Round 23: The NRL Report

Rugby League has a rich and storied history since its birth over 100 years ago. For the bulk of this period, Rugby League was not a profession. It was a pastime, a weekend event, a discussion point on Monday morning at school or the office. It wasn’t followed on pay television; if you loved the game, you just had to watch it in person (or at worst, listen to it on radio). There were a few administrators who could use Rugby League to put food on the table, but they were mostly retired greats of the game who were incapable of working for Rothmans, running a pub down the coast or one of several other typical post-playing career jobs.

In short, Rugby League was a sport, not a business, but this changed. The origins of this shift were probably seen in the 1970s (and perhaps earlier) but it was the 1980s when the movement towards full-time professionalism in the game accelerated.

Given the two decades plus since this shift hastened, you’d think the Rugby League community would be used to cold-hearted, business-like decisions made by clubs, players and coaches. The decision by Newcastle to sack Coach Brian Smith three games after his signing with the Roosters from next season should not have surprised anyone; if anything, it should have happened sooner.

Granted, Smith is a target for several sections of Rugby League media, but really…Smith’s sacking should have been the equivalent of a five-line press release summary in the corner of a page in the Fin Review. However, despite the morphing of sport into business, the reality is the Rugby League follower will always view the sport as a game, no matter how money-hungry its participants become.

But what if it was viewed as a business, with 16 companies out to maximise profit, minimise costs and corner as much of the market as possible? Here’s how the reporting of Rugby League events in the media could take place in such a world…

And now it’s the NRL report with Tom Piotrowski from CommSec, and Tom, who were the best performers this week?

Once again, Karen, it was ParraEels Ltd. which recorded the strongest growth. This came on the back of another extremely strong showing, which outstripped all but the most bullish of expectations from analysts. While some expected their strategic movements (asset sales and the hiring of a new CEO) in the early and late parts of FY 2008/09 to bear fruit in the medium to longer term (given their strong market fundamentals and well established brand), few gave them any chance to be posting such strong numbers so soon.

As their chart shows, it has been a meteoric rise for ParraEels over the last few months, but they remain below the historic highs of 2001 and 2005, so there is still some upside if you wish to get on the bandwagon. Despite their surge in recent months, a number of brokers see ongoing growth and positive reinforcement to come from their asset buyback and several other acquisitions…but be warned, what goes up must eventually come down. If you’re looking at ParraEels to put in your back pocket, that might be the best bet…but history says you will enjoy a bumpy ride!

Similarly, the Wests/Tigers conglomerate has risen remarkably when most of the fundamentals pointed to continued weakness. While their competitive cost structure and flashy brand translates to continued appeal with mum-and-dad and institutional investors alike, most of their rallies after their incredible burst to prominence in the early part of FY 2005/06 have been flashes in the pan.

The consensus view is unclear whether this current rally will be any different; they have enjoyed the rails run of late with very friendly market conditions, while a rare overseas investment foray early in FY 2008/09 has been paying some significant dividends. However, it remains unclear if they can continue to produce such good results. Their relative lack of a diversified asset portfolio has always haunted them; this hinders their ability to produce consistently in difficult markets, such as the one looming on the horizon for them. A strong recent performer, yes, but it is no surprise that more analysts are recommending their clients to sell Wests/Tigers.

Interesting, what do you make of the results of blue-chips News Brisbane and News Melbourne?

The News-owned companies experienced contrasting fortunes in their latest results, but can feel fairly good about the near term.

News Melbourne went into a trading halt earlier in the week and subsequently suffered a sharp dive when they had to release a product recall on their popular Inglis brand. The rumour mill went into overdrive once this info hit the bourse and even several days after the trading halt was lifted. It appears as though Inglis will be back on the shelves in the not-too-distant future, but it remains to be seen how much damage Inglis — and News Melbourne — have suffered. However, the consensus, despite their relatively poor showing this week, is that News Melbourne remains a fundamentally strong outfit and will be able to post very good results for the remainder of the trading year: News Melbourne is a buy or a buy/hold from all analysts surveyed.

For their Brisbane counterpart, it has been well-established that a number of poor investment decisions in recent times have hit their bottom line hard; this is not the profits machine it was for so many years. Throw in a number of unplanned maintenance shutdowns and it is not surprising just how poorly News Brisbane has been performing.

However, as is often the case, investors can overshoot in the good times and oversell in the bad; the strong fundamentals of News Brisbane remain and have been largely ignored. The chart shows News Brisbane exhibited the first green shoots in their last set of results, which improved further last week. Given their strong fundamentals and their intention (and ability) to invest in some significant new assets in coming years, this remains a solid defensive stock.

Contrasting results for the best performers so far in CY 2009, Red V Ltd and Doggie Style Inc.?

As we all know, Red V Ltd have been extremely successful this year. It just goes to show the value of top-shelf boardroom leadership. People can get angry with the issue of executive pay, but new Red V CEO Wayne Bennett would suggest he’s worth every penny (or much more) of his salary.

Recent results for Red V were very lucrative for investors (many of whom got on board during the halcyon days of the 1960s) and were achieved in a very efficient and productive manner, but they suffered a rare hiccup after their annual visit to Canberra last week. Despite their very famous brand and a number of studies showing quite strong multiplier effects from their investments, Canberra has been a very difficult opponent for Red V over many years (even following the change of Government).

Their ongoing trouble with the Feds notwithstanding, Red V has very solid ongoing prospects. Given Bennett’s history of success with News Brisbane, now might be a good time to buy: novices could be shaken by their failure in Canberra and could look to sell, whereas wiser heads had already factored this into Red V’s price.

Some other news about Red V this week concerns rumours of a possible takeover of Sharks International. These companies have a well-established rivalry in the southern Sydney market, but whispers from within Red V see Sharks International as a similar-type target as Illawarra Steel was in 1998: asset-rich but revenue-poor and able to be won over eventually by the history of Red V. Speculation to this end has probably put a floor under Sharks International’s price at present, but be prepared for this floor to fall away as m&a activity in NRL is notoriously slow to take place.

Doggie Style Inc. has come off the boil somewhat in recent results, although history tells us that when this happens, there’s usually a method to their madness and there is a definite plan to attack and profit heavily in the not too distant future. Look for some more softness in their price in coming months as the market realises the effect of the retiring of the El Masri brand (although rumours continue that El Masri will not be lost to Doggie Style completely; rather, it will assume a secondary role) but Doggie Style quietly announced several small acquisitions this week. Their constant ability to re-invent themselves in tough times means this is a resilient stock: highly recommended by most analysts.

And lastly, further success in what has usually been a challenging market sector for Golden Titans Ltd.?

Yes, Karen, Golden Titans quickly established a strong niche in the burgeoning SEQ market following their incorporation in 2007, but has struggled to gain a foothold elsewhere, especially in the notoriously tough Sydney market. Whereas some (such as Doggie Style Inc.) have fuelled recovery and growth via asset acquisition and reinvigoration, Golden Titans have strengthened via organic growth and improved strategy and preparation with their existing stock of assets.

So far in CY 2009, Golden Titans have continued their dominance in SEQ but have recorded much improved results (albeit off a low base) in other metropolitan areas. They had their first success in Melbourne in April and now have had successful ventures in Auckland and western Sydney in the last two weeks.

Western Sydney required all of Golden Titans’ nous and expertise; their usual star performers gave a good showing but success was largely due to a powerhouse effort from Minichiello. His familiarity with that market, in combination with his other strengths, proved decisive.

The Sydney challenge will no doubt present itself again soon, but in the meantime, those who have invested in Golden Titans will receive some nice rewards in coming weeks as their focus returns to their native area.

See you next week.

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