2009 - March/April

WINNERS

Paladin Energy (PDN)  PDN was one of the best performing ASX 100 stocks for the last period, up 30.4 per cent. It has now risen 84 per cent after hitting a three-year low of $1.63 in October 2008. The company is completing an off-market takeover of Fusion Resources which will add valuable uranium exploration acreage to existing projects in Queensland’s Mt Isa region. PDN is already established in the area through its 100 per cent owned Valhalla Uranium Limited and 81.9 per cent interest in Summit Resources Limited. The acquisition will aid the stated goal of developing a world class uranium mining and processing operation in the region. In Malawi, the Kayelekera uranium project is 90 per cent complete and on schedule for January 2009 commissioning. The share price went up 70c from $2.30 to $3.00.

Goodman Fielder (GFF)  GFF was the second best performer for the month, with a gain of 28.3 per cent. Surging commodity price inflation was the theme, which skittled the share price in 2008 before GFF’s recent bounce. Competition from private labels and lags in recovering an additional $100m of commodity costs resulted in first-half NPAT around 15 per cent lower than the previous corresponding period. The second half, however, should be stronger as commodity prices retreat and recent capital projects complete. The next downside risk for the stock could be pressure from retailers, competitors and consumers to pass on commodity price reductions. The share price increased 34 cents from $1.20 to $1.54.

Incitec Pivot (IPL)  enjoyed a 15.2% increase in its share price over the month. IPL’s retail rights issue suffered a hefty 76% shortfall. The company will not issue further equity to offset the shortfall. Gearing using net debt/equity will fall from FY08’s 65% to a more reasonable 38%. Interest cover using EBIT stays robust at 10 times. In other news, the Senate’s Select Committee’s interim report on local fertiliser pricing severely criticised IPL. It declared an effective monopoly now exists in the fertiliser industry which compromises competition. IPL dominates Eastern Australian fertilisers with 70% of the wholesale market and 59% of the distribution market. The report recommends tighter regulation and ACCC monitoring. Doubtless IPL will respond before the final report due June 30. At a share price of $2.85, IPL is on only eight times FY10 PER with a 9% fully franked dividend yield. The share price increased 36c from $2.37 to $2.73.

LOSERS

Macquarie Office Trust (MOF) MOF’s share price fell 31.6 per cent during January. On December 12, 2008, MOF announced a $508m capital raising at 20cpu (cents per unit) to reduce debt, which was well received by the market and so the stock rallied to peak at 33cpu on Christmas Eve. However, the timing of the retail offer was regrettable, open as it was over the Christmas/New Year holiday period and scheduled to close on January 12, 2009. Due to limited financial planner and retail unit holder interest over the holiday period, MOF extended the offer to close on January 20, 2009 and renegotiated the underwriting to avoid a shortfall. Market confidence in the offer then plummeted and the stock fell to 20cpu on  January 20, 2009. The offer closed undersubscribed.

Leighton Holdings (LEI)  LEI’s share price dropped 36.2 per cent over the New Year. Unfortunately LEI cut its FY09 NPAT guidance. The November AGM indicated $700m. Operating NPAT will now be around $650m, up only 7 per cent not 15 per cent from FY08. This excludes $170m mainly due to non-cash write-downs of its listed investments. NPAT including the write-downs will fall 22 per cemnt to $480m. The group order book is strong at $37bn versus $35bn in September. This includes $5bn from LEI’s 45 per cent in Al Habtoor Leighton which has a solid $12bn despite Gulf tremors. December quarter Gulf construction spend dived 85 per cent from the previous extreme year. Around 10 per cent of construction projects are on hold, including LEI’s Trump Tower project.

ING Office Fund (IOF) IOF was one of the worst performers in recent months with its share price retreating 43.3 per cent. IOF’s recent capital management initiatives raised $414.5m through the institutional placement and institutional and retail entitlement offers. The cash raised reversed the impact of the fall in the A$, which caused gearing to jump dangerously close to the lending covenant limit of 50 per cent. Following the raising, gearing fell back to around 40 per cent. However, IOF has more to contend with than just currency fluctuations. Gearing will also be pushed higher by falling property values and falling interest rates via their impact on the fair value of hedges. These factors may necessitate another equity raising unless the Trust can sell assets or renegotiate lending covenants.