Promina looks OK if it's cheap

Promina, the Australasian operations of Royal & SunAlliance , is finding some support, even if many institutional investors believe, not surprisingly, that the float will be priced at the lowest possible figure.

With the retail offer for the circa $2 billion float opening yesterday, Aegis Equities Research has initiated coverage with a ``buy" providing at least some support for the promoters as the hard sell begins.

Aegis, which is independent of the plethora of broking firms taking fees from the deal, acknowledges the general insurance industry is inherently risky with the potential for large and unexpected claims.

Positives, though, include a favourable market of rising insurance premiums and Promina's brand strength (through AAMI and Pensioners) and strong capital position.

And with Promina's net tangible assets at $1.71 a share, a price at the bottom end of the range of $1.50, or $1.40 a share for retail investors, would in effect mean that investors are paying no goodwill.

But apart from having a distressed seller in the form of UK parent Royal & Sun, the discounted price is warranted for other reasons. Promina's general insurance margins are historically poorer than its listed peers Insurance Australia Group (the best comparison), QBE and Suncorp-Metway.

This is a drawback in the sense that it implies that the business has not been run as well. But it also means there is more room for improvement.

Promina's insurance margin in 2003 is forecast at 5.7 per cent compared to the 11.2 per cent that Aegis expects of IAG.

As the float is structured, it is possible for Royal & Sun to be left holding stock which would be subject to a ``one-year" lock-in deal but would still be an overhang that could stunt initial share price performance.

Retail's quiet achievers

Coles Myer's decision to close two of its regional department stores again questions the future of the ``big box" sitting at one end of the shopping centre.

Since 1996, when department stores went through the ``spring of discontent" consumers refusing to buy lime green blouses and a cool spring meant the sales kicked off in November they have been losing ground to specialty outlets and discounters.

The residential boom has changed shopping habits, in which shoes and clothes are bypassed for a new lamp and lounge suite.

JHD Advisers questions the future of department stores in its latest newsletter. It says they will never again dominate the way they did 30 years ago. But don't write them off completely. ``Since 1997 (January), department stores' reincarnation has been quietly successful," JHD says. They ``are now focusing on key departments and catering to their chosen target markets". That means instead of offering everything to everyone, they too are specialising.

Nickel miner on a roll

Since its January listing, MPI Mines, owner of the Black Swan nickel mine near Kalgoorlie and the Stawell goldmine in Victoria, has been quiet.

The same could be said about its shares, which have traded around the 40c issue price for most of the year.

However, recent drilling at its Silver Swan ore body and comments by managing director Brian Phillips have impressed investors, who sent the stock up 5 per cent yesterday.

At Silver Swan, MPI has identified nine new mineralised intercepts which it hopes to convert to an indicated resource later this year. The drilling highlights the growing significance of nickel the metal accounts for 75 per cent of MPI's revenues and the company is looking at ways to extend the life of Black Swan.

MPI's tightly held share registry should be opened up if MPI's planned 37 million share placement is successful.

MPI's supporters, including Paterson Ord Minnett, point out that MPI, which should produce more than 10,000 tonnes of nickel concentrate in 2003, has a similar market value to Western Areas, a Perth explorer with no production. The Western Areas share price has more than doubled this year.

They argue that if MPI shares remain at these prices, the company could attract some corporate interest. Potential suitors include Canada's Lion Ore and another wild west nickel play, Jubilee Mines.

Billabong back

At last some good news for market surfers. Billabong International's largest customer, Pacific Sunwear, has reported solid sales for March up 18.9 per cent to $US84.5 million ($140 million) with like-for-like store sales up by a better-than-expected 9.5 per cent.

Positive PacSun results often act as a catalyst for Billabong's share price and the news is expected to alleviate some of the concerns that arose after the local company trimmed its profit forecast in late February.

As perennial bull JB Were says in note to clients: ``The strong PacSun result suggests that the US board sports category continues to show resilience amid evidence from other US retailers of weak consumer spending."

But don't get too carried away. Were points out that ``while PacSun is Billabong's largest customer (20 per cent of US sales)", the results are not a ``direct reflection" of Billabong's US sales, ``as no brand represents more than 7 per cent of PacSun's sales".

The shares closed 21c higher at $5.55 yesterday.