Thursday 21st April 2011
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An executive at New Zealand's biggest online auction website says that it can't comment on reports that parent company Fairfax may "float" a stake in its Trade Me subsidiary
"We can't comment on speculation about Fairfax's investment strategies, decisions or discussions - we have to leave that to Fairfax," said a spokesman at Trade Me's Wellington head office.
He rejected a suggestion that Trade Me - one of New Zealand's most-visited websites -- might seek a bigger footprint in Australia.
"We're sticking to our domestic knitting," the spokesman said.
"We still see a lot of opportunities for growth here in NZ.
"We wouldn't want to do anything that would erode the high trust NZers have in the website," he said.
"If there was a move to become more of an international platform, it could open a 'Pandora's box' of trust and safety concerns."
Trade Me members must trade from either be New Zealand or Australia, and sellers based in Australia must have a NZ bank account, can't sell vehicles or property located in Australia.
By the end of the business day in Australia, Fairfax Media had not responded questions about report that it was considering selling off half of Trade Me - though an initial public offering - or offloading its Australian radio assets.
In New Zealand, Fairfax owns some big newspapers such as the Dominion-Post and The Press, and in Australia, its press stable is headed by The Age and the Sydney Morning Herald, which have tended to produce lower returns on investment than the electronic auction site.
Royal Bank of Scotland (RBS) analyst Fraser McLeish said the relatively new executive team at Fairfax was likely to look at corporate activity to close the gap between its shrunken share price and underlying value of its assets.
Fairfax could use cash to fund a buyback, pay down debt and raise the company's dividend, The Australian newspaper reported yesterday.
Fairfax's shares rose more than 2% to A$1.32 yesterday but were still well down from more than A$5 in early 2007.
RBS told The Australian said that a partial float of Trade Me -- which it viewed as a quality asset "significantly undervalued" in Fairfax's structure -- was most likely.
At a price of 15 times full-year 2011 earnings before interest tax depreciation and amortisation, and IPO of a 50% stake in Trade Me would raise up to A$600 million (NZ$800 million).
If Fairfax used the funds to buy back 10% of its shares, it would add 8% to earnings per share and reduce net debt by A$290 million to $1.2 billion.
"Changes to the Fairfax board and the management team as well as the disappointing share price performance have meant that the company is now significantly more focused on closing the gap between the share price and the value of the underlying assets than it has been in the past," said McLeish.
"The initiative that would have the potential to unlock the most value would be an IPO of a stake in Trade Me," he said.
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