NZF Group (NZF and NZF010)

[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 ...

[Enumerate]

NZF announces their full year results:

http://file.nzx.com/000/957/3758957.pdf

NZF’s four key operating segments all showed strong returns to profitability; the most notable of
which were the Home Loans and Property Finance Divisions, which contributed $4.345 million and
$1.021 million respectively to the audited profit from trading operations for the year.

An overall loss, for the year, was declared after writedowns of goodwill:

Goodwill impairment testing indicated that the carrying
amount of goodwill allocated to NZF’s 50% Joint Venture Investment in MPMH Limited exceeded its
estimated recoverable amount by $6.975 million. The Directors have accordingly accounted for this
impairment loss in the financial statements, which has resulted in NZF reporting a retained loss of
$4.596 million for the year attributable to equity shareholders.

Since the goodwill write down is not a cash loss, this is probably a good time to take the write down. I assume that from a tax viewpoint this allows 30% of the operating profit to be maintained. While overall assets go down - maximum cash is maintained in the company.

All in all ... a solid result.

[invessi]

This was posted by Bob Day on his web site today .............."NZF (like a number of others involved with property, they don't believe those nasty bottom lines should get quite as much attention paid to them as some, like me, pay, but they're also hoping those bottom lines will become worthy of reporting very soon) "

[COLIN]

Enumerate: Thank you for your various detailed posts and your erudite analysis of the current position with NZF - a much superior assessment to what I have seen produced by our rather abysmal financial press, if I might say so. The recently-announced results are worthy of detailed study, and distinguish NZF from a large swathe of their lesser-endowed peers. I even bought a few more of the NZF010's, back in April.

One query I would have, in regard to what might happen on maturity of the notes, relates to the manner of arriving at the "market price of the NZF's" if they choose to convert to shares, given that these shares are only traded very spasmodically? I suppose I could find out the answer, if I rooted around long enough, but I thought you might have it at your finger tips. (I tend to agree, though, that they might seek to roll over, and/or refinance elsewhere, rather than dilute the current ownership).

LATER: I have now done the legwork, relative to my query, and consulted the Trust Deed. It states that the conversion price is to be 95% of the weighted average share price over the previous 20 business days. If there have been no transactions on the NZX over this period then the "last sale price prior to that period" is the operative price. It seems to me that this formula leaves the conversion price wide open to manipulation, where we have such an extremely thinly-traded share.

[Enumerate]

One query I would have, in regard to what might happen on maturity of the notes, relates to the manner of arriving at the "market price of the NZF's" if they choose to convert to shares, given that these shares are only traded very spasmodically?

It is a classic discounted VWAP calculation: 95% of the weighted average of the shares traded 20 business days before the test date.

Oops, you have done the research ...

LATER: I have now done the legwork, relative to my query, and consulted the Trust Deed. It states that the conversion price is to be 95% of the weighted average share price over the previous 20 business days. If there have been no transactions on the NZX over this period then the "last sale price prior to that period" is the operative price. It seems to me that this formula leaves the conversion price wide open to manipulation, where we have such an extremely thinly-traded share.

Another reason to have a little stockpile of shares bought cheaply ...

[invessi]

Enumerate: Thank you for your various detailed posts and your erudite analysis of the current position with NZF - a much superior assessment to what I have seen produced by our rather abysmal financial press, if I might say so. The recently-announced results are worthy of detailed study, and distinguish NZF from a large swathe of their lesser-endowed peers. I even bought a few more of the NZF010's, back in April.

One query I would have, in regard to what might happen on maturity of the notes, relates to the manner of arriving at the "market price of the NZF's" if they choose to convert to shares, given that these shares are only traded very spasmodically? I suppose I could find out the answer, if I rooted around long enough, but I thought you might have it at your finger tips. (I tend to agree, though, that they might seek to roll over, and/or refinance elsewhere, rather than dilute the current ownership).

LATER: I have now done the legwork, relative to my query, and consulted the Trust Deed. It states that the conversion price is to be 95% of the weighted average share price over the previous 20 business days. If there have been no transactions on the NZX over this period then the "last sale price prior to that period" is the operative price. It seems to me that this formula leaves the conversion price wide open to manipulation, where we have such an extremely thinly-traded share.

The shares in NZF are tightly held which creates its own problems, an increase in shareholders could be a good thing! A merger or takeover of a like company could also be a good thing!

NZF are going to roll out a comprehensive range of insurance products shortly of which they are the underwriter of premiums, this could go well for them given that they have built in distribution through Mike Pero brokers/insurance writers and the brokers/insurance writers who agregate through NZF. The other advantage they have is that a lot of general insurance writers are either retiring or not wishing to go through the new education process, this should widen the market for NZF.

[Enumerate]

BTW - I looked at last years accounts filed at the Companies Office (still waiting for this years). The Goodwill changes were recorded on the income statement - which is good news for the use of the write down to offset tax, in my view.

Invessi, you point out the insurance product diversification ...

NZF are going to roll out a comprehensive range of insurance products shortly of which they are the underwriter of premiums, this could go well for them given that they have built in distribution through Mike Pero brokers/insurance writers and the brokers/insurance writers who agregate through NZF. The other advantage they have is that a lot of general insurance writers are either retiring or not wishing to go through the new education process, this should widen the market for NZF.

This is important news ... to me it speaks of a a company willing to invest in the NZ financial services sector and to innovate (cf the recent Residental Mortgage Backed Securities issue). I think your point about other companies retreating from the market also applies to a wider set of financial services. If they can sort the capitalisation issues - the future should be very bright.

[invessi]

BTW - I looked at last years accounts filed at the Companies Office (still waiting for this years). The Goodwill changes were recorded on the income statement - which is good news for the use of the write down to offset tax, in my view.

Invessi, you point out the insurance product diversification ...



This is important news ... to me it speaks of a a company willing to invest in the NZ financial services sector and to innovate (cf the recent Residental Mortgage Backed Securities issue). I think your point about other companies retreating from the market also applies to a wider set of financial services. If they can sort the capitalisation issues - the future should be very bright.

This is the person who heads up the new insurance program -

Dave Shatford Dip P Fin Plan(Waikato) – General Manager Investments and Insurance
Dave moved to his current role in July 2007 from GM Distribution for NZF mortgage and insurance broking division New Zealand Mortgage Finance Limited (NZMF). Dave has a wealth of experience in investments and insurance from the 32 plus years he spent in the financial services industry. His specialist insurance knowledge came from his senior management roles at Aon (where he ran Aon’s life insurance distribution area) and before this AMP, where he was in the life insurance business development area, his last role being National Manager Broker Distribution. Prior to this he spent over ten years in ANZ Bank’s funds management division, initially in administration and marketing management roles, prior to going abroad for an extended period. On his return to New Zealand in 1993 he was appointed as a Financial Planner with ANZ Funds Management and later as ANZ’s Financial Planning Manager; in charge of systems, audit, training and development of ANZ’s Investment Advisory Service and personnel. Dave joined NZF when Approved Mortgage Brokers Limited (where Dave was CEO and part owner) merged with NZF subsidiary NZMF. Dave started his career with the ANZ in 1977, where he held a number of senior and managerial roles over the 23 years he worked there, including residential and commercial lending, credit control, marketing, administration, investment and insurance.

[COLIN]

[QUOTE=COLIN;306745]Enumerate: Thank you for your various detailed posts and your erudite analysis of the current position with NZF - a much superior assessment to what I have seen produced by our rather abysmal financial press, if I might say so. The recently-announced results are worthy of detailed study, and distinguish NZF from a large swathe of their lesser-endowed peers. I even bought a few more of the NZF010's, back in April.

One query I would have, in regard to what might happen on maturity of the notes, relates to the manner of arriving at the "market price of the NZF's" if they choose to convert to shares, given that these shares are only traded very spasmodically? I suppose I could find out the answer, if I rooted around long enough, but I thought you might have it at your finger tips. (I tend to agree, though, that they might seek to roll over, and/or refinance elsewhere, rather than dilute the current ownership).

LATER: I have now done the legwork, relative to my query, and consulted the Trust Deed. It states that the conversion price is to be 95% of the weighted average share price over the previous 20 business days. If there have been no transactions on the NZX over this period then the "last sale price prior to that period" is the operative price. It seems to me that this formula leaves the conversion price wide open to manipulation, where we have such an extremely thinly-traded share.[/QUOTE]
Enumerate: Reference your point about the scope for share price manipulation - this is a scenario I foresaw, in my post of 1-6-10 (above), and I can only surmise that they will ensure that "friends" bid up the share price during this period. However, the picture is heavily clouded by the recent "news" (that apparently was passed to depositors, etc., and not to the NZX - without any challenge by the latter!). It really leaves noteholders in the dark and, unless I am missing something, I find the situation totally unsatisfactory.

[Enumerate]

It really leaves noteholders in the dark and, unless I am missing something, I find the situation totally unsatisfactory.

I agree. I was hoping for better treatment - I would have rolled my notes if the interest rate was appropriate to the risk. Why didn't they offer to convert to secured debt on standard debenture terms (ans: probably for capital adequacy reasons).