November 25, 2010 | Graham

Topsy turvy days in Queensland



Upfront I should say that I bought shares in QR National, even though it is an oxymoron. It seemed the smart and the right thing to do.

As a liberal I’m all in favour of government concentrating its assets on those things that the market can’t do, and capital running businesses. QR National is not the sort of thing a government should be doing, and the prospectus proves that when you look at all the inefficiencies the business has.

As an investor, I’m all in favour of trying to buy shares cheaply and selling them expensively, and I prefer shares which have substantial cashflows. QRN certainly has the cashflows, and a combination of factors made the shares relatively cheap. And courtesy of poor government management as well as business prospects, those cashflows should increase.

There were a lot of reasons for the shares to be cheap. It was a large float, and the government was a more than willing seller.

There was the comparison with Telstra which trades below its various issue prices.

There was the opposition from the unions, which was fed into many media stories.

There was the attempt by Australian institutions to game the stock and push its price down, because, as a top 50 company, they are all going to have to buy stock in it.

And there was the opposition from the Liberal National Party.

None of these factors should have counted against the stock, but they did to some degree.

Looked at more closely, they don’t stand-up.

The Telstra story is not an exact fit. Telstra was always going to be under competitive pressure and the government was always going to force phone charges lower once it had sold all its shares. QR doesn’t fit that profile.

The noise from the unions should have been discounted, and the Australian Institutions, rather than pushing the price down and being able to buy more cheaply after the listing find themselves having to buy shares more expensively as the price has appreciated close to 10% as of today. Foreign institutional investors who bet against the locals must be laughing, particularly the UK ¬†Children’s Investment Fund and the US Scout Capital.

All of which leaves the Queensland LNP in a difficult position. The government now has the sale proceeds, succeeded when everyone said they couldn’t and the LNP has no answer to the question of how they would fund the state without the sale.

Which should be a lesson to them to stick to their principles, but I’m beginning to wonder what they are.

Certainly the link between belief in free enterprise and the Liberals seems to be very weak in Queensland. Not only did the LNP oppose this sale of one transport related company, but at the Brisbane City Council level Campbell Newman is proposing to buy Queensland Motorways, another transport related company which is the operator of the Logan Motorway, Gateway Motorway and the Port of Brisbane Motorway, and valued at $3B. The current owner? You guessed it, the Queensland Government!

Would I put my own money into this investment? I might, given the right price and situation, but I wouldn’t put the public’s money into it because that is not what it is for. If the public wanst shares in a motorway operator they can pay for it themselves, which is what any proper liberal would say.

Makes you wonder who’s who in the zoo these days, and who your should vote for.



Posted by Graham at 1:41 am | Comments (4) |
Filed under: Uncategorized

4 Comments

  1. Good analysis. Opponents of the QR sale are just as likely to vote Greens next election anyway.

    Isn’t the problem here that the LNP are not really Liberals, but the Queensland Nationals in a borrowed suit? And the Queensland Nationals have always been a party of state capitalism, as someone like Bob Katter points out.

    Comment by Terry — November 25, 2010 @ 2:25 am

  2. I’m still trying to work out what the LNP is. The claim that it is a reverse takeover is not robust. But it certainly has more of a Nationals feel to it than a Liberals. If you’re looking for a Liberals feel, this new Liberal Club might have it, but only because it has united all the malcontents together. But that has always been the Queensland Liberal Party – malcontented.

    Actually, the BCC still has a Liberal party feel to it, but then Campbell goes and proposes something like this.

    I guess it confirms that ideologically they have lost their way. They are just thinking in pragmatic terms. I’m a fan of pragmatism, but not without a guiding ideological compass – you have to stand for something (or you will fall for everything, to quote someone else).

    Comment by Graham — November 25, 2010 @ 4:13 am

  3. Breaking news. The ratepayers of Queensland have been saved the expense and risk of buying Queensland Motorways because the state government superannuants are going to pick-up the ball.

    “The State Government will enter into exclusive negotiations on a commercial basis with QIC to settle on the price, terms and conditions for the QML transfer, with the process expected to be concluded by June 30, 2011,” from http://www.qbr.com.au/news.aspx?ArticleID=71035

    (QIC will put the asset into the defined benefit super scheme it runs for Queensland public servants).

    Not sure how you make something commercial when there is only one buyer and you have already flagged in advance that you will sell the asset to them. I guess some merchant bank will score a fat fee for valuing the asset for both parties.

    On another note, thinking some more about the National Party, you’ll find that some who were heavily involved in the Joh era are just as appalled as I am that the LNP is opposing privatisation. One former state director of the party came up to me and expressed dismay at a social event recently.

    Comment by Graham — November 25, 2010 @ 4:24 am

  4. The classic example of a party now paying the price for its prior opportunism is the Liberal democrats in the UK. They rose to prominence in the 2005 UK election by getting a lot of student votes for opposing the GBP 3,000 tertiary fees that Tony Blair introduced, even though most in the sector saw this as necessary and the equity case against it being weak. They now find themselves in a coalition with the Conservatives proposing GBP 9,000 fees and the end of public funding for the arts, humanities and social sciences. This has meant that the British Labour Party, which was looking kind of moribund after the 2010 election, can now sniff Lib Dems blood in the water, as its MPs are incredibly anxious about the policies they now support compared to the no tertiary fees position they took to the election.

    Comment by Terry — November 25, 2010 @ 9:21 pm

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