Company ECG - Share Price

Company ECG - Share Price

NEWS FLASH:
Vector's Board Instructs Lawyers to Spare No Expense in Effort to Shut Down this Site.
Read correspondence

Company ECG - Share Price
VECTOR LIMITED

Basics

Vector Limited is a ‘bricks and mortar’ utility provider of electricity and natural gas to the Auckland and Wellington regions of New Zealand. In recent years it has followed the Enron model of growth and expansion. The company directors claim this has quintupled the valuation of the company in three years. Much of this valuation is vested in intangible assets. For example, this monopoly provider of electricity and gas claims 28% of its valuation (NZ$1.6 billion) is vested in ‘goodwill’. The $1.6 Billion figure is roughly equivalent to the worldwide brand Coca-Cola.

Vector Limited currently has 29 subsidiaries and 4 associate companies. Many of the Vector controlled subsidiaries are non-trading shelf companies.

Dividends continue to rise each year despite lackluster performance of its core businesses and mounting company debt. In 2005, a $600,000,000 public share offering did little to pay down the enormous debt which currently stands at 400% of what it was 4 short years ago.


Key financial indicators, 2007

Total book assets: $5.73 billion
Total assets after questionable goodwill: $4.1 Billion
Total debt: $3.127 Billion (up 1.5% over previous year despite sale of nominal productive assets valued at $48 Million)
Debt ratio after questionable goodwill discounted: 3.14
Reported equity/total assets (with goodwill): 33.2%
Credit Rating: BBB+ with negative outlook.
Debt $3.126 Billion (up $44 million despite another $48 million in productive assets sold off during fiscal year)
Dividend paid: 13 cents per share (up from 12 cents the year before) WARNING: The company increased debt and drew negative retained earnings to pay dividend!

CURRENT THREATS TO VECTOR’S FUTURE PERFORMANCE
Concern lingers over why more of the $600,000,000 raised by the public capital float in mid 2005 did not result in debt being paid down significantly despite this being the primary stated purpose in the company’s much vaunted IPO in 2005.

Interest rate on debt increased overall by average of 0.5% compared to previous fiscal year. Vector summarizes its interest rate risk on the massive debt thusly:

“The group actively manages interest rate exposures in accordance with treasury policy. In this respect, at least forty percent of all debt must be at fixed interest rates or effectively fixed using interest rate swaps, forward rate agreements, option and other derivative instruments.”

Dividends were increased from 12 cents to 13 cents per share in 2007 despite negative retained earnings, increased debt, increased interest rates on that debt and the overall threat of all these factors to the company’s credit rating. If Vector’s credit rating were to fall or the debt ratio increase due to falling share value, there is a real risk that debt covenants could be breached, resulting in loan interest rates being hiked further and/or some loans called by the company’s lenders.

LIQUIDITY RISK: Currently Vector reports that it has undrawn committed lines of credit to protect itself against the risks imposed by potential loan payments being escalated or other unexpected economic impacts. The problem is these lines of credit are subjected to the same pressures and risks inherent in the company’s overall debt portfolio. They therefore offer limited protection in the event of financial trouble.

SIGNS OF PROMISE TO VECTOR’S FUTURE PERFORMANCE
If economy remains strong, Vector’s strength in the share market is enhanced by the fact that less than 25% of its equity is tradable in the equity markets. This is because the 75.1% owned by the supermajority shareholder AECT is in the form of a non-salable shareholding held in trust.

If the officious chairman is able to impose his will upon the Commerce Commission to back off, Vector could easily raise power rates enough to bounce back like Enron did during the California power crisis.