News } TBK Capital

Confident Start to 2014

As we come into the New Year - and now most people have returned from the great Kiwi Christmas break – it's exciting to see and hear the confidence people have about the economy this coming year.

 

My friends and I - we've cracked the code.
We count our dollars on the train to the party.
And everyone who knows us knows that we're fine with this,
We didn't come from money.

Lorde - Royals


As we come into the New Year - and now most people have returned from the great Kiwi Christmas break – it's exciting to see and hear the confidence people have about the economy this coming year.

Not just the business commentators but everyone. For example I was at my favourite Italian restaurant with three friends last week - including an established businessman, a young businessman just starting, and student finalising studies to enter business – and we all agreed this was going to be the year for New Zealand.

And what a way to enter the New Year with Lorde winning two Grammys. Makes us all so proud and it's so uplifting.

Property leads confidence

The stories in the media about the return in confidence here abound and I could fill this newsletter with them. So let’s take a look at the property market, which leads the confidence in our economy.

Herald, 24 January“Building sales up to pre-GFC levels in 2013”. The report from Jones Lang LaSalle said the Commercial Property sector saw sales with more than $2 billion in transactions last year (compared to $427 million for 2012), with office sales totalling more than $1.1 billion for the year. Industrial buildings worth $386 million were sold - the largest since 2009.

Interest.co.nz, 24 January“More farms change hands in December than any month since April 2008”. The REINZ Dairy Farm Price Index rose by 5.3% in the three months to December compared to the three months to November, and compared to December 2012 this index rose by 10.1%. 

Landlords, 24 January“Record price for lifestyle blocks”. For the 12 months to December 2013 there were 6,591 unconditional sales of lifestyle properties, an increase of 13.8% over the 2012 year.

Stuff.co.nz, 25 January“Home builders in overdrive”.  The article features Canterbury but the same can be said for Auckland. The National Construction Pipeline Report prepared by BRANZ and Pacifecon - predicted New Zealand is now entering a five-year construction boom, the biggest in 40 years.

Residential housing

A report from Property Wire dated 20 January showed the national median home price in New Zealand was up $2,000 last month from November to $427,000 - a new record median high.

There is of course a negative side to house prices rising. Affordability to enter the market is the obvious one. A less obvious one is the gap between returns on residential property and other forms of investment.

The Economist's quarterly survey of global house prices shows New Zealand houses are overvalued by 26% or 71% depending on the method used. Financial adviser Martin Hughes reports on these findings and says “It was probably no surprise to most of us that our houses were overvalued by both of the methods of measurement The Economist used.”

The Economist used two measures to determine whether houses were overvalued or undervalued.

  • The first compares rents to house prices. In New Zealand, house prices have risen while rents have moved little and their rent to house price comparison show they are overvalued by 71%. Result - less demand to invest in rental property other than capital gain. 
  • The second compares incomes with house prices. By this measure, New Zealand houses are 26% overvalued. Result – unaffordability. 


Which one is right is anybody’s guess but they do point to some of the reasons why there is housing shortage here, especially in sought after locations.

Of course there is another angle to all this and some would say the fact that –  in say Auckland - house prices keep rising, has a positive side.

As Alistair Helm points out in an article on this subject “In my mind rather than bemoan the fact that we have ‘severely unaffordable' housing in Auckland that ranks us in the Top 10 most unaffordable cities in this report we should actually celebrate this fact. We are in the Top 10 because we have a vibrant economy in Auckland, we have a city that is attractive to business and immigrants to develop their lives. How depressing it would be if we were not in the Top 10, if our property prices were affordable. We would likely then be living in a less dynamic city with less economic activity and facilities, forgotten by the global economic tides and left to drift in the South Pacific”.

For my previous newsletters on residential housing see our website here.  

An economist’s view

A good summery of what we can expect this coming year in the New Zealand economy is contained in BNZ economist Tony Alexander’s report on the first Consumer Trends Survey and in his Weekly Overview of the year - both of which show sentiment of NZ consumers regarding the economy and their financial positions to be at high levels.

The BNZ-Nine Rewards Consumer Trends Survey shows since the last survey only two months ago:

  • 47% of the respondents expect the economy to be in better shape in a year’s time, up from a net 30%.
  • The net proportion of people expecting house prices to rise has gone up to 68.5% from 54.5%.
  • And most significantly, only a net 12.2% of respondents feel that extra jobs or hours of work are becoming less available compared with a net 23.8% before.

Tony’s view is “this latest outcome makes us more confident that retailers can look forward to higher spending growth on the back of an improving labour market”. 

In his latest Weekly Overview the headline is “Strong Year Ahead – 2014 Could Be A Classic”.  His themes for 2014 are:

  • Interest rates will rise.
  • The NZD will remain highish.
  • The labour market will tighten, pushing employment costs up.
  • House prices will rise.
  • Construction will boom.
  • World growth will improve with unprecedented uncertainty regarding monetary policies.
  • Business capital spending will grow.
  • The upturn and rising house prices will spread at uncertain speed out of Auckland and Christchurch to much of the rest of NZ.

So where are the Business and Investment Opportunities here?

We see the rise in interest rates a necessary and inevitable consequence of the climb out of the Global Financial Crisis and a return to the norm rather than a climb to the ridiculous rates of the 80’s where residential mortgages were 18% plus.

Inflation is not out of control. Bernard Hickey of Interest.co.nz reckons the predicted rise of 2% in the Official Cash Rate may even be too high. See his Herald article here. The recent ASB Economic Notes are of a similar view on interest rates and the economy.

That being the case we see the economic turmoil of the last seven years in New Zealand lessening and investment confidence growing as this country jumps to one of the best places in the world to be living – which by the way is what I have always thought. See MSN Money article which places Auckland as No 3 and Wellington as No 13 in the World’s Best 15 Places to Live.

Our sister company Tabak Business Sales sees the return to “normal” interest rates as an opportunity for people owning businesses to sell and receive a reasonable return on their money.  They see more businesses coming on to the market here so if you’re interested in selling or buying a business, check out their website.  

The problem we have investing in New Zealand is that our capital markets - including the NZSE - are small compared with the rest of the developed world. Even our neighbour Australia is massive by comparison, but at least we understand their economy and can coat tail to some extent – like investing in the ASX. 

But there are opportunities here. At TBK Capital we’re not involved in the share market nor are we financial advisers. To find out more about us and our people click here. In addition to arranging money – both debt and equity - for property and business, we also provide opportunities for those of you who are “eligible” or “excluded” persons under the Securities Act looking to invest in businesses (and property).

It is this requirement for capital that we identified when we started TBK Capital only three years ago and it has now grown to be a major part of our business. To read more about this see our July 2012 newsletter. The offers quoted in this are now out of date but here below are a couple that are currently on offer.

Freeflow Pipes – Australasian Patents

Here’s a great opportunity to invest in a patented product that looks cash in on the housing construction boom predicted here in New Zealand and the volumes already in place in Australia.

The Information Memorandum for this offer came out just before Christmas and we already have interest from several investors including potential cornerstone shareholders who would be looking at a significant investment and a seat on the board. For an overview of this Australasian business see our website.  

The company is actively pursuing the lucrative Auckland and Christchurch home markets and getting Freeflow Pipes specified on plans for developments. They are actively working with companies like Lattitude, Southmark, G.J. Gardner, Golden, Classic, Platinum, Signature, Stonewood, Jennian, Portacom, Camebridge, Landmark, Lockwood and Mike Greer Homes.

It has also entered into an agreement with Roofing Industries to supply the Freeflow pipes through their supply chain outlets. Roofing Industries’ Christchurch office is now obtaining new space for bulk stock deliveries of pipes to satisfy the demand there.

Freeflow Pipes also has huge potential in the Australia where the market is more suited to the mass production of building components and is 5 times the size of the market here. Their market research indicates that within one year the business could have their downpipes being specified by 50% of the 15 major Australian home builders.

For a copy of the IM reply to this email or call me on +649 307 3257 or +6421 902 901.


CallerAds – Mobile Phone Advertising

CallerAds is a New Zealand based startup technology company with a focus on mobile phone advertising. Via a patented process it provides highly targeted access to 18 to 25 year old mobile users who opt-in to the CallerAds service for advertisers.

It is a revenue share model between CallerAds and the respective participating Telcos - under standard industry revenue sharing arrangements. The revenue comes from advertisers who pay for the CallerAds service. CallerAds has subcontracted their media partner, Campus Media, to take care of all the advertising.

The company has successfully completed 3 government grants through Callaghan Innovation. It is currently negotiating a 4th grant of $250,000.  It is now raising $1 million by the issue of new shares for 27% of the company. The funds will be used for working capital to commercialise their prototype Smartphone application, to continue its development, and to obtain consumer acceptance. Investors in this round will have pre-emptive rights for further capital raising rounds.

Existing Pre-Pay users of international telecommunication companies in Australia, New Zealand and the wider Asia Pacific region are CallerAds’ target market. Initially the company will roll out their service to small Telcos - for example Vodafone New Zealand which has 1.5 Million Pre-Pay subscribers - before expansion into Australia where there are 134 Million in just 4 targeted mobile networks.

There are two products in the international market that compete in a similar space, but both have major privacy concerns, as they listen to conversations for key words in phone calls. One is Whisper by Google and the other is VoiceAds by Nuance. CallerAds is quite unique in the way it operates by providing targeted promotional messages without breaching privacy.

For a summary of the offer see our website. And for a copy of the IM call Andrew Larsen on +649 306 8638 or +6427 483 4200 or email him at a.larsen@tbkcapital.co.nz

Happy to hear from you

I’m always happy to hear from you if you’d like to comment on the matters raised in Capital Comment – or of course it you’re looking for debt or equity for business or property or would like to invest in either.

There are now nearly 10,000 subscribers to these newsletters, and I hate blogs. So the best way to keep in contact is simply by replying to this email.


Cheers

JP


John Paine
TBK Capital Limited
Level 15, BDO Building
120 Albert Street
Auckland 1010, New Zealand
Phone +64 9 307 3257
Fax +64 9 309 4519
Mobile +64 21 902 901
Email john.paine@tbkcapital.co.nz

⇑ back to top