big banking stocks, NAB, ANZ and Commonwealth Bank, were also weaker.

The New Zealand share market, like most others around the world, was sharply weaker on the back of Greece’s ongoing sovereign debt woes and the spillover effect the crisis is having throughout the European Union.
A US$144 billion deal to bail out the beleaguered Greek economy was not seen as being sufficient to quell the crisis. The local market did not get much of a lead from Australia either, with that market reeling from news of a proposed new tax on mining stocks.
Market leader Fletcher Building was looking worse for wear, clocking up some double-digit falls during the week. Likewise Telecom was looking very soft ahead of its interim result due out today.
Shares in Australasian outdoor equipment chain Kathmandu remained under downward pressure, but the company is sticking to its net profit forecast for 2009-10 of $30.9 million. KMD said however that conditions remained difficult.

30th April 2010

Gold continues to trade at well over US$1000 an ounce and its advance has been hastened by recent fractures within the EU over Greece’s sovereign debt problems. Naturally enough, gold miners are doing well but Australia’s biggest gold producer, Newcrest (Au:NCM), is not resting on its laurels. NCM has made a big play for Lihir Gold, but Lihir so far is playing hard to get.
Undeterred, NCM went on to announce that it would proceed with the US$1.8 billion development of the massive Cadia East copper-gold porphyry project, on the eastern flank of the Cadia Hill mine, in the Orange district of New South Wales. Cadia East is expected to become the largest underground gold mine in Australia and is destined to expand Cadia Valley’s total annual production to 700,000 to 800,000 ounces a year. The mine will also have some of the lowest costs in the world. NCM may not be successful with Lihir, but Cadia East holds much promise.

Last year’s big rights issue from resins and coatings maker Nuplex Industries (NPX) was a bold move aimed at fixing its balance sheet, which had become stretched after the company acquired some assets from Akzo Nobel in 2005. NPX's share price fell in an immediate response to news that the Securities Commission had filed civil proceedings against the company and six current and former directors. The commission alleges NPX breached its continuous disclosure obligations under the NZX Listing Rules and the Securities Markets Act by failing to disclose to the market a breach of a banking covenant at the time. NPX has said it will defend its actions vigorously. Meanwhile, the debt crisis has passed for NPX and the company is now in the midst of a robust earnings rebound. For the six months to 31 December 2009 NPX reported a net profit of $34.6 million compared with a $6.0 million profit in the previous corresponding period.
Disclosure Statement: A disclosure statement can be obtained free of charge by calling IRG 0800 474669, or by email info@irg.co.nz.)

15th April 2010

Stronger performances from resource and finance stocks helped drive the Australian All Ords index twice through the 5,000-point barrier during the week. The index had broken through 5,000 for the first time in 18 months on Monday before falling prey to profit taking, but it quickly bounced back. Trading in BHP Billiton and Rio Tinto was volatile, reflecting doubts about the future of their much-vaunted Pilbara joint venture. However, the overall direction in both stocks remained an upward one. There was also plenty of activity in the mid-tier resource stocks, particularly Fortescue, which rallied. The big four banks - ANZ, Westpac, National Australia Bank and Commonwealth Bank were all firmer. In gold mining, takeover target Lihir was steady while its suitor, Newcrest, dropped away. Energy stocks were mixed, with Woodside and OilSearch easing while Santos gained. In media, News Corp was stronger while its peers were mostly flat.

The New Zealand share market continued to break through fresh 18-month highs, driven by gains in market leaders Telecom, Fletcher Building and Contact Energy. On the downside, shares in specialised resins maker Nuplex (NPX) were soft in the wake of news that the Securities Commission had filed civil proceedings against the company and six current and former directors. The commission alleges that NPX broke its continuous disclosure obligations by failing to disclose to the market a breach of a banking covenant. NPX has gained sharply in recent months in the aftermath of a large, but ultimately successful, capital restructure. Few believe that NPX’s share price will stay down for long, given the company appears to be in the midst of a robust earnings rebound. Clothing retailer Hallenstein Glasson piled on more gains. Fish exporter Sanford firmed, despite the spoiling effect that ongoing strength in the NZ dollar has on the company’s earnings.

26th March 2010

Insurance company Tower was demutualised in 1999 and listed on Australian and NZ stock exchanges the same year. In November 2006, Tower's New Zealand and Australian businesses were separated. Tower NZ is involved in general insurance and health and life insurance. The company's results for the first quarter to 31 December 2009 were better than those of the previous corresponding period's, but the insurance company nevertheless expects conditions to remain challenging over the next 6-12 months. Tower is highly regarded within the New Zealand insurance industry and by the share market as a whole. Difficult market conditions put the company to the test over 2008-9 but TWR's share price has increased steadily over the year. They are, however, short of their 52-week peak. TWR has from time to time mentioned the possibility of making an acquisition, but nothing has transpired to date. The company has weathered the economic storm of 2008-9, but is right to be cautious about the road ahead.

Later this month, herbicide maker Nufarm (Au: NUF) expects to post a loss of about $40 million for its first half, following on from what was a difficult year in 2008-9. But it was not all bad news, NUF shareholders have voted overwhelmingly in favour of Japan’s Sumitomo Chemical taking a stake of up to 20 percent in the company at a $14 a share, a hefty premium to the current market price. Most of NUF’s woes centre on the bottom falling out of the market for glyphosate, which is one of the world’s most commonly used weed killers and the key ingredient in the well-known brand, Roundup. Of the expected $40 million loss, about $33 million will represent material items including glyphosate trading impacts. Despite volatility in the prices of some of its key products, NUF is well placed to take advantage of increased investment in food production globally.

(Disclosure Statement: A disclosure statement can be obtained free of charge by calling IRG 0800 474669, or by email info@irg.co.nz.)

24th February 2010

Restaurant Brands (RBD) enjoyed a strong lift in earnings over 2009-10, driven by the outstanding success of its revamped KFC brand and a solid turnaround in Pizza Hut. A further six KFC stores were rebuilt over the year, bringing total rebuilt or refurbished stores to 40, nearly one half of the total network. The Pizza Hut business finally began to return to profitability in 2009-10. Starbucks Coffee revenues were down on a same store basis but the business managed to improve its earnings by 9.6 percent. RBD has produced a significant step up in its profit performance with all three brands delivering trading results well above the prior year, but there is still some way to go before it fires on all cylinders. Pizza Hut is expected to continue the momentum of same store sales growth seen in 2009-10, while Starbucks is expected to return to same store sales growth this year.

OneSteel (Au: OST) is a global manufacturer and distributor of steel and finished steel products. The company has interests in Australia and around the world, including a 50.3 percent stake in New Zealand’s Steel and Tube. Most of OST’s products are used in the construction, manufacturing, housing, mining and agricultural industries. OST’s net profit fell by 49 percent in the first half to December 31, 2009, to $117.4 million. OST expects the full 2009-10 financial year to remain challenging but is confident that sales volumes will improve. OST still has some way to go before it fully recovers from the aftermath of the 2009-9 world economic downturn but international prices for its goods, after being driven artificially low through overcapacity in last 12 months, are likely to improve. The IMF expects Australia to record growth of 3 percent this year and 3.5 percent next year, which augurs well for OST.
Disclosure Statement: A disclosure statement can be obtained free of charge by calling IRG 0800 474669, or by email info@irg.co.nz.)

Select from the years listed below for archival copies of the weekly commentary