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Street Talk
Author: Edited by Eli Greenblat ([email protected])
Date: 20/07/2005
Words: 1578
Source: AFR
Publication: The Financial Review
Section: Market Wrap
Page: 18


Vehicle will take Allco to the Max
David Coe's Allco Finance Group is sounding out investors and fund managers about its latest investment vehicle, tentatively called Allco Max.

A document circulating in Melbourne and Sydney offices says the new publicly listed vehicle will raise $400 million and have assets under management and investments worth more than $2.5 billion.

With debt, the total market capitalisation of Allco Max could be around $800 million but this will depend on investor enthusiasm.

The raising is being done by Credit Suisse First Boston. Fund managers will have until next week to register their interest in the "pathfinder" pre-prospectus document.

The fee structure will be: 1 per cent of the total capital raised for the float, and a 0.5 per cent administration fee.

Once the outfit is up and running, it will charge 15 basis points on the first $1.5 billion, 12.5 basis points on assets up to $2.5 billion and 10 basis points above $2.5 billion.

There is also tipped to be a bonus fee for any outperformance of relevant indices and market measures.

The special purpose vehicle will be highly geared, and meddle in mortgage-backed securities, equity, mortgage loans and various other financial products.

Once fund managers are on side, Allco Max will be dangled in front of retail and institutional investors. This part of the offer will open on August 5 and close September 2.

Fund managers who spoke to Street Talk yesterday said they liked what they saw.

Final broker offers and allocations will be done by September 8 with the new Allco entity to list on the Australian Stock Exchange on September 12.

There are also whispers of a listed Allco property fund ready to go. This is being driven by recent purchases by Allco businesses, including an A-grade office tower.


Funtastic locked in due diligence

Toy distributor Funtastic is doing due diligence on an acquisition target and could announce a deal within a month if all the numbers fit into place.

The purchase price is in the vicinity of $15 million and is rumoured to be in the publishing industry. However, Funtastic's management team led by chief executive David Hendy is prepared to walk away from the transaction if it doesn't meet rigorous conditions.

Funtastic has its fill of toy and housewares assets but is keen to expand its publishing business. It started up its publishing activities only three years ago but already the division is the second-largest publisher of children's books in Australia.

There are some suggestions Funtastic could be looking to expand its publishing reach into Asia, taking advantage of the millions of middle-class parents who want their children to speak English.

The company may also consider a move into sporting goods, adding to its existing suite of branded sport paraphernalia.

* As predicted, Wayne Sidwell's Wellcom Group has closed its $40 million IPO early and over-subscribed. The pre-media and print production company will list on July 11. Those lucky enough to get shares in the float include Telstra Super, Geoff Wilson's Wilson Asset Management, the Myer family, Alex Waislitz's Thorney Investments, boutique Melbourne fund manager Opis Capital, Mirrabooka Investments, Contango and Challenger. Funds raised will be used to repay about $6 million in debt and will also fund moves into TV post-production and Asia.

Wellcom expects 2005 revenue to jump 13 per cent from last year to $30.5 million on earnings before interest and tax of $6.2 million.

* Shares in commercial refrigeration company Hastie Group closed at an equal record high of $1.68 last night on growing speculation that it has finally found something to buy and might be ready to reveal what it is today. It's fair to expect the acquisition, probably somewhere in the range of $10 million to $15 million, will be in Hastie's industry and within the 3 to 5 times earnings price bracket the company has been talking up since listing in March.


GUD to clean up with its Oates takeover

Manufacturing and marketing company GUD is expecting to extract at least a 5 per cent increase in fiscal 2006 earnings per share from its $35 million acquisition of Oates household and industrial cleaning products, the group announced this week.

Credit Suisse First Boston views the Oates deal as relatively small, although decently accretive given the interplay of the cost of debt and the seemingly attractive pricing on the transaction.

The $35 million debt-funded deal, plus $4 million of working capital, leaves GUD with plenty of scope to enhance shareholder returns, either through additional acquisitions (likely) or capital management initiatives (dividend payout is up this year, buyback is active).

CSFB has upgraded its GUD target price from $7.25 to $8.15 to capture the increase in earnings per share.

Oates, a Melbourne-born company, produces over 1500 products including brooms, buckets, mops, cloths and storage bins.

Oates bumps up against a variety of competitors depending on the product segment.

In household brushware, Sabco, a division of Housewares International, is a substantial player. However, Sabco's total sales appear to be less than one-third of those of Oates.

The Vileda brand of the Freudenberg group of Germany is big in cloths and mops, both in retail and industrial/commercial applications, while 3M of the US also has a big presence in this market.

Oates will operate as a stand-alone entity within the Sunbeam Victa consumer products group, which generates around 50 per cent of GUD's EBIT, the broker says.

In terms of scale, it will fit between the Victa mower division and the Davey pump division in sales contribution.

CSFB further notes that Oates could become a focal point for selective acquisitions, as GUD management believes there are opportunities in the industrial and commercial cleaning products areas for value-adding bolt-on acquisitions.


Wesfarmers chief needs to nail down Bunnings strategy

One of the first items on new Wesfarmers chief executive Richard Goyder's agenda could be the diversified company's 22.6 per cent stake in Bunnings Warehouse Property Trust.

Wesfarmers has built a solid reputation over the last few decades for generating super-charged returns from its investments, but one broker report yesterday threw up some doubt about the future earnings growth of the trust.

Citigroup has a sell/medium risk recommendation on BWP with a target price of $1.66 (previously $1.62). The stock closed yesterday at $1.885. This values Wesfarmers stake in BWP at $124 million.

The broking firm says BWP faces a number of challenges in its efforts to grow earnings over the medium term. Strong competition for assets and a slower rollout of Series 3000 and New Zealand stores will put a greater focus on organic earnings growth, with market rent review growth likely to slow.

In addition, the sub-7 per cent yield looks tight when compared to yields from high quality regional mall operators, Citigroup says. BWP is also trading at a high premium to NTA, now hovering around 35 to 40 per cent.

Risks pertain to property market conditions in general and encompass considerations of real estate supply and general economic conditions.

CSFB says variance of the latter affects the demand for property by tenants. Specific factors considered include residential development activity in new home construction and home renovation markets, the structured rent growth profile and the long lease duration to Bunnings.


Costa family looks to float businesses

The fruit and vegetable empire run by the Costa family of Geelong is looking to take a greater role in public companies and as part of its generational planning could start to list a few of its most profitable businesses on the ASX.

First on the list is their table-grape operation. The Costas are Australia's largest producers of table grapes from properties in the Northern Territory, Queensland, NSW and Victoria. As part of a new investment strategy the Costas are investigating the sale of the properties while retaining the farm management and marketing rights.

The Costa table-grape business, which sells a variety of grapes into Coles and Woolworths supermarkets, is worth around $70 million.

Mariner Corporate Finance has reportedly got the gig to sell the business with options including a float or trade sale.

There are a number of buyers who could be lined up for the grape operations including Chiquita (Frank Costa is a director), Select Harvests, Websters and Timbercorp.

Mariner has already spoken to one fund manager around town and the feedback was positive, especially in a market that is starved of pure food companies following the takeover of SPC and National Foods.


Reporting season on starting blocks

Australia's $8 billion listed investment company (LIC) sector will start to report its 2004-05 full-year results in the next couple of weeks.

First off the blocks is expected to be Australian Foundation Investment, which has an Aussie equity portfolio worth $3.5 billion, followed by other blue-chip conservative companies like Argo, Milton and Diversified United.

The most interesting aspect of the individual company results will be the various LICs' strategies to spend the hundreds of millions of dollars in new cash released by the spate of takeovers last financial year.

Many of the LICs were heavily invested in stocks such as WMC, National Foods, SPC and Southcorp.

They have also just received dividend cheques from the major banks.

* Talk in the market that water pump and plastic products company Nylex was in the running to buy Oates was almost on the money, it was in fact bought by GUD this week.

However, that doesn't mean that Nylex isn't in acquisitive mode and is actually scouting around for another bolt-on acquisition. Nylex is interested in a number of businesses including plant hire. A deal could be unveiled in the next few months.

Nylex has sold most of its automotive and industrial assets following a lengthy restructure but still has four businesses active in the auto industry.