Aristocrat back on losing streak

Cautious analyst research on Aristocrat Leisure hit clients' desks and dampened enthusiasm for the gaming stock which had bounced last week on news the boss, Des Randall, was out.

While the move was a step in the right direction, there are still issues clouding the outlook.

Aristocrat announced more than $16 million in writedowns stemming from the North and South American operations.

Now the markets wants to know if the group has any more skeletons in the closest, such as the troubled CDS acquisition.

Future earnings growth is also in doubt, with first-half earnings in Aristocrat's three core markets, Australia, Japan and the US, expected to be flat or down on last time.

Then there's the possibility of further tightening of gambling laws, delays in the granting of licences, and more competition.

The removal of Randall and his finance officer, Lionel Jeyaraj, has also created a leadership vacuum.

While David Creary's promotion to acting chief executive has been welcomed, analysts want a permanent management team installed as soon as possible to give the company clear direction.

Aristocrat fell 4c to $1.75.

Cheesed off

The $100 million share buyback announced last week by milk processor National Foods was reasonably well received but there's a danger that it could go sour for shareholders.

ABN Amro notes that while the overall value of National Foods won't change because of the buyback, the market capitalisation may. A fall of $100 million, in line with the buyback, could drop the company from the ASX 100, which sets the stock up for a potential de-rating.

ABN Amro's David Cooke estimates the risk at 10c a share to his target price of $3.75. The stock ended 5c higher at $3.45.

Apart from that, all seems well. The buyback is another sign that National Foods is a top notch FMCG (Fast Moving Consumer Goods) company.

It is the lowest cost operator in the dairy industry and has a strong cash flow. With this, its third special return to shareholders in three years, it is actively managing its capital.

In the absence of acquisitions or industry consolidation, National Foods' best option probably is to invest in itself.

Off the high stools

Former Westpac man David Liddy has proved a tonic for the Bank of Queensland share price, which broke through $8 yesterday before closing at $7.85 after Friday's 61 per cent rise in interim net profits to $21.3 million.

It's virtually two years to the day that Liddy took the job and he's added about $2 a share in that time.

But close followers of the Lindsay Fox backed regional are wondering whether the shares are now too high, particularly as the dividend yield is looking miserly at under 5 per cent for the full year, compared with closer to 6 per cent for the likes of Commonwealth Bank.

As noted previously, BoQ's profits are also benefiting substantially from its policy of deferring information technology expenses, a legitimate accounting treatment but one that raises suspicion about the quality of the numbers. Deferring expenditure means that IT expenses (in BoQ's case this includes outsourcing to EDS) are booked on the balance sheet as assets. These assets are gradually amortised, rather than taken as one up-front cost when the money is spent.

Hunter Green's Charlie Green noted that $12.1 million of ``systems under development" costs were capitalised in the first half, plus another $5.7 million of ``sourcing transition and transformation costs".

``A purist might argue that had these costs all been expensed, the operating expenses would be $83.6 million, not $65.8 million, halving the stated pre-tax profit of $35 million and blowing the relevant ratios to Baghdad and back," Green said. ``The bank's response is to point to a 25-year-old `state of the ark' banking platform that existed two years ago. It was a case of pay up or perish." The bank just had to replace the nibs and inkwells with computers.

Soaking up plasma

The CSL debate is raging once again. Is the price of IVIG (intravenous immunoglobulin) blood plasma product stabilising as demand comes up to meet supply?

As analysts talk to industry players, the blood processing group's share price continues to rise on hopes the worst of the oversupply is behind it.

Adding further momentum to the stock is a growing conviction that any acquisition of the Aventis Behring blood plasma unit (talks were revealed in February) will prove a good move over the longer term. Greater exposure to what has been a saturated market may not be a good thing but consolidation across the industry is.

UBS Warburg and Merrill Lynch agree the IVIG market is showing signs of stabilising as distributors seek to secure long-term contracts at current low prices.

Others aren't so sure and UBS adds a proviso that it is monitoring events in Iraq, which has already led to an increase in plasma demand over the past week.

Still, UBS thinks recent regulatory approval in the US of ``nanofiltered" IVIG will help strengthen CSL's ZLB processing division in the US. CSL rose 71c to $16.15 yesterday.