Forum Archive Index - October 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Barrel Scraper,

>
>>My understanding of news releases from the NZE is as follows.
>
>NZE is the operator of the Rainbows End amusement park in
>Manakau City is it not? Correct, I believe Rainbows End is
>their only interest having fully divested in May 2003 of the
>Christchurch Gondola operations (at a loss of 109k).
>

Ah yes the infamous Christchurch Gondola.   I still have the original
prospectus - tucked away in my so called 'library of shame'.
Fortunately I never took up any of the shares....

Still, such events are in the past.   The mere fact that NZE is still
tainted by the Christchurch Gondola could be one reason why it
languished so long at a bargain price.

>
>> Emerald Capital
>>have indicated agreement to "accept the buyback offer for its
>>proportion of shares sought" and sell more to make up for any deficit
>>in the target amount of shares to be bought back.
>
>it appears Emerald Capital are going to dilute their holding in
>the company from 82.25% to potentially 73% dependant on how
>many minority shareholders decide to sell their shares back to
>NZE for 25c.
>

Yes

>
>>NZE have a profit target (by there own admission not on track
>>as yet)of 900k after tax and have indicated they would like to
>>return to dividend payments representing 80 to 90% of this
>>value in Sept 2004.
>
>>Using the forecast figures, my calculations indicate a potential
>>return to holders in the order of (noting the dividend payment is
>>post the potential buyback) say (.85*900k)/37m = roughly 2cps
>> or 8% return on investment.
>

So you are predicting an 8% dividend yield.

I think you need to take the cost of the extra bank borrowing into
account.  That would reduce the profit per share after the buyback.

>
> ( the 0.85 factor on the profit comes from. Just a "best fit"
> figure derived from the adopted policy to distribute 80
> to 90% of after tax profit. ie; 0.8 to 0.9 of after tax profit.)
>
>>The company is debt free (for now) but has the cash flow to secure
>>finance for the buyback and some capital improvements.
>
>Quote from the Annual
>meeting chairmans address summary 10/10/03 "A facility of $5m was
>intended to provide funding for the buyback, ongoing capital
>expenditure and future dividend payments." "The facility was
expected
>to fluctuate between $3.5m and $5.0m over the next few years."
>Interest rates ?, sorry I would only be guessing.
>

OK $3.5-5.0m at say 6.5-7.5% (?) would be an annual interest bill of
$227,500 - $375,000
Based on 37m shares that makes a cost of $0.006 to $0.010 per share.

>
>>>NTA/share from 2 sources suggests 15.36c, this figure increases
to
>>> 56 k²*15.36)/37m = 23.24cps following a successful buyback.
>
>>Not sure about the relevance of the above.
>
>NTA to me is like an insurance – my understanding is that if a
company
>goes belly-up, in the purest sense, this is the ammount that should be
>returned to the shareholder on sale of the asset. So when looking at
>purchasing a share, I consider the current NTA as the "Bricks and
>Mortar" of the investment.
>

Fair enough point.

>
>a recent  visit to the park has started me wanting
>to reach for the pocket.
>

Tell us about your visit. are the rides still 'exciting enough' for the
young generation.   I have been to Rainbows End once but that was
years ago.  Surely the whole place must be looking a little tired by
now?

>
>>Historically not a liquid stock.
>
>>Potential short-term loss of earnings while Front buildings (video
>>arcade, merchandising area and admin building) are being
renovated
>>post Easter 2004.
>

A superficial facelift for a tired old tart?

>
>Can't itemise the renovation cost, but is covered in the 5k² debt
>facility.
>

OK

>
>>I wonder how many international toursits go to Rainbows End?  I
would
>>have thought it would be mainly a domestic attraction, but I could be
>>wrong.
>
>Good comment, got me questioning my logic. At my recent visit
>to the park, I didn’t have the feeling of being in a tourist Mecca (
>typically all kiwi accents around,
>

What sort of demographics did you observe?  Family groups?
Teenagers?  Is it just one entry price or is it 'pay per ride'?

>
>>900k on 56 million shares (pre buyback) = 1.6c per share earned.  If
>>they pay out 90% of that as a dividend that produces a dividend
yield
>>of:
>>
>>1.4/ 25= 5.6% or 8.5% imputed.   Not bad, but not outstandingly
cheap,
>>especially considering this profit has not been achieved yet.
>
>The buyback proposal states an
>"on-market share buyback" over a period of 20 working days during
>November and December 2003. I can only figure NZE are going to
stand
>in the market with a buy order for  19 041 909 shares at 25c, and
>Emerald Capital are going to immediately sell them (0.825*19 041
909)
> = 15 709 575 shares . (At present there are only 2 buyers at 25c and
> they only want 38 045 shares between them) leaving 3 333 234 shares
> still to be bought back.
>

Yes, there is a bit of a shortfall there :-)

>
>Minority shareholders will then get the
>opportunity to sell substantial portions of their shares at market
>price of 25c. The share buyback is subject to " the arrangement of
>appropriate banking facilities, preparing required documentation, and
>obtaining the required approvals of the NZX where necessary". I think
>the only way to secure shares at 25c ( assuming an increasing
>shareprice following the buyback) would be to get your buy order in
>before NZE – my understanding of the rules is that Emerald Capital
>would not be able to sell to NZE without satisfying buyers higher on
>the depth list first.
>

I Agree.  However, it may be that the shareprice falls for a while after
the buyback has finished.


It is good to get a bit of first hand information about 'forgotten' shares
like NZE.

SNOOPY


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