Good year for many Kiwi equity investors
2012 will go down as a year of winners and losers.
Among the winners - or so I thought - were clients of David Ross. The last time we met was in April last year at a Diligent briefing hosted by its New York-based executives who said the IT company was on the brink of considerable success and its products were in strong demand by US company directors, facilitating board meetings with one another.
The shares were then 80c but had rocketed to $5.52 on Friday.
Ross, in his characteristic low-key way, seemed enthused.
The share price jumped after that meeting, rising 530 per cent since then. I assumed the Ross funds had been active buyers.
Had he invested say $10 million of his clients' $450m in Diligent, it would have been worth about $67m on Friday, though it's possible these shares were sold to pay investors who wanted their money out.
Ross was regarded as a successful stock picker, specialising in buying Canadian and Aussie penny dreadful oil, mining and gold stocks. These can produce handsome rewards.
Unfortunately, since 2007 there has been a much reduced appetite for such speculative stocks and big wins would have been rare.
An as example, shareholders in Central Otago miner Glass Earth - which had a good story to tell when it was floated - have rushed to accept a takeover offer from founder Geoff Louden much lower than the original issue price.
This is not to say the appetite for risking one's money has disappeared. Diligent was a penny dreadful in early 2009 when it was selling at seven cents. One sizeable holder believes they will be taken over next year.
A research note from FNZC says it is a cash cow, raising their target price from $4 to $6.70.
Xero was another winner, with its share price rocketing 179 per cent this year to $7.60 on Friday, backed by sizeable injections of offshore capital. I found the annual meeting an eye-opener: it was crowded with enthusiastic shareholders who dwelt on every word of Rod Drury and other executives, in an atmosphere reminiscent of Brierley Investments meetings 25 years ago. Unusually, its shareholders don't want dividends but are happy for their capital to be spent growing the company - and its large Wellington workforce - to make it into a world force in accounting software.
Last December when Trade Me listed, customers who had made 500 trades were given a prior right to buy shares at $2.70. Being by their nature traders, I wondered how long they'd be able to resist the temptation to sell at the first scent of a profit. Had they hung on, they would have done well and become stakeholders in what has become a major trans-Tasman company. Trade Me also has a scent of takeover about it.
Alternatively, freed from the shackles of cash-strapped Fairfax, Trade Me could expand, possibly across the Tasman where most of its shareholders live. Its trading model has achieved far deeper penetration of the Kiwi market than big brother EbayAustralia, in which Aussies can't invest.
Many existing Kiwi Trade Me shareholders would have been disappointed that the brokers handling the sale of the last tranche of Fairfax shares sold mainly to Australian institutions.
Normally a share price drifts back after a hefty placement, allowing small investors to buy extra shares at about the same price. This hasn't happened so far, indicating strong continuing Australian support for the company. It is a pity Trade Me has joined the long list of companies that earns all its money here but much of its profits will go overseas.
There should have been no surprise that such a large percentage of units in Fonterra ended up mainly in Australian and also Asian hands.
As pointed out in this column, before the float details were revealed, this seemed highly probable as Fonterra's offshore advisers were whipping up overseas interest at a series of roadshows. It has never been satisfactorily explained why the stock was placed this way. It was a relatively small $525m issue that the equity and bond-starved Kiwi investment market could easily have absorbed: though it is unlikely the shares would have risen so far and fast without international buying support.
Many would-be Kiwi investors must be regretting their decision to turn down entitlements for Fonterra units. They were miffed their requests for sizeable parcels were so drastically scaled back by local brokers, who in turn were given far fewer shares to on-sell than they wanted.
Among these was the investor who told the media he'd rejected an offer of $10,000 worth when he wanted a $50,000 parcel.
A profit is always a profit, and the 1818 shares he would have got for $10,000 are now worth $13,000.
A 30 per cent gain in three weeks isn't to be sniffed at.
2012 losers included SkyTV, Chorus and Telecom whose share prices slipped sharply under the shadow of the regulators, though they picked up somewhat late last week. The Government may be unduly optimistic if it plans partial floats of all three energy companies next year, while investors may be wary of investing in a sector that can be subject to regulatory oversight.
Overall 2012 has been a rewarding year for many Kiwi equity investors.
Next year may be equally as satisfying, as the international outlook is expected to improve and interest rates to remain low.