NZF Group (NZF and NZF010)

[Enumerate]

My only information is what you read in the press release. I am presently digging into the Trust Deed:

http://www.nzf.co.nz/Shareholders/Do...st_Details.pdf

It seems that they are baskets of mortgages - on loans from NZF to the mortgagee, rated by an NZF grading and this grading is verified by S&P. You are purchasing a form of collateralised loan obligation - which is secured by a basket of mortgages - with insurance on the mortgages. I assume the insurance is provided by Westpac.

S&P AAA is investment grade.

[invessi]

Enumerate, each NZF residential loan is insured by Tower, if a specific loan went into default and the property was sold in mortgagee auction say, any shortfall would be covered by Tower and paid to NZF, Tower would then look to the borrower to recover that cost. This is an added bonus to RMBS institutional investors (the RMBS issue is not available to the public).

In my view, NZF have turned the corner, thanks to very cautious directors and board members with many years of experience (the two executive directors drive a commadore and a subaru, they are not flash Harry's!), expect some ramping up with new equity and jv activities!

[Enumerate]

Invessi, thanks for the information.

I note the Herald coverage, this morning ... http://www.nzherald.co.nz/financial-...ectid=10648785

Talk about putting a bad spin on things ... frankly I would be happy if they wrote off all goodwill ... it has no cash consequence and would improve the tax situation. The Herald also fixates on Huljich, when there are much more significant lines of revenue. It is like business journalism being written by gossip columnists. I must admit, the only thing I read, regularly, in the Herald is the Gaynor column (wife reads the MacNamara art column).

Herald coverage notwithstanding - I too believe that NZF will power ahead. I have some shares but see the most value in the Capital Notes NZF010 ...

[invessi]

Enumerate, why do you prefer the Capitol Notes, is it because they may convert to shares at maturity?

For existing NZF shareholders, particularly those that got in early or have been bottom feeding over the past year or so, I think there could be some nice surprises, NZF is starting to look attractive to other corporate players who want to take advantage of the lack of competition due to lack of lenders, John Callaghan has already eluded to jv possibilities in the RMBS arena. Recapitalisation of the finance company would be a plus because they have done very well with that division in the past however, the on balance sheet residential loan book is where the big money could be. You may not have picked it up from previous NZF news releases but they are also a long way down the track to developing the same transactional software that Kiwibank use. From what I have observed, NZF have a very experienced and loyal team with very few changes in personnel over the years, particularly the senior lenders, investment management and accountants.

I agree, the press have never had a balance when it comes to reporting on NZF, they look for any negatives and highlight them without saying much about what is good about the company.

[Enumerate]

Enumerate, why do you prefer the Capitol Notes, is it because they may convert to shares at maturity?

I do not believe that it is inevitable that the Capital Notes will be converted to shares. I do not think there is the necessity to massively dilute existing holders. The company is meeting the interest payments ... and is showing an operational profit. It is out of the retail deposit government guarantee scheme - which is a good thing in my view - and will maintain it's margin on lending with source funding from it's bank partners.

[winner69]

... frankly I would be happy if they wrote off all goodwill ... it has no cash consequence and would improve the tax situation.

Generally such things are not tax deductable

has no cash consequence but affects the equity figure which can sometimes affect key ratios

[Alan3285]

Generally such things are not tax deductable

has no cash consequence but affects the equity figure which can sometimes affect key ratios

Yeah - my experience has been that goodwill amortisation is non-deductible. There may be exceptions I guess?

Alan.

[Enumerate]

Generally such things are not tax deductable
has no cash consequence but affects the equity figure which can sometimes affect key ratios

I think there is a difference between the new IFRS requirements to report values based on fair value (for example, goodwill) and not to allow internally generated goodwill to be recognised. Since this is goodwill associated with a part owned investment asset (MPM) and not an internal, wholly owned, element - I'd say that there is the possibility of the write down having tax implications (for the positive, in the case of a write down).

Further, given this occurs at an annual review of asset values - I think this may be the correct interpretation. All will be revealed when we see the full accounts.

I think that under the old NZ GAAP - it was possible to slowly amortise this goodwill. I do agree with the point that concern about equity levels and triggering banking covenants, etc. may be something to carefully investigate.

[minimoke]

You pop away for a while and some things change - while others don't. Hopefully Enumerate is still around as I'm a bit lost on where to post yesterdays events. NZF Sp takes a 50% hit down to an all time low of $0.10. Enumerate and I couldn't see eye-to-eye on Peter Huljich in the Huljich Wealth Management Thread but yesterdays news once again touches the Kiwisaver thread as wells as the SCF and the ALF/ANF threads. It also touches the Local Body election thread - whose voting for John Banks, Director of Huljich and significant holder of NZF (or at least they were when I last looked)?

[minimoke]

Nothing like a bit of market manipulation. Just a single $400 trade today to drive the SP back up 100% to $0.20!