Brokers beginning to make hay

DO-IT-YOURSELF, or discount stockbroking, despite the sales spiel of true believers, was never a fad with a future. Apart from it being a lot easier to pick up a phone to place a buy or sell order rather than trying to save a few dollars with an Internet trade there was always the problem of flying solo or, to put it another way, investing in a vacuum without the benefit of professional advice.

If anyone doubts that the swing back to full service broking is underway take a look at the stock market itself – not at the record level reached by the all ordinaries and other indices but the price of two of the smallest stocks, Euroz and Tolhurst Noall, members of that very rare species listed brokers.

In May last year you could have snapped up a few Euroz shares for as little as 50 cents, though to be fair trading was Bruce Reid thin with just 128,000 shares exchanged in all of that month. Over the past 10 months business has blossomed, both for Euroz itself, and in its own shares which peaked at $1.15 on February 19, a cool 130 per cent profit for anyone lucky enough to have got set at the low point and a price rise that was probably better than many of the stocks tipped by the firm itself.

Since hitting its high, Euroz has been tracking down with recent sales around 88 cents, up 76 per cent on the low, or down 23 per cent depending on your point of view. The latest price values the firm at $26 million which, and Briefcase is not in the business of giving share tips, looks seriously cheap given that Euroz lifted revenue by 315 per cent to $12.3 million in the half year to December 31, and profit by 822 per cent to $3.38 million putting the stock on a very untaxing price/earnings ratio of 6.6, and generating a yield of 6.2 per cent thanks to its payment of a 4 cent interim dividend.

Not far behind Euroz is Melbourne-based Tolhurst Noall which lifted profit in the December half by 696.4 per cent to $2.2 million and has watched its share price climb from 8.3 cents in the middle of last year to 24 cents in November and a last sale of 16.5 cents – not that there has been much trade.

The Tolhurst Noall result is especially interesting because it came from a modest increase in revenue which rose just 35.2 per cent to $17.7 million. In other words, just about all of the extra revenue stuck as profit probably because the cost structure did not change as investors ploughed back into the market.

What’s good for the listed brokers is undoubtedly good for the private firms which brings us back to Perth where the chaps at Hartleys must be having a field day since successfully managing their buy out from the alphabet soup known as HP-JDV Ltd. The cost of the management buyout is a well kept secret, but there’s little doubt that a broking business bought in the middle of last year must now look like one of the deals of the decade – which is great for the Hartleys crew and precisely what would have been expected from the vendor.

Timing, as can be seen is everything in the stock market, and Briefcase is delighted to see that Michael Manford, Aaron Constantine, Murray McGill and the team at Patersons have finally bought back the missing half of their business from the US investment bank, JP Morgan.

Manford, who has been heard to tell friends that business has never been better, can take credit for sticking to a simple business plan of full service and investment advice – remarkably like that at Euroz which was spawned by a Patersons break-away group.

However, the questions that some observers find fascinating is what price did Michael and his mates pay for 50 per cent of Patersons, was it wise to spend so much time haggling over the deal only to complete it just as the market hits an all-time high and how serious is the planned move into Sydney and Melbourne, cities littered with dead Perth business dreams?

Briefcase, once again issues its no-tips caution, but reckons that the Patersons crew will be sorely tempted to spread the cost of their acquisition by joining Euroz and Tolhurst Noall as a listed entity in the name of that great investment philosophy of why risk all your own money when you can raise it on the market.

SMALL nickel stocks have gone nowhere for the past few months as the world price of the metal slips from its recent highs – not that this should stop serious speculators from rummaging around the companies in production because the nickel game is far from over.

Jubilee remains the leader of the pack, though it has a mine-life expectancy question hanging over its Cosmos project. It’s the same among the flock of born-again Kambalda mines that have produced astonishing results for stocks such as Mincor, Independence, Reliance and View.

Picking a winner from the Kambalda kids is not easy. Each has an old WMC mine, each seems to have an excellent team made up of ex-WMC executives, and each is making fat profits with nickel still trading above $US13,000 a tonne.

Finding a point of difference is the key to playing the Kambalda game and it was while visiting the View operation at Carnilya Hill that Briefcase found one the average mining investor misses because he gets too excited about tonnes, grams, ounces, metres and other measurements that involve the simple science of digging a hole.

A more important measure of View as a business is that it is debt free, a point that seems irrelevant in the good times (like now) but which make all the difference when metal prices fall, or when the business prepares its accounts. Keeping away from the banks is a result of View acquiring Carnilya Hill at a bargain basement $250,000 plus a pile of shares issued at 1 cent.

The next few months, as nickel sales accelerate and the newly-opened Zone 29 mine swings into production, could make View a stock to watch.

 "The more corrupt the state, the more numerous the laws." Tacitus, 1st century AD.