NAB rewarded for strong financial year forecast

Chief executive Frank Cicutto has had a trying few years compared with his peers but was able to better most of them by predicting 2002-03 earnings per share growth of 8 to 11 per cent.

As ABN Amro has noted, the bank's three big issues have been HomeSide and corporate governance, offshore growth and capital management.

Regarding corporate governance, it was little reported that institutions rebuked NAB on several key issues, particularly the issue of share performance rights and options to Mr Cicutto.

NAB is one of the few institutions persevering with options after Commonwealth Bank took the lead earlier this year and dropped them.

According to the proxy count filed yesterday, almost 17 per cent of shares were voted against the motion, suggesting some large institutions took a stand on the issue, not just the punters. This was significant, as most AGM resolutions pass without a whimper.

On the issue of offshore growth, the UK expansion via MLC (and AMP's position as well) can't be helped by more data showing the depth of despair there. Association of Unit Trust and Investment Funds figures show a 13.4 per cent fall in total funds under management in the year to November.

Mangan revisits Fairfax Thursday's John Fairfax earnings upgrade has triggered the usual round of research notes. Perhaps the most interesting is from Deutsche Bank's Mike Mangan, who caused a stir last year by saying the publisher of The Sydney Morning Herald had a long way to go in cutting costs and that 550 jobs should be chopped.

Now, as Fairfax forecasts 20 per cent earnings growth in the first half of 2002-03 (up from 15 per cent), Mangan has acknowledged costs have been cut and revenue from advertising is improving.

He still thinks Fairfax has valuation concerns, and prefers stocks like Ten, Southern Broadcasting, PBL and Seven.

But Mangan also thinks that beyond 2003, Fairfax is looking at free cash flow of at least $160 million a year. He reckons the dividend will rise and that other capital management opportunities are out there.

Mangan hasn't changed his ``hold" recommendation or his earnings forecasts (he'd already estimated 19 per cent earning growth), but expects second-half earnings to grow by 18 per cent.

``Fairfax was the first domestic media company to announce an earnings shortfall in the 2000-02 advertising downturn; we think they might be the first to report an ad upturn," Mangan says.

Poaching at Challenger The sale of Challenger's retail broking arm to Bell Potter was a foregone conclusion given Challenger's struggling share price, the greater involvement of Kerry Packer, Colin Bell's close association with Packer and his non-exec position on the Challenger board.

Due diligence still has to be done and Bell (apparently supported by Gordon Dickinson, joint chief of 26 per cent shareholder UBS Warburg) has been busily putting the hard word on the Challenger First Pacific advisers to move themselves and their client lists across.

One insider says Bell is offering a two-year contract and the guarantee that whatever they would have made at Challenger will be matched at Bell Potter.

The only problem is that a few other attractive offers are being thrown onto the table.

Graeme Cutler, managing director of the newly recreated Ord Minnett, is believed to be offering Challenger's top advisers a lucrative up-front package, while Salomon Smith Barney is dangling a deferred share package in front of them.

Some of the advisers have already jumped to Etrade.