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FPA, FISHER & PAYKEL APPLIANCES HOLDINGS LIMITED
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post Posted: Feb 3 2009, 10:00 AM
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Company:
FISHER & PAYKEL APPLIANCES HOLDINGS LIMITED

Code:
FPA

Website
http://www.fisherpaykel.com/


 
Lizard
post Posted: Nov 14 2008, 07:54 PM
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Having now found a couple more analysts reports and pored over their figures, I can only assume that they are basing their figures on all but $20 of the $70m in cost savings from the relocation being passed onto the consumer. And then near on $10m of them going in additional interest expense, with the remaining $10m being subject to tax...

I fail to believe that FPA went through this entire global manufacturing strategy, just to give most of the gains away (and for no greater market share if they do...). But, as should be obvious, I've been wrong before!


 
Lizard
post Posted: Nov 14 2008, 07:01 PM
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Call me Pollyanna, but I thought that the FPA half yearly contained a lot of positive. Okay, it was hidden behind a $7.3m loss - but that was at the better end of the $7-$10m loss forecast at the August AGM. The dividend was cut from 9cps to 5cps - so that wasn't great news either. But then given the treatment meted out to high debt companies of late, I'm sure most shareholders will be happier with that than with the alternative.

But looking forward - this has to be the low for reported profit for FPA. And we are entering the stage where historical margins will be restored rather than eroded, as exchange rates, interest rates, competitors pricing and materials costs all move in their favour and the financing arm should receive some investor stability from the govt guarantee. Furthermore, the relocation project is now expected to yield more in savings than initially projected - something like $70m per annum rather than the originally mentioned $50m if I read aright. Operating cashflow looks to be being tightly controlled - although the debt covenants may have something to do with this.

On radio, Bongard mentioned that material cost contracts start to rollover from December this year.

All up, with normalised NPAT for the half year of $22.3m annualised as a worst case scenario, then at $1.41, FPA is on a (fully diluted) P/E of 8.9. While revenues are likely to remain under pressure, a 10% fall in appliance revenue would be recovered by a just a 0.5% increase in margins. Just 4 years ago, the appliances business was able to operate with margins of 9.6% (EBIT/sales), c.f. the current 5.3%.

So assuming that going forward, the NPAT can be maintained by margin gains offsetting revenue falls and adding the annual relocation cost savings of $70m (say $50m after tax), the base case earnings assumption for the 09/10 financial year would seem to be at least $95m NPAT. Mind you, the only analysts report I've got to hand forecasts about $58m - a result which would have to assume further margin pressure, despite forex, interest rates and material costs.

At $95m NPAT as per my calcs, the P/E is 4.2. I also think the potential upside from these figures could be larger rather than smaller. FPA has been battered by offshore competitors for years - now the game is turning in their favour. Or at least the playing field is going to be a little more level - and as a result, I'd expect to gradually see FPA getting a more appropriate return on capital and improved margins.

The current pricing for FPA suggests the market thinks they may have bitten off more than they can chew in terms of debt requirements during the current economic conditions. However, while debt (more required to fund relocations of DCS, and Cleveland) is not forecast to peak until second quarter of calendar 09, the improvement in earnings from offshore relocations should keep them free of any convenant issues.

In January 2006, I made a small purchase, looking for a 3 yr investment timeframe and a return of 25% pa. FPA ran fairly quickly after that and within 6 months I gained over half the profit I expected to make in 3 years and suspected it was time to sell. However, I wanted to complete my experiment, so I kept some. I now calculate that to make my original target, FPA would need to trade at $6.24 in Jan 2009!!! Hmmm, I think I can now concede on that one. Yet I still remain convinced there's a $6 stock in there - just maybe a little longer....... laugh.gif



 
Lizard
post Posted: Oct 16 2008, 04:30 AM
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A credit rating of at least BB is now required to participate in the government guarantee or pay a fee to the government of 3%. Makes good sense, but I don't think FPA have actually bothered to get rated in the past? Will want to move quickly, as otherwise might see a drop off in renewals with any delay.

 
Lizard
post Posted: Oct 15 2008, 07:26 AM
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All the way back down to $1.30 in the recent slide and now at around $1.50 on the bounce. Apart from being very cheap on most metrics, FPA may also be a beneficiary of the recent "government guarantee" in strengthening the finance arm. This should enable them to keep borrowing money at low cost while having the edge on consumer lending which might be expected to stay more selective and highly priced. While people may temporarily make greater effort to repair broken appliances, I would still expect most to borrow to replace a broken-down fridge or washing machine rather than attempt to live without. Potentially good for both arms of FPA business.

Falling commodities will eventually impact on raw material costs for the appliance side - although this is going to be a common factor. While appliance sales will be tougher in US/Eur/NZ/Aust, there may perhaps be more opportunity in Asia as the market for appliances grows there. FPA still have a wide range of brands and models to call upon to target various markets and sectors.

While precise timing for a recovery is still not clear, I think FPA is well under-priced at current levels. And, judging by interest in PGC (and to a lesser extent FPA which is also being influenced more by offshore selling of NZ inc), I would say the potential for gains from the government guarantee have not been overlooked by analysts now they have finally recovered from their stunned disbelief.

(I left a bid in when I went away at where I thought "bottom" would be and got given at $1.56... so I'm still underwater this trade, but still believe it stands a good chance of a profitable exit! Watching for around $1.78-$1.82 this move.)

 
Lizard
post Posted: Aug 18 2008, 12:10 PM
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Only made it to $2.19, so I was lucky to get out of the trade at $2.14 on the way back down. AGM speeches painted a black short-term picture, so looks like we go back to new low - I'm guessing $1.55 before it's worth attempting ano

 


Lizard
post Posted: Aug 4 2008, 01:03 PM
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Buying has finally returned... I was starting to worry! But it was clear someone was trying to put through a large crossing at around $1.93 last week, so had to wait to clear that out - and then the general negativity on Friday took it lower still. Should be back on track now to go back to at least $2.20, I think.

 
Lizard
post Posted: Jul 30 2008, 07:17 AM
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Currently $1.95 - the 50% retracement level of the recent bounce... so, would hope to see more buying come back in today and rally above $2.14 over the next week... whether or not this happens should give some initial feel as to whether this is the right time to be holding for the long term trade or whether safer to stand aside again...

 
Lizard
post Posted: Jul 24 2008, 10:20 AM
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I would think FPA would benefit from current environment and rate cuts on two counts - firstly via exchange rate/exports and secondly via their finance company operations which should eventually benefit from banks tighter lending policies, higher spreads on lending/borrowing and better choice of loan opportunities. Of course, all this assumes that FPA is able to remain cashflow positive, despite appliance side restructuring initiatives, and therefore able to ride out their own debt position.

At $2.08, it's not far off the ($2.14) ex-dividend equivalent of my "buy call" made on 29 May. Definitely outperformed the NZX in that time and, given I bought more at $1.84, my own buys are now happily in the money. Like everything in this market, I'd still recommend any trades be run on a tight leash.

 
Lizard
post Posted: Jul 8 2008, 07:55 PM
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And a further 2m shares crossing the tasman again at end of trading. I just can't quite be sure which direction, though I'm sure someone more knowledgeable than me could work it out from the trades.

 
 


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