Executive Summary: January 29, 1010
By Scott Rochfort | smh.com.au | 29 January
Illustration: Rocco Fazzari
Cudeco and the dog are learning to chill
The executive chairman of Cudeco, Wayne McCrae, extolled to his shareholders yesterday the importance of keeping a long-term focus.
Three years after McCrae told the Sydney Mining Club that the explorer was sitting on potentially ''one of the richest copper mines in the globe'', he urged his shareholders to hold their nerve and ''trust their board''.
It seems shareholders will just have to continue to depend on McCrae's declaration to the mining club in 2007 that Cudeco's Rocklands deposit was as good as a ''dog with two dicks''.
In his update yesterday McCrae said Cudeco was no longer in any hurry to produce a resource statement that would help quantify the ''significant discovery at Rocklands''.
''We do not intend to rush the process of calculating an updated resource statement just to meet arbitrary time frames. It will be ready when it's ready and no further time frames will be imposed on the geological preparation of the resource statement,'' reasoned McCrae.
''The market should be well aware of what can go wrong when such processes are rushed. A JORC [Joint Ore Reserves Committee] compliant resource statement will mean little if it does not translate into quantifiable mining results.''
It seems Cudeco shareholders will just have to go with the vibe.
McCrae also seemed reluctant yesterday to talk down the speculation (he helped instigate at his 2007 mining club talk) that Cudeco, or at least its Rocklands deposit, could be a takeover target.
''We cannot and must not allow our decision-making process, and ultimately our corporate strategies, to be dictated by those who possibly might otherwise have designs for Rocklands,'' he said in yesterday's update.
''Your board is mindful of the strategic imperative of maintaining an upper hand at a corporate level. Significant interest has been shown for Rocklands, both locally and globally, with many parties revealing more than just a passing level of interest in the project.''
Life on Tabcorp
Tabcorp has appointed a new head of its wagering division who should attract the attention of fans of wildlife programs on television.
The company announced that the British-born David Attenborough ''brings to Tabcorp an extensive background in totalisator and
fixed-odds betting, racing and broadcasting''.
No doubt, Attenborough (46 and no relation to his famous namesake) will be able to broadcast how totalisators are becoming an endangered species.
Introduced pests from the Northern Territory and Tasmania (aka online bookies) continue to eat into Tabcorp's share of the betting market.
Tabcorp's casino habitat has also been under attack since the giant fake fibreglass rock was removed from Star City casino late last year.
Slippin by
The Chinese childcare operator Xiaoxiao Education seems to be having problems drumming up investor interest for its planned $10 million float.
It is more than two months since Xiaoxiao lodged its prospectus. A recorded message on the Xiaoxiao hotline yesterday still said the company intended to list on the Australian Securities Exchange on, ahem, December 23.
This is despite the company announcing last month that it had extended its offer and planned to start trading on January 18.
But a friendly telephone operator reassured CBD yesterday that everything was hunky dory. ''They are still scheduled to start trading on the 18th,'' he said. When reminded it was already January 28, the operator put CBD on hold. After a 10-minute wait, he explained: ''Unfortunately we haven't been provided with that information yet.''
Maybe what Xiaoxiao meant to say was that it would list 18 days after the upcoming Chinese new year.
Xiaoxiao, which is headed by Madame Tong Yongrong, operates nine childcare centres and an art school in Zhejiang province of China. Among the directors is the career education managing director of Study Group, Warren Jacobson. The Sydney-based Study Group confirmed yesterday it was mulling a possible listing on the ASX.
Perth defection
The brokers from the West, Patersons Securities, have sent a reminder to the market that they continue to be on the ascendant as they mark the first anniversary this week of their acquisition of Melbourne's second oldest broker, Tolhurst.
Yesterday Patersons announced that the firm that operates RBS Morgan's Perth outpost (RM Black Morgan Management Pty Ltd) had defected. This will result in the RBS Morgan boss, Kim Roberts, and about 45 staff rebadging themselves in Patersons colours. By staying put, they will help set up an East Perth base for Patersons.
''Patersons is a great fit for our advisers and clients and we look forward to the time ahead with great confidence,'' Roberts said.
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Big Dick knows when to fold 'em and hold 'em, too
Scouring the history books provides a few clues to the likely bidding strategy of the NSW Lotteries auction front-runner, Tatts Group, as interested parties prepare to lodge final bids early next month.
Dick McIlwain, first as UNiTAB's managing director and more recently at Tatts, has had a hand in more than half of the deals that have shaped the Australian gaming sector in the past decade.
Over that period there has been just one small transaction, McIlwain's first, where he looks to have paid full price in a competitive auction: the acquisition of Northern Territory TAB in 2000, bought on an EBITDA multiple of about 12 before taking synergies into account.
Since then McIlwain has been a disciplined buyer, preferring to walk away from deals rather than overpay. He scooped up the South Australian TAB for just 6.5 x EBITDA after no other bidders turned up, and seemed content to lose the race for Darwin casino to Skycity in 2001.
In 2003 McIlwain pulled off his greatest acquisition coup. After kicking off the bidding for Tab Limited, the operator of the NSW totalisator, he withdrew from the race after agreeing on a consolation prize, the monitoring agency Max Gaming, which he bought for just 6 x EBITDA from Tabcorp, the successful acquirer of Tab.
Max Gaming went on to be a goldmine. There is no second prize this time around, and NSW Lotteries is a highly attractive asset that would go some of the way to plugging the earnings chasm that Tatts faces when its Victorian gaming machine operator's licence expires in 2012.
While the temptation to take a win-at-all-costs approach may be there, offering more than about $630 million, or 10 x EBITDA, would risk enriching the state at the expense of shareholders.
Electric dreams
Solid growth from Dick Smith was one of the few bright spots in this week's Woolworths sales result. The broader Australian consumer electronics business grew less than 1 per cent for Woolies in the second quarter, but Dick Smith stores responded to a format revamp, recording a 7.2 per cent sales increase.
Dick Smith's numbers are good for the sector and bode well for half-year reporting from the category leader, JB Hi-Fi. The company has not provided guidance since mid-October, when annual meeting commentary pointed to comparable store sales growth of 8.4 per cent in the September quarter and tipped full-year sales growth of 20 per cent, helped along by plans to open 22 stores.
JB Hi-Fi has historically traded well ahead of analyst valuations - the company has a six-year track record of overdelivering on expectations. Still, continued strong growth is factored into analyst price targets that now sit just below the company's $21 share price.
While JB Hi-Fi should deliver a cracking result for the December half, the company will have a fresh chance to prove the strength of its model in coming months. Woolies' chief executive, Michael Luscombe, says retailers chasing growth in discretionary categories will have to sacrifice margin in the post-stimulus environment.
JB Hi-Fi needs to continue its outperformance in an environment where others are struggling to justify its premium market rating.
Trusts, arise
Expectations are building that larger property trusts, think Westfield, will soon lead the way with new developments, and in recent days the speculation has driven the group's share price higher.
After a financial meltdown-induced hiatus in construction over the past two years, brokers are now tipping the floodgates to open. This time last year the name of the game was to raise as much cash as possible to keep the banks at bay, but talk now centres on getting cash in for new projects.
Lend Lease is said to be looking at doing just that. But last year there was also a drop in pay-out ratios and that has left trusts such as Westfield with a handy war chest of sorts.
The folks at JP Morgan, traditionally a broker close to the Westfield camp, have assessed the impact of the retail behemoth's revised distribution policy on its ability to fund expansionary capital spending.
Reduced distributions look set to release $500 million of cash a year. This should provide a buffer for any dip in retail sales if interest rates rise next month.
According to the research, with Westfield's gearing at about 40 per cent, ''that implies about $4 billion to $4.5 billion Westfield can use for its share of the redevelopment profile over a five-year view''.
''Asset values are likely to bottom this half, removing the threat of 'gearing creep' on the balance sheet - that should free up the excess cash for redevelopments. And a majority of the projects are joint venture-owned, with partners to fund a material portion of the spend.
As a result, funding the pipeline appears manageable without a near-term requirement for further equity issuance,'' the broker says. Westfield reports its full-year results late next month.
While management is yet to make any announcement, commercial property investors will be keeping a close eye on any commentary involving a second office tower in Pitt Street Mall.
With new premium-grade skyscrapers thin on the ground in Sydney's CBD, the time may be right to create a new office precinct in the heart of the city.
Briefs
Energy
Oil Search dips Oil Search has foreshadowed lower production this year due to maturing oil fields after delivering output last year within forecast and weaker sales revenue due to lower oil prices. In its annual production report, Oil Search said it expected a 10 per cent fall in output to reflect natural field decline, which led to a 6 per cent dip in production last year.
Industrials
Alesco down Alesco Corp has reported a slump in profit after a fall in building activity, and the renovations product supplier remains cautious about trading for the rest of the financial year. Alesco, which also supplies garage doors, water tanks and heavy-duty truck tyres, reported a 23.2 per cent fall in first half profit to $9.71 million.
Mortgages
RMBS backing The Federal Government has allocated up to $3.4 billion to invest in the residential mortgage-backed securities of five smaller lenders to help support competition in the home loan market. The allocation is part of $8 billion set aside in November to invest in RMBS.
Gold
Tanami purchase Tanami Gold has agreed to acquire Newmont's Groundrush project in the Northern Territory for $22 million. Tanami and the exploration partner ABM Resources are also buying $10.8 million worth of non-core assets in the Northern Territory from Newmont.
Retail
Adtrans upgrade The car and truck retailer Adtrans Group has upgraded its full-year profit forecast by up to 30 per cent, after flagging a surge in interim earnings.
Takeovers
Done deal United Minerals Corp shareholders have agreed to a scheme of arrangement relating to the company's takeover by BHP Billiton.
Insurance
New partner The Commonwealth Bank has a new partner in its Chinese life insurance joint venture, after the Bank of Communications bought out China Life.
First published by Smh.com.au on January 29 2010
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