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Low profile, high performers

INVESTMENT advice can be a tricky business. Get it right and you’re a hero. Make a mistake and you never sit with your back to the window.

Armed with this invaluable understanding of the investment world Briefcase declines to hand out share tips.

Instead, it talks about stocks worth watching, names for the black book – and any other cliche that avoids the word advice.

This week, there are two names worthy of a bit of research by the serious investor.

The first, Financial Resources (ASX code FRL) is a classic mini-finance house.

The second, Giants Reef (GTM) is a classic gold revival story.

Both are being heavily discounted by a sceptical stock market, but both have very interesting prospects.

FRL, which listed last month, is a candidate for Briefcase’s “low profile” award.

The fact that not a single story has been written about the company, or a word muttered in investment circles, makes a cautious man even more cautious – until he has a look at the business profile, the directors and the performance.

In essence, FRL is a very “plain vanilla” financier.

It uses its balance sheet and takes on a bit of debt to provide conventional leasing and mortgage finance at a level too low for banks.

Launched in 1994, it has been a good business for its founder and former National Australia Bank executive, Barry Samuel.

In 2001 it made a profit of just under $1 million. Last year, just over $1 million. And in the year ended on June 30, a profit of $1.35 million, slightly above the prospectus forecast, and with a target of around $1.5 million in the current year.

If these sound like small numbers, it’s because they are. But, they’re in the black and trending up – a big plus.

The second positive sign is that FRL has lured former Town & Country Building Society boss, Ray Turner, off the links to serve as chairman.

Ray knows how finance works, and brings the history of T&C with him, including memories of the late Sir James McCusker and Bob McKerrow who founded that organisation when on the wrong side of 50 years old.  Sir Jim eventually cashed out to the ANZ for around $83 million, plus or minus a mill.

Samuel, who Briefcase suspects is frighteningly close to getting the first half of his congratulations card from Liz in Buck House, has big plans for FRL and while he will not talk specifics it would not be surprising to see him push for a bit of growth via acquisition.

The market, apparently concerned that FRL has a bit too much exposure to the property bubble (and it is without doubt the biggest bubble that Briefcase has ever seen) is trading the stock at 16 cents, an embarrassing 4 cents  below the issue price before a complex series of options lifts a float package to around par.

At 16 cents, you get a stock that is profitable, growing, well managed, and earning about 2.1 cents a share.

GTM is more of a revival story. Floated 10 years ago, it did its best to disappear from view.

Next month, it will grab a few headlines with the first gold pour from the revitalised Tenant Creek gold-fields in the Northern Territory.

A prolific field with a history of yielding more than five million ounces of gold, Tenant Creek appears to have much more to reveal thanks to the application of modern exploration tools such as ground-borne gravity surveys which are helping pinpoint a series of interesting drill targets.

But, even if the longer-term prospects are overlooked there is nothing to match a photograph of that first pour, and the promise of gold at $250 an ounce when the price is $580. The gap, of $330, is pure profit – and the best explanation anyone needs as to why gold is back in favour.

 

ALMOST time for Wesfarmers to start thinking about a new name, especially if the talk in the market is correct and more insurance acquisitions are made.

WA’s most successful company, which recently sold its historic “farming” division for a staggering $825 million to AWB, and bought a big chunk of the Lumley general insurance business, has been named as a potential buyer of the Australian book of Germany’s Allianz insurance.

Not a very profitable business, Allianz Australia might do a lot better under the firm financial hand of Wesfarmers though the cost is likely to be somewhere around $1.4 billion if the boys in Munich do what other foreigners have been doing in the Australian insurance market, selling.

As all market watcher know, trying to guess a Wesfarmers corporate move is a difficult business though the growth of insurance operations at the company have been spectacular and there is also a need to doing something with the AWB cash – which might trigger another need, a new name to replace the old farmer tag which no longer reflects the nature of the business mix.

 

Briefcase will never make fun of the academic world. Learning should be a lifetime occupation.

However, sometimes there is a field of study that leaves even the most sympathetic observer of the academic world gobsmacked.

This, believe it or not, is the title of a paper being delivered in early November at an economics research conference at UWA – “A Bayesian approach to inference for a threshold autoregression with a unit root” – bet they don’t discuss that at the Court Wine Bar on a Friday night.

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