Twelve months ago "cocooning" was a popular topic. Shell-shocked by financial crisis and economic slowdown, we were meant to be eating home-cooked meals and staying in to watch television, while sewing our own clothes.
The subject might have made good media fodder, but unfortunately for investors in Guinness Peat Group - owner of Coats, the world's leading thread manufacturer - evidence of a haberdashery boom is scarce.
Coats is six times bigger than the nearest competitor in craft thread manufacture, with almost $500 million in sales globally and manufacturing operations in 16 countries. Materials released by GPG yesterday show some evidence of recession having a positive effect on the business in 2009, but it fell well short of a boom.
The company's craft sales in the Americas were up 1 per cent as North American craft customers engaged in a little cocooning. Across the Atlantic, however, sales were down 10 per cent, following even steeper falls in recent years. Crochet and embroidery appear to be losing cachet.
While an economic slowdown may not have driven us to make our own clothes, it did prompt a decline in industrial thread sales. Sales to clothing manufacturers were down 13 per cent on a like-for-like basis.
Nevertheless, GPG sees a more positive outlook for Coats, which comprises about a third of its total investments. Consumer demand in some markets is improving, and a period of restructuring, during which the Coats' workforce was cut by almost 10,000, has come to an end.
TPG EMBRACED
Aggressive broadband plans are just around the corner, after PIPE Networks shareholders shook off anxiety that they might be giving TPG Telecom too good a deal and voted 94.1 per cent in favour of the company's acquisition last Friday.
TPG already offers the largest download capacity at the lowest price, but having access to PIPE's undersea cable to Guam and the ''dark fibre'' that connects major cities will allow TPG to sharpen the pencil even further, making it realistic to offer unlimited broadband services.
It is a story that the market likes. RBS Morgans analysts updated their views on TPG yesterday, upping the price target from $1.76 to $2.14. That represents seven times 2011 EBITDA, a huge multiple for a telco.
Price targets at this level must leave PIPE shareholders with a few regrets. The TPG share price was just $1.29 when the PIPE acquisition was announced last November, and there has been little other news from TPG to justify the share price run since.
LNG RIPPLES
The market is waiting for Arrow Energy to respond to the $3.3 billion takeover overture from Royal Dutch Shell and PetroChina, but it's never too early to start considering the collateral effects of a successful acquisition.
According to the credit boffins at Moody's Investors Service, a transaction would be credit-neutral for Shell because the strategic benefits of a deal would offset the impact on its cash position. However, Moody's is sceptical that all $50 billion in coal-seam gas projects now in the pipeline will be developed simultaneously, and certainly not without weighing on LNG prices.
If Shell succeeds in gaining accelerated entry into the Queensland LNG industry, Moody's sees negative credit implications for other Australian companies involved in LNG, including Woodside Petroleum, Origin Energy and Santos.
According to Moody's, the acquisition of Arrow Energy would ''heighten competition for increasingly hard to get off-take contracts, put further pressure on contract prices, and tighten the market for scarce labour resources capable of executing Australia's large and growing list of LNG projects.''
BUFFETT SAYS …
The marketing team missed an opportunity in preparing brochures for the heavily promoted ''JB Global Income and Equity Accelerator Berkshire Hathaway Series'' structured investment product. An endorsement from Warren Buffett, or even a sprinkling of his aphorisms, would have been a sure-fire hit with investors.
But alas, there's not even a selection of quotes from the Buffett back catalogue.
This is a pity, as the section explaining the product would benefit from this gem from the 2002 Berkshire Hathaway chairman's letter: ''Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system.''
Buffett's observation would provide an ironic counterpoint to any discussion of how the Income and Equity Accelerators eschew the opportunity to generate a return through pedestrian equity investment. Oh no, the bulk of the investment amount is put into interest-bearing bonds, and just a small portion is used to punt Berkshire Hathaway call options - and, even then, only when JB Global's secret recipe for stock price prediction divines that the underlying shares look like going up.
There's no question that JB Global has hatched an innovative product. Indeed, the marketing spiel calls it "the first of its kind. Ever. The chance to invest with the world's best investor, Warren Buffett, with no currency risk or the usual risk of the share price falling."
Still, given the complexity of the product, it seems that an extract from Buffett's third principle of investing could also find a place in the brochure: ''Never invest in a business you don't understand.''
dsymons@fairfaxmedia.com.au
