NZF Group (NZF and NZF010)

[Enumerate]

Finance Direct has a seperate Prospectus so the amount of debenture funding for NZF Money will remain unchaged.

Yes, you are right - they are a separate division. I confused the consumer finance activities of NZF Money with Finance Direct. I should have added in the $6m of Finance Direct retail debentures to the combined NZF Money/Finance Direct borrowings ... the bottom line is that they currently have about $21m retail debentures with $13m plus whatever they cleared from Finance Direct in direct equity.

Collapsing a retail debenture finance business from about $84m to $34m and suffering $2m in impairments (with the potential for another $2m) has got to be judged as completely amazing - given this was done over 2009/2010!

They have $9.7m of intangible assets on the books (probably held as the assets in Management & Holding activities division). This was written down by over $6m in the last year due to revaluation of the Pero intangibles. The fact is that this could go to zero, over two years, and absorb the next two years profit. The fact remains that the profitability of the Home Loans division, alone, probably justifies more than this amount of intangible asset to be written back!

One final point - the effect of the issuance of the new capital notes had the effect of converting $2m of debt to equity. This saves over $180k pa in direct interest expense. Reduction of the note interest rates on the $18m of notes saves over $300k pa in interest expense. They have trimmed $500k pa in interest expenses - enough for a 0.5cent per share increase in NTA pa - a 16% increase.

[Enumerate]

I have attempted to support the view that NZF Group will survive its current difficulties - well enough to support a shareprice of about 15-20cents per share (market capitalisation of about $15m to $20m) in about 2 years time.

The key problem is not to simply survive, in the short to medium term, but to take advantage of the vast hole in the "bank fringe" finance market - and to show some significant growth prospects.

I am not convinced the Pero business is this vehicle for growth. I think it is a valuable brand and if supported by ideal processes and information technology - it will continue to be a valuable brand and source of contracts for the Home Loans division. The main fact is that the retail deposit market will only return to 2007 levels in the very long term. The Aussie banks have been gifted cheap retail money for a very long time to come.

I continue to be intrigued by the nature of this new "partner". If they can bring the loan liquidity ... NZF can find profitable niches for this money. This is the recipe for high growth rates as the mezzanine finance "vacuum" is filled following the carnage of the last 4 years.

[Tony Two Gloves]

I tend to agree that the home loan division and their RMB's programme should be their core focus. Ridding themselves of Finance Direct was a good move even though it has been an expensive exercise, pulling NZF Money back is also prudent as long as they don't take a bath on those non performing loans ($19.1M). As we have seen in the past if the non performing loans are really bad it can chew up all the equity quite easily, espically with second mortgages and bare land. If a new partner enabled them to ditch their debenture funding this would be extremely positive as I can't see this being to profitable with the added compliance costs etc.

What did you make of the "Loan Participation Agreements" with one of their directors?

[Enumerate]

What did you make of the "Loan Participation Agreements" with one of their directors?

I'd say that the opportunities for writing loan contracts that they turn out of the Mike Pero Mortgages unit are clearly better than their available capital/debt allows them to fund. Inviting in Director equity is not necessarily a bad thing. Depends if it is structured fully and formally ... "sweet heart" insider deals are the shortest path to losing credibility given recent events.

On the non-performing loan point - I am assuming that their impairment estimates are accurate. I note that the auditor did not tag the accounts, so I assume the auditor agrees with this view.

I am in this stock, to the extent I am and the price I am, because of the choice presented at capital note conversion. With the price collapse to 2.9cents - I think a bit of averaging down becomes attractive - though not without risk.

When we see the final year accounts and get some idea of how real this "partnership" is - then a more complete picture of NZF Group prospects will be evident.

[minimoke]

I think a bit of averaging down becomes attractive - though not without risk.

Oh dear, in some parts this is known as "Doing a Belg" - in recognition of an enthusiastic yet ultimately doomed strategy. Good luck!

[invessi]

I have attempted to support the view that NZF Group will survive its current difficulties - well enough to support a shareprice of about 15-20cents per share (market capitalisation of about $15m to $20m) in about 2 years time.

The key problem is not to simply survive, in the short to medium term, but to take advantage of the vast hole in the "bank fringe" finance market - and to show some significant growth prospects.

I am not convinced the Pero business is this vehicle for growth. I think it is a valuable brand and if supported by ideal processes and information technology - it will continue to be a valuable brand and source of contracts for the Home Loans division. The main fact is that the retail deposit market will only return to 2007 levels in the very long term. The Aussie banks have been gifted cheap retail money for a very long time to come.

I continue to be intrigued by the nature of this new "partner". If they can bring the loan liquidity ... NZF can find profitable niches for this money. This is the recipe for high growth rates as the mezzanine finance "vacuum" is filled following the carnage of the last 4 years.

Enumerate, I believe you are right on the mark, lets hope TTG does not panic and sell at 2 cents, much as we rib each other, I would still not like to see him take an avoidable bath!

[Phaedrus]

A nice simple chart eh?

Not a good advertisement for the virtues of "Buying and Holding" though!
To think that some people claim "It's time in the market that counts, not timing the market".
What absolute twaddle!

It is interesting how well a bog-standard 200 day Moving Average has worked with NZF, keeping you in when it was in an uptrend, and getting you out when the uptrend ended - before you gave too much profit back to the market. Most importantly though, see how it has kept you out of this absolute dog for 4 years (so far).

How is it possible to get 23 pages of earnest discussion on a stock with a chart like this?

I just don't understand!

[Alan3285]

Hi Phaedrus,

I'm not really a chartist, but always interested.

Where did you source the chart from?

Is it your own creation using source data? If so, would you be able to post the file (rather than an image)?

It is hard to see exactly what is happening at the 'sell' point you have indicated - is that an inflection point in the 200-day moving average, or something else?

Thanks,

Alan.

[Tony Two Gloves]

Well Phaedrus 23 pages and this is probably the only technical analysis comment I have seen! I guess the discussion started around the notes and the healthy debate over which option was the best in rolling over or converting to shares. The chart follows the rise, rise, rise and fall (spectacular fall)of the finance company sector in NZ.

Much as Mini will be disgusted i'm also considering an averaging down purchase as the thought of selling the converted shares now at 0.02 doesn't appeal. It might however be good money after bad......come on Invessi talk me into it

[invessi]

Well Phaedrus 23 pages and this is probably the only technical analysis comment I have seen! I guess the discussion started around the notes and the healthy debate over which option was the best in rolling over or converting to shares. The chart follows the rise, rise, rise and fall (spectacular fall)of the finance company sector in NZ.

Much as Mini will be disgusted i'm also considering an averaging down purchase as the thought of selling the converted shares now at 0.02 doesn't appeal. It might however be good money after bad......come on Invessi talk me into it

Well TTG, I hear from a reliable source that the new partner is likely to happen before 7 weeks are up and the two organisations are very well matched for future growth. My expectation is 20c to 30 c within 12 months