PRK - Patrick Corporation

[Investor]

Part of my long term holdings. Was tempted to top up with recent SP weakness, but decided to keep some "powder dry".

In The Australian newspaper today:

Dream team pleases the investors

STEP by step, Patrick Corp chairman Peter Scanlon and chief executive Chris Corrigan are realising the dream of the late Peter Abeles to build an Australian air, sea and land transport company. The market can see the short and long term potential, which is why the shares jumped yesterday.

Smaller shareholders need to realise that in assessing share values, Patrick's half-yearly earnings can be calculated at around 17c a share or an annual rate of 34c. This puts the stock on a price-earnings ratio of about 16 after the price rise.

Scanlon and Corrigan are a formidable team and together they own close to 10 per cent of Patrick. Scanlon's slice is 6.6 per cent and he is worth $430 million in the latest BRW Rich List.

Corrigan's investment prowess helped put the name BT on the Australian investment map in the 1980s and he owns 2.3 per cent of Patrick but has options.

Scanlon is one of Australia's best strategists and helped mastermind the conversion of the Victorian Football League into the national Australian Football League code.

Corrigan assists in strategy at Patrick but knows how to implement. He is a formidable person to have as an enemy and does not take prisoners.

After taking control of Virgin Blue, Scanlon and Corrigan are already beginning to deliver a message to Geoff Dixon at Qantas that there is lots of money to be made in a duopoly and there is a common enemy to fight -- Max Moore-Wilton and Macquarie Bank, who control Sydney Airport.

In Corrigan's eyes, Sydney Airport has simply become an arm of the "millionaires factory" and to lift the wealth of Virgin he has to stop the airport fee-hike game.

Dixon would also be delighted that Virgin has stopped looking to Asia and will curb its local expansion. Over time, Virgin might take an increased slice of the business traffic but its attempt to be the largest Australian domestic airline, which sparked the massive Qantas retaliation in establishing Jetstar, has been abandoned. Airline traffic will ultimately absorb the excess capacity, so profits for both airlines can move up.

The Patrick rail operation, which includes the Pacific National joint venture with Toll Holdings, was a typical example of the Scanlon-Corrigan strategy. They bought in at low prices, fixed the work practices and invested in better equipment. And they achieved a quick win because the higher fuel prices switched business from road to rail.

In ports, Corrigan is being squeezed by Melbourne's port regulators, who want "competition" for Corrigan via a new stevedore and a revamped P&O. At this week's infrastructure conference Corrigan put them on the same list as the hated Sydney Airport managers.

He had proposed to build one of the region's biggest port facilities in Melbourne but, when he was blocked by the regulators, he looked to satisfy Melbourne's demand for "competition" by going all out to promote a Melbourne-Brisbane railway.

That way he can build the "Melbourne" facility in Brisbane, establishing competition between the two ports.

Patrick's turnover in the half year reached $1.4 billion, which compares with Toll Holdings' $1.9 billion and Qantas's $6.4 billion. If Paul Little and the Rowsthorn family want to sell out of Toll Holdings, Patrick is the logical buyer.

If Scanlon and Corrigan want to sell out of Patrick, then Toll would be the logical buyer.

Officially, Patrick's stated profit was $99.87 million, which converted to earnings per share of 13.2c. But it is far more meaningful to add back significant items and goodwill amortisation, which brings the real half-yearly profit to $124.5 million.

The initial rush of growth that Scanlon and Corrigan achieved after reforming the waterfront has ended.

Profit-boosting actions will be slower but the company has control of vast amounts of irreplaceable infrastructure and operating systems as the dream moves closer.


My comments: All three core activities of PRK are almost cosy duopolies. Pricing power exists. In the case of PRK's majority holdings of VBA, I think it is only a matter of time before Corrigan lifts the ROE. Chris Corrigan is one of the CEOs that I have a lot of respect for (the others are Roger Corbett of WOW; Chip Goodyear of BHP; Michael Chaney of Wesfarmers; Geoff Dixon of QAN and Leigh Clifford of Rio Tinto).

[Investor]

Spending is paying at Patrick
By Philip Hopkins
May 20, 2005

Transport giant Patrick Corp is looking to a major capital expansion of its port and rail operations to drive future growth.

The company's capital expenditure was $127.7 million in the six months to March 31, almost double the amount for the same period the previous year and 90 per cent higher than the six months to September 2004.

Patrick's chief executive, Chris Corrigan, said yesterday this period of big investment - to last another 18 months - should put the company in a strong position in the medium to longer term.

"Australia will need this infrastructure expansion to meet the expected growth in transport and logistics demand in the years and decades ahead," he said.

The market liked the outlook, with Patrick's shares yesterday rising 25 ¢, or 4.84 per cent, to $5.41. The capital expansion pushed Patrick's six-month profit after significant items down 18 per cent to $99.8 million compared with the first half last year.

There was a 28 per cent drop in the contribution from Virgin Blue. The profit before significant items was $105.9 million, an increase of 11 per cent.

Mr Corrigan said debt had reached about $1 billion, including $346 million spent on the acquisition of Virgin Blue - but gearing was about 30 per cent.

Directors declared an interim fully franked dividend of 7 ¢ a share compared with 6 ¢ last year. The interim dividend will be paid on June 15 to shareholders registered on May 31.

Revenue from the ports division increased by 9 per cent to $455.2 million.

Revenue from rail rose by 28 per cent to $588.1 million. Rail is dominated by Patrick's 50 per cent share in Pacific National (PN), but also includes shipping and freight forwarding.

Mr Corrigan said PN had strong demand for coal, but the possibility of a smaller grain crop from the drought was a concern. "Much expansion is required in intermodal and the upgrading of rail terminals in the next four or five years," he said.

Virgin Blue's six-month profit was $75 million. Mr Corrigan said he was optimistic about the outlook for the airline. Oil prices were coming down, and the airline was now going to focus on the business and government market to expand, he said.

[Investor]

Following a profit result above its forecasts, Macquarie has upgraded its rating on Patrick Corp (PRK) to Outperform from Neutral.

The company’s profit of $100m compares to the broker’s $93m forecast, with the broker attributing the difference to the consolidation of Virgin Blue (VBA).

Looking ahead, the broker notes the rail operations have been the big improver and should benefit from infrastructure spending drawing to a close, while slower container volume growth should be offset by upside from
automation and the August 2006 ending of the stevedoring levy, which the broker estimates is worth $20m annually.

Macquarie has increased its FY05 earnings forecast to $210m from $205m, while its valuation and share price target are $6.50.

Citigroup has also upgraded its recommendation on the stock, to Buy, Medium Risk, as the analysts "inceasingly believe Patrick will emerge from this period of significant port investment a much larger, more efficient and materially more profitable entity."

One other broker, Merrill Lynch, rates Patrick a Buy, while six of the top ten brokers rate the stock Hold and there is one Underperform rating.

[Investor]

SCHRODER Investment Management Group filed a Notice of becoming a substantial shareholder with 5.44% in PRK yesterday, making it the 6th largest shareholder.

CBA is the biggest shareholder with 11.7%. AMP holds 6.7%.

[It's Snake Pliskin]

Do you think Patrick is undervalued at his stage?
How much of an effect does Virgin have on this stock? :confused:

[mime]

I think Patrick corp is not a bad buy. They seem to have less competition then other stocks.

[ob1kenobi]

I agree. The fundamentals are OK. The P/E Ratio could be better, but in general things seem under control and within reasonable expectations. The charts suggest that they are a stock to be considered. The RSI suggests that the current price has returned its trade to a neutral position from a position of being oversold. The money flow would suggest that it is bearish at the moment and the volume is 5.2 million shares. The highest volume this year was february at 12.3 million. This raises the question, why has the volume traded consistently been lower than the Feb high, in fact more than a 50% drop in volume since Feb. It is a company that by its very nature is going to be easily effected by economic downturn (eg. downturn in exports, domestic air travel, etc). Nonetheless, it does have an integrated approach to transport logistics. Certainly one to give a lot of thought to.

:2twocents

----------------------
This is merely my opinion and does not constitute financial advice. When considering your financial objectives, please consult a suitably qualified and licenced professional.

[Investor]

Do you think Patrick is undervalued at his stage?
How much of an effect does Virgin have on this stock? :confused:

I will not answer your first question as it could be tantamount to giving financial advice. Here is an assignment for you, if you decide to accept the challenge ... and if you are interested in fundamental analysis. Ascertain the intrinsic value of PRK. Analyse the industry risks of all 3 core activities. Analyse the business risks and mitigants. Analyse the financial risks. Analyse the management risks.

Sounds like hard work? Yes, it is not easy and it does take time and effort. It depends whether you are interested in such processes. Not many people are. I happen to enjoy it. Such an approach has also meant that I have yet to lose any money in the investment game, for over 20 years.

As for your second question, VBA has an effect. Going forward, fuel prices and the ability to raise air fares would be prime determinants of future ROE for VBA.

The following article provides some indication (later I will outline the forecasts for air passenger numbers for the next few years, from the BRW):

May 22 (Bloomberg) -- Virgin Blue, Australia's second- biggest airline, is targeting a 30 percent share of the nation's business and government passengers by undercutting bigger rival Qantas Ltd. to help stem declining earnings.

``We've got 30 percent of the overall market, we should be able to get something like 30 percent of the business and government market,'' Chris Corrigan, chief executive of Patrick Corp., which took control of the carrier in March, told Channel Nine's Business Sunday program today. ``I'd be disappointed if we can't do that.''

Virgin Blue, founded by U.K. billionaire Richard Branson in 2000, had a 20 percent drop in half-year profits as fuel costs rose and competition jumped. The carrier aims to boost its ``very small percentage'' of more-profitable government and business passengers by offering cheaper seat prices, Corrigan said.

``We're not aiming to get up to the price level of Qantas, we're aiming to be well under the price level of Qantas,'' Corrigan said. ``If we can be 10 percent under that's going to attract people to come to us.''

Virgin Blue shares fell 1.5 cent to A$1.68 at the 4 p.m. market close in Sydney on May 20. Patrick's shares closed 15 cents higher at A$5.56.

Patrick, Australia's largest port-handler, lifted its stake in Virgin Blue to 62.4 percent from 45.4 percent after bidding A$1.90 a share for the rest of the carrier on Jan. 28. Branson's Virgin Group retains a 25.6 percent stake.

Ticket Prices

Virgin Blue said May 18 net income declined to A$75.1 million ($56.8 million) in the six months to March 31 after its fuel bill surged 65 percent and competition from Qantas' one-year- old Jetstar unit drove down ticket prices.

Corrigan, who has blamed rising airport fees for denting profits, said there were few extra cost efficiencies the company could bring in to bolster profits. ``I don't think there are any great cost downs that we can achieve,'' he said.

Australian domestic airlines carried more than 38.7 million passengers in 2004, a 14 percent increase from 2003, according to the government's Bureau of Transport and Regional Economies. Since Virgin Blue began flying in 2000, the number of passengers carried by domestic airlines increased 29 percent.

Qantas said Feb. 17 that net income in the six months ended Dec. 31 rose 28 percent to a record after costs cuts and a tax benefit.

[ob1kenobi]

I will not answer your first question as it could be tantamount to giving financial advice. Here is an assignment for you, if you decide to accept the challenge ... and if you are interested in fundamental analysis. Ascertain the intrinsic value of PRK. Analyse the industry risks of all 3 core activities. Analyse the business risks and mitigants. Analyse the financial risks. Analyse the management risks.

Sounds like hard work? Yes, it is not easy and it does take time and effort. It depends whether you are interested in such processes. Not many people are. I happen to enjoy it. Such an approach has also meant that I have yet to lose any money in the investment game, for over 20 years.

As for your second question, VBA has an effect. Going forward, fuel prices and the ability to raise air fares would be prime determinants of future ROE for VBA.

The following article provides some indication (later I will outline the forecasts for air passenger numbers for the next few years, from the BRW):

May 22 (Bloomberg) -- Virgin Blue, Australia's second- biggest airline, is targeting a 30 percent share of the nation's business and government passengers by undercutting bigger rival Qantas Ltd. to help stem declining earnings.

``We've got 30 percent of the overall market, we should be able to get something like 30 percent of the business and government market,'' Chris Corrigan, chief executive of Patrick Corp., which took control of the carrier in March, told Channel Nine's Business Sunday program today. ``I'd be disappointed if we can't do that.''

Virgin Blue, founded by U.K. billionaire Richard Branson in 2000, had a 20 percent drop in half-year profits as fuel costs rose and competition jumped. The carrier aims to boost its ``very small percentage'' of more-profitable government and business passengers by offering cheaper seat prices, Corrigan said.

``We're not aiming to get up to the price level of Qantas, we're aiming to be well under the price level of Qantas,'' Corrigan said. ``If we can be 10 percent under that's going to attract people to come to us.''

Virgin Blue shares fell 1.5 cent to A$1.68 at the 4 p.m. market close in Sydney on May 20. Patrick's shares closed 15 cents higher at A$5.56.

Patrick, Australia's largest port-handler, lifted its stake in Virgin Blue to 62.4 percent from 45.4 percent after bidding A$1.90 a share for the rest of the carrier on Jan. 28. Branson's Virgin Group retains a 25.6 percent stake.

Ticket Prices

Virgin Blue said May 18 net income declined to A$75.1 million ($56.8 million) in the six months to March 31 after its fuel bill surged 65 percent and competition from Qantas' one-year- old Jetstar unit drove down ticket prices.

Corrigan, who has blamed rising airport fees for denting profits, said there were few extra cost efficiencies the company could bring in to bolster profits. ``I don't think there are any great cost downs that we can achieve,'' he said.

Australian domestic airlines carried more than 38.7 million passengers in 2004, a 14 percent increase from 2003, according to the government's Bureau of Transport and Regional Economies. Since Virgin Blue began flying in 2000, the number of passengers carried by domestic airlines increased 29 percent.

Qantas said Feb. 17 that net income in the six months ended Dec. 31 rose 28 percent to a record after costs cuts and a tax benefit.

Good call Investor! Chris Corrigan was talking about VBA and Sydney Airport in the Sunday Telegraph. You've highlighted how important it is to do your own research, since we are all looking for different things when it comes to investing and trading.

:)

--------------------------------

This is merely my opinion and does not constitute financial advice. When considering your financial objectives, please consult a suitably qualified and licenced professional.

[Investor]

.... The P/E Ratio could be better, ....

When analysing P/E ratios, do not just use the reported P/E per se, based on reported EPS, but always analyse amortisation of goodwill (a non cash accounting entry) in the P/L Statement as well.

Under the soon to be implemented IFRS, goodwill no longer has to be amortised, unless there has been impairment of asset value.

In PRK's case, the P/E adding back amortisation, is much better (and more meaningful) than the reported P/E. :)

[ob1kenobi]

When analysing P/E ratios, do not just use the reported P/E per se, based on reported EPS, but always analyse amortisation of goodwill (a non cash accounting entry) in the P/L Statement as well.

Under the soon to be implemented IFRS, goodwill no longer has to be amortised, unless there has been impairment of asset value.

In PRK's case, the P/E adding back amortisation, is much better (and more meaningful) than the reported P/E. :)

Thanks for that. I do look at Goodwill as an intangible asset and allow it to speak for itself (mindful that it can be exaggerated at times). Makes sense to rework it into the P/E ratio. Thanks for the tip.
:)

[Investor]

Thanks for that. I do look at Goodwill as an intangible asset and allow it to speak for itself (mindful that it can be exaggerated at times). Makes sense to rework it into the P/E ratio. Thanks for the tip.
:)

You are welcome. I read about this aspect of analysis from one of Warren Buffett's writings. It also applies to Sonic Healthcare, which is why SHL always trades at a very high accounting P/E.

You are right about the need to analyse the quality of the goodwill. An on-market acquisition generated goodwill item is usually better than an in-house generated goodwill item.

Cheers.

[It's Snake Pliskin]

Do you think Patrick is undervalued at his stage?
How much of an effect does Virgin have on this stock? :confused:

This is not a solicitation for financial advice!

basically haven't been following the stock just curious.

[Investor]

.......basically haven't been following the stock just curious.

Patrick Corporation operates transportation and logistics assets, with Virgin Blue and Pacific National its most significant investments. PRK has Port operations supplying stevedoring services in 14 ports around Australia and also operates Patrick Autocare (car handling and distribution business), Cargolink (cargo storage and handling), and Liberty Cargo (freight forwarding, customs, quarantine and cartage). Each division contributes about a third of earnings.

PRK has achieved strong earnings growth in recent years. This is largely due to the reforms introduced in PRK's Stevedores operations, in addition to taking large stakes in strategic acquisitions like Virgin Blue (52%) and Pacific National (50%). PRK looks positive on a three year plus horizon. Its capacity expansion in Ports and further cost rundowns in Rail should stand the company in good stead, capacity-wise, for at least 15 years.

Consensus P/E (from 9 brokers) FY 05 is 19.1 and FY 06 is 17.

Deducting non recurring expenditure items and amortisation of goodwill (a non cash accounting entry that is soon to be defunct under IFRS), P/E FY 05 is 15.9 and FY 06 is 14.

PRK has the significant advantage of a very strong CEO (a man who took on the waterfront union and won, doing the whole country a big favour by doubling the productivity level, which remains far short of Singapore ports, which is world's best practice) who focus on long term ROE and ignore market analysts who focus on short term SP movements.

Warning: This post is not investment advice. All equity investments carry risks.

[ob1kenobi]

Patrick Corporation operates transportation and logistics assets, with Virgin Blue and Pacific National its most significant investments. PRK has Port operations supplying stevedoring services in 14 ports around Australia and also operates Patrick Autocare (car handling and distribution business), Cargolink (cargo storage and handling), and Liberty Cargo (freight forwarding, customs, quarantine and cartage). Each division contributes about a third of earnings.

PRK has achieved strong earnings growth in recent years. This is largely due to the reforms introduced in PRK's Stevedores operations, in addition to taking large stakes in strategic acquisitions like Virgin Blue (52%) and Pacific National (50%). PRK looks positive on a three year plus horizon. Its capacity expansion in Ports and further cost rundowns in Rail should stand the company in good stead, capacity-wise, for at least 15 years.

Consensus P/E (from 9 brokers) FY 05 is 19.1 and FY 06 is 17.

Deducting non recurring expenditure items and amortisation of goodwill (a non cash accounting entry that is soon to be defunct under IFRS), P/E FY 05 is 15.9 and FY 06 is 14.

PRK has the significant advantage of a very strong CEO (a man who took on the waterfront union and won, doing the whole country a big favour by doubling the productivity level, which remains far short of Singapore ports, which is world's best practice) who focus on long term ROE and ignore market analysts who focus on short term SP movements.

Warning: This post is not investment advice. All equity investments carry risks.

It's still on my watch list. You're right it looks to be good long term, not as convinced about it short term. Nonetheless it has more pluses than minuses. Lets see where it goes.

:)
__________
This is merely my opinion and does not constitute financial advice. When considering your financial objectives, please consult a suitably qualified and licenced professional.

[Investor]

... later I will outline the forecasts for air passenger numbers for the next few years, from the BRW.....

In BRW 28/4/05, "Within Australia, the number of domestic paying passenger kilometres flown trebled from 10 billion passenger kilometres in 1990 to 29.4 billion in 2000, and could nudge 45 billion or better by 2010.

In terms of international flights in and out of Australia, growth has been less spectacular, but is still strong. Australia had 4.6 million arrivals and departures in 1990 and 8.7 million in 2000.

In 2005, the numbers have climbed to over 10 million and could surpass 13 million by the end of the decade.

Real growth in domestic and international travel are estimated at 3.2% p.a. and 4.7% p.a. respectively, over the next 5 years."

[RichKid]

PRK has broken through an inverse H&S neckline imo. Three up days in a row and gapped today. Might be the start of a little run up to $6. Will it break through on momentum?? I reckon it will, volume needs to be watched though as it could easily retrace to retest the neckline. A close above $6 will provide a nice entry with near support imo. I might buy more at that point.

[RichKid]

I just noticed after today's close that the price action has hit the recent dowtrend line, so if it keeps going up that'll be further confirmation of a bullish run. Could very well consolidate for a bit at these higher levels before making that final dash to just above $6 where there is a lot of congestion. on the other hand a solid bump away from the trend line is going to make this look quite weak, especially if it gaps down tomorrow.

[RichKid]

Here's an updated chart of PRK, retesting neckline atm. Crucial time now, good volume but need accumulation days. I'm exiting if this neckline fails. Problem with big co's is they may get caught up in a general market downturn, especially at these levels for the allords. A safer entry would have been that initial bounce off the longterm uptrend line (where the Head is). Also realised after buying that that recent downtrend resistance line has not been breached. Wished I'd spotted it all sooner, shows how the mind can ignore negatives when it is bullish on a stock. Live and learn, tight stops may get me out of this in time, unless the price continues up.

Any views from the techheads out there?

[RichKid]

Long term chart, funny how the lines move around in different timeframes. Should really be the same highs and same lows touching the trendline.

[Joe Blow]

Finished on its high for the day at $5.95 - up another 1.2% - although volume was a little lighter than usual.

$6 looks to be a crucial level for PRK, it will be interesting to see if it can sustain this upward momentum next week.

[RichKid]

Finished on its high for the day at $5.95 - up another 1.2% - although volume was a little lighter than usual.

$6 looks to be a crucial level for PRK, it will be interesting to see if it can sustain this upward momentum next week.

Yep Joe, that's a nice finish and $6 is nearby, more volume would have been nice, maybe a suggestion that the sellers are holding on. Could go sideways, every cent makes a big statement when it's this close to breaking that downtrend. Still has to beat it convincingly.

BTW, for those following my trade I forgot to mention that I bought at 5.62. Again, in hindsight, I should have waited for a safer trigger (as I'm doing now) but my stop was nearby so I'm glad I've been able to move it up. PRK is volatile though and could easily gap down so I'll be keeping a close eye on things.

I'll be happy to hear critiques of my trade from a TA or Money mgmt point of view from observers or holders. This is a medium risk stock for me so a bit more of a position than with a speccy.

[Joe Blow]

Yep Joe, that's a nice finish and $6 is nearby, more volume would have been nice, maybe a suggestion that the sellers are holding on.

RK, also interesting about today's trading in PRK is that the last trade at 3:59pm was actually at $5.91, and when everything settled at 4:05pm it was up 4 cents and that volume (around 212,000 shares) accounted for around 15% of the entire days trading.

An interesting finish indeed.

[RichKid]

RK, also interesting about today's trading in PRK is that the last trade at 3:59pm was actually at $5.91, and when everything settled at 4:05pm it was up 4 cents and that volume (around 212,000 shares) accounted for around 15% of the entire days trading.

An interesting finish indeed.


Always nice to see the buying at the end as that's supposed to be when the smart money comes in but maybe it's just foreign buyers (or do they buy before open??). We'll soon know how this is going.

Okay, I'm about to state some very specific figures for this PRK trade, some may be stated already so just check my charts for confirmation.

I noticed the retest of recent uptrend, retest was characterised by a countertrend which has reversed forming a H&S pattern (see charts). I noticed price compressing and bought at 5.62 on Tuesday 7 June at what appeared to be the top of the final shoulder in an inverse H&S. At that time I hadn't noticed the downtrend resistance line (see my charts again). My initial stop was based on fibonnaci lines and a potential pullback from the short term uptrend being a 61.8 retracement (at just below 5.37c) from the previous week's high (circa 5.77). Stop was exit on close at 5.35c as that would mean the H&S pattern has failed. I would then wait for a retest of the uptrend support again before entering.
Reward target was previous high (a bit arbitrary) at 6.90 with RRR being 4.75. (22.75% return/4.8% loss). Loss is less than 1.5% of total capital. The ability to place the stop near some uptrend support was what made me enter with more confidence. Position size was full parcel for a medium volatility bluechip (my own classification). So more money in trade than for a speccy but less than for a slow bluechip.

My stop is now higher at 5.84, sell on close. Maybe I should just state this all in my first chart in future to make it easier to follow.

[RichKid]

Here's the figures on a chart of PRK for ease of reference, this sure takes some time to post, hope the figures make sense. Let me know if I've made any errors please. Hope this helps anyone who's interested, note my errors.

[RichKid]

Another chart of PRK, noticed an important long term horizontal support/resistance line near the recent price action. Ideally this is where I would have bought as the downtrend resistance and neckline have been pierced at this point. Volume is the only missing element imo, might be the prelude to a strong move (in either direction).

[RichKid]

Well, the stop was well and truly triggered! Gapped down past the trailing stop, had to sell at my entry price (5.62), hence a loss (cost of brokerage). It broke down off a bearish wedge a few days ago, target should be base of wedge from what I recall of measured moves. I didn't sell on the break of the wedge as sometimes it's a false signal and it moves up rapidly after that, anyone think different? Certainly hard to predict when a stock will gap down. Next entry may be triggered soon, knowing my luck it may gap UP tomorrow!!

Anyway, the positive is that I followed the plan, that's the most important thing.

This is a well known stock and quite popular- am I the only one interested in it on ASF (apart from Joe)?

[GreatPig]

RichKid,

You want to trade triggered-stop stories? :D

At least I've still got some profit, having bought in at $1.245. I was hoping that tiny triangle that was forming would be a continuation one. :o

GP

[RichKid]

RichKid,

You want to trade triggered-stop stories? :D

At least I've still got some profit, having bought in at $1.245. I was hoping that tiny triangle that was forming would be a continuation one. :o

GP

Hi GP,
Let's hope we don't have many more of em! Clearly these things happen often with the more volatile stocks. Let's see what PRK does with that gap it just opened up. I notice your little baby VPG has had some very volatile days too. I guess we both knew what we were getting into with the recent price action. Good luck with the next one, keep an eye here in case I re-enter PRK.

[Joe Blow]

Seems to be just holding onto support at the $5.50 mark.

I'm watching PRK again for a possible re-entry. I'll be watching for some accumulation at these levels at or above $5.50 and then a bit of forward momentum.

Any thoughts from PRK followers?

[RichKid]

Seems to be just holding onto support at the $5.50 mark.

I'm watching PRK again for a possible re-entry. I'll be watching for some accumulation at these levels at or above $5.50 and then a bit of forward momentum.

Any thoughts from PRK followers?

Hi Joe,
I haven't got a signal to enter yet, basically watching the uptrend line. Not very bullish about it yet, see posts 20 & 25 for the long term uptrend line I drew, I would post my stop just below it if I was to enter now. But that's just me, not too familiar with PRK, only became a serious fan this year.

I expect a market top in the XJO soon and expect that to affect PRK so we may see the end of the multi-year uptrend. We are still in a short term downtrend imo. Long term I like this stock's fundamentals but we may be in for a bit of a volatility this year.

(PS: Note that the longterm trend line could be drawn lower (See post 20) to catch that green bar that I drew through (rather than under/touching) around the middle of the chart. That would bring support to around $5 or below).

[RichKid]

What drama in just two days! A big fall following the result and then a huge gain today after the Toll Holdings takeover rumour mill re-ignited.

Does anyone that follows these two have any thoughts? Saw news reports saying Toll will want to sell off Virgin if it wins. Others say Toll will concentrate on Asian acquisitions and will be wary of competition issues preventing the merger.

[pokerset]

A report in the age said Singapore airlines denied they want the airline... But i also read they could be intersted in the airline to aquire their access to the USA routes.. So looks like a win win situation..!~

[Julia]

Will ASIC be taking a look at the dramatic buying and consequent rise in SP PRIOR to announcement of Toll's takeover bid just this morning?

Chris Corrigan doesn't seem the type to just lie down on this takeover offer.



Julia

[TjamesX]

I'm pretty sure the significant rise would have been Toll buying on the market to get as larger pre bid stake as it could get...

[pokerset]

Prices in Patrick and Toll went haywire today.. so much for the original takeover offer.. hehe

[doctorj]

Heard a good story today that a London fund manager had been contacting Australian brokers asking about the Toll/Patrick deal up to a month before it was announced to the market. Makes you wonder if there is such a thing as a level playing field, doesn't it?

[RichKid]

Okay folks, as you can see from some of my earlier posts I missed out on this one but I'm revisiting it.

This is just the start of a bidding war imho. With infrastructure the flavour of the month and PRK owning some gems I think we'll see some nice corporate exchanges in the next few months. I'm trying to keep track of where things are so will post some stories to get a grounding. I'm looking to get in on the action for the next run up.



Little's Patrick bid takes toll
From: By Terry McCrann
September 02, 2005

CHRIS Corrigan has hammered home the final nail in the coffin of his non-friendship with Paul Little.

If they weren't yesterday, Corrigan and Patrick and Little and Toll are now at war.
Although it was always unlikely that the iconoclastic Corrigan would stay around to work for Little if the Toll (tol.ASX:Quote,News) takeover for Patrick (prk.ASX:Quote,News) succeeded, any possibility of any ongoing relationship of any sort has now been absolutely obliterated.

The more fascinating question is how they could possibly continue to work together in their jointly-owned Pacific National rail operation - the focus of yesterday's allegations -if the Toll takeover did not succeed.

How do two bitter opponents manage a major 50-50 partnership where strategic and managerial control is split right down the middle?

The allegation simply put, is that Pacific National (PN) is being ripped off by its rail freight deal with Toll.

PN - or the Patrick half? - thought it was agreeing to provide Toll with 83 container wagons in each train. If there were any more, PN would get the revenue.
As it turned out, the trains were running 96 wagons and Toll had them all. This not only cost PN more to run - for no extra revenue.

But if PN wanted to put its own freight on those trains, it had to pay Toll full retail rates. Toll had all PN Queensland's capacity for 20 years.

According to the Patrick side, Toll was supposed to be the anchor customer for the expansion into Queensland; it turned out to be the monopoly customer.

Now the legal consequences of all this might or might not be resolved in court. "Might not", because despite the seeming seriousness of the subject, it will probably evaporate with the takeover.

Certainly so, if the takeover is successful. Patrick and PN become wholly-owned or almost wholly-owned by Toll, and anything the right hand might have been taking from the left becomes moot.

It's a very different matter into the offer. For the issue has greater significance than Toll tried to claim last night.

Toll calculated down Patrick's claimed potential $510 million revenue loss over 20 years to PN, to a net present value profit figure of less than $20 million. Only half would be attributed to Patrick: irrelevant in the bid scheme of things.

But that "calculation" is very easily challenged. The nature of Patrick's claim is that most of that revenue number would fall to the profit line. To get it, PN doesn't have to spend much more.

Discount that back and you get a much higher figure. So if Toll did have to reimburse PN, Patrick's half-share in it would be worth much more.

And that would be very relevant to both sides of the offer. It would make the Toll shares being offered as consideration worth something less; and the Patrick shares worth something more.

Then there's the question of the ACCC. It's already deeply worried at the potential anti-competitive consequences of this mega-transport merger.

Its concerns are likely to be raised by the news that PN's expansion into Queensland was based, wittingly or unwittingly, on Toll having a monopoly of access to its trains.




CSFB Raises Patrick Target Price To A$7.37

Thursday, September 01, 2005 7:01:47 PM ET
Dow Jones Newswires

0853 [Dow Jones] STOCK CALL: Credit Suisse First Boston raises 12-month target price for Patrick (PRK.AU) to A$7.37 (from A$5.80), the point at which PRK acquisition is EPS neutral for Toll (TOL.AU) in FY06. CSFB sees Toll takeover as more of a benefit to Toll shareholders than to PRK's, believes PRK may consider selling down its Virgin Blue (VBA.AU) stake to try to derail hostile takeover. CSFB also says ACCC's review unlikely to prevent takeover, although undertakings may have to be given. CSFB keeps Neutral call on Patrick. PRK last at A$7.05. (BBA)

[RichKid]

Interesting interview, as the WMC affair showed it's only just started. With lots of infrastructure players in the market this could take some time. If you don't want to read the transcript you can watch the video via the link at the foot of the extract.



Pair in transport battle
Date : 28/08/2005
Reporter: Stephen Long

ALAN KOHLER: Well, it's not often that the shrewd and tough Patrick Corporation boss, Chris Corrigan, finds himself railroaded particularly by a business partner. But this week surprise and hostile $4.6 billion takeover bid from Toll Holdings' Paul Little leaves Mr Corrigan on the defensive and facing the very real prospect of being shunted out of the transport empire he has built. Stephen Long reports.

STEPHEN LONG: It's been two years in the planning and Monday was D-Day for an audacious player that could transform the transport industry. Toll Holdings' results briefing is usually a pretty low key affair on the corporate calendar but with its boss Paul Little announcing a hostile bid for Chris Corrigan's Patrick Corporation, the Sydney presentation became a blockbuster.

PAUL LITTLE: Market speculation has been constant about the merging of Toll and Patrick and today I'm pleased to announce that we are proposing an acquisition.

STEPHEN LONG: If Toll pulls it off, it will become the fourth biggest transport and logistics company in the world.

PAUL LITTLE: Specifically the merged business will have a market cap of around $8.6 billion making the company a top 25 ASX listed entity and a strong financial capacity for future growth initiatives.

STEPHEN LONG: Toll's bid has turned tables on Chris Corrigan who with docks and railways and a passenger airline seem to be the budding transport tsar. Now, Mr Corrigan could lose it all. And Paul Little could become a modern day Vanderbuilt.

KEVIN CHINNERY: You'll have a very, very large company offering transport and distribution services in so many different areas on such a scale that nobody else is really going to come close to competing with them.

STEPHEN LONG: If it swallows up Patrick, Toll will become the only operator offering end-to-end transport from dock to shop, a seemless web of boats, cranes, planes, trains and automobiles. But the ACCC may not think a vertically integrated transport behemoth is such a good thing.

CHARLES DALZIELL: Well, I think there's certainly a lot of things that the ACCC have to look at.

STEPHEN LONG: And competitors are already voicing concerns about what the takeover will mean.

PETER FOX: Absolutely, absolutely lessening competition and definitely a consolidation of power in one organisation in the industry.

STEPHEN LONG: When Paul Little spoke to Inside Business a few days after launching the Patrick bid, he was still on a high and still wearing the same tie.

PAUL LITTLE: It has been incredibly busy of course, but also very positive and I think quite rewarding, getting some excellent feedback from those that we have been talking to.

STEPHEN LONG: How are institutional investors reacting?

PAUL LITTLE: Well, they are reacting pretty much I think the way you would have expected. We have had no one being critical of the logic that sits behind what we are doing and a lot of support about the creation of this cross-border logistics capability.

STEPHEN LONG: Even though Chris Corrigan's people have been bad mouthing the bid in private briefings far and wide. How do you respond to the criticisms coming from Corrigan camp?

PAUL LITTLE: What criticism is that?

STEPHEN LONG: Well, they are saying that Patrick has got good high value assets and Toll has essentially been cobbled together through acquisitions.

PAUL LITTLE: Well, that's a little bit harsh given that the Patrick Group have in fact spent $1.7 billion on acquisitions in the last five years and I think Toll spent some $800 million.

STEPHEN LONG: There are plenty who think the $6.70 a share offer is well shy of the money.

CHARLES DALZIELL: I would say in its current form it's got virtually zero chance of success.

STEPHEN LONG: Charles Dalziell at MMC Asset Management, says you can't underestimate the Corrigan factor, shareholder support for the man who took on the maritime union and transformed productivity on the docks.

CHARLES DALZIELL: Chris Corrigan since 1997 has delivered 40 per cent per annum plus compound annual growth to his shareholders and I think combined with the strength of the assets that he has that just means that there's going to be some very, very loyal shareholders who just love Chris Corrigan and what he has been doing there and love the assets that are in the Patrick business and, you know, won't budge for a low ball bid.

STEPHEN LONG: But of course there's loyalty and then there's business. Behind me is Patrick's Sydney container terminal at Port Botany, one of the key assets that Toll is seeking to acquire. If Toll gets the Patrick prize, it will control 40 per cent of the nation's docks as well as 100 per cent of the rail freight business, Pacific National, which dominates the market in key states. It's a vast reach.

Toll's major rival Linfox is building a new warehouse just up the road from the Port Botany container terminal. When I spoke to him there, Linfox chairman Peter Fox said he didn't want to pre-empt the ACCC's inquiries but his own views were clear.

PETER FOX: Definitely, yes. I do have concerns about the further consolidation of power of one organisation in the industry across road, rail, sea and air.

STEPHEN LONG: So at the end of the day, push come to shove, you don't think one company should have so much power?

PETER FOX: That's absolutely right.

STEPHEN LONG: The plan has been given the thumbs up by the nation's biggest grocery chain.

PETER CORBETT: I think that the Patrick Toll merger if it goes ahead or purchase whichever way you like to look at it, will be a step in building greater efficiency in the all important logistics movement in Australia.

CHARLES DALZIELL: It surprises me that Roger Corbett comes out and says he's looking forward to the lower costs to his business involved in this deal, and it seems counterintuitive to me that you can hand somebody a whole lot more power over the whole logistics and distribution part of the business and expect there to be lower costs associated with that. Monopolists don't tend to be well renowned for passing on their monopoly profits to their customers.

STEPHEN LONG: The ACCC has already received complaints from small trucking operators claiming the existing port and rail freight duopolies grant their own trucks preferential access, but Toll scoffs at suggestions it could or would abuse its market power.

PAUL LITTLE: If we alienate, either by market behaviour or through price concerns or even service concerns, if we alienate those customers they will simply take their business elsewhere. There are other choices available to them.

STEPHEN LONG: If the ACCC doesn't reverse the Toll bid or make an offload assets, you still can't write off Chris Corrigan. He and Patrick chairman Peter Scanlon are well schooled in the art of bare-knuckle takeover brawling.

KEVIN CHINNERY: He's certainly well capable of mounting a counter attack on Toll. I mean, we all know him of old and he is an audacious player. He could well turn up with a white knight of some sort.

STEPHEN LONG: Then there's the possibility of a third player.

CHARLES DALZIELL: A stevedoring asset like the one Patrick owns running the ports would be very attractive to a Macquarie Bank or a Babcock & Brown. I mean, they could package that up and do their financial engineering tricks and create a lot of value.

STEPHEN LONG: Paul Little has been scrupulously polite about Chris Corrigan all this week, though it's not clear how well they get along.

PAUL LITTLE: Were we friends? Look, I'm not quite sure what you mean by friends but the relationship I think has been sound. We don't mix socially outside of the business environment but I would regard Chris as a person who is very proud, has made a huge impact on this industry and one that we would love to have still with us post the outcome of the transaction.

STEPHEN LONG: But as this plays out you get the feeling there could be a lot of blood under the dock and the rivals may not want too much truck with each other over the long haul.


---------
VIDEO at foot of this page: http://www.abc.net.au/insidebusiness/content/2005/s1447774.htm

Toll Holdings' Paul Little and Patrick Corporation's Chris Corrigan have vastly different personalities. But both men share the same business aim - to build Australia's biggest road, rail, port and aviation conglomerate.

[RichKid]

The basics of the first offer below, PRK sought clarification today.


Analysts see Toll-Patrick breakdown
SMH September 2, 2005 - 6:25PM

......Meanwhile, Patrick on Friday asked Toll to clarify whether or not its proposed in specie distribution of Virgin Blue shares formed consideration as part of its takeover offer or whether it was simply a statement of Toll's future intentions.

Patrick holds the controlling stake in airline Virgin Blue.

Toll has made cash-and-scrip offer that initially valued Patrick shares at $6.70 each.

Toll is offering 0.4 of its shares and 75 cents for each Patrick share.

Patrick shareholders will also receive an in specie fully franked special dividend from Patrick of 0.3 Virgin Blue shares for each Patrick share.

Toll shares were 17 cents lower at $13.91 on Friday. Patrick was 15 cents lower at $6.90.
.....

[RichKid]

Patrick lower again today, some news on the current situation: http://www.smh.com.au/news/business/patrick-threatens-rail-breakup/2005/09/14/1126377373408.html

TOL bidder's statement due by tomorrow as well. I'm waiting for PRK to recover to above $7. Although Little says no one else is interested in bidding for PRK, with mining booms normally lasting years and years there is bound to be someone with an eye on essential infrastructure assets.

[RichKid]

Okay, bidder statement is out, also another angle on getting control.

I was wondering why I'm the only one keeping this thread going, aren't takeovers normally a hot topic? I reckon it's because things are quiet after the initial flurry in a takeover (similar to WMC), then bit by bit it hots up and everyone is interested again. Kinda like the first stage of an uptrend, very few people know intitially and then everyone knows.

NOTE: I hold PRK.



CBA Holds Key To TOL's PRK Takeover

Monday, August 22, 2005 8:32:40 PM ET
Dow Jones Newswires 1016 [Dow Jones]

Martin Littler, head of Australian equities at Colonial First State, CBA's (CBA.AU) fund management arm, refuses to indicate if they will accept takeover offer from Toll Holdings (TOL.AU) for their stake in Patrick Corp. (PRK.AU), saying "we never comment on takeovers." However getting CBA on board, if they're not on the boat already, will be vital to TOL's hopes after CBA increased its major stake in PRK to 13.4% in late July, potentially blocking any full takeover under 90% compulsory acquisition provisions. (WEL)
-----
-----

PRK Would Boost Toll Value To A$16-Macquarie

Thursday, September 15, 2005 9:31:53 PM ET
Dow Jones Newswires 1129 [Dow Jones]

STOCK CALL: Macquarie Research Equities says the successful acquisition of Patrick (PRK.AU) could boost Toll's (TOL.AU) valuation to A$15.50-A$16.00. "In our view the Toll share price does not currently reflect the potential benefits of the successful acquisition of Patrick," Macquarie says, keeps Outperform call, base valuation of A$14.75/ share, 12-month price target of A$15.50. Toll last down 13 cents to A$13.73, PRK down 7 cents to A$6.72, just above notional offer price at time of bid of A$6.70/share. (BBA)

[RichKid]

A great article summarising the state of play, looks like TOL will hang around on the board if it can't take complete control so I reckon this bid is going higher as Little clearly wants PRK, even at the cost of having regular stoushes with Corrigan, but that may just be a tactic. My only concern is the ACCC's take on things and how it'll affect it. So much uncertainty proves why there is never a truly safe investment. Apparently the cost savings to TOL have been deliberately underestimated so that TOL can justify a lower bid.


Toll expects to join top 30
15 Sep 2005 17:31 AAP
(http://afr.com/articles/2005/09/15/1126750069914.html)

Logistics firm Toll Holdings estimates it can achieve full-year gross synergies of $65 million within three years if its $4.6 billion hostile takeover offer for stevedore Patrick Corp succeeds. Synergies after tax were estimated at $45.5 million.

Toll, which released its bidder's statement for Patrick on Thursday, also said it estimated one-off restructuring costs of $36 million to achieve the estimated gross annual synergies.

The gross synergies of $65 million would come from operational cost savings (including technology systems), administration cost savings and additional earnings from revenue growth.

Toll said the synergies could differ from the estimates due to limited public information available on Patrick.

Toll estimated that the combined group would have a pro forma net profit before non-recurring items of $496 million for 2005/06.

Toll's forecast reported net profit for the combined group is $354 million for the year ending June 30, 2006, based on an acquisition date of January 1, 2006.

Toll said that it expected a standalone net profit after non-recurring items of $250 million under the new AIFRS accounting standards in 2005/06.

It said that if it became entitled to compulsorily acquire all of Patrick's shares it would centralise corporate head office functions and immediately start to review Patrick's operations, which would take about three months. Synergies generated would improve the merged group's capability to supply end-to-end logistics services to customers.

If Toll did not gain full control of Patrick but waived the condition of its bid that it be entitled to acquire all Patrick shares, it would maintain Patrick's listing on the Australian Stock Exchange and seek proportionate representation on the Patrick board.

Toll said it would reduce the merged group's investment in airline Virgin Blue, of which Patrick is the controlling shareholder with 62.4 per cent, to as low as 7.7 per cent.

Toll said it had no expertise to provide to Virgin Blue's passenger airline business.

Toll also intended to enter into talks with Virgin Blue to transfer Toll's air freight requirements to Virgin Blue.

The merged group is expected to have a market capitalisation of about $8.6 billion, making it one of the 30 biggest companies listed on the Australian Stock Exchange.

The transport and logistics group would have annual revenues of more than $7 billion and be in a strong position to fund capital expenditure and participate in regional growth opportunities.

Toll said Patrick was facing significant additional capital reinvestment requirements which, in Toll's view, was likely to place a significant strain on Patrick's prospective returns to shareholders as a standalone company.

"In contrast, the merged group will have a conservative capital structure with low gearing and strong operating cash flows, leaving it in a strong position to fund capital expenditure plans and further regional growth opportunities."

Toll managing director Paul Little said Toll had delivered significantly superior growth in earnings and operating cash flow per share compared with Patrick over the last five years.

One thousand dollars invested in Toll five years ago would now be worth about $5980 today compared with about $1925 for Patrick.

The merged group also would have significantly better structured exposure to the volatile airline industry.

"Both the Toll and Patrick share prices have reacted very positively to the offer," Mr Little said.

"Patrick's market value is now around $850 million higher than before market speculation of a Toll takeover bid for Patrick started in July. This reinforces the positive feedback that we have received from shareholders and customers."

Toll is offering 0.4 of its shares and 75¢ for each Patrick share.

Patrick shareholders also will receive an in specie fully franked special dividend from Patrick of 0.3 Virgin Blue shares for each Patrick share. The offer initially valued Patrick at $6.70 per share or about $4.6 billion.

[RichKid]

CSFB Says Switch To Patrick From Toll

Thursday, September 15, 2005 6:16:43 PM ET
Dow Jones Newswires

0813 [Dow Jones] STOCK CALL: Credit Suisse First Boston recommends investors consider switching from Toll (TOL.AU) into Patrick (PRK.AU) pending expected protracted resolution of TOL's takeover bid, believing TOL will increase bid price, with up to another 35 cents/share payable before PRK no longer EPS accretive in first year. Says TOL bidder's statement highlights A$65 million of synergy benefits over 3 years and willingness to make "undertakings and divestments" in order to satisfy ACCC. TOL last A$13.62, PRK A$6.74. (WEL)


A chart showing the gap is below, gaps love to be filled and with a recent pivot I think the dowtrend is now reversing, consolidation at the very least imo. The uppermost horizontal line around $6.87 is the previous all time high, I expect this to climb above it eventually. This imho is a low risk trade provided the stop is very tight, potential for very high returns if the market gets excited, otherwise just a small profit judging by the bid figures going around (assuming no one out bids TOLL).

I get the impression the analysts are increasing the forecasts for both TOL and PRK so that the respective valuations will drive the bid price higher (as bid constitutes a portion of TOL's sp and because PRK says it is worth more in the future so TOL should pay more).

[RichKid]

PRK lower again over the week, although an up day today closing at 6.60 from memory. This seems to be a level at which it finds support even when the rest of the market is in a downspin.

[RichKid]

Been awhile since this was updated, PRK near all time highs but no volume worth noting, need another week or so probably to get the holiday laziness out of the way.

[trader]

Since there is no takeover anymore share price should drop back to $6.00
but then again rail fright monopoly is in a mess too, so maybe share value
is less than $ 5.00 . But it will take the market awhile to go there.

[RichKid]

This thread is now closed due to the takeover of Patrick by Toll Holdings.