Forum Archive Index - June 2001

["hugh webber" <hugh.webber@clear.net.nz>]

Seems to be my day for writing articles on articles. There's
nothing like imminent death for concentrating the mind is a 
famous and rather true quote someone made and it also applies
to investment - there's nothing like owning some shares for a while
for concentrating the mind on those shares.
Unhappily it seems apparent that neither Chris Castle (Sunday 
Star Times re Cap Props) nor Dave McEwen (NBR re NZR) own any
of the shares in question as they've given the once over very lightly
to their subjects.

For some reason Mr McE has suddenly decided to dig up NZR's
4 month old ann report and dip into it at random. In other words
there's absolutely nothing in it that hasn't been known and digested 
for yonks. However the 'spin' put upon it all is rather puzzling....

Mr McE woke up that morning feeling a little out of sorts and a
suddenly looming deadline for an NBR article which he'd forgotten
about. He was puzzled as to what he could write so he went into
his garage and thumbed through a few old annual reports. Randomly
he stumbled upon some pretty pictures of Marsden Point....
I know, I'll give NZR a bit of stick he thought and hurried off to his
manual typewriter.

Item: "....chairman Ian Farrant - 'Despite the strong result this year,
perceived expectations are for less robust margins in the future', he
warns". 
Hmmm, if Mr McE had been at the AGM as yours truly was he would
have also heard the chairman admit that he gave just such a warning 
last year after which NZR proceeded to have its best year ever.
He might also then know that the NZR refining margins are set in $US
and as most of us know.....the kiwi has been drifting down against the
$US and the NZ economy has been growing - not terribly fast - but growing.

Then we have the matter of an accounting item where NZR is obviously
trying to write down its assets as fast as possible for tax and other reasons.
This then results in hidden reserves later....but that was a bit subtle for
Mr McE that day. 

Hands up those who think the major oil coys Shell,
BP, Caltex, Mobil who own about 75% of NZR are about to fold their tents
and desert NZ? Hmmm....fingers of one hand. Hands up those who think
the Labour-Alliance government is going to put the boot into Whangarei
despite its regional policies? Hmmm...fingers of one hand. Can anyone
tell me how many refineries there are in New Zealand? Can anyone tell
me how many refineries there will be in Sydney now one's closing down?
Can anyone tell me what will happen  to Challenge's directly imported
products if Caltex gets the nod to buy Challenge?
Can anyone tell me how Frontier (a US business which like NZR
specialises in oil refining - its predominant business - if not sole -
is two oil refineries) has been going?
Anyway, they were all thoughts which didn't occur to Mr McE.

The other two items which worried Mr McE were apparently 
interconnected (a) that there could be some environmental demands
coming up (b) NZR would not be able to finance them given its
policy of paying out nearly all its profits as dividends.

NZR is actually a very modern refinery with a hydrocracker which
means it is much more flexible for tailoring products. If the government
produces new demands then it has to make allowances for paying for it,
i.e. there are expected to be negotiations with the government if and when
...
If Mr McE is worried about Shell, BP, Caltex and Mobil's ability to be 
able to respond to a flea bite demand in New Zealand .... maybe we're on
a different planet.
Let's all hide under the bed shall we?
Ah well, I look forward to Mr McE getting stuck into another Buffett consumer
monopoly - say Auckland Airport - next week.

cheers,
Hugh

PS Mr McE quotes NZR's revenue as $280 million in 1996 and as $297 in 1999 and 
deduces from that 'it is a company that is not growing'.
He also quotes that costs have 'shrunk from 75% of revenue 5 years ago to
65% last year.' (NZR have a continuing cost reduction program). Is there 
something
wrong with that? And again I say, are we living on the same planet?


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