Better deal for small investors in Bendigo Bank

RETAIL shareholders in Bendigo and Adelaide Bank look like being in the unusual position of getting a better deal than the highly paid fund managers on the company's latest share issue.

Today is the first of five days that will be used to calculate the turnover-weighted average price, less a 2.5 per cent discount, that small investors can use to buy up to $7000 of Bendigo shares under its share purchase plan.

If it stays around yesterday's close of $7.43 - Bendigo's lowest finish since mid-2009 - the entry price will be close to $7.25 a share. That is a price that Bendigo stock has not seen since the dark days of the financial crisis. Institutional investors rushed Bendigo's placement in December at $8.45 a share, when it was seeking $120 million to fund the acquisition of the Bank of Cyprus' Australian operations. They were so keen for the stock that Mike Hirst's regional bank ended up raising $150 million.

At yesterday's close, the professionals are a collective $18 million underwater. Looked at another way, individual investors who take up the share plan at these prices will get close to an extra 1000 shares for the $7000. For that same outlay, the institutions picked up only 828 shares. That kind of decision-making explains why so many Australians received superannuation statements for the December half that showed their money managers had not only frittered away most of the money deposited in the past six months - they still charged them fees for the pleasure.

As for Bendigo's slipping price, Insider has yet to find a good reason given that even though its half-year results were flat, they were pretty much as expected by broking analysts. Some, like Merrill Lynch, raised their ratings on it while others, such as Deutsche Bank, raised their price targets - but only because they had upgraded their expectations for the whole banking sector, rather than Bendigo specifically.

Bendigo is broadly seen to be more vulnerable to profit margin pressure than the larger banks, particularly because it has (like most banks) also been maintaining market share in home mortgages by writing loans that are unprofitable in current conditions.

One of its strengths - it gets less than 25 per cent of the money it lends from wholesale money markets compared to the big banks' average 40 per cent - is also one of its vulnerabilities because the larger rivals are trying to nick its depositors by offering them more generous interest rates.

Zinc no protectionZINC miner Kagara had nowhere to hide yesterday as investors vented by slagging the company's shares after a week in suspension while the company finalised an overdue half-year result that turned into a shock $49 million loss.

Kagara threw everything but the kitchen sink at trying to mitigate the anger of shareholders, including a last-minute attempt at appeasement just before trading began yesterday when it announced that it had beheaded chairman Kim Robinson, and was reducing its executive team.

The company asked for a trading halt on March 1 while it finalised the sale of its Lounge Lizard nickel assets in Western Australia. It was going to have trading halted by the ASX anyway, because it missed the half-year reporting deadline.

There were reports that the nickel operations would be sold for $80 million, but in the end the deal was worth only $68 million.

When it did finally report its results, Kagara tried to shift focus off the red ink onto what it was doing to avoid a repeat - which was the loss of one in every four jobs in its operations and Perth head office as it placed more of its core base metal business in north Queensland on care and maintenance, and cut back on both development and exploration until there are signs of an improvement in the zinc price. (To be fair to Kagara, you can be unlucky. The night after managing director Geoff Day outlined his five-year strategy to investors last September, the zinc price collapsed from $US2200 a tonne to below $US1900 - which pretty much wiped Kagara's plans because they had been priced at somewhere closer to $US2300 to $US2500 a tonne. At the moment, it is struggling to stay above $US2000.)

Overlaying that was Standard & Poor's announcement that it was cutting Kagara from the benchmark S&P/ASX 200 Index from the middle of this month - which means some of yesterday's selling was quite probably funds that only buy stocks in the index.

Kagara's self-imposed changes may not be enough, given that not only was nearly 40 per cent, or $95 million, knocked off its value in a single day - the 19? a share closing price was near bottom.

Robinson was, until the end of 2010, Kagara's executive chairman and managing director, but acceded to shareholder pressure by extracting Day from running Newcrest's Papua New Guinea business to get his group back on track. As founding chairman of Kagara, he was always likely to step back after becoming non-executive but the fact that fellow board member John Linley was only named as interim chairman while a permanent replacement is found smacks of panic in the boardroom.

That view is reinforced by two other factors. Firstly, Robinson's departure was described as the ''first stage of a board restructure'', which sits oddly with the statement last August that founding managing director Mark Ashley's leaving the board was ''a further step in an ongoing process of restructuring''. Secondly, the statement was signed off by Day, rather than Linley. That might have been a matter of who was around at the time, and a reflection of the fact that Day's management team has been pared back - including turning minerals and business development manager Joe Treacy into a part-timer with his ticket clearly punched for an exit.

It confuses the lines of responsibility, though, and invites the perception that Day is now a de facto executive chairman. Board restructurings are, oddly enough, the province of the board - not the executives.

insider@fairfaxmedia.com.au