Taking Stock 28 April 2022

Chris Lee writes:

IF WE want as a nation to improve the lives of our residents, targeting those in most need, there are two pathways.

One offers a short-term boost by redistributing existing wealth, with higher taxes, new taxes, or new rules, aiming for a ''fairer'' distribution of wealth.

The other pathway offers a sustainable, long-term solution, promoting the creation of new wealth, perhaps with a plan to exploit the country's comparative advantage (soil, rainfall, climate), or by encouraging new projects, be they technology, or in any valuable product or service.

Last week we were given detailed new information on a project that has the potential to lift the wealth of the country, measurably and significantly, for decades.

The news came from an Australian Stock Exchange release by Santana Minerals, a gold explorer half owned by New Zealand investors.

It released drilling results from its project at Bendigo-Ophir, 15 minutes north of Cromwell in Central Otago, perhaps 90 kilometres west from New Zealand’s biggest gold mine, Macraes, near Palmerston, on the eastern side of the Dunstan Ranges.

Santana has now spent more than $10 million investigating one of four seams of rock which its geologists had identified as gold-bearing.

The vastly experienced geologists have explored and managed projects around the globe, one of them the principal behind the discovery of Macraes mine, which has mined for roughly 30 years, has a similar term to recover its unknown resources, and has led to gold exports easily exceeding ten billion dollars.

The Santana geologists had sought a licence after identifying similar gold-bearing rocks in the barren valleys of the Dunstan Ranges and making arrangements with the landowner.

They had succeeded in raising a few million to expand their knowledge of the scope of their find, then transferred their licence to an Australian explorer, Santana, which had the ability to raise tens of millions to fund a thorough drilling programme, beginning with drilling on one of the four seams identified, on the privately-owned land.

Last week Santana released more laboratory results on its ongoing drilling programme, which involves three diamond-drilling rigs working 24/7.

Santana had originally expected to be telling the ASX that its Rise and Shine seam contained a valuable quantum of low-grade gold (perhaps one gram per tonne of rock).

It has not found a low-grade of gold.

It has found an astonishingly rich vein of gold (2.9 grams per tonne).

Earlier drilling of dozens of holes had resulted in the assaying results pointing perhaps to 2 grams per tonne.

Additional work has lifted that yield on gold per tonne by nearly 50%, a grade more than double that enjoyed by the profitable Macraes mine.

It seems likely that the one seam to have been part-explored, (Rise and Shine-RAS), will yield at least 1.5 million ounces at a high grade. Drilling at RAS has yet to find the limits to the gold-bearing rock, either north, east or at depth.

Earlier random drilling at the other three seams had indicated that two of the seams of rock contained better grades than RAS. One can do one's own maths, but it is easy to imagine that the Bendigo area under Santana's licence might yield many millions of ounces of gold, creating a mining opportunity that would take decades to mine.

Why is this so meaningful for New Zealand? Do the maths.

Five million ounces at today's gold price would produce gold export sales of $14 billion.

Royalties to the Crown would be about 3% of this - $420 million.

Corporate taxes on the profits would total at least $1 billion. Personal taxes on the highly-paid mine workers (say, 350 people) would total hundreds of millions.

How much would this cost the Crown?

Zip. Zilch. Nothing. Perhaps it might cost some of the recoverable expense of appointing environmental and mining inspectors.

The gold would be exported to Australia, perhaps making gold our biggest single export across the Tasman.

Several hundred people would be employed in and around Cromwell, to operate machines, processing plants, vehicles, and to continue the drilling programme on the other seams of gold.

If Santana mined 200,000 ounces a year the life of a multi-million ounce mine would be decades.

At current prices, the eventual dividend pool for investors would be rewarding. Meanwhile the exploration is creating value for New Zealand.

So what happens next?

To date the drilling has been zigzagging, trying to find the boundaries of the RAS seam, drilling holes every 100-150 metres.

If at 150m the first hole finds that at 50m downward there are 10 metres yielding 2 grams a tonne, and that at 300 metres the yield is the same, the resource is inferred to have 150 metres x 10 metres yielding two grams, at that common depth.

Professional investors value an ''inferred;'' ounce at a figure of around A$70, a tiny fraction of the value of a mined ounce, reflecting the significance of the find, discounted by the delays in going from discovery to production.

If one then infills the drilling at every 30 metres between the two holes, and finds the same level of gold, then the resource is upgraded to ''indicated'', being more mathematically certain than ''inferred''.

Australian investors value an ''indicated'' ounce at more than double the amount ascribed to an ''inferred'' ounce.

Clearly the additional land the drilling will eventually test should lead to a new inferred resource, and the more infill drilling that occurs leads to greater certainty; therefore a new status of ''indicated'' resource.

Australian explorers like Genesis Minerals have tripled their market value by infill drilling and improving the status of their data.

As an aside, Genesis has a smaller resource, much less potential, and a much lower gold grade but its market value is several times the value so far granted to Santana. Obviously Santana needs to raise more cash to advance its drilling perimeters, and to infill its drilling, and to investigate the other seams.

It can be expected to engage independent mineral experts to assess the quantum of its inferred resource, anticipating that the new calculation, based on recent drilling, will confirm a growing resource at impressive yields. This independent assessment should happen in coming weeks.

Santana's expectation would be a share price based on growing data, leading to an ability to raise cash from a relatively smaller distribution of shares, enabling it to keep drilling.

Its goal would be to prove the growing value of the data using the resultant share price to minimise the dilution that occurs when share placements occur.

Perhaps Santana will dual-list, on the NZX, acknowledging that half of the shares are owned by New Zealanders, and that Bendigo-Ophir is in NZ, not Australia.

The news from Bendigo ought to be a great fillip for all those New Zealanders who want the country to grow its wealth so it can use its own money, rather than borrowed money, to improve the lifestyles and facilities in NZ.

Ardern and Robertson should be cheerleaders. Luxon will certainly be cheering.

Possibly some will argue that minerals should never be mined, citing visual or environmental concerns.

Fairly obviously, such issues must be addressed before a consent is granted. That might be a lengthy process but should not need a change in government. Gold mining is not comparable with coal mining.

Who is not in favour of wealth creation?

Debt-ridden countries, with aging infrastructure, broken health facilities, and failing education standards, ought to be focused on wealth creation.

When the day arrives for gratitude, perhaps the country will tip its hat to the two geologists, Kim Bunting and Warren Batt, who brought their knowledge, their energy and their time, to uncover an asset that may be of great benefit to the country.

Armed with a pick, a shovel, a pair of boots and a lengthy career using their expertise, these two men deserve that salute.

Disclosure: My family own a minor stake in Santana (2%).

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Johnny Lee writes:

The sharemarket remains busy, as investors both locally and abroad ponder the likely impact of rising interest rates on market valuations.

The Dow Jones has fallen 5% in the past week, as fears of a global recession make headlines and traders panic in the face of inflation, war and pandemics. Our own sharemarket's response has been far more reserved, dropping about 1% in value over the same timeframe.

This discrepancy can be partly explained by recalling that our exchange is predominantly made up of electricity generators, healthcare stocks and other utilities. Companies with predictable and consistent revenues and costs tend to experience more moderate ''boom/bust cycles'' than technology or commodity-based stockmarkets.

Several of our companies are raising capital. Air New Zealand, New Zealand King Salmon and New Zealand Oil and Gas have all announced rights issues, the first two battling for survival while New Zealand Oil and Gas seeks to refill its coffers as elevated commodity prices spur interest in the sector.

With the cost of capital rising, it would be reasonable to expect continued momentum on this front, as companies use rights issues and bond issuance to ''lock in'' current rates before they accelerate further. There remains an ample amount of money sitting on the sidelines, waiting for improved opportunities.

After years of low interest rates spurring investment out of maturing bonds towards shares, it is something of a relief to see bond yields once again return to levels acceptable to investors. There has been a notable increase in interest from people wanting to pivot back towards bonds, as issuers like Precinct and Mercury lift offered rates to woo investors back.

Secondary market trading in bonds has also presented some interesting opportunities for buyers. High quality, long-dated bonds, which once commanded a steep premium, are being traded below par, as sellers predict better offerings waiting in the wings.

Meanwhile, as Z Energy's takeover concludes, church donor management system provider Pushpay announced it has received interest from a buyer wanting to acquire the company. For context, Pushpay has a similar market capitalisation to Z Energy, at around $1.4b on current pricing.

Pushpay's share price fell sharply last year in response to disappointing profit announcement, and the price has been in the doldrums ever since. While the announcement does not name either the interested party or any particular price, overseas interest in profitable, growing technology companies is to be expected – what remains to be revealed is whether the bid is genuine and values the company reasonably, or is simply opportunistic following the share price fall.

Footnote: Vital Healthcare Property Trust today announced it is raising $200 million by way of a modestly discounted rights issue, in order to repay debt. The gross dividend yield at the discounted price, based on current levels of dividends, is around 3.50%. Existing unitholders have until the 12th of May to apply. The funds will be used to repay recently acquired debt and future developments.

Advised clients can find an article regarding the Vital Healthcare rights issue on our Private Client Page.

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HE market's steady decline over the past six months has led to discussion regarding the unfortunate timing of recent Kiwisaver changes.

In December last year, Government changes came into effect that directed default funds to move from ''Conservative'' funds to ''Balanced'' funds. Balanced funds tend to have a greater weighting towards shares – Balanced funds, on average, have about a 50% allocation to shares, while Conservative funds have closer to 25%.

Since then, share prices have fallen 10%.

The logic of the change remains the same. New entrants into the workforce – perhaps young and uninterested in saving schemes inaccessible for decades - often find themselves in these default schemes. A 75% allocation into cash and low-risk bonds may minimise potential for serious loss, but by shifting to a Balanced portfolio, the changes intend to take advantage of such an investors' longer than average investment horizon.

While the change did coincide with a sharp drop off in global share prices, investors will be hoping that, in the fullness of time, share prices recover and these Balanced funds continue to outperform their Conservative counterparts in the long-term.

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Edward will be in Wellington on Friday 6 May. His diary for Nelson, Blenheim, Auckland and the Wairarapa is now full.

Kevin will visit both Christchurch and Timaru in May and will post dates in due course.


Our seminar programme begins next week. The Wellington seminar is now full, but Chris will arrange to meet clients individually, if required, at the Regus room (Featherston Street) in Wellington, on Wednesday, May 4.

The Kapiti seminar is still open, having moved to the Southwards theatre, from its smaller Bugatti Room.

The Nelson seminar on May 5 still has capacity. Chris can meet with Nelson investors on a personal basis, by arrangement.

Please note that guests have NOT been transferred from the March lists. Please notify our office if you wish to book a seminar seat. Several venues have limited numbers.

Monday 2 May, Wellington -Wilton Bowling Club, 11am (FULL)

Tuesday 3 May, Kapiti -Theatre, Southwards, 11am

Thursday 5 May, Nelson - Beachcomber Hotel, 1pm                       

Monday 9 May, Christchurch - Burnside Bowling Club, now 2pm

Tuesday 10 May, Timaru - Sopheze on the Bay, 1.30pm

Monday 16 May, Tauranga -Tauranga Cruising Club, 11am            

Tuesday 17 May, Hamilton – St Andrews, Hamilton Golf Club, 1.30pm                                                    

Monday 23 May, Mt Wellington - Mt Richmond Hotel, 1.30pm

Tuesday 24 May, Takapuna - Milford Yacht Club, 11am

Thursday 26 May, Whangarei - Flame Hotel, 11am           

Monday 30 May, Palmerston North - Distinction Coachman Hotel, 11am               

Tuesday 31 May, Napier - Crown Hotel, 11am     

Chris Lee & Partners Limited

Taking Stock 21 April 2022

THE old adages taught to us as kids many decades ago still seem sage to me, and often are useful guides for investors.

The imperative not to ''bite off more than you can chew'' should resonate in the ears of young Mark Francis, the Auckland property enthusiast who uses leverage to acquire large-scale properties, whether under the Asset Plus, Augusta or Centuria titles, being of little relevance to me.

Just this month he has canned a highly-glossed deal he was extolling in Auckland, replacing it with a deal that itself will take some dessicating, involving debt that heightens the risk and may reduce the return for Asset Plus, should interest rates keep rising.

Property has been a conveyor belt for young men in a hurry to outpace the wealth of their schoolmates but the belt risks slipping when interest rates rise, the capitalisation rates of properties fall, and when corporate tenants begin to draw back from extreme accommodation costs.

Another saying I have long admired was often used by my father: ''If a problem needs to be addressed, do not tinker with it. Fix the darned cause of the problem.''

It seems to me that some of the wise heads in charge of Jarden must have incorporated this saying into their strategies. I recall how, about 13 years ago, Nuplex, an excellent NZ resin company, ran into strife after the global financial reset, risking a calamitous fallout with its bankers. Its foreign currency debt had blown out after the 2008 crash had hurt the NZ Dollar.

Jarden worked out that tinkering with the problem could lead to death by a thousand banking cuts, so it forced Nuplex shareholders to make a binary decision: do you want Nuplex to be restored, or do you want to hope for the best?

The Jarden solution was a massive underwritten (and therefore expensive) rights issue, at a giant discount. The new shares sold for about 23 cents, the share price, only months before, having exceeded two dollars. Each share held entitled the shareholder to buy seven shares each at 23 cents. The shares traded at $1.07 before the announcement.

As one of the sub-underwriters, I trusted the Jarden logic and was rewarded when the share price recovered. A reconstruction reduced the shares on issue and, restored to viability, Nuplex reverted to its impressive earlier status, eventually, and undoubtedly prematurely, sold too cheaply, but at a price reflecting a full recovery. The capital raised, of more than $110 million, restored banking confidence and allowed Nuplex to avoid banking interventions.

Within a few years the Belgian company Allnex had bought Nuplex for around A$5.43 per share, an outcome that justified the advice Nuplex had been given.

There was no tinkering with the problem. It was excised, thanks to the injection of capital, authorised by its owners.

The same decisive strategy was used by Jarden with what was then AMP Office Trust (now re-named Precinct Properties), which also chased away the nerves of anxious bankers with a heavily discounted rights issue, also underwritten and sub-underwritten.

Today, I sense the same logic in Jarden's solution for NZ King Salmon, a company whose losses in the past year far exceed previous profits and a company whose bankers might have been feeling a warm trickle ($73m) heading south.

To be blunt, NZ King Salmon looked worthless, a company facing the problems of climate change (a warming sea), increased feed costs, mortality rates and, most of all, a lack of scale, not to mention some active opposition to its licences to rope off sections of the ocean.

It is possible to make money out of sea-farming of salmon, as we observe in places like Tasmania and Finland, though it is harder when the sea warms, thanks to climate change.

To thrive, the operation needs to produce tens of thousands of tonnes of salmon if it is to justify the capital cost of huge $50 million vessels that can net and clean the salmon, control the feeding, and avoid the deterioration that comes from an environment that in essence is doing something different from what nature intended.

NZ King Salmon investors clearly accepted the Jarden advice not to tinker with the problem its losses have created.

A heavily discounted, fully underwritten rights issue reboots the company, each shareholder asked to buy 2.85 new shares @ 15 cents, to regain the confidence of banks.

The issue was whether or not the major shareholders would ''start again'' and would address the problem, having learnt from the errors of the past.

A quick fix solution – new bankers, a bit of capital, a bit of cost-cutting, bringing more diversity to the board of directors – would buy time but would be tinkering.

Fast, cheap solutions rarely work.

Jarden posed the binary question; do you want to have a business, or quit?

I expect the major shareholders will have indicated that they want to rebuild the business.

As an aside, I cannot help wonder whether Air New Zealand should not have faced the same binary question, from the same, experienced investment advisers.

To me, it is fairly obvious that Air New Zealand's future is as a government underwritten, inherently troubled, essential domestic transport operator. It was resuscitated because the country needed a domestic airline, needed an export air freight service, and would like to have a few international destinations to facilitate a rise in tourist numbers.

So the cold alternative of quitting would not be the preferred option, nor would a scaling down to a domestic only airline, effectively a rebirthing of the National Airways Corporation (NAC).

I suspect all New Zealanders will understand that, but very few experienced investors would want to put their money into a barely commercial prospect, subject to the fickleness of being a component of a government-owned transport plan, run by any government, let alone one with ideology that overrides commercial principles.

The Crown owns the railways, the inter-island ferries, and it owns our roads. It costs the tax-payers heavily to support these necessities.

The Crown owns 51% of Air New Zealand and effectively appoints the directors, as was visible to all when the former foreign exchange trader and National Party leader, Key, was discouraged from remaining on Air New Zealand's board, effectively hoofed off, when his party lost the election.

The current chairwoman, Theresa Walsh, clearly ticks the boxes that the Labour Government prioritises, though her commercial inexperience was evident in the various embarrassments that surrounded the crucial survival plan, through the rights issue. An airline with a commercial imperative should have a much more experienced chairperson, in my opinion.

Perhaps the government should prevail on Matt Whineray of the NZ Government Super Fund to bridge the gap between a government department-like organisation, and a worthy privately-owned enterprise. He would be a suitable chairman.

A combination of a politician being in charge of 51% of Air NZ's shares, and a politically-selected board of directors, driving an airline which, despite an excellent chief executive, faces genuine long-term problems, is not a combination that would encourage me to open my wallet.

I suspect Air New Zealand should have gone to Jarden and faced the binary question; do your shareholders want the airline to survive, or not?

To me, the real question is whether Air NZ should ever again be seen as a commercial entity rather than an agent of fickle government policy, overseen by people accepted, if not directly chosen, by those same politicians. To be fair, very few people could operate well within these constraints imposed on the airline.

Should Air NZ be 100% owned by the Crown, just like the railways? At least that would bring transparency to a contrived business model.

If it is to appeal to expert private investors, how could it be structured so it could reliably overcome the challenges it faces?

Or should Air NZ be owned and controlled by inexpert government, supported by Sharesies investors, who presumably own their shares out of pride or nationalism, or, lamentably, perhaps blind faith in the admirable chief executive and his undoubtedly determined team?

Should Air New Zealand operate on virtually no debt, other than to the suppliers of their aircraft?

Will the climate change responses make material differences to travel costs and social attitudes towards travel? Carbon taxes on travel? Social disapproval of air travel? Ever greater fuel costs?

A domestic airline could make money, if run without political interference.

Can that happen when the political transients are given opportunities to appoint directors and demand uncommercial policies, like scheduling regional flights.

I would much prefer to listen to debates on these issues before I attempted to assess whether Air New Zealand was a genuine long-term investment option for retail share investors.

There is a twist on an old saying that comes to mind.

A very brave investor and his money are soon parted. I guess time will tell.

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THE crass response of ERoad's directors to the instant walkout of its chief executive Steven Newman earlier this month has resulted in not just an unlikely collapse of ERoad's share price.

It has also attracted scorn from corporate leaders.

Several have contacted us, posing the same question.

Where was the ''disaster response'' plan that every company should keep in its locked cabinets?

As one corporate leader noted, the very first response should have been for the ERoad chairman to set aside two hours to phone each of the company's largest shareholders, including, at very least, the most significant sharebrokers and fund managers.

Accompanying that response should have been an instruction to release to the market an updated progress report, displaying all the actual achievements in ERoad's major markets.

Someone else in the company, perhaps its public relations/media officer, should have rung the likes of the NBR, Business Desk, and probably Bloomberg, to pass on the news, and confirm that ERoad would be seeking a new CEO with the range of skills and networks needed for the next advance of the company.

Instead of that the media, justifiably breathless and excited, recorded the event without any heads-up on what it meant.

The share price fell by around a third.

Every listed company's chairman should file away a memory of ERoad's behaviour in the ''How Not To Handle Emergency'' file.

Chairmen are annointed not just to control the conversation around sober meetings.

They are an interface with shareholders, market specialists, (sadly) the government, regulators, and the public sector, and they must put aside time to ensure the media is adequately informed.

When the CEO is ill, or dies, or resigns, or walks out, the chairman becomes the go-to person.

ERoad, in my opinion, is a company based on inventiveness and cleverness, and is on a visionary journey.

Clearly its stakeholders expect it to have matured into transparency, accomplished in all the endeavours a public company must accept.

The failure of a fortnight ago must not be repeated.

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Precinct Properties will offer a new six-year ''green'' bond, paying around 4.75% and probably not involving a transaction fee.

This is likely to be well received, given Precinct operates at the top end of the Wellington and Auckland business property market.

Indeed, its flagship building at the bottom of Queen Street in Auckland is the most opulent building in New Zealand, set up with wonderful views of Auckland's harbour, but distinguished mostly by the luxurious facilities within the building.

Buying a car park in the building would cost hundreds of thousands, a deterrent, one would hope, that slows down all but the most precious of company executives.

Property for Industry also will offer bonds, and we hear whispers that there may be capital note (quasi equity) issues from a bank, as well as from Mercury Energy.

The short period when corporate bonds traded at around two percent seems to have ended.

Do we even remember that the Reserve Bank, less than two years ago, was contemplating a future of negative interest rates?

And do we know how many hundreds of millions was spent by banks, developing the software to enable trading at negative rates?

Clients are urged to advise us of demand for these bonds.

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THE organisation for our seminar programme is now well underway. In some venues - Wellington and Auckland obvious examples – it is likely numbers will be limited. The Wellington venue (Wilton Bowling Club) is now full and Auckland (Mt Richmond Hotel) is limited to 60 people.

You must notify our office if you wish to book a seminar seat.

New Zealand's accommodation and conference facilities are still hamstrung, many excellent hotels now committed to meet Crown requirements.

We will be emailing all clients with seminar details but in general terms the seminars are scheduled for:

Monday 2 May                  Wellington          Wilton Bowling Club, 11am          (FULL)

Tuesday 3 May                  Kapiti                     Bugatti Room, Southwards, 11am            

Thursday 5 May                                Nelson                  Beachcomber Hotel, 1pm                            

Monday 9 May                  Christchurch       Burnside Bowling Club, now 2pm             

Tuesday 10 May               Timaru                 Sopheze on the Bay, 1.30pm

Monday 16 May               Tauranga             Tauranga Yacht Club, 11am                                         

Tuesday 17 May               Hamilton              Hamilton Golf Club, 1.30pm                                                        

Monday 23 May               Mt Wgtn              Mt Richmond Hotel, 1.30pm

Tuesday 24 May               Takapuna            Milford Yacht Club, 11am

Thursday 26 May              Whangarei          Flame Hotel, 11am (note change of date)                            

Monday 30 May               Palm North         Distinction Coachman Hotel, 11am          

Tuesday 31 May               Napier                  Crown Hotel, 11am        

Before and/or after each meeting, I am able to meet personally with a small number of clients wishing to discuss a portfolio. Please email if you would like a one-on-one meeting and we will confirm if there is an available time.

In Wellington I will meet clients on May 4 (Wednesday) at the Regus room, in the ANZ building, Featherston Street, at arranged times between 10.30am and 1.30pm.



Edward will be in Auckland on Thursday 28 April, seeing clients in Highbrook, and on Friday 29 April seeing clients at Aristotles in Wairau Valley.

Edward will also be in Nelson on Thursday 12 May, seeing clients at Trailways Hotel, and in Blenheim on Friday 13 May, seeing clients at the Chateau Marlborough.

Kevin will be on leave until May. He will visit both Christchurch and Timaru in May and will post dates in due course.

Chris Lee


Managing Director

Chris Lee & Partners Limited

Taking Stock 14 April 2022


Chris Lee writes:

EVERY investor who buys shares in an NZX-listed company is entitled to believe that he/she has several key players in his/her camp.

1. The directors will be truthful, will disclose all relevant matters in a timely way, and will act in the interests of all stakeholders.

2. The market regulator (the NZX) will immediately challenge any failure of the directors and will demand a timely response.

3. The business media will be inquisitive and competent and will understand the relevance of company announcements.

4. Sharebrokers and financial advisers will remain informed on the progress of all listed companies they recommend. (Note most financial advisers simply recommend managed funds and thus leave the ''knowledge'' to the active fund managers. Indexed funds have little or no knowledge to share.)

Regrettably most investors in Eroad shares will feel badly let down after the events of last Friday.

On that day, the board of Eroad released a bland, almost insulting, announcement that its Chief Executive, Steven Newman, had resigned effective that day. The share price fell 14% immediately.

Eroad's board told the market that its succession plan for Newman's departure had been developed in recent years and that its search for a replacement might produce an appointment this year. Meanwhile a temporary chief executive had swapped desks.

When I heard this the fibula and tibia of my arthritic left leg felt an uncomfortable tug and to my utter amazement, my good leg began a rendition of the Dad's Army ditty ''Who do you think you are kidding, Mr Hitler?''

If Eroad had indeed been expecting Newman to hand in his rifle, clear his desk, and walk out, then Eroad's directors had failed grossly in their obligation to keep their shareholders informed.

These possibilities should have been discussed at board meetings and annual meetings, enabling shareholders to reassess the reasons for their faith in Eroad's plans.

You see, Steve Newman is not one of those modern chief executives who were annointed for social reasons, nor has he been one that flits from birdbath to birdbath, looking for fresh toast crumbs, hoping not to be accountable for any messes left behind.

He founded Eroad. His vision drove the company. He was (and is) the largest shareholder. He drove the rights issue at $5.58 per share in July last year. He drove the merger with Coretex, that Eroad said would be transformational for Eroad.

It was Newman who had built Navman, another technology company which he had sold for hundreds of millions to the Americans. He built the model. He inspired.

Newman, to most investors, is THE man, the magnet for investor confidence.

Of course, Eroad is now mature enough to push on without Newman, having reached a status of being cash flow positive.

But, to announce casually that Newman has simply walked out, without any signalling to the market, in what Eroad implied was a simple change of CEO, was like Steve Hansen telling television viewers at halftime during the Rugby World Cup final that Richie McCaw would not be playing in the second half as he wanted to play Yahtzee with his favourite aunty.

Either Eroad has failed in its obligation to keep the market informed (that Newman planned to retire in 2022), or Newman has gob smacked the board by walking out.

Newman is Eroad's largest shareholder.

So, what is the truth?

Has Newman a health problem? Has he burnt out, and simply flipped his lid? Has he ''lost'' his board?

If Eroad was going to treat this with disdainful casualness with a one-line announcement, where was the NZX enforcement team, demanding a better, immediate answer?

A fourteen percent share price fall for one of New Zealand's best-performing technology stocks is surely an event that needs an immediate explanation. Two business days later, the share price had fallen 25%. The reason for this fall was Newman's unexplained departure.

And where was our business media?

It is fair to begin with acknowledging that television does not have even remote understanding of our business market, so it is naïve to expect any relevant response from television.

The national radio station (RNZ etc) is only slightly better.

I accept that salary constraints make the two major newspapers focus on what might be called ''home budgeting'', or ''home economics'', constantly confusing political and social dross with business information that might be useful to the 300,000 mature adults who actually buy newspapers, and buy shares in listed companies.

But the NBR and the newsfeed, Business Desk, surely have people who should have done more than simply record the vanilla Eroad announcement. It took four days for any published information to emerge, and that information was of ''no comment'' genre.

Those news services recorded that neither Newman nor the Eroad chairman would discuss the event. They should then have alerted investors to the central role Newman has played in developing Eroad into a large (by NZ standards) technology company, and provided in-depth analysis of Eroad on the day of Newman's departure.

I expected to read an interview with Newman explaining this extraordinary event, or a truthful, thoughtful explanation from the chairman.

Now that the NZ Herald has bought out Business Desk, is it time for the paper to coerce Business Desk's founder, Pattrick Smellie, into a role as the CEO of Business News? He is a genuine business journalist. He has experience in the business sector. He has not passed his use-by date, has access to business leaders, has not been seduced by political favours, and has analytical skills. Could he salvage the Herald's role in business journalism, with the help of their younger reporters and some of his Business Desk reporters?

Somebody must reinstate the media's credibility in a sector that is of great interest to the age group that is not engaged with giggling people on talkback or in social media garbage.

Left with Eroad's appalling response, my right leg kept singing. Next up, if it were pulled again, might have been God Save the King.

Finally, I looked for insightful commentary from those analysts who make their living by researching and recommending stocks like ERoad.

A void is a void. Nothing. Nothing to see here? Really?

The share price fell 14% in a few minutes and 25% in a few days. I disclose that at that level I bought more, as an enthusiast for Eroad's product and future. I had not been helped by the void in making my decision.

If an event of this magnitude had happened in Australia, the coverage would have been comprehensive and immediate. Why are we so indifferent to business news?

Is it time now for an Australian newspaper to print its paper here, daily, and to send over a journalist or two, with a focus on business?

Note: In tiny Malta, most UK newspapers are printed in Malta each night, available for sale each dawn, precisely mirroring what is printed in the UK. The papers in Malta sell for around NZ$10 and are always sold out by lunchtime.

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EROAD was Newman's idea. He began by developing the positioning technology to track vehicles, like trucks, that pay road tax based on their usage of public roads.

Previously truck drivers kept a manual log, recording from the odometer what mileage was driven on taxable public roads and what was driven on non-taxable private roads (forest roads, farm roads, etc).

Drivers loathed the manual task. By tracking a truck's movement, Eroad's software could calculate the exact road tax due and, by arrangement, could collect the tax and pass it on to the relevant authority. In some states of the USA it was the first private organisation ever authorised to collect the tax.

Eroad then incorporated maintenance in its reports to truck owners, measuring wear, tear, fuel usage, oil usage, tyre wear, etc.

It moved naturally on to reporting on driver behaviour, measuring whose boots had a lining of lead, and who were breaking laws.

It moved onto driver safety, measuring driver behaviour generally.

Ultimately it moved to road safety, with live measuring of driver behaviour. A driver who began to make minor errors - catching rumble lines, slightly cutting corners etc, was assessed, with instant reports going to a centralised person who could demand the driver stop, rest, or be replaced.

The road safety application is universally acclaimed.

Who does not like safer roads?

Of course, Eroad has competition but it is a leader.

In NZ more than half of our 140,000 trucks lease the Eroad software, for which the truck owners pay around $1,000 a year, per truck.

The companies like the software. The leases have a renewal rate of around 95%. Councils, big companies, and small companies are clients.

Eroad has a growing market share in Australia, a few months ago announcing a three-year deal with a company whose fleet included thousands of trucks.

However, it has been the USA on which Eroad has spent its profits, trying to grow to a market share of perhaps 1% or more of the 5.5m trucks there. It now has annual revenue well exceeding NZ$100 million.

Quite obviously, as more vehicles move to electricity, there must be a greater tax focus on road tax, rather than a fuel tax. The US car fleet is shifting to electricity, at a rate still slower than desired, because of a lack of supply of electric cars, but it is logical to imagine tens of millions of cars which one day will pay road tax, rather than fuel tax.

Eroad's software is admired in the USA and is currently used by tens of thousands of trucks.

If it could be ready for a similar (1%) share of electric cars, it might be selling its software to millions, not tens of thousands. Eroad would then be a huge NZ success story, similar to Xero in status.

Newman's departure ought not to stop the aspiration.

But his departure may result in Eroad becoming a takeover target, a possibility that seemed unlikely when he was not just the dominant shareholder, but also the CEO.

Despite Newman's assurance that he remains a committed shareholder who is wedded to its future success, my guess is that Eroad's future has changed.

A takeover at, say, $7 a share, might have been rejected two weeks ago. Sans Newman's involvement and control, a takeover bid now might have a chance of success.

Shareholders and believers in Newman and Eroad should not just be angry. They might also be saddened. They will certainly feel badly let down by Eroad's board, by the NZX, by the media and by the strange silence of those who manage Eroad investors.

 _ _ _ _ _ _ _ _ _ _ _ _

Johnny Lee writes:

Recent statements from The Warehouse Group, suggesting a gradual pivot in strategy towards grocery retailing, is intriguing, but shareholders and consumers alike should temper their enthusiasm at these early stages.

The Warehouse has flirted with the idea of ''disrupting the duopoly'' before, with the ill-fated ''Warehouse Extra'' brand last decade. While the reasons for that failure were varied, it illustrated the difficulties in disrupting the established participants in a meaningful way.

The Warehouse has several advantages to work with. It has a physical presence in most major towns and cities, and (supposedly) a workforce flexible enough to cope with such a shift. The Warehouse brand is one known to New Zealanders and one I believe most New Zealanders would be willing to support in the pursuit of lower prices.

The goods it is proposing to sell are homogenous – a two-litre bottle of Anchor milk is the same whether you buy it from one retailer or another – and so far seem limited to genuine necessities – flour, butter, milk and cereal.

The environment is also ripe for disruption. Virtually every day there is new commentary on New Zealand's escalating cost of living, so The Warehouse's strategy around this has been well targeted on this front.

There are a number of challenges, however.

The first is breaking consumer habits. Most grocery shopping today is still conducted in person – although this may evolve over time – and most grocery shoppers prefer to shop at one location, as opposed to shopping for milk and butter from one retailer, and fresh fruit and vegetables from another. The solution to this will certainly need to be technological. In my view, it is too much of a stretch to suggest this behaviour can be overcome with pricing alone.

Another major challenge will be The Warehouse proving the robustness of its supply chain when combined with the necessary logistics of grocery handling and delivery. So far, its capacity on this front has been impressive, but there is a significant difference in scale between its existing product range and a fully-fledged grocery network.

It is also doubtful whether the company's pleas for Government intervention are likely to yield a meaningful result. The current Government's appetite for significant change is not readily apparent, although the election next year may spur a willingness to rock the boat.

Outside the established players, almost every New Zealander will be hoping for The Warehouse's success. Increased competition, theoretically, will hinder any outsized margin growth, and already the savings The Warehouse is promising are surprising. A price war, driving down the cost of living, would be very welcome to consumers.

For investors, the key point will be whether The Warehouse has learnt the lessons of its past and can execute this strategy in a way that produces a meaningful return in the long-term.

Helping to control the cost of living by cutting margins on necessities is an admirable goal and to be applauded. Socially-minded companies are very much in vogue, but the numbers, ultimately, must stack up.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Trustpower's long-awaited announcement has arrived, giving shareholders some much needed certainty as the company prepares for its path forward with its new strategy and new name of Manawa Energy come May.

Trustpower's share price reacted negatively, falling 5% immediately afterwards.

One of Manawa Energy's first acts will be a payment of a special 35 cent unimputed dividend to all shareholders. This is significantly lower than last November's guidance of ''up to 65 cents per share''. Manawa has approximately 300 million shares, putting the cost of a 35 cent dividend at about $110 million. The sale of its retail business to Mercury will realise $440 million.

The announcement certainly highlights the underwhelming pace of development in this country. The company is targetting minor improvements to existing generation assets to be completed in 3-5 years. Manawa is also planning new generation projects, although these projects also remain in very early stages. Manawa's focus remains on solar and wind generation, and it is currently assessing more than 30 projects simultaneously.

The slow pace of change is warranted, partially, by the relatively slow growth of electricity demand. While this growth is expected to accelerate with the proliferation of electric vehicles, this may not actually occur for many years, which will hopefully coincide with these distant developments.

Manawa promises to be a small player in the electricity generation sector, focusing on tight capital management and partnered projects that minimise risk. It has insulated itself well from inflationary pressures and has a shareholder (Infratil) that is itself nimble and shareholder focused.

Manawa's full year result will be published next month.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

THE Reserve Bank's decision to raise interest rates by 50 basis points – a double hike – was broadly expected and highlights one of the key risks to investors today.

Inflation is reaching the highest levels seen in decades. Interest rates have now begun to respond.

Many of the newer investors introduced over the past decade have NEVER experienced periods of high inflation. Many homeowners have NEVER experienced periods of rising interest rates.

The Reserve Bank's statement seemed very balanced, offering something for optimists as well as pessimists.

Our economy remains strong. Balance sheets are comfortable, and our export earnings remain elevated. The opening of borders may offer a shot in the arm for our hospitality and tourism sectors.

However, the oil price remains volatile. The war in Ukraine is causing global disruption, especially to countries reliant on their wheat. The Covid pandemic has re-emerged as a major threat inside China. Emigration of New Zealand's healthcare workers is threatening to create local upheaval, and low consumer confidence is leading to more cautious consumption.

The next Reserve Bank policy statement is expected on 25 May.

_ _ _ _ _ _ _ _ _ _ _ _

A BRIEF update for Z Energy shareholders:

Ampol has been granted consent by the Overseas Investment Office to proceed with its takeover of Z Energy.

The next, and final, step is approval from the High Court. This should happen on 26 April.

Assuming this occurs as expected, the takeover should be implemented mid-May.

_ _ _ _ _ _ _ _ _ _ _


Secondary Bonds – rising interest rates can be seen in the secondary market too. You need not wait for new issues to access some of the more appealing returns on offer.

There are many senior bonds offering yields above 4.00% now, and one or two have yields touching 5.00%.

If you have a surplus of cash to invest, please contact us to discuss options or take a look at the Current Investments page of the website.

Vector – has pre-announced its planning, but not details about terms, for the Election Date on the Vector Capital Notes (VCT080). The Election Date is 15 June 2022 and holders will be told about the new term and interest rate offered on 3 May.

Mercury Energy – We have established a deal list for those wishing to hear more about a new capital bond from Mercury Energy. We are expecting this bond issue to open over the next three months. We expect this bond to be long dated and have an interest rate of above 5.00%.

Property for Industry - We have established a deal list for those wishing to hear more about a new senior, secured bond from Property for Industry. We are expecting this bond to open over the next few months and are expecting an interest rate of around 4.75%.

Precinct Properties – Intends to issue a Green bond. Again, we expect interest rates to be in the range of 4.25% to 4.75%.

Clients are welcome to join this list.

_ _ _ _ _ _ _ _ _ _


We are now completing the booking of venues, but our seminars are confirmed for the first few weeks. Masks will be required but changing rules are unlikely to lead to other requirements.

We need (urgently) to assess likely number so please advise us of your intention to attend, if you have not already done so. We will email all those who planned to attend the postponed seminars earlier this year.

Friends and family are welcome. There is no charge. Each seminar will take approximately one hour and will take place around the middle of the day.

The plan is:

Wellington, Wilton Bowling Club, 11am, Monday May 2

Kapiti, Southwards, Otaihanga, 11am, Tuesday May 3

Nelson, Beachcomber Motel, 1pm, Thursday May 5

Christchurch, Burnside Bowling Club, 1.30pm, Monday May 9

Timaru, Sopheze on the Bay, 1.30pm, Tuesday May 10

Tauranga, TBA, Monday May 16

Hamilton, Hamilton Golf Club, Tuesday May 17

Auckland, TBA, Monday May 23

North Shore, TBA, Tuesday May 24

Whangarei, TBA, Wednesday May 25

Palmerston North, TBA, Monday May 30

Napier, TBA, Tuesday May 31

_ _ _ _ _ _ _ _ _ _ _ _



Johnny will be in Christchurch on Wednesday 20 April, seeing clients at the Russley Golf Club Boardroom.

Edward will be in Auckland on Thursday 28 April, seeing clients in Highbrook, and on Friday 29 April seeing clients at Aristotles in Wairau Valley.

Edward will be in the Wairarapa on Wednesday 4 May and in Wellington on Friday 6 May.

Edward will also be in Nelson on Thursday 21 April, seeing clients at Beachcomber Hotel, and in Blenheim on Friday 13 May, seeing clients at the Chateau Marlborough.


Kevin is on leave April 4 – April 29. He will visit both Christchurch and Timaru in May and will post dates in due course.



Chris Lee & Partners Ltd

Taking Stock 7 April 2022

Chris Lee writes:

WHEN the South Island wealth creator and multi-business owner, Greg Tomlinson, was named this week as joining a ''Business Hall of Fame'', I doubt that anyone who knows him reacted with cynicism.

Tomlinson is an outstanding business leader, and an excellent man who anyone would be happy to have as their neighbour.

He has created thousands of jobs in New Zealand by adopting the simple strategy of investing in sectors where there is consumer demand and where NZ has a comparative advantage.

The media will never hear of this, for he has no trumpet and if he did, he would never blow it, but he might also be one of New Zealand's real philanthropists, as distinct from those verbose headline-seekers who self-describe themselves as philanthropists, perhaps having dropped a fiver into the Poppy Appeal.

I confess I am no fan of awards made by self-appointed ''trusts'' or businesses, who often will cynically appoint irrelevant media personalities and other sycophants to anoint short-term business ''heroes''.

Tomlinson is a glorious exception, an example of what can be accomplished by intelligent analysis, perseverance, unselfishness, high personal standards, and a great work ethic.

He neither would want, nor need, New Zealand's media to promote him, even less so, to invade the family life he and his wonderful wife, Jill, have nurtured.

For those unaware of his career, it spans the mussel industry in Marlborough, early involvement in providing homes for the elderly, early support for the development of Heartland Bank, early involvement in the retirement village sector, a transformational role in New Zealand's wine industry, and a commitment to animal welfare, through a large US company.

He has also played a role in the development of our thoroughbred industry, having been Breeder of the Year in recent times.

Perhaps the easiest example of how, with intelligent strategic analysis, he is transforming a sector, comes from his relatively recent (decade or so) involvement in the wine industry.

Tomlinson bought into a small, excellent Marlborough wine producer, Indevin, and provided the analysis and capital to enable it to buy some of Montana, all of Villa Maria, and to adjust its business model so that science, rather than just winemaking, led to sustained excellence.

Gold medals have resulted, but the real accomplishment in converting Indevin into NZ's biggest exporter of wine has been in its innovation, and its focus on sustainable markets.

Strategically, he worked out that Australia, Britain, and the USA were long-term markets where contracts were honoured. There is no point in supplying wine if you do not get paid.

Sustainability was important. Indevin realised that shipping millions of glass bottles to NZ, then filling them with wine and reshipping all those bottles back to export markets, had a wasteful energy cost.

Shipping the award-winning liquid in giant bladders to be bottled at the destination had not just a substantial saving in cost, but also was a carbon-friendly strategy.

Maximising the use of science in producing great wine did not preclude winemaker genius but it did bring consistency of taste, as well as growing consumer demand, brand loyalty, and therefore, margins. Indevin's success defeats the arguments of any doubters.

I would be unsurprised if the sector's shortage of pickers and pruners were not addressed by new technology, developed in NZ, resulting in widespread use of robots.

I would bet a fine bottle of red that Tomlinson would have been a funder of the required research and that Indevin will be an early user of that technology.

In some ways I see some of Allan Hubbard's best qualities in Tomlinson - but none of the flaws that ruined Hubbard's legacy, resulting from Hubbard's complex hunger for power.

I suspect that Tomlinson, like Hubbard, identifies key elements of NZ's comparative advantage, such as soil, sunshine, water, and geographic isolation.

There are some aspects of him that might explain my admiration and respect for him and have led to my confident investment in some public companies he directs, but some of these explanations might encroach on privacy.

Just one anecdote might sum up the widespread support for his recent recognition.

With a visiting capital market participant, he was having a beer in Blenheim, a year or so ago, prior to heading to an old family-owned Italian restaurant, Rocco's. He was sharing a jug of Speights and was leaning on a table in a public bar. To the leaner came a heavily tattooed young man, in singlet, shorts, and boots. Politely, he waited his turn to speak. His turn came.

''Just wanted to say thanks bro for paying my bill the next day after I did that landscaping job,'' he said. ''I wish all other wealthy people would help us by doing that.''

Greg Tomlinson – outstanding business leader, champion bloke.

 _ _ _ _ _ _ _ _ _ _ _ _

MY cynicism of awards and honours is deeply entrenched, having seen the string of honours to undistinguished politicians, political donors (''Sir Michael Chow'' anyone?), treacherous businessmen, and short-term heroes.

I always enjoyed the prank of a car dealer who rang his mate who was a most undeserved and cynically-chosen nominee for an honour. The nominee’s mate rang to say that, in the enquiries made before an honour is conferred, the mate had been approached.

''They are asking me about . . . (a disgraceful fraud, committed by the nominee). What should I say?'' The nominee was reduced to a stuttering response, begging for non-disclosure, leading to blokey ridicule.

I also recall the egregious social behaviour of one knight who engaged a student to paint his garage, and required the student to buy the required paint, brushes etc by opening an account, at a supplier, in the student's name.

When the garage was painted the knighted prat denounced the job as mediocre and refused to pay a cent, leaving the student with a debt, instead of pocket money for his next year at university.

Another such phony employed the pensioner partner of a mate of mine to do his housekeeping. The knight travelled a lot and would message the pensioner requiring his groceries to be bought and stored in the refrigerator, awaiting his return.

When he returned, she handed him a receipt and asked for the $90 she had spent from her pocket.

''Send it to my accountant,'' he replied. ''He pays on the 20th of the month following.''

I have observed many New Zealanders who have been obvious targets for awards, having contributed greatly to NZ, some of them friends, some whose contribution was to justice, or to business, or education, health, or other essential activities, including the arts or to the community.

I know many who would decline the honour, either not wanting the attention, or not wanting, as Karl Marx might have said, to be in a club sprinkled with wannabes, rogues, and pickpockets.

Perhaps a Business Hall of Fame is different.

You cannot buy a nomination with filthy lucre or political contrivances.

Greg Tomlinson genuinely deserves a hat tip for his immense contribution to improving the life of many people in New Zealand

 _ _ _ _ _ _ _ _ _ _ _ _

ANOTHER award that most will celebrate is Sir Tipene O'Regan's, the Ngai Tahu leader named by Kiwibank as New Zealander of The Year.

This man deserves to be honoured and sits alongside Dame Whina Cooper, Brian Lochore, Roy McKenzie and John Anderson as genuinely great contributors to our country.

When I knew him in the 1970s, he was known by the (white) media as Stephen O'Regan, and was a prominent, moderate voice, seeking middle ground in many of the issues of the day. Not everyone lauded him, but he certainly was a fighter and an achiever for his people, instrumental in developing Ngai Tahu into the success it is today.

A keen man of the sea, he was later known as Tipene O'Regan, and played a crucial role in navigating amicable settlements when the Crown finally acknowledged the many breaches of their contracts with Maoridom.

He was quite brilliant at finding creative solutions that brought disparate groups together.

The settlements were achieved with the helpful intervention of some of our best business leaders of the time. Their admiration for O'Regan is boundless.

To this day he is a calming and unifying presence in Maoridom. It would be wrong to judge him for the error be made when trying to lead Hanover Finance into an acceptable shape.

Cynicism has led to people like David Beattie, Jenny Shipley, Doug Graham, Bill Jeffries, Hugh Templeton and for heaven's sake, even Colin Meads, being used to promote the most corny companies, none of which ended happily for investors.

O'Regan was a victim of this sort of cynicism when he was headhunted to lend his mana and judgement to the board of Hanover Finance, about whose activities he had zero knowledge.

In The Billion Dollar Bonfire book I wrote in 2019, I named the people who collectively destroyed Hubbard's South Canterbury Finance, the group including Key, English, Power, elite public servants, self-described investment bankers, statutory managers, lawyers, trust company executives, directors, executive managers, and astonishingly incompetent receivers. I stopped only just short of a longer list because my inkwell ran dry.

In common with these people was the abject ignorance of what enables a finance company to survive tough years.

O'Reagan's involvement with Hanover would not have been cynical or fee-chasing. He would not have known the special governance requirements of a finance company, let alone a cheating finance company.

Every finance company should have a survival plan. Each of its directors should know of every skeleton in any cupboard and should start every plan with the thought that all risks must be acknowledged and addressed, and that every lending decision must not imperil other people's money, beyond reasonable commercial risks.

O'Regan was unwise to take on a role at the putrid Hanover Finance group, that sought to exploit his well-earned reputation. He should be forgiven for this error.

Hanover's chairman, chief executive and its owners cuckolded him. It was ignorance, not cynicism or greed, that led him to believe a presence at the board table could lead to transparency and fair decision-making.

His mistake is a lesson for us all.

Finance companies require directors with knowledge, experience and with the perseverance to prioritise survival over short-term dividends.

O'Regan has been an impressive Maori leader and made a sizeable contribution, deserving his accolades. Very few in Maoridom could rival his mana or his wide range of achievements, which includes a genuine contribution to broadcasting, where he was a highly regarded director of the NZBC.

O'Regan has rightly been honoured (again) for a significant contribution to New Zealand.

 _ _ _ _ _ _ _ _ _ _ _ _

Johnny Lee writes:

THE baffling volatility and market response to the Air New Zealand rights issue has led to ongoing confusion and, frankly, mispricing of either the rights or Air New Zealand shares.

Most long-term share investors will have experienced capital raises before, either through Share Purchase Plans or Rights Issues. Share Purchase Plans involve an offer to shareholders to purchase a dollar amount of new shares, typically $15,000. A Rights Issue allows a shareholder to buy additional shares at a predetermined and guaranteed ratio, relative to their shareholding.

Part of the confusion was caused by incorrect reference pricing being supplied by the NZX, which prompted an almost immediate trading halt and correction. This has been resolved. Still, confusion remains.

For the avoidance of doubt:

Air New Zealand is raising $1.2 billion by issuing approximately 2.25 billion new shares at 53 cents each. Every shareholder who held shares on the record date will be given one right for every one share they held. Each right entitles you to buy two shares at a fixed price of 53 cents each ($1.06 total).

This has the same effect as issuing two rights for every share at 53 cents each, a format perhaps most observers were expecting.

The shares closed yesterday at a price of 86 cents per share, or $1.72 for two shares. Therefore, the right should have a value of 66 cents. Instead, they closed at 52 cents.  

The question is, surely, who was buying Air New Zealand shares at 86 cents, when they could have bought half that number of rights and later receive the same security for what would effectively have been a 7 cents per share discount?

Consider this scenario, given yesterday's pricing.

A client held 25,000 shares in Air New Zealand.

This client sells their 25,000 shares at 86 cents and buys half that amount (12,500) in Rights at 52 cents. After paying $1.06 to convert the Rights into two shares, they pocket the difference - $1,750. There was no risk, simply ''free money'' for arbitraging a bizarre price discrepancy.

Rights trading is always interesting to observe.

The overwhelming majority of those individuals participating in these markets will be sellers – a large number of small Rightsholders who have no interest in buying more shares and take the opportunity to convert to cash immediately. This will be matched against a small number of large buyers who take the reverse position, accepting the discount and possibly offsetting their purchase by selling the shares they already hold as described above.

A small number of the buyers will be those convinced that the price will rebound in the long-term – perhaps very young investors with the benefit of time or an investor buying on behalf of grandchildren. Certainly, the prices seen today are close to absolute lows.

In normal conditions, one would expect large owners of these shares – who intend to hold them long-term – to lend their shares to arbitrageurs and bring balance to the pricing of each instrument in a mutually beneficial way. In Air New Zealand's case, the large owners are the Government and retail investors.

Yesterday, shareholders of Air New Zealand had a rare opportunity to take advantage of illogical market behaviour. One imagines that such a pricing anomaly will not persist indefinitely.

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The seminar programme, open to all clients and to the public, will begin in May. We are currently finalising the venues. Masks will be required but changing rules are unlikely to lead to other requirements.

We will email all those who planned to attend the postponed seminars earlier this year.

However, we ask those who had not notified attendance to signal their attendance now. Friends and family are welcome. There is no charge. Each seminar will take approximately one hour and will take place around the middle of the day.

The plan is:

Wellington, Wilton Bowling Club, Monday May 2

Kapiti, Southwards, Otaihanga, Tuesday May 3

Nelson, Beachcomber Motel, Thursday May 5

Christchurch, Burnside Bowling Club, Monday May 9

Timaru, Sopheze on the Bay, Tuesday May 10

Tauranga, TBA, Monday May 16

Hamilton, Hamilton Golf Club, Tuesday May 17

Auckland, TBA, Monday May 23

North Shore, TBA, Tuesday May 24

Whangarei, TBA, Wednesday May 25

Palmerston North, TBA, Monday May 30

Napier, TBA, Tuesday May 31


Johnny will be in Christchurch on Wednesday 20 April, seeing clients at the Russley Golf Club Boardroom.

Edward will be in Auckland on Thursday 28 April, seeing clients at the Ellerslie International, and on Friday 29 April seeing clients at Aristotle’s in Wairau Valley.

Edward will also be in Nelson on Thursday 12 May, seeing clients at Trailways Hotel, and in Blenheim on Friday 13 May, seeing clients at the Chateau Marlborough.

Chris will be in Auckland on 12 and 13 April.


Kevin is on leave April 4 – April 29. He will visit Christchurch and Timaru in May and will post dates in due course.



Chris Lee & Partners Ltd

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