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Re: Re: [sharechat] NZE - what do you think ?

From: <>
Date: Wed, 29 Oct 2003 8:00:55 +1300

Hi Snoopy
have added comments below.

>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).

>NZE has plans of initiating an "on-market" share buy back of 19 041
>909 shares. The bought back shares are to be cancelled. This
>represents 34% of all issued shares. Therefore if the share buyback is
>executed to completion, 37m shares will remain. 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.

This is quite a common arrangement for any listed company when a
large block of their shares is held by another company.    It means that,
in general,  the large shareholder will not increase their percentage
shareholding by doing nothing while an on market buy back goes on.
In fact 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.  

>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.

>So here is a novice attempt to look at the fundamentals of this

Don't down sell yourself.   It looks like a fairly professional style
analysis to me!
Learnt from a master…. AKA Snoopy  :-)

> Pros:

> 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.

You don't explain where 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.

So it won't be debt free after the buyback.    How much debt do you
expect NZE to take on as a result of the buyback?   How much interest
do you expect them to have to pay for it?
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.

> NTA/share from 2 sources suggests 15.36c, this figure increases to (56
> k˛*15.36)/37m = 23.24cps following a successful buyback.

Not sure about the relevance of the above.   Do you expect the
company to be broken up after the buyback?
No, I don't expect the company to be broken up after the buyback. I do think 
the company would make a very attractive takeover target though.
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. On this belief, buying a share in NZE at 
25c to me means that I am buying the goodwill and earning potential of the 
company for only 1.76cps.
ie: if  the NTA value equalled share price then it is conceivable that I might 
physically buy one of the individual seats on a rainbows end ride and at no 
extra cost, I am offered someone willing to pay me for the opportunity to sit 
in my seat  !
I know in reality the market doesn’t put much weight on NTA (as an example see 
BRY) but it is a factor I consider when buying shares.

>Showing good recovery over two year period reflected in share price
>(70% increase for last 12 months).

So why didn't you tell us about NZE 12 months ago then? ;-)
It is true the hindsight of a fool is better than the foresight of a genius!.
I have only been watching this company for the last three or so months, the 
latest news releases and for that matter, a recent visit to the park has 
started me wanting to reach for the pocket.

>Facilities improvements on the radar with increased business
>opportunities . I am picking a hot summer  - good for traffic flows
>through the door.


>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.

What are the budgeted costs for these renovations?
Can't itemise the renovation cost, but is covered in the 5k˛ debt facility.

> High $NZ affecting international tourist flows.

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
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, and apparently we currently enjoy "a 
long term trend of increasing tourist numbers"
if the current AIA thread is anything to go by.
If anything then, perhaps this perceived “con” should be massaged and placed in 
"Pros" list !

> My conclusion? – This looks like good buying  - I must be missing the
> obvious as  I can't understand why the price has remained at 25c.

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

1.4/ 25= 5.6% or 8.5% imputed.   Not bad, but not outstandingly cheap,
especially considering this profit has not been achieved yet.

> I note that around 10 Oct on the release of the above news items the
> share price jumped to 30c on what I am guessing was low volumes but
> quickly returned to proposed buyback price.

Is this an on or off market buyback?    If it is an offmarket buy back at
25c why would anyone buy the shares on the sharemarket at more
than that price, at least in the short term?
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.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.

> Would any of you learned share chatters out there like to comment,
> correct my figures or just shoot me down in flames?

I hope those comments have helped.
Certainly have  - cheers

discl: no NZE shares held

Barrel Scraper
discl: Potential NZE Holder

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