Up in the air
It seems like an age since I wrote you — jet lag does that! The flight I was supposed to take was semi-disembarked due to concerns about a door (you might be asking — was it a Boeing? And no, reader, it was an Airbus); an Air France man then furiously typed into “the system” like he was Angelina Jolie in Hackers, and routed me via Air Korea to Seoul and then Air NZ back to, well, NZ. In the meantime I supped on champagne in the Air France lounge — god bless the French; all you really need is a little champagne and cheese and all is well in the world.
The lady in line next to me for the aborted flight and I chatted; she was a retired lawyer and lamented not selling her Boeing stock sooner. I have an aversion to airlines and aircraft manufactures; but I was curious — Airbus has done a lot better over the long term. This shouldn’t be a surprise – Boeing is infamously bad at doing what they are supposed to do – make aircraft (those who know me know I have an obsession with the Concorde; Boeing had plans for a competitor but scrapped it). We thought this comment from John Griffiths, former chief economist to Boeing in yesterday’s FT was apt:
Nothing in [Boeing CEO] Calhoun’s service on the Boeing board suggested that he would be an effective chief executive.
If your doors are falling off your planes, then maybe you are failing as a CEO! Anyway – Air Korea, delightful and professional. Air NZ was a little cloying. Irritating video about protecting our environment and not bringing in mud, bugs, eggs, etc etc. I’ve never liked Air NZ’s “cutesy” affectations and I very neutral on the stock. Greg Foran is a genuinely good CEO but to paraphrase the prophet Buffett — many good managers remember the story of the girl kissing the frog and finding a prince; in reality this doesn’t happen much and the frog remains stubbornly a frog. Anyway. Even if the purple lighting on an Air NZ flight is quite pleasant.
Misc
Great write-up from BusinessDesk’s Rebecca Stevenson on AoFrio quoting yours truly — Is this the next NZX takeover target?
NZ/AUS
NZL – sold a chunk (25%) of its current portfolio to Aussie firm Roc Partners for $44.2mn, which values the remaining 75% of the portfolio at $132.5mn, which more or less closes the valuation gap that’s been an ongoing issue for NZL. We wrote that we thought NZL looked undervalued (link) and happy to see Swaz and Milsom pull this out of the bag. We didn’t see that coming! Nobody expects the Spanish inquisition…!
About $11.8mn of the proceeds will be used to pay down a note that the co used to fund its forestry acquisition last yr; the rest, we expect, will be used to fund new acquisitions. What we like about this deal is that Roc will contribute 25% equity to all future acquisitions, meaning NZL isn’t likely to have palm outstretched for capital raises. The other beautiful thing here – and remember we wrote NZL was a pair trade – we wrote
This is a two-parter idea, though — Allied Farmers owns the mgmt contract for NZL. We like to own the horse and the cart, so if you buy NZL, which tends to trade at a hefty ~45% discount to NAV, you might as well buy some ALF too (note that entities associated with Waterman Fund own a significant chunk of ALF…make of that what you will)
So the beauty here is that ALF gets paid a transaction fee of 1.25% – I.e. about $1mn. Every time NZL does a transaction/sale, ALF gets that fee (plus their standard mgmt fee of course). Sometimes, math is beautiful.
So long Geo, we hardly knew you…
GEO delists for the NZX on 23 Jan. Quoting from BusinessDesk —
Geo’s market capitalisation was $2.6 million when trading was halted, and earlier this month, the company’s executive chair, Tim Molloy, told BusinessDesk that delisting would free up 400 hours of staff time and $380,000 per year.
As we have written about often, the NZX is essentially a very good funds mgmt biz with a capital markets division that needs to pull its socks up. It’s hard to think of many successful listings as of late. I know, I know — it’s tough out there — recession ahoy — and with a $2.6mn and around $380,000 of costs — I mean, of course that’s prohibitive! The NZX, who we have been engaging with, is aware of the issue — but they need to be more proactive to solve it. To quote an unnamed source the “NZX is killing small caps” and it is hard to disagree — this is why AoFrio has languished when it actually has a very good growth story, and this is why Rakon ought to be taken off the market and the $1.70 offer accepted. The NZ small cap market offers extremely good value to cash buyers, private equity and vultures, but it does a disservice to long-suffering shareholders. This is something the exchange needs to address.
Tourism Holdings — THL will pay A$11.9 million (NZ$12.9m) for Adelaide-based Camperagent RV, a purchase that will strengthen the group’s sales presence in South Australia. We like the deal — THL are the smartest operators in the tourism game and their vans are constantly booked up. Retaining buy.
Speaking of Rakon, they put out possibly the driest update on the NBIO offer they have. Reading it could make one fall to sleep…link for those who need their nap time.
Uranium
You are all probably sick of me talking about URNM by now but good piece in today’s FT on how the US plans to “break” Russia’s monopoly on Haleu, a refined uranium which is more powerful than usual enriched uranium and is often used in small and medium sized reactors (it might interest you to note that Bill Gates – yes, that Bill Gates, is funding the construction of more SMC reactors). There is, unsurprisingly, a shortage of Haleu. Also unsurprisingly, most US legislators are unwilling to put sanctions on importing uranium from Russia until 2028 (when we estimate the deficit will end). Funny that! It’s almost like when you stop producing uranium because some long haired hippies think it’s bad, then like, yeah, you are going to fuel another uranium super cycle! Our best commodity idea continues to be uranium (ticker: URNM).
Something that caught our eye….we really are in the wrong business…private school fees continue to defy inflation! (From the AFR)
I wonder how much King’s and St Cuth’s charges these days…proud Waitakian here…Floreat Waitakia esto perpetua!
Source post: Blackbull Research - Substack