Record week for red ink, Wesfarmers opportunity, Chinalco polling, farm sell-off, CSR baggage, capital raising losses, Babcock insult and Rich List
February 2, 2010
This week's edition of The Mayne Report was sent to subscribers at 2.20pm this afternoon and included the following stories:
1. Three join the $100m loss club today
2. An even bigger test tomorrow with BBW, MacMedia and Suncorp - where are their auditors?
3. The confirmed 23 members of the 2008-09 $100m loss club
4. Another 39 $100m-plus losses still to come by end of the week - full list
5. Great Wesfarmers trading opportunity
6. Capital raisings under water everywhere - full list
7. Another insult from Babcock & Brown
8. Probity shuffles in the house of Packer
9. The CSR CEO's ACCC baggage
10. Selling off the Australian farm - literally
11. Investment banker pay, US-style
12. Chinalco polling cranks up the pressure on Rudd
13. Eddie McGuire's fanciful Wizard plug
14. Another 12 entries on Mayne Report Rich List
15. The Mayne Report's NEW podcast service
16. Audio of radio spots and Manningham Council profile
We're giving away two subscriber stories today, covering the best retail arbitrage opportunity we've seen in a while and an astonishing list of 39 companies that could be expected to deliver losses of more than $100 million this week alone.
Whilst the deadline for the potential $750 million 10 day profit for retail Wesfarmers shareholders has just passed at 5pm eastern, the story is still quite interesting and it is amazing that it hasn't had more media or coverage in the tip sheets:
Great Wesfarmers opportunity
Read this one carefully folks because it details one of the most lucrative retail arbitrage opportunities I've ever seen through a secondary capital raising - but the window is only open for another two and a half hours and you need to be on BPAY.
Whilst we've all been involved in some pretty attractive floats over the years, the three-for-seven Wesfarmers rights issue which closes at 5pm today should deliver a 20%-plus return in less than 10 days.
The basics of the opportunity are explained in this edition of the Mayne Report that went out on January 30.
Since then, Wesfarmers (code WES) shares have jumped more than $2 to $17.89 – meaning the paper profit on the $13.50 offer is 27.8%, even if you factor in the 50c interim dividend which does not go to holders of the new shares.
The reason for this is that the market was very impressed with the interim result Wesfarmers released last Monday and the stock has out-performed the market by more than 10% over the past week.
The biggest earner for Wesfarmers is Coles, which basically has a grocery duopoly with Woolworths and people will still have to eat during a global depression.
Whilst Wesfarmers has more debt, it appears the Poms recruited to turn around Coles are making good progress, such that Wesfarmers looks very cheap given its market capitalisation is still only about $12 billion and Woolworths is valued at $33.7 billion.
The whole opportunity swings on the ability of retail shareholders to apply for additional shares over and above their entitlement under the 3-for-7 offer. If Wesfarmers treats retail shareholders as a single class - which they should - then there is 197 million shares costing $2.66 billion on offer and a paper profit of about $750 million to be had.
Of course, there will be a dilution factor once it is announced that a stack more shares were issued than the $400 million predicted in the offer document, but the buffer is sufficiently wide that it really is simply a question of how big the profit is.
Get onto someone on the Wesfarmers register before 5pm and help finance a nice 10-day turn.
Another 39 $100m-plus losses still to come by end of the week
This is the list that should really shock you because there are no less than 39 companies which have waited until this last week of the reporting season and should join the $100 million loss club. We've included various Allco vehicles which probably won't actually report the loss, but were last claiming to be worth more than $100 million and so technically have lost far more than claimed assets given the apparent insolvency at most of them:
Allco Financial Group: was still claiming to have net assets worth $545 million when it collapsed in November 2008, so the loss for the 2008-09 financial year would clearly have exceeded $600 million.
Asciano: trading at big $1.3 billion discount to claimed net assets of $1.97 billion and will see whether the much-deserved write-downs are booked this Wednesday.
Babcock & Brown: has admitted will be writing down more than $2.4 billion in claimed assets, if we ever see results.
Babcock & Brown Capital: capitalised at about $200 million but claims net assets of $1.28 billion so stand by for the big write-down.
Babcock & Brown Infrastructure: trading at huge discount to claimed net assets of $2.9 billion so expect a massive loss this week.
Babcock & Brown Power: trading at huge discount to claimed net assets of $1.4 billion so expect a massive loss this week.
Babcock & Brown Residential Partners: hasn't traded since November 2008, suggesting that the $146 million in net assets claimed in the 2007-08 annual report has completely disappeared due to the global financial crisis.
Babcock & Brown Wind Partners: the 2007-08 balance sheet claimed net assets of $1.13 billion so big write-downs are warranted in tomorrow's results given the market capitaliation is down to $770 million. The auditor is AJ Wilson from PwC.
Centro Retail: has flagged $700 million in write-downs, but this would still leave it trading at a huge discount to previously claimed net assets of $2.89 billion.
Centro Properties Group: has flagged $980 million in write-downs but this would still leave it trading at a huge discount to claimed net assets of $4.1 billion.
Crown: has flagged $450 million in casino write-downs which should lead to a net loss to be announced this Friday, the latest possible day for its release.
Everest Babcock & Brown: have flagged $186 million goodwill write-down.
FKP: the teetering Brisbane-based property company is now capitalised at barely $100 million when its 2007-08 financial report claimed it had net assets of $1.34 billion. The auditor is Grant Saxon from boutique firm PKF and big write-downs have been foreshadowed. Results due Feb 26.
Goodman Group: foreshadowed losses of more than $1 billion in this statement on February 20 with the full picture coming on February 25.
GPT: has foreshadowed $2.3 billion in write-downs and hedging losses but even then still trading at huge discount to claimed net assets of more than $8 billion. Will get the complete picture with the audited results on February 27, the last Friday of the season.
Gunns: trading at a huge $2 billion discount to claimed net assets of $2.6 billion, so it really is time to start writing down some assets, including the fortune spent so far on the pulp mill.
ING Community Living: trading at huge discount to claimed net assets.
ING Industrial Fund: trading at a discount of more than 90% to last claimed net assets of $2.72 billion.
Lend Lease: has flagged more than $700 million in write-downs and trading at an $800 million discount to latest net assets.
Lend Lease Primelife: despite Lend Lease injecting almost $200 million into the former Babcock & Brown Communities, the stock has plunged to be capitalised at barely $100 million, yet the 2007-08 annual report claimed it was worth $612.8 million. Stand by for big write-downs. The auditor is Gareth Winter from PwC.
MacArthur Cook Property Securities Fund: claims to have net assets of $135 million but the market capitalisation is down to $13 million. The auditor is Andrea Waters from KPMG.
Macquarie Airports: trading at huge $4 billion discount to claimed net assets of $6.2 billion. Result due on February 25.
Macquarie Countrywide: has flagged $600 million in write-downs which won't be nearly enough given market capitalisation is below $400 million yet claimed net assets are still at $3.42 billion.
Macquarie Media: the market capitalisation has tumbled to just $150 million but the 2007-08 financial report claims net assets of $965.8 million, so it will be very interesting to see if auditor Wayne Andrews from PwC has required any write-downs when the half year is released tomorrow morning.
Macquarie Leisure: claims to have net assets of $496 million but the market capitalisation is down to barely $200 million suggesting write-downs are in order.
McArthur Coal: claims to be worth $695 million when market cap is down to $550m. Auditor is Warren Austin from KPMG.
Multiplex Acumen: the property fund investor claimed to have net assets of $285 million in its 2007-08 annual report when the market capitalisation has plunged to just $10 million courtesy of a debt crisis. The auditor is Tanya Gilerman from KPMG.
Multiplex Prime Property Fund: owns stakes in several major Australian office towers but is loaded up with too much debt such that the market capitalisation has plunged to $3 million when the 2007-08 annual report claims net assets of $258 million. The auditor is Tanya Gilerman from KPMG.
Oz Minerals: has flagged write-downs of between $2.3 billion and $2.8 billion, although the mooted MinMetals takeover would suggest write-backs would then be in order.
Paperlinx: after selling its Australian paper manufacturing operations to Nippon Paper for $700 million, admitted this would trigger a $600 million write-down which will send it to be a big loss when the result is released on February 27. However, the 2007-08 annual report claimed net assets of $1.92 billion but that was before an emergency $150 million capital raising which only lifted the market capitalisation to about $450 million. Stand by for a huge loss.
Record Realty: suspended since February 5 but the last balance sheet claimed net assets of $131 million so it should be a big loss if we ever see it.
Rubicon America Trust: foreshadowed a net loss of $320 million in this announcement on January 29 but was suspended on February 5 so we may never see it given the debt crisis. Last claimed to have net assets worth $210 million.
Rubicon Japan Trust: has been suspended since February 5 so we may never see the result but the last published balance sheet claimed net assets of $195 million so the loss should clearly be larger than that.
Rubicon Europe Trust: last traded at a huge discount to claimed net assets of $292 million but has been suspended since November 7 so we'll probably never see the result.
Suncorp: reports tomorrow and should book big write-downs given market capitalisation is down to $5 billion yet the last balance sheet claimed net assets of $12.36 billion. Only Wesfarmers and News Corp are trading at a bigger discount to book value. The auditor is Dr Andries Terblanche from KPMG's Brisbane office.
Transpacific Industries: with claimed net assets of $1.5 billion and a current market capitalisation of just $580 million ahead of an emergency capital raising, we should get huge write-downs if the company even emerges from its suspension to declare its half year results.
Valad Property Group: struggling to stay afloat yet the last annual report claimed net assets of $2.1 billion so stand by for a huge loss this week.
Westfield: flagged $3 billion in write-downs on January 27, but currency movements will still see gross assets rise to over $50 billion when we see the results later this week.
Windimurra Vanadium: we'll never see the result because receivers were appointed in February 2009, but with claimed net assets of $196 in the 2007-08 annual report, the loss for the year would have been north of $200 million. The auditor was KPMG's Brett Fullarton.
The Mayne Report's NEW podcast service
We have created a service for you which over time will collate the best of our video and audio offerings radio, AGMs, speeches and The Mayne Report achive. You can subscribe for free to access this service which includes some funny, insightful, informative and combative grabs. Here you can view or hear some classic stoushes with corporates, politicians, media players and the like. Make a place for it on your ipod or iphone and have a good laugh on the way home. Check it out.
Radio and Manningham Council profile
Have a listen to this February 18 interview on 774 ABC Melbourne with Libby Gore discussing all things GFC.
There was also this interview with Mike Smith on 1116 4BC Brisbane discussing the potential of global sovereign defaults.
And finally, check out this brief profile that appeared in the local government Focus newspaper for February.
That's all for this week but why not subscribe or take up a free trial to enjoy our fully weekly edition, rather than about 15%.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
1. Three join the $100m loss club today
2. An even bigger test tomorrow with BBW, MacMedia and Suncorp - where are their auditors?
3. The confirmed 23 members of the 2008-09 $100m loss club
4. Another 39 $100m-plus losses still to come by end of the week - full list
5. Great Wesfarmers trading opportunity
6. Capital raisings under water everywhere - full list
7. Another insult from Babcock & Brown
8. Probity shuffles in the house of Packer
9. The CSR CEO's ACCC baggage
10. Selling off the Australian farm - literally
11. Investment banker pay, US-style
12. Chinalco polling cranks up the pressure on Rudd
13. Eddie McGuire's fanciful Wizard plug
14. Another 12 entries on Mayne Report Rich List
15. The Mayne Report's NEW podcast service
16. Audio of radio spots and Manningham Council profile
We're giving away two subscriber stories today, covering the best retail arbitrage opportunity we've seen in a while and an astonishing list of 39 companies that could be expected to deliver losses of more than $100 million this week alone.
Whilst the deadline for the potential $750 million 10 day profit for retail Wesfarmers shareholders has just passed at 5pm eastern, the story is still quite interesting and it is amazing that it hasn't had more media or coverage in the tip sheets:
Great Wesfarmers opportunity
Read this one carefully folks because it details one of the most lucrative retail arbitrage opportunities I've ever seen through a secondary capital raising - but the window is only open for another two and a half hours and you need to be on BPAY.
Whilst we've all been involved in some pretty attractive floats over the years, the three-for-seven Wesfarmers rights issue which closes at 5pm today should deliver a 20%-plus return in less than 10 days.
The basics of the opportunity are explained in this edition of the Mayne Report that went out on January 30.
Since then, Wesfarmers (code WES) shares have jumped more than $2 to $17.89 – meaning the paper profit on the $13.50 offer is 27.8%, even if you factor in the 50c interim dividend which does not go to holders of the new shares.
The reason for this is that the market was very impressed with the interim result Wesfarmers released last Monday and the stock has out-performed the market by more than 10% over the past week.
The biggest earner for Wesfarmers is Coles, which basically has a grocery duopoly with Woolworths and people will still have to eat during a global depression.
Whilst Wesfarmers has more debt, it appears the Poms recruited to turn around Coles are making good progress, such that Wesfarmers looks very cheap given its market capitalisation is still only about $12 billion and Woolworths is valued at $33.7 billion.
The whole opportunity swings on the ability of retail shareholders to apply for additional shares over and above their entitlement under the 3-for-7 offer. If Wesfarmers treats retail shareholders as a single class - which they should - then there is 197 million shares costing $2.66 billion on offer and a paper profit of about $750 million to be had.
Of course, there will be a dilution factor once it is announced that a stack more shares were issued than the $400 million predicted in the offer document, but the buffer is sufficiently wide that it really is simply a question of how big the profit is.
Get onto someone on the Wesfarmers register before 5pm and help finance a nice 10-day turn.
Another 39 $100m-plus losses still to come by end of the week
This is the list that should really shock you because there are no less than 39 companies which have waited until this last week of the reporting season and should join the $100 million loss club. We've included various Allco vehicles which probably won't actually report the loss, but were last claiming to be worth more than $100 million and so technically have lost far more than claimed assets given the apparent insolvency at most of them:
Allco Financial Group: was still claiming to have net assets worth $545 million when it collapsed in November 2008, so the loss for the 2008-09 financial year would clearly have exceeded $600 million.
Asciano: trading at big $1.3 billion discount to claimed net assets of $1.97 billion and will see whether the much-deserved write-downs are booked this Wednesday.
Babcock & Brown: has admitted will be writing down more than $2.4 billion in claimed assets, if we ever see results.
Babcock & Brown Capital: capitalised at about $200 million but claims net assets of $1.28 billion so stand by for the big write-down.
Babcock & Brown Infrastructure: trading at huge discount to claimed net assets of $2.9 billion so expect a massive loss this week.
Babcock & Brown Power: trading at huge discount to claimed net assets of $1.4 billion so expect a massive loss this week.
Babcock & Brown Residential Partners: hasn't traded since November 2008, suggesting that the $146 million in net assets claimed in the 2007-08 annual report has completely disappeared due to the global financial crisis.
Babcock & Brown Wind Partners: the 2007-08 balance sheet claimed net assets of $1.13 billion so big write-downs are warranted in tomorrow's results given the market capitaliation is down to $770 million. The auditor is AJ Wilson from PwC.
Centro Retail: has flagged $700 million in write-downs, but this would still leave it trading at a huge discount to previously claimed net assets of $2.89 billion.
Centro Properties Group: has flagged $980 million in write-downs but this would still leave it trading at a huge discount to claimed net assets of $4.1 billion.
Crown: has flagged $450 million in casino write-downs which should lead to a net loss to be announced this Friday, the latest possible day for its release.
Everest Babcock & Brown: have flagged $186 million goodwill write-down.
FKP: the teetering Brisbane-based property company is now capitalised at barely $100 million when its 2007-08 financial report claimed it had net assets of $1.34 billion. The auditor is Grant Saxon from boutique firm PKF and big write-downs have been foreshadowed. Results due Feb 26.
Goodman Group: foreshadowed losses of more than $1 billion in this statement on February 20 with the full picture coming on February 25.
GPT: has foreshadowed $2.3 billion in write-downs and hedging losses but even then still trading at huge discount to claimed net assets of more than $8 billion. Will get the complete picture with the audited results on February 27, the last Friday of the season.
Gunns: trading at a huge $2 billion discount to claimed net assets of $2.6 billion, so it really is time to start writing down some assets, including the fortune spent so far on the pulp mill.
ING Community Living: trading at huge discount to claimed net assets.
ING Industrial Fund: trading at a discount of more than 90% to last claimed net assets of $2.72 billion.
Lend Lease: has flagged more than $700 million in write-downs and trading at an $800 million discount to latest net assets.
Lend Lease Primelife: despite Lend Lease injecting almost $200 million into the former Babcock & Brown Communities, the stock has plunged to be capitalised at barely $100 million, yet the 2007-08 annual report claimed it was worth $612.8 million. Stand by for big write-downs. The auditor is Gareth Winter from PwC.
MacArthur Cook Property Securities Fund: claims to have net assets of $135 million but the market capitalisation is down to $13 million. The auditor is Andrea Waters from KPMG.
Macquarie Airports: trading at huge $4 billion discount to claimed net assets of $6.2 billion. Result due on February 25.
Macquarie Countrywide: has flagged $600 million in write-downs which won't be nearly enough given market capitalisation is below $400 million yet claimed net assets are still at $3.42 billion.
Macquarie Media: the market capitalisation has tumbled to just $150 million but the 2007-08 financial report claims net assets of $965.8 million, so it will be very interesting to see if auditor Wayne Andrews from PwC has required any write-downs when the half year is released tomorrow morning.
Macquarie Leisure: claims to have net assets of $496 million but the market capitalisation is down to barely $200 million suggesting write-downs are in order.
McArthur Coal: claims to be worth $695 million when market cap is down to $550m. Auditor is Warren Austin from KPMG.
Multiplex Acumen: the property fund investor claimed to have net assets of $285 million in its 2007-08 annual report when the market capitalisation has plunged to just $10 million courtesy of a debt crisis. The auditor is Tanya Gilerman from KPMG.
Multiplex Prime Property Fund: owns stakes in several major Australian office towers but is loaded up with too much debt such that the market capitalisation has plunged to $3 million when the 2007-08 annual report claims net assets of $258 million. The auditor is Tanya Gilerman from KPMG.
Oz Minerals: has flagged write-downs of between $2.3 billion and $2.8 billion, although the mooted MinMetals takeover would suggest write-backs would then be in order.
Paperlinx: after selling its Australian paper manufacturing operations to Nippon Paper for $700 million, admitted this would trigger a $600 million write-down which will send it to be a big loss when the result is released on February 27. However, the 2007-08 annual report claimed net assets of $1.92 billion but that was before an emergency $150 million capital raising which only lifted the market capitalisation to about $450 million. Stand by for a huge loss.
Record Realty: suspended since February 5 but the last balance sheet claimed net assets of $131 million so it should be a big loss if we ever see it.
Rubicon America Trust: foreshadowed a net loss of $320 million in this announcement on January 29 but was suspended on February 5 so we may never see it given the debt crisis. Last claimed to have net assets worth $210 million.
Rubicon Japan Trust: has been suspended since February 5 so we may never see the result but the last published balance sheet claimed net assets of $195 million so the loss should clearly be larger than that.
Rubicon Europe Trust: last traded at a huge discount to claimed net assets of $292 million but has been suspended since November 7 so we'll probably never see the result.
Suncorp: reports tomorrow and should book big write-downs given market capitalisation is down to $5 billion yet the last balance sheet claimed net assets of $12.36 billion. Only Wesfarmers and News Corp are trading at a bigger discount to book value. The auditor is Dr Andries Terblanche from KPMG's Brisbane office.
Transpacific Industries: with claimed net assets of $1.5 billion and a current market capitalisation of just $580 million ahead of an emergency capital raising, we should get huge write-downs if the company even emerges from its suspension to declare its half year results.
Valad Property Group: struggling to stay afloat yet the last annual report claimed net assets of $2.1 billion so stand by for a huge loss this week.
Westfield: flagged $3 billion in write-downs on January 27, but currency movements will still see gross assets rise to over $50 billion when we see the results later this week.
Windimurra Vanadium: we'll never see the result because receivers were appointed in February 2009, but with claimed net assets of $196 in the 2007-08 annual report, the loss for the year would have been north of $200 million. The auditor was KPMG's Brett Fullarton.
The Mayne Report's NEW podcast service
We have created a service for you which over time will collate the best of our video and audio offerings radio, AGMs, speeches and The Mayne Report achive. You can subscribe for free to access this service which includes some funny, insightful, informative and combative grabs. Here you can view or hear some classic stoushes with corporates, politicians, media players and the like. Make a place for it on your ipod or iphone and have a good laugh on the way home. Check it out.
Radio and Manningham Council profile
Have a listen to this February 18 interview on 774 ABC Melbourne with Libby Gore discussing all things GFC.
There was also this interview with Mike Smith on 1116 4BC Brisbane discussing the potential of global sovereign defaults.
And finally, check out this brief profile that appeared in the local government Focus newspaper for February.
That's all for this week but why not subscribe or take up a free trial to enjoy our fully weekly edition, rather than about 15%.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.