Continuous Disclosure: Mike Pero exits ownership of real estate business as parent company prepares to IPO

Mike Pero Mortgages looks set return to public ownership through the listing of its parent company, Liberty Financial, on the ASX.

Mike Pero Mortgages was delisted from the NZX in 2006 after a takeover by a joint venture company owned by New Zealand Finance Holdings and Liberty – an Australian lender.

The takeover was done at $1.10 a share. Fourteen years on, Liberty now owns 100 per cent of Mike Pero Group, which includes its mortgage, insurance, finance and real estate businesses.

According to Australian media reports, Liberty is looking to undertake an initial public offer that would value the company at A$1.8 billion.

It is expected to raise A$363 million in an IPO priced at 11 times the lender’s forecast net profit after tax, with new investors owning 20 per cent of the company on listing, according to the Australian Financial Review.

Liberty was founded by now US-based Sherman Ma in 1997, after he worked at Credit Suisse and McKinsey & Company. He remains an executive director, with the chief executive being James Boyle.

The Australian reported that Liberty’s cash net profit in 2020-21 was expected to be A$160m to A$170m.

Its New Zealand business is just a small part of that.

Financial accounts for Mike Pero Group show it made an after-tax profit of $6.533m for the year to June 30, down from $8.936m.

Its operating incoming rose from $59.4m to $65.6m but its expenses also rose from $49m to $57, after a jump in its finance costs driven largely by higher fees and commissions.

Its provisions for impairment also rose from $1.7m to $2.48m over the year.

Analysts are bound to be looking closely at impairment provisions across the whole business to see how it has fared under Covid-19.

Mike Pero exits

Mike Pero, the man, has exited his ownership of the real estate business which still bears his name.

Companies Office records show Pero resigned as a director of Mike Pero Real Estate on October 20 and his company MPZ One ended its ownership of the business on November 4.

His company had a 12 per cent stake as of June 30, which had already reduced from 24 per cent the year before.

In 2018 Pero reduced his stake from 50 per cent to 24 per cent after reaching a settlement agreement with Mike Pero Mortgages following a long-running legal dispute.

The settlement was reached during the final stages of a High Court case that saw Mike Pero Mortgages attempting to claw back $2.2m (or $2.4m with interest) it says Mike Pero overpaid himself.

As part of the deal, Pero also agreed to take an active role in promoting the broader group until at least 2027.

A spokeswoman for Mike Pero Group confirmed yesterday that Pero still worked with the company as a brand ambassador and would continue to do so for the foreseeable future.

The change in ownership is likely to be part of a tidy-up of the business ahead of the IPO.

Silver lining for red sheds

Difficulty in getting stock into the country due to Covid restrictions has plenty of businesses worried.

But one analyst is seeing the upside for The Warehouse Group.

Forsyth Barr’s Guy Hooper noted this week that inventory levels at the country’s largest retailer were down 24 per cent at the end of its 2020 financial year (July 31) compared to the same time last year, thanks to stronger than expected post-lockdown demand from consumers.

“Whilst inventory has been recovering, it remains below normal levels as supply chain congestion limits the ability to replenish.”

Hooper said he suspected this was the case across the whole retail sector, meaning it was unlikely to result in lost market share.

“This should be positive for gross margin (less discounting), but may limit sales activity.”

Hooper said gross margin expansion was the key takeaway for him in a recent update from the retailer on its first quarter trading (for the three months to October 31), where sales across the group were up 6.3 per cent.

“Recent sales performance and gross margin achievement provides greater confidence in the near-term outlook, and we lift our near-term dividend assumptions as a result.”

Hooper previously predicted a dividend of 10c per share but has now lifted that to 15c per share.

That would give The Warehouse a net dividend yield of 6 per cent, which looks pretty attractive compared to the 1 per cent or less that depositors can get in the bank.

Hooper is forecasting net profit after tax to fall to $71.3m in the 2021 financial year – down on the $80m it made in 2020, before bumping back up to 79.2m in 2022 and $91.3m in 2023.

Jarden analysts Lily Zhuang and Andrew Steele upgraded their target price on The Warehouse Group from $2.46 to $2.65 and have an outperform rating on the stock.

The analysts said the target price rise was driven by better near-term trading prospects and modest gross margin improvement.

They are picking a dividend payout of 11c per share in 2021, rising to 17.6cps in 2022.

“We consider it likely that consumer demand strength will be maintained into WHS’ key 2Q trading period, which is critical to full‐year earnings. However, tempering this positive update, the company advised that certain product categories carried by Red Sheds and Torpedo7 may be impacted by shipping delays.

“Nevertheless, management advised that it remains confident in WHS’ ability to meet customer needs.”

The Warehouse will hold its annual meeting next Friday and investors will be hoping for more of a steer on how its crucial Christmas trading season is going.

Volatile share price

A2 Milk’s share price has been on a rollercoaster ride lately, as investors fret over how long it will take for the “daigou” market to bounce back.

Daigou covers the unofficial group of individuals who shop and sell products to China for a profit.

Most of these sellers have sprung up in Victoria, and have been hit hard by the state’s Covid-19 lockdowns.

Harbour Asset Management portfolio manager Shane Solly said a2 Milk was also being attacked aggressively by hedge funds.

He said hedge funds were attacking stocks they believe are exposed or potentially exposed to the China-Australia trade war.

But Solly said Chinese consumers were well aware that a2 was a New Zealand product.

A2 moved to reassure investors about the daigou market at its annual meeting on Wednesday, but that didn’t stop Jarden analysts Adrian Allbon and Luan Nguyen downgrading their revenue forecasts.

“We further re‐base our FY21‐23 revenue… to take a more conservative stance on the recovery of corporate daigou.

“Our FY21 revenue is now at the bottom end of guidance but requires a strong [second half] contribution, specifically daigou.”

The analysts left their target price of $21 unchanged and retained an outperform rating on the stock.

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