Market News – 27 May 2019

My favourite headline from last week:

Artificial Intelligence entrepreneur declares ‘Good people are hard to find’.

INVESTMENT OPINION

Pathetic Behaviour – The next headline I read did not draw a smile but rather a second reading to make sure my understanding was correct.

The article disclosed that the manager of Vital Healthcare Properties had gone crying to the Minister of Finance over ACC’s robust handling of the recent voting situation.

Really?

Complaining to a Minister of the Crown about some heat felt in the course of commerce, heat that was initiated in response to their behaviour as managers!

Seriously, this is not a nation where lobbying members of parliament is an appropriate strategy for managing commercial upset.

If VHP’s manager were good at their role they would recognise that ACC, and the many other angry voters, are their clients; the people who pay their fees to manage our assets. The discontent should be sufficient to take a look at themselves for the problem and not be a reason to run to a minister of the Crown and protest.

It makes VHP’s manager look dreadful in my opinion. (could they look any worse? – Ed)

VHP has good property assets and good tenants, it’s just the management and expenses that aren’t satisfactory.

Politics – I don’t usually strive to comment on politics but a recent suggestion from Winston Peters relating to capital markets made good sense; he proposes that dividends from State Owned Enterprises be reinvested specifically into new infrastructure assets.

I’d go one step further and ask that they also consider selling 49% of mature SOE items, once developed, to expand the depth of privately funded capital markets (including access for Kiwisaver funds).

Having the government recycle some of its capital makes complete sense.

Take some energy sector dividends, build a tunnel under Auckland harbour, apply a toll (free use for Gold Card? – Ed), settle the business down, then sell 49% of the tunnel to investors and move on to the next development.

Politics II – OK, maybe I do have a temptation to comment on politics.

I’d rather the government had not loosened its tolerance for debt. It presents bad leadership to the public who frustratingly have very high levels of private debt and don’t seem to mind increasing it as a proportion of what they earn.

It was frustrating to then see the Prime Minister’s focus on the balance of public reaction to the change rather than describing the beneficial reasons they’d like to use more debt.

It would have done more for NZ’s well being if the government had led New Zealanders toward the importance of debt reduction.

Yield curve = Trump – The re-energised tussle between China and the US for trade has disrupted various markets, with one of the largest (US interest rates) moving by the greatest magnitude.

All terms of US Treasuries out to 10 years are now trading at yields below the overnight cash rate (Fed Funds targets 2.25% - 2.50% currently). The 30 year US Treasury trades at a yield of 2.83%, a mere 0.33% higher than overnight cash.

These are strong signals of concern about the lack of economic strength in the years ahead (nothing to drive inflation higher).

Interestingly yields are ‘OK’ between now and 2020 sitting between 2.35% - 2.42%, which sits inside the Fed Funds target range (2.25% - 2.50%), but in the years after 2020 the market yield declines to 2.17% for a 5-year term.

The yields increase a little after 2024.

2020 is the next US Presidential election, for the period until 2024 (barring impeachment or resignation! – Ed)

One interpretation of this market pricing is an expectation that Donald Trump will be re-elected President in 2020 and continue his unsual and disruptive economic strategies for a further four years.

Potential conclusions that we see are never as simple as they seem, but this political theory lines up rather well with current market interest rates.

Australia – immediately after the surprising election result the Rserve Bank of Australia announced that they are adopting an explicit easing bias for monetary policy.

Next week the RBA will ‘consider the case for lowering interest rates’.

Australia’s OCR is 1.50%, a level NZ just moved down to.

This economic weakness concern is counter to confidence being spun by politicians in the lead up to their general election.

Of the most interest to me was that the prompt for this potential interest rate cut was not inflation, but an increase in unemployment. The RBA was reported as saying ‘the Australian economy can support an unemployment rate of below 5% without raising inflation concerns, and monetary policy had a role to play in sustaining low unemployment’.

Persistently low inflation has been accepted for a long period of time now, so an interest rate cut looks as though it is directly linked to a recent increase in unemployment to 5.20%.

The increased unemployment could so simply have been based on the policy intentions of the Labour party which was described as being odds on to win the election; this of course is now not the case.

I was brought up to believe that interest rates were a construct of inflation and real returns for risk, but now they are being used as a tool for political preferences in areas other than price stability.

Given that politicians aren’t very good at admitting their errors this latest use of monetary policy will be aopted for years, which implies to me that the negative real yields that I fear from short term, low risk, fixed interest investing are highly probable now.

None of this will surprise any of you now and we hope you are engaging in financial advice to pursue fully invested status for your portfolio to minimise drag of holding excessive short term fixed interest investments.

Given that moving an interest rate from 1.50% to 1.25% is very modest in the impact that it has I am disappointed that central banks haven’t adjusted their scale to move interest rates in 0.10% increments whilst at this very low nominal level for interest rates.

It’s their leadership that is of most importance, not the scale of their actions.

‘Back in the day’ when interest rates were higher, OCR moves of 0.50% were reasonably common. In more recent years the moves have only been 0.25% with long periods of no change, clearly reducing the volatility of the OCR, so surely (here we go, governor for a day – Ed) it makes sense to begin signalling less volatility, and leverage, by applying changes of 0.10% or perhaps use eighths with changes of 0.125%.

Under ‘my’ regime we could exercise four more ‘interest rate cut’ headlines but still not move below a 1.00% Official Cash Rate.

Australia II – No not the America’s Cup winning yacht, but another milding concerning change by Australia’s banking regulator APRA.

The Australian Prudential Regulatory Authority has written to banks and proposed that they loosen the home loan servicibility buffer thus increasing a persons capacity to borrow, and thereby provide some new support for the housing market.

The Australian housing market is experiencing price weakness, especially in apartments in Sydney and Melbourne.

Surely the banking regulator should be doing the opposite and be trying to ensure long term financial stability of the banking system and not trying to use them to find new higher risk borrowers to help diffuse the rising number of people who will default on loans against highly leverage property investment.

You cannot solve debt failure by lending more money to the problem.

If property prices truly are too high then they need to decline and risk takers who borrowed too much money (unaffordable loans) must lose some money, and assets.

Thereafter people with genuine savings will buy those assets once they reach credible prices.

None of this requires articial support from banking regulators.

Blinkers – I am having trouble removing my blinkers that only allow me to see things that seem likely to suppress inflation and thus interest rates even further.

Maybe I need another holiday out in the real world somewhere?

This week I read a few of the self-serving comments from banks, after they had made their submissions to the central bank about the newly proposed capital rules.

Self-serving or not the underlying theme from the banks about the additional costs that will reach the public (indebted folk) are correct and will remove more money from the discretionary spending capacity of the economy.

I’d also like to believe that higher debt costs will encourage people to reduce their debts and thereby reduce our nations oversized private debt ratios. This is one reason that I agree with the central bank’s proposals, alongside simplifying what is equity on a bank balance sheet.

On the next page Freightways, a major NZ carrier, reported softer business performance reflecting slightly weaker economic conditions. Mainfreight’s profit results may confirm this anecdote if they too have experienced weaker business activity over the past half year.

The other disinflationary item that I read, from a different angle of thought, was the Fire Service’s request that firefighters receive full health coverage in future from ACC following clear evidence that their work exposes them to significantly higher risks of health failure.

Under our increasingly ‘work safe’ settings it was a very credible request.

Rather than asking for a pay increase why not ask for obvious ‘unsafe work’ risks to be covered by the employer?

I quickly jumped to the conclusion (typical - Ed) that this would be a further increase to the insurance impost being added to our economy (increased taxes to fund increased ACC liabilities), which futher reduces the scale of discretionary spending in our economy and in turn removes another kilojoule from inflationary pressures.

Regular readers of Warren Buffett commentary will know of the link between investment returns on insurance company assets (savings held in bonds and shares) and insurance premiums charged to the insured; as investment returns decline insurance premiums rise.

What’s doubly frustrating at present is the other maxim; as risks rise so to do insurance premiums.

If you circle back to my concerns; as insurance premiums rise (twice) discretionary spending declines, followed by inflation pressure and interest rates.

I hope I am missing something here and consumers are finding ways to increase their income and their discretionary spending potential.

 

Fonterra as expected – Fonterra has, as expected by many, cut its profit forecasts and its dividends and appears to be confirming itself as ‘uninvestable’ (a term presented by a broking firm in the recent past).

Fonterra has done a good job of distributing milk internationally for our farmers, but a dreadful job of adding value with the shareholder capital.

Such poor use of capital, and lack of capital, is also seen in the near failure of Westland Milk which may be in the process of being rescued by the current takeover offer.

I do wonder why Westland Milk didn’t contemplate listing their business on the NZX and asking NZ investors to take ownership. Then again, maybe the performance of big brother Fonterra would have damaged the playing field?

At least NZ has A2 Milk and Synlait to help balance the views with respect to extracting value from our biggest export business sector.

EVER THE OPTIMIST – The NZ Kiwifruit industry continues along its strong path with Zespri announcing a 77% profit increase on higher sales volumes.

I wouldn’t wish bad outcomes for anyone, but the difficulties facing China within its pork and horticulture industries imply that our food supply will continue to be very useful to them.

ETO II – While Donald Trump fights with China, New Zealand exports to China set a new high at $15 billion (+22%).

Food and logs are the main items and it’s hard to imagine these declining given the problems in some of China’s food production sectors at present.

ETO III – Measurement is becoming more accurate and maybe this will help with business confidence as we look to transact in ever faster ways across the internet?

Under the International System of Units ‘The Kilogram’, being a metal cylinder stored in Paris, is being retired from use to be replaced by the Planck constant, which for the curious is 6.62607004 × 10-34 m2 kg / s. (It’s not quite the same as holding a cylinder of mass really – Ed).

Scientists are now moving on to the accuracy of time, which is rather relevant given the recent black hole discovery and measurement, along with the validation of Einstein theories. It’s also relevant to me as my cousin has a chair at a very senior table in this field.

Currently, the second is defined by atomic clocks made of cesium atoms. Those atoms absorb a certain frequency of light. The wiggling of the light’s electromagnetic waves functions like the pendulum on a grandfather clock, rhythmically keeping time. One second is defined as 9,192,631,770 oscillations of the light. (www.sciencenews.org)

This accuracy isn’t quite sufficient now that ‘Optical Atomic Clocks’ provide a higher frequency and greater accuracy than cesium atoms by a factor of 100 times.

It’s very interesting stuff and a nice distraction from some of the repetitive stuff we usually must read.

INVESTMENT OPPORTUNITIES

Mercury Energy bond – As expected Mercury has announced its intention to repay its ‘old’ subordinated bonds (MCY010) on 11 July 2019 and to reissue a new similar subordinated bond to investors (offered soon).

Access to the new bond offer will only be handled via financial advisers and brokers such as ourselves.

We think it is likely that MCY will offer an option for payment of the new bond using one’s holding in the old bond (tick a box?).

We have started a list for the new bond offer (pending) and encourage any investor wishing to invest (rollover of old bonds, or those using new cash) to join our list and advise the amount that they’d like to invest.

We think it is likely that if a person holding the old bond (MCY010) does nothing they will be repaid in July. The formal documents will explain the situation shortly.

Kiwibank Repays – In the least surprising news item of the year Kiwibank has announced the repayment of its KCF010 subordinated bond on 15 July.

Regular readers will remember the shambles that the Reserve Bank made of approval, disapproval of Kiwibank’s subordinated bonds and now that the central bank is proposing that such bonds not be used by any bank repayment became a certainty.

This adds another $100 million into the hands of retail investors who now need another product to invest in.

Napier Port – The regional council has approved the sale of some shares in the port and now appointed its lead managers to bring the offer to market (in the months ahead).

A new holding company has been formed.

This is an exciting development for investors, and the NZX, and we look forward to this Initial Public Offer reaching the market.

Some have asked about the possible share price thinking they’ll make this a condition of their investment. I’d counsel against this thinking because the nominal share price isn’t relevant at present.

The share price will be a fair reflection of the value being offered divided by the number of shares issued by the company. If the theoretical value of the port was say $425 million and they had 100 million shares on issue the share price would be about $4.25, yet if they had 400 million shares on issue the share price would be about $1.06 for the exact same company.

For the curious Napier Port has excellent information about the business on its website: https://www.napierport.co.nz/

We have a contact list for investors wishing to hear more about participation in the float of Napier Port.

Infratil – The immediate decision required from IFT investors relates to the Rights offer providing access to additional ordinary shares at a price discount.

Link Market Services has issued communications to all shareholders explaining the process and timing (the offer closes on 11 June, so act early).

Please read these douments carefully as they require a decision from you.

Clients receiving a financial advice service from Chris Lee & Partners can find a research item on the private login page of our website.

Infratil II – After the Rights issue described above IFT’s billion dollar investment in Vodafone NZ, less $400 million new equity and cash from a couple of asset sales implies that the company will be pleased to offer you all some new bonds later this year.

The next IFT bond maturity is in November, so an October launch for a new bond would be timed rather nicely, immediately after the 31 August date for confirming the purchase of Vodafone and before the repayment obligation for the IFT200 maturing bond.

We won’t start a new list just yet. Keep an eye out for this later in 2019.

TRAVEL

 

Chris will be in Napier on 4 June at the Napier Sailing Club presenting an Investment Seminar (12:30pm) followed by discussion about his new book The Billion Dollar Bonfire (2:00pm).

Ed will be in Napier on 5 June and in Nelson on 18 June.

David will be in Lower Hutt on 11 June.

Chris and Johnny will be in Christchurch on 19 June.

Mike Warrington


Market News – 20 May 2019

Polls, shallow little pockets of opinion, are being exposed for their lack of integrity the world over.

Australian election – wrong;

US Presidential election – wrong;

Brexit – wrong;

All have one thing in common, politicians misinterpreting the will of the people.

INVESTMENT OPINION

Uber Float – I thought Uber was a car related company, but their first week on the stock market, post ‘float’, is making them look more like a boat that left the bung in the glove box.

Uber shares were offered to the public at US$45.

They started trading at US$42.

One week later they traded at US$37 (to be fair they are at US$42 as I write).

I hope investors had their seat belts on (life jackets? – Ed)

In the past shares were issued at $4 in 2013, $16 and $33 in 2014, $40 in 2015 and then $49 between 2016 and 2018.

The company has endured constant losses and seems to be forecasting constant losses.

When is a ponzi scheme not a ponzi scheme?

When you actually do take the person for a ride?

I shook my head as I watched the Uber CEO speaking to a stock market representative on the day of the float because everything he said was a constant stream of conditional statements about the future, dependent on uncontrollable inputs.

It was remarkable for its naievity or ‘shoot in the dark and hope to hit an apple’ content.

I don’t see the US, or global, economies as sitting nicely in the middle of the ‘yellow brick road’ so I have a lot less tolerance for investing in something that forecasts constant losses until we reach Xanadu.

It only makes for fun reading to me, not an investment opportunity.

Infratil Strikes Again – You can see it on the faces of management at HRL Morrison & Co; they have been extra-ordinarily busy in recent months on behalf of Infratil investors and the announcement that they are buying Vodafone NZ might be the last major chess move but it also means that annual leave has been cancelled and we won’t be seeing them in the Saddle Basin at Treble Cone this winter.

So much change for an investment business was bound to ruffle the feathers of shareholders and analysts, and such ruffling leads the majority of people to a perception of increased risk and less certainty about tomorrow’s rewards.

I understand this tumbling for the dominoes of assumption, more volatility usually does represent more risk, I just happen to think it’s the wrong conclusion.

Three years ago HRLM told us (IFT investors) that the ever decreasing interest rate environment was dragging down the cost of capital which was increasing the prices people would pay for the lowest risk business assets (assured utility revenues). The increased price of these businesses, without significant increases in revenue, reduced the rewards from such low risk assets.

HRLM extrapolated this view and explained to IFT investors that they would need to take more risk as they strived to achieve the 15-20% annual return goals once set by Lloyd Morrison, let alone the 12% minimum required for the performance incentive fees to kick in.

Today, exactly the same set of circumstances is facing you all as fixed interest investors confront returns between 3.00% and 3.25% for 1 to 5 year term deposits (and similar bonds) and you contemplate whether to pursue higher risks to receive higher rewards.

HRLM strives to reduce the risks IFT investors are exposed to through extensive analysis of the myriad of risks being considered. This analysis led to the choices they have been making over the past 36 months for new investment of IFT capital.

It would be unreasonable to reach any conclusion other than a complimentary one when reflecting on the financial performance being derived from the new target portfolio for IFT.

In fact, I’d argue that more value was lost in some of the previous, apparently lower risk, businesses than the risks presented in the contemporary portfolio.

Before our friends at HRLM don their halo’s there is still a lot to be done within the current financial year; including confirmed sales of NZ Bus, ANU Student Accommodation, Perth Energy, Snapper, settle the Vodafone purchase, sharpen the performance of Retire Australia and build many more wind turbines.

Thankfully Trustpower and Wellington Airport are both looking boringly reliable in the midfield.

So leave the party poppers in the drawer for now, I think it’s fair to say that you should look upon IFT’s performance with a sense of optimism, not anxiety.

Of immediate interest to IFT investors is the imminent offer to take up some additional shares and provide some of the money to pay for Vodafone. I cannot provide financial advice (recommendations) here, but I suspect 500 words into this item I don’t need to either.

IFT is offering new shares (1 for 7.46 already held on 21 May) at $4.00 to raise $400 million.

Astute observers will note that $400 million is a modest proportion of the $1.029 billion required to pay for their half of Vodafone (purchase shared with Brookfields of Canada). There are two reasons for this; IFT thinks its share price is low relative to the value of its assets so doesn’t want to issue too much ‘cheap equity’ and because if they are successful selling the other assets described above the equity contribution in the transaction will quickly rise.

Fixed interest investors should look at my speculative comments below (Investment Opportunities).

IFT also announced its latest robust annual results, available on its website, and a slight increase to its final dividend (11 cents per share) payable on 27 June.

Shortly IFT will need to issue its own Customer Rewards card linked to its family of retail fronting businesses!

China – One way you can recognise the rising global importance of China is the constant stream of ‘front page’ stories related to the nation, something that was less relevant than Taiwan and Korea in the early days of my career.

It may seem a little boring to have the spotlight always pointing in the same direction, but it is the truth about the importance of China (and the US – Ed) to the global economy.

The failure to reach an updated trade agreement between the US and China during April was unsurprising to me.

Trump has now behaved in the same ways as his ‘mate’ Kim Jong Un and launched his own metaphorical missiles by declaring that he’ll consider banning Huawei from both offering services in the US and from buying important technologies from US manufacturers.

In the ‘show me, don’t tell me’ stakes these are not the actions of a person ready to reach agreement on a negotiation.

For now, I’ll stick with my view that President Trump will play this trade negotiation out well into 2020, and the next Presidential election, before deciding whether to ‘settle’, or ‘play on’.

This potential for decision by mid 2020 will reflect the political reality of the day.

At present, as strange as his style has been, I have seen nothing to suggest that Trump won’t be President for the 2020 – 2024 term. We of the few continue to underestimate the preferences of the many.

China’s increased desire to arrange trade widely, and hedge its trading risks, appears to have delivered African Swine fever to China’s pig population and at this point the problem is becoming very serious for the food supply chain.

The article I read (Bloomberg) described China’s 400 million pigs as half the global population, and current predictions are that 35% of the Chinese pig population will need to be culled, a number equivalent to a full year’s production from the US market.

China’s first attempt to address this story late in 2018 looks embarrassingly inaccurate, or dishonest, in today’s light so it is hard to place any confidence in the current death rate predictions either.

The disease has now spread outside China’s borders.

None of this information will have escaped Donald Trump and his negotiating team.

What I’d do to secure a steak and a beer with Chris Liddell right now to discuss his views on the US situation right now.

Non-Bank finance – The Non-Bank Deposit Taking sector is on the rise again after 10 years in the shadows.

It should go without saying that depositors must be very careful.

The ongoing expansion of the NZ economy includes borrowers who do not meet the standards set by the banks, and this has fed some of the business growth experienced by the NBDT.

The increased tension being applied to banks through proposals for higher equity ratios (16% not 8%), and higher quality equity settings (no complex bonds) will see banks review all of their lending and reduce the lending that least suits their new targets for risk and reward.

People in the business of finance are not standing still.

You may recall that new people purchased the management contract for the successful First Mortgage Trust (Tauranga based) with the clear intention of expanding the lending for this business (to drive up their fees). Last week they launched a push into lending on commercial buildings.

The Reserve Bank of NZ will have anticipated the increase to the non-bank lending sector. It is an unavoidable development if you ask the banking sector to reduce lending within an expanding economy.

I hope this means that the governor of the RBNZ has already asked his NBDT regulation team to bolster their oversight of the sector; something that will tie in nicely with Chris Lee’s recently completed book (The Billion Dollar Bonfire), which concludes many improvements are needed if the NBDT sector is to deserve the support of investors and financial advisers.

Allied Farmers (ALF) – Holders of very small parcels of ALF shares (<2,000) are about to have them tidied up (sold) from their portfolios, purchased by the company.

ALF is making reasonably good financial progress, to the extent that they find arranging finance simpler again and can make strategic decisions such as this reduction to the cost of its register which has so many tiny holdings on it.

These tiny holdings were of very little use to the shareholders because their value was less than the cost of brokerage to sell, so ALF’s offer is convenient for both parties to the transaction.

ALF shareholders need not take any action (unless they wished to buy more).

No Cheques – Good on Kiwibank for its latest development of retiring cheques from its payment options.

It reflects the reality of how fast banking has changed with the acceleration of technology options; a sign of the times which other banks will be pleased to follow.

I knew cheque use had collapsed but I was still surprised to find that payments from Kiwibank customers by cheque has fallen to less than 1.00% now.

However, we know that a meaningful percentage of older folk do not wish to engage with technology. So, I think banks need to now engage in facial and voice recognition technology so that other tech savvy people can assist multiple customers with their banking requirements online.

I’m imagining a trusted entity, such as a council, or senior staffer at a retirement village, or Justice of the Peace (for modest fee?) who could action the online banking requirement for a customer, subject to the bank verifying the person’s approval via facial recognition and perhaps a secondary security item if the client sought one.

With the closure of many bank branches it won’t be appropriate to ask a person in Woodville to drive to Palmerston North or Hastings to arrange banking on site once mailing a cheque is no longer an option.

Asking the unwilling to engage in technology seems fraught with risks that will all land with the customer.

If ‘we’, as an economy, are to increase our use of technology for its various benefits, as we should, then I think we owe it to the diminishing group of manual operators to use technology to solve their trusted access to services.

I congratulate Kiwbank on their decision and look forward to them explaining their banking solutions for those not wishing to engage in the use of technology.

RBNZ flexes again – Last week the central bank criticised the ANZ for its method of assessing risk on its lending and revoked its accreditation to model its own risks and thereby instructed it to use the central bank’s standardised approach for such risk modelling (of loans).

Some of you may recall that Westpac was found guilty of much the same failure last year.

Both banks were assessed as undercalculating the risks of their lending, which enabled a lower equity setting for the banks’ balance sheets, which in turn delivered higher returns on equity to the banks’ owners.

Having worked in a couple of banks (those two as it happens) I would suggest that they take risk assessment very seriously, however, I also understand that the accredited internal risk assessment models made for an unlevel playing field, which resulted in a disadvantage to New Zealand’s smaller banks.

As it happens the smaller NZ banks are also our locally owned ones, being the ones that we need to see competing for more of our business.

Having the RBNZ demand a move toward standardised risk measurement is consistent with their proposals to demand higher equity settings from all banks and further reduce the perceived risks to Financial Stability within the NZ banking framework.

It will of course lead to a higher cost of debt for our economy. I don’t mind this impact and hope it results in a greater level of savings via debt reduction.

EVER THE OPTIMIST – The newly signed 20 year agreement for Genesis Energy to buy the power generated by Tilt Renewables wind turbines in Waverly (yet to be built) is a healthy display of NZ’s continued move away from fossil fuels.

Genesis is NZ’s biggest user of fossil fuels to generate electricity (Huntly – coal and gas).

GNE has a strategy of closing Huntly once the nation has sufficient reliable generation elsewhere (we don’t yet).

This 20 year agreement is, as I understand, an extra-ordinarily long term agreement and thus indicative of GNE’s commitment to improving the environrmental quality of its generation resources.

ETO II – Related to the above item, the likes of Donald Trump and some Australian politicians may be promoting coal use to attract votes I am very pleased to read that State based politicians and investors are doing the complete opposite and investing more in renewables and less in fossil fuels.

The investors are doing so based on consumer demand which is a more powerful driver than vote catching.

INVESTMENT OPPORTUNITIES

Vector – set the interest rate on its new 6 year bond at 3.45% p.a. last week and the popularity of the bond (with declining interest rates) resulted in very heavy bidding for the bonds.

Thank you to all who participated in this bond offer through Chris Lee & Partners.

Napier Port – The regional council has approved the sale of some shares in the port and now appointed its lead managers to bring the offer to market (in the months ahead).

A new holding company has been formed.

This is an exciting development for investors, and the NZX, and we look forward to this Initial Public Offer reaching the market.

We have a contact list for investors wishing to hear more about participation in the float of Napier Port.

Infratil – IFT’s billion dollar investment in Vodafone NZ, less $400 million new equity and cash from a couple of asset sales implies that the company will be pleased to offer you all some new bonds later this year.

The next IFT bond maturity is in November, so an October launch for a new bond would be timed rather nicely, immediately after the 31 August date for confirming the purchase of Vodafone and before the repayment obligation for the IFT200 maturing bond.

We won’t start a new list just yet. Keep an eye out for this later in 2019.

TRAVEL

 

Ed will be in Napier on 5 June.

Kevin will be in Christchurch on 13 June.

Chris will be in Petone tomorrow and invites clients and the public to a 40 minute seminar entitled ’The New Norm for Investors’ about how to invest whilst interest rates are so low. After a break he will then talk for 30 minutes about what he learned while researching The Billion Dollar Bonfire. He is stunned by what was uncovered.

Tuesday 21 May, Petone Workingmen’s Club, Udy Street, Petone

Investors’ seminar: 11.30am, Billion Dollar Bonfire: 1pm

Thursday 23 May, The Chateau Marlborough, cnr High and Henry Street, Blenheim

Investors’ seminar: 2pm, Billion Dollar Bonfire: 3.30pm

 

Friday, 24 May, Beachcomber Hotel, Tahunanui, Nelson

Investors’ seminar: 1pm, Billion Dollar Bonfire: 2.30pm

 

Tuesday 4 June, Napier Sailing Club

Investors’ seminar: 12.30pm, Billion Dollar Bonfire: 2pm

Mike Warrington


Market News – 13 May 2019

My favourite headline from last week was:

Billionaires are worried about financial inequality.

And a close runner up, with a counter-factual based on their usual forecasting outcomes was:

NZ Treasury warns growth might weaken.

INVESTMENT OPINION

Survey Responses – Thanks very much. Keep them coming.

One of them was to make newsletters a little shorter. I’ll try to remove the least valuable content, which might otherwise be considered as padding.

I think I’ll drop to one major heading too being Investment Opinion, because in reality that’s what I’m doing with everything, overlaying an opinion! (Best not to pretend its science – Ed)

Electricity Price – Electricity prices are rising again, and it discloses the arrival of a supply problem.

Investors in electricity generators have enjoyed a mix of good dividend returns and good increases in the market value of their assets (rising share prices).

Investing in this essential service sector seems easy and is beginning to be reinforced by the renewed tension between supply and demand.

After a supply failure during Helen Clark’s time as Prime Minister the then Labour government took steps to ensure that the nation had sufficient surplus in supply to meet all forecast demand and any supply shortages due to maintenance.

For a long period energy efficiency held consumption volumes flat, but that is changing, and will change further based on the government’s Zero Carbon ambitions.

Business always operates at the margin, but as that margin becomes slimmer tensions are felt. At present the tension for electricity supply and demand is being seen in regular spikes in pricing.

All it takes is a single significant part of the network to be out for maintenance to drive the electricity price up three or four-fold. The item that has been most influential in recent months was the closure of Pohokura gas supply for maintenance, a project that is nearly complete.

This work, in part, led to Genesis Energy importing coal to supply electricity, which is anathema to the government and its new zero carbon policy, but it was an absolute requirement of our economy.

Whilst I am on Genesis Energy, I should address another influence on higher electricity pricing, and that is bad debts.

Regulations make turning off power an unwanted, last resort, action in the electricity sector.

At face value I agree with this preference. However, Genesis Energy’s latest statement discloses the ‘pain’ they endure with bad debts, which for the most part is likely to be from people that had no intention of paying (Social Welfare assists those who need it and are trying their best).

Genesis announced that it wishes to sell $18 million of ‘bad debt’ obligations to debt collectors to remove this time consuming obligation from its workload.

This expense, like a shortage of electricity supply costs, will be added to the overall pricing of electricity for the consumer.

OCR – Well there you have it, what would I know.

I didn’t expect the Reserve Bank of NZ to cut our Official Cash Rate (OCR) at this stage but not only have they cut it by 0.25% but their data tells us to expect another cut by March 2020 or shortly thereafter.

Whilst Adrian Orr has been throwing his own robust opinions around, which to be fair I find entertaining and well informed, readers are reminded that Monetary Policy decisions are now presided over by a committee which includes three members who are external to the central bank.

The committee decided unanimously to cut the OCR.

I look forward to seeing how they release future announcements when the committee is not unanimous about the final decision.

Central bank watchers will recall a change in the posturing between February and March this year when the governor moved from hinting at OCR increases as the next cycle to then expecting OCR cuts, which he has now duly delivered on. It was a surprisingly stark about face given that I don’t recall such a stark change to the inputs.

Nonetheless, this is why ‘we’ love the central banks; they provide us with influential content to debate as part of the basis for our investment decision making. I am pleased that neither we, nor our clients, took the earlier threats of potential interest rate hikes seriously and portfolios were left unchanged.

This is a nice segue to an item that I had wanted to refer to, from a perspective of disputing the assertion; the governor of the Bank of England has recently been at pains to convince British citizens and international observers that the next interest move in the UK needs to be up, and soon.

Marijuana must be legal already in the UK and supplied in the cafeteria of the central bank if he is willing to make such statements.

Mark Carney should jump on the blower to Adrian Orr and ask ‘what are you seeing from the Top of the World that we’re not seeing down here?’ (Who said the North Pole was ‘up’ within our universe?)

Meanwhile, back in NZ, our financial markets were unsure how determined the RBNZ was to cut interest rates and until the announcement, confirmed by the fact that market pricing had only factored in a 50% chance of this rate cut occurring.

Economists had talked from all corners of the park with their opinions about this OCR review but where the ‘rubber meets the road’, those managing money, and making the investment decisions, the consolidated view was to sit on the half way line (i.e. maximum uncertainty – Ed).

Adrian Orr has removed that uncertainty. 1.50% it is, and it is likely to decline further. It is reaching the point where it might as well be 1.00%, or 0.50% because it is no longer going to drive the stronger consumer behaviour sought by the central bank.

I’d still like to see the RBNZ granted permission by the government to operate a Debt To Income macro-prudential tool (applied to banking) because it would stand more chance of slowing debt use by those with too much of it (enforce smaller loans and higher equity requirements) whilst encouraging more economic activity from those who would benefit from additional debt under the very low interest rate environment.

A bad debt example – a relative of mine with an Auckland mortgage (which would have bought all the houses in the street of my first house!).

A good debt example – a friend who could expand his roofing business immediately if he could access affordable debt at rates currently paid on mortgages.

Usefully the very low returns from fixed interest investing will incentivise investors to increase investment in equity (shares etc) and less to lending, which might in turn help finance more business endeavours and with three strokes of good governance, two of good management and one of luck this might contribute to more economic growth. (long bow – Ed)

As we always must, we ask - where to from here and how shall we respond with our investment decisions?

This RBNZ decision continues to reinforce our view about a continued path lower for interest rates and it is becoming very clear now that real returns from interest rates will very soon become negative.

This is a perverse driver to install for a nation that has excessive amounts of private debt, although I have some hope that the newly proposed increases to bank equity will increase the cost of debt and maybe, just maybe, contribute to a relative decline in debt use.

The RBNZ says it is worried about the new downward pressure for inflation but this is not the inflation experienced by the public, especially not our clients who are the cohort with the good behaviour of having a home and savings; the immediate impact of council rates, insurance, energy and transport costs exceed 2.00% per annum by multiples which I’d guess as being 2-4x.

The returns these people see from interest rate investing are between minus 2-6% per annum. These investors will be spending capital in retirement soon unless they have very large savings portfolios.

We must have said many times now that rewards from short term fixed interest investment are, and will be for many years, unsatisfactory and deliver negative real yields. Do everything you can to now minimise your investment allocations to short term fixed interest investment.

Yes, always hold sufficient cash for known spending plus emergency scenarios. Have money maturing every calendar year that you could spend, if all other investing goes haywire but beyond that invest for reliable positive real returns.

Last year when a Listener writer interviewed me for his article on investment, I recited a very old quote from David Wale (Jarden’s partner) that if you could achieve a real return of 4.00% long term you’d grab it with both hands.

That quote remains as true today as it did in the late 1980’s when David stated it to me.

The only investing that will deliver such returns today is ownership, not lending.

Does this make investment decisions harder now than in the past?

Yes, because one must take more risk to stand any show of achieving such returns.

If since the 1980’s you correctly predicted, or agreed with predictions, that inflation was on a long-term decline then riding the fixed interest ‘wave’ down the 30-year wave then long term fixed interest investing was a relatively constant winner.

This move was true even if you elected to only lend to the government and not businesses with additional risk of non-repayment (where extra marginal returns are offered).

It wasn’t that easy of course.

Side Story – I must pay credit to Fergus McDonald, now at Nikko Asset Management, because from the time I first met him managing money at Norwich Union he believed in lower inflation and constantly bought long term bonds for his clients (as did Bill Gross then at PIMCO in the US). Ferg is now the head of bonds and currency at Nikko and he no doubt has a large pool of grateful clients.

My solution for tackling the higher risk of investing in more ownership, relative to lending through fixed interest assets, is unashamedly to recommend that you engage in financial advice.

Investors do not have to accept returns of 1.50% - 3.00%, there are more rewarding choices, and our view is that investors would be wise to use them, and to identify them with the help of financial advice.

Do not hang your hopes on the central bank delivering you with higher returns over the next, and quite probably 10 years.

Agreement Stories – We are all tuned to hear opinions that agree with ours, which is something I try to challenge from time to time as part of my ‘unlearn’ strategy for investment decisions.

However, last week a PWC report threw up a story that fitted nicely with my recent rant about inflation pressures being hard to generate in an economic environment that was not delivering increases in discretionary spending.

The PWC report declared that Aucklanders discretionary spending had fallen by $5,000 in the past decade.

My first assumption was that data from all cities would be about the same, but no, Auckland was the only Australasian city with a decline in discretionary spending; defined as ‘after tax, housing, transport and other basics, which I assume are essentials.

You don’t need a professor to explain the drivers – huge nominal increases in property price, which drive interest costs up faster than wages, disproportionate increases in council costs, insurance costs and transport costs (fuel taxes and now rail link costs via council).

EVER THE OPTIMIST – The NZ Government’s support for rolling out broadband to the majority of NZ households deserves a tick when compared to the usually progressive Germans who have not arranged for the same in their country.

Vodafone in Germany laments the lack of ‘fibre to the last mile’, leaving service providers reluctant to meet the expense of infrastructure that should have a shared cost (witness Chorus model in NZ).

The Vodafone CEO is concerned that German consumers and businesses will fall behind as technology use accelerates, something that our government foresaw and were wise to act on as they have.

ETO II – Spot my bias.

Rocket Lab, again successfully launches from the Mahia peninsula, delivering satellites into Low Earth Orbit for the US Department of Defence.

I was serious when I once said I want to be in attendance on NZ’s East Cape to watch a launch by Rocket Lab, along with the metaphor for NZ’s progress.

It would be awesome.

INVESTMENT OPPORTUNITIES

Vector - new offer of a 6-year senior bond maturing on 27 May 2025, paying interest semi-annually.

We bid for a firm allocation on Thursday this week.

This will be a fast-moving transaction, booked by contract note.

The interest rate will be set on 16 May 2019. The Minimum Interest Rate was set at 3.45%

VCT Product Disclosure Statement is available on our website.

If you wish to participate in this offer, please contact us to express a firm allocation request before 5pm on 15 May.

Vector is paying the brokerage expense on this transaction. Clients’ do not pay brokerage.

Napier Port – The regional council has approved the sale of some shares in the port and now appointed its lead managers to bring the offer to market (in the months ahead).

A new holding company has been formed.

This is an exciting development for investors, and the NZX, and we look forward to this Initial Public Offer reaching the market.

We have a contact list for investors wishing to hear more about participation in the float of Napier Port.

TRAVEL

 

Kevin will be in Christchurch on 13 June.

Ed is in Blenheim on 15 May and Napier on 5 June.

Chris will be in Wanaka tomorrow and invites clients and the public to a 40 minute seminar entitled ’The New Norm for Investors’ about how to invest whilst interest rates are so low. After a break he will then talk for 30 minutes about what he learned while researching The Billion Dollar Bonfire. He is stunned by what was uncovered.

Chris’s speaking tour dates, venues and times are:

Tuesday 14 May, Edgewater Events Centre, 54 Sargood Drive, Wanaka

Investors’ seminar: 2:00pm, Billion Dollar Bonfire: 3:30pm

 

Friday 17 May, Edgar Centre, Andersons Bay, Dunedin

Investors’ seminar: 11am, Billion Dollar Bonfire: 12.30pm

 

Monday 20 May, Southwards Car Museum, Otaihanga, Paraparaumu

Investors’ seminar: 11.30am, Billion Dollar Bonfire: 1pm

Tuesday 21 May, Petone Workingmen’s Club, Udy Street, Petone

Investors’ seminar: 11.30am, Billion Dollar Bonfire: 1pm

Thursday 23 May, The Chateau Marlborough, cnr High and Henry Street, Blenheim

Investors’ seminar: 2pm, Billion Dollar Bonfire: 3.30pm

 

Friday, 24 May, Beachcomber Hotel, Tahunanui, Nelson

Investors’ seminar: 1pm, Billion Dollar Bonfire: 2.30pm

 

Tuesday 4 June, Napier Sailing Club

Investors’ seminar: 12.30pm, Billion Dollar Bonfire: 2pm

Mike Warrington


Market News – 6 May 2019

I have a survey for you, a Census if you like, and unlike NZ’s top statistician I’ll be very happy with a response rate of 85% from our clients.

To make participation simple I have limited this survey to one question:

What could we do to make your investment experience easier?

Within the bounds of regulation, we’d like your investment experience to be effective but also feel as if it was an easy relationship to maintain.

We understand the effectiveness part (investment rewards) but we seek your feedback on anything that could be improved to smooth the process for you.

INVESTMENT OPINION

EBOS complaint – How often do ‘we’ need to criticise companies for not offering Rights Issues to all shareholders when the company requires new capital?

One of the purposes of being listed on a stock market is to aid the raising of new capital, when required, or share buybacks when capital is to be returned.

As a result of being publicly listed a company has a register of public owners of the business and directors can demand additional capital by issuing Rights for new ordinary shares. If a current investor rejects the invitation to provide more capital those Rights can then be sold to other investors as a secondary point of financial support.

So why do businesses, like EBOS in this case, persist in offering primary access to newly issued ordinary shares to other investors in a disproportionate way?

Statistically Rights issues raising new capital typically attract 60-90% of the funds from current shareholders before any secondary support is required. Accordingly, it is wasted money to pay underwrite fees for 100% of such a capital raising exercise.

In EBOS’ case they have paid an underwrite fee on 100% of the capital raise, at a discounted price, and failed to invite the whole current share register to participate.

According to the market the day after the placement the company’s actions reduced my ‘EBOS wealth’ by 4% overnight.

I like the EBOS business, and its ongoing strategy, but this particular share placement is a chink in the armour of an otherwise impressive management team.

A response of ‘need for speed’ isn’t acceptable because the cost of short-term debt financing is much lower than the value wasted during this placement.

If there was a genuine need for speed it would imply that the company had entered a financial obligation that they had not yet gained funding for and this would be a display of incompetence that isn’t credible in my view.

There is evidence of wasted shareholder value in the market demanding $175 million of shares when the offer was only for $150 million. The Chairman naively boasted that this excess demand was evidence that ‘our strategy clearly resonates with investors’ when in fact the discounted access to value, removed from other shareholders, was the reason for the excessive demand for the new shares.

Why did EBOS management and board lack confidence in the support of their shareholders?

This is the first time I have found reason to question the quality of EBOS governance but it is a discovery that is worth monitoring further.

Interest Rates– As I write that introducing subject, I ponder how many times I must have used it over the past 11 years.

I still remember our ‘strong, long, and liquid’ urgings to investors in 2008, well before the Global Financial Crisis, as we expected sharp declines to interest rate returns.

With the benefit of hindsight it was nice to be of value to our clients at that point, especially as money had been lost in other investments, but we couldn’t seriously have forecast 11 years of declining interest rates to the point that no real return (over inflation) was being offered.

Markets evovle from day to day and through these newsletters we try to keep you connected to the gradual tidal changes we are seeing, like a small flag attached to a piece of polystyrene in the harbour.

Actually, as analogies go, and some of mine are a bit obscure, this one above feels rather accurate.

I also ponder whether I have become blinkered toward the view that everything is pushing interest rates lower?

For now, that is the evidence that is most clear and it appears to have the most weight judging by wider market behaviour for bonds and shares, displayed by acceptance of ever decreasing interest rate returns and higher share prices.

We are surrounded by demands that we continue to learn, and obligations to complete ongoing professional development but as I write I am still pondering what I need to unlearn to be more effective for you (and me).

After 10 years of declining interest rates I really don’t want to make assumptions that we are on a one way conveyor belt to 2.00%, or lower, for NZ fixed interest investments, but at this point there hasn’t been any robust information to disrupt the current conclusions.

Getting to today’s point, hopefully not because it fits our current thesis; I think the rising scale of climate protests will further contribute to the tide toward lower interest rates.

I don’t say this to offer a conclusion or personal opinion about climate change protesting. I think the protestors are correct when they say politicians won’t listen unless it costs them votes, followed by personal money.

Climate change protestors in the UK would do well to declare that they will also vote for Nigel Farage’s new BREXIT party to double down on his swing to becoming a major political force in under two months, because doing so will display to politicians just how fast voters are willing to move, en mass, if they do not see some meaningful change by leaders.

The connection with interest rates in this oblique argument is that success with pressuring regulatory change based on climate risks will undoubtedly add costs to business and slow their progress.

Slowing business progress, where it has accelerated the use of natural resources and spews out damaging waste, is a primary and logical objective of the rising public discontent.

A broad slowing of business activity will have a similar impact on employment, and thus the public’s access to discretionary spending. (As will increased use of robotics – Ed).

If governments react appropriately (disclosing my opinion) and add expense to business, relating to environmental impact, and businesses react by increasing the use of automation, which they will do, then it’s very hard to see economies becoming stronger.

It is easy to see how the rich/poor divide will expand, but this will simply add to political instability and reduced discretionary spending.

Ipso facto, lower interest rates.

Insurance – I think I have recently commented about how the higher insurance costs suppress the wider publics’ discretionary spending, which:

Adds drag to inflation, which;

Lowers interest rates, which;

Lower returns for insurance company investments, which;

Increases the insurance premiums they need to collect to pay for obligations, which…

Last week I criticised the Wellington City Council for insisting certain property owners in the city ‘self insure’ on behalf of the city by grossly over-engineering their properties to keep roads clear post the next disaster.

One week later I could only shake my head as our Mayor (Justin Lester) complained about the high cost of insurance and the need for government to introduce a state owned insurer to help keep the costs down.

It’s not forgetful, nor a dual personality. Lester seems to be an intelligent person so it’s either political convenience or thoughtlessness (probably both – Ed) neither of which we should vote for or pay for.

Maybe I have just ‘learned’ another contributor to disinflation, the ongoing rise in public spending of ‘other peoples money’?

INVESTMENT NEWS

ETF’s – The global uptake of investment through Exchange Traded Funds has been enormous in recent years, reported as now being in excess of US$5 trillion by investors, which given the scale must include both retail and wholesale investors.

The rapid growth for ETF’s accelerated post 2008 so I agree with those who reason that the attractions were two-fold:

Diversity, having witnessed or experienced some very focused winners and losers in the aftermath of the Global Financial Crisis; and

Reduced costs being retained by the financial sector that so demonstrably failed to perform in the GFC (lower costs being the life time focus of Vanguard founder Jack Bogle).

Liquidity wasn’t an initial attraction to ETF’s because in their earlier days liquidity was modest for the smaller scale of the funds, but now the scale of ETF’s ensures that they (especially US listed ETFs) have better liquidity than almost all single investments traded on the market.

To convince investors to choose specific investment risks now requires the provision of very credible research related to the single investment, and/or investors greed to hunt for more than an average return for the risk selected.

Given that, most peoples’ success with wealth is firstly a function of their savings rate, and for some the application of leverage to an investment (debt on residential property investing).

Thereafter the next most influential decision is the asset allocation mix where the most successful will see the scale of their cake (being the diverse portfolio of combined investments) rise faster than others who started with the same ingredients.

All of these decisions can be made prior to selecting specific investment constituents for a portfolio, which really only adds the icing to the cake.

The rise of ETF use for investment confirms that members of the public, as a whole, believe that the potential depth of the icing isn’t sufficient to take the risk of picking specific stocks, or in other cases paying high fees to active investment managers.

On the fringes of the burgeoning ETF market, and to be fair, there are some successful active investment managers and financial advisers who deserve the opportunity to market their value adding credentials to investors.

There are also investors who enjoy including some specific investments into their portfolios; many New Zealanders were, and still are, pleased about the opportunity presented for investment in the various electricity generators.

However, in total, the market seems to be saying that it is most comfortable placing a large proportion of its savings into the low expense, sector average (remembering that one can invest in ETF’s of many different risk types) and placing smaller sums into specific investments or with active investment managers.

Our view is that you should not pay a fee for risk you can appropriately self-manage, then you try to minimise fees for investment of modest risk, only agreeing to pay the highest fees to the higher risks that you seek but do not have the skills to manage.

An example of what I mean would be:

Self-managed: cash, term deposits, bonds, diverse property investments, shares in dominant domestic businesses;

Low fee management: ETF use for the intentional selection of a variety of risk types that exceed the skill or interest levels of the investor;

High fee management: The proportion of your money that you wish to have exposed to the highest investment risk types but logically conclude should be managed by the most skilful people available.

I happen to think that this last category is where most people’s Kiwisaver funds should be; the highest risk asset allocation, yet according to the data a huge majority of New Zealanders place their Kiwisaver funds in the lowest risk categories.

I have strayed some distance from the story that prompted this paragraph (how unusual – Ed), being the announcement from the NZX that they will soon launch eight new Smart Share ETF’s with a focus of being environmentally and socially responsible (ESG investing, which is on the rise globally).

For NZ investors the Smart Share ETF’s provide a PIE structured (tax efficient) access to a widening array of risk categories (see asset allocation reference above), traded on the NZX.

They fit nicely into my ‘low fee’ environment described above.

They could be ‘lower’ fee too, in my view, and I look forward to the NZX progressively reducing the annual fee on Smart Shares as each fund grows past some internally defined fund size.

As I understand it each ETF needs to exceed $20 million in size to meet its basic expenses (all Smart Shares achieve this) and once beyond $50 million they are making a modest contribution to profits. Once a fund exceeds $100 million, as 10 of them do, I’d like to see the NZX begin to reduce the fund fees and add to the virtuous cycle of attracting even more investors.

I say this both in principle and with bias as a holder of some NZX Smart Shares.

The rise of ETF use may also have a little to do with the increased presence of high visibility vests and orange cones in our society which silently pressures financial advisers toward the ‘easy choice’ for displaying they have delivered diversity to the investing public. (steady on – Ed).

I look forward to seeing how the new ETFs, backed into BlackRock for their management, perform with respect to attracting NZ investors.

Market Forces – Uber is reported to be considering offering its shares at US$50 each.

I wonder if this is directly influenced by the fact that Lyft’s share price is now US$57, down from its IPO at US$72 a month ago!

If Lyft’s share price falls below US$50 before Uber reaches the market, what will they need to price their shares at then?

In fact, the second Uber story that I read changed to say ‘between US$44 – US$50 per share.

I know the ‘value’ argument isn’t that simple but the market tone is.

A cynic might conlude that they could double the shares on issue and issue them at US$25 and see it that catches enough traders out.

A skeptic might question how this loss making company, without a competitive advantage that is obvious to me, can justify its valuation of US$95 billion.

Interesting Reminder – I’m sure I heard, or read this fact before, but it was an interesting reminder so I decided to share it with you.

California is the fifth biggest single economy in the world with GDP of US$2.94 trillion, behind only the US itself as a whole (US$20.5 trillion), China (US$13.4 trillion), Japan (US$5.07 trillion) and Germany (US$4.03 trillion).

Yes, California is larger than all others you can think of, and impressively so when you then learn that it’s population is about half that of the others with similar production numbers UK, France, Italy and India (34x the population!).

No G7 nation beat California’s 3.00% growth rate.

Growth measures show that the Golden State is peerless among developed economies for increasing population, expanding gross domestic product, improved joblessness, rising personal income, investment in innovation, and wealth creation. (Bloomberg)

Sure, technology companies, health sector powerhouses and the entertainment industry often call California home, but they must do so because of supportive state regulations.

The two messages for me were:

Trump’s influence has geographic boundaries as well as time ones; and

If NZ presents a good regulatory framework business can thrive.

EVER THE OPTIMIST – Finally, some Kiwisaver managers are beginning to respond to competition and reduce the annual fees being charged. (BNZ was written up for change last week).

It has a long way to decline yet, especially given the scale of funds under management and the ever decreasing levels of returns available to investors.

INVESTMENT OPPORTUNITIES

Vector - has announced a new offer of a 6-year senior bond maturing on 27 May 2025, paying interest semi-annually.

This will be a fast-moving transaction, booked by contract note.

The interest rate will be set on 16 May 2019 and with its BBB credit rating we estimate that the yield will fall within the 3.50% - 3.60% range with a Minimum Interest Rate being set on 10 May.

VCT will issue a Product Disclosure Statement (available on our website), however, as an NZX listed entity investors already have access to detailed information about the financial risks presented by lending money to the company.

We will bid for an allocation on 16 May. If you wish to participate in this bond offer please contact us to express a firm allocation request by 5pm on 15 May.

Vector is paying the brokerage expense on this transaction. Clients’ do not pay brokerage.

Metlifecare – Possible new bond.

Given the directors hints that they may also buyback some of their own shares at current market pricing this new bond offer seems inevitable to me.

Napier Port – The regional council has approved the sale of some shares in the port and now appointed its lead managers to bring the offer to market (in the months ahead).

A new holding company has been formed.

This is an exciting development for investors, and the NZX, and we look forward to this Initial Public Offer reaching the market.

We have a contact list for investors wishing to hear more about participation in the float of Napier Port.

The Billion Dollar Bonfire

The Billion Dollar Bonfire, Chris Lee’s book on the demise of South Canterbury Finance, has now been printed and is to reach the shops no later than Friday. Those who have purchased a copy have had their copies couriered and should receive them shortly.

Any Taking Stock reader, who is interested in purchasing a copy of the book, can do so by contacting Chris or visiting the publisher’s website at www.prlbooks.co.nz. We will keep a small supply of books in the Paraparaumu & Timaru offices on behalf of PRL Books for those who wish to pick one up.

TRAVEL

 

Kevin will be in Ashburton on 9 May and Christchurch on 13 June.

Ed will be in Blenheim on 15 May and in Napier on 5 June.

Chris’s speaking tour dates, venues and times are:

Tuesday 7 May, Sopheze on the Bay, Caroline Bay Tea Rooms, Virtue Ave, Timaru

Investors’ seminar: 2:00pm, Billion Dollar Bonfire: 3:30pm

Wednesday 8 May, Burnside Bowling Club, Christchurch

Investors’ seminar: 1:30pm, Billion Dollar Bonfire: 3:00pm

 

Thursday, May 9, Ellerslie Race Club Remuera Room

Investors’ seminar: 12:30pm, Billion Dollar Bonfire: 2:00pm

Friday, May 10, Milford Bowling Club, North Shore

Investors’ seminar: 11:00am, Billion Dollar Bonfire: 12:30pm

 

Tuesday 14 May, Edgewater Events Centre, 54 Sargood Drive, Wanaka

Investors’ seminar: 2:00pm, Billion Dollar Bonfire: 3:30pm

 

Friday 17 May, Edgar Centre, Andersons Bay, Dunedin

Investors’ seminar: 11am, Billion Dollar Bonfire: 12.30pm

 

Monday 20 May, Southwards Car Museum, Otaihanga, Paraparaumu

Investors’ seminar: 11.30am, Billion Dollar Bonfire: 1pm

Tuesday 21 May, Petone Workingmen’s Club, Udy Street, Petone

Investors’ seminar: 11.30am, Billion Dollar Bonfire: 1pm

Thursday 23 May, The Chateau Marlborough, cnr High and Henry Street, Blenheim

Investors’ seminar: 2pm, Billion Dollar Bonfire: 3.30pm

 

Friday, 24 May, Beachcomber Hotel, Tahunanui, Nelson

Investors’ seminar: 1pm, Billion Dollar Bonfire: 2.30pm

 

Tuesday 4 June, Napier Sailing Club

Investors’ seminar: 12.30pm, Billion Dollar Bonfire: 2pm

Mike Warrington


This emailed client newsletter is confidential and is sent only to those clients who have requested it. In requesting it, you have accepted that it will not be reproduced in part, or in total, without the expressed permission of Chris Lee & Partners Ltd. The email, as a client newsletter, has some legal privileges because it is a client newsletter.

Any member of the media receiving this newsletter is agreeing to the specific terms of it, that is not to copy, publish or distribute these pages or the content of it, without permission from the copyright owner. This work is Copyright © 2019 by Chris Lee & Partners Ltd. To enquire about copyright clearances contact: copyrightclearance@chrislee.co.nz