COMMERCIAL Review Of Week’s Stock Exchange Transactions

Press, Volume CV, Issue 31020, 28 March 1966, Page 19

COMMERCIAL Review Of Week’s Stock Exchange Transactions

Directors and investors, sharebrokers and unlisted companies came under fire from the Monetary and Economic Council’s report released on Saturday.

Since the council was set up in 1961 it has made a series of reports to the Government, and also released these to the general public, but this is possibly the closest scrutiny it has given the share market.

Warning what it calls “good time” company directors and investors that company finance in this country has been shaped in times of chronic inflation, the council says finance has been too easy to obtain.

If inflation is arrested “a difficult period of adjustment many ensue,” the report says. Inflation has made borrowing cheaper, and this has affected company capital structure in the last 20 years. Tax Laws Tax laws reinforce the attraction of borrowing by allowing companies to deduct interest from taxable income. Suggesting remedies for this bias towards borrowing, the council says tax deductions for interest charges could be disallowed. Instead, dividends could be deducted from a company’s taxable income and then taxed in shareholders’ hands. The council is concerned that monetary policy—mainly credit control—loses power to steer the economy because of the structure of the financial system. The trading banks’ share of the supply of short-term credit to the private sector of the economy has greatly diminished in recent years. Broadly the council would like to see a more equal and less discriminatory tax structure for all financial institutions to iron out the undesirable distortions in the flow of funds. Unlisted Shares Criticism of stock exchange trading in unlisted shares is also contained in the report. However, the Stock Exchange Association has for some time been putting pressure on unlisted companies to fulfil listing requirements. Early last week the association president (Mr A. W. Macarthur) said it seemed

some listed companies were reluctant to re-sign the listing agreement. This was because of a lack of understanding by some companies as to just how the requirements might be amended.

Listed companies would be taken into the association’s confidence on any amendments and they would be given the chance to comment. Mr Macarthur said the association’s aim was to bring uniformity to listed companies who enjoyed stock exchange facilities. Criticism of lack of compliance with association rules in reporting share transactions is also contained in the report. The council says there are about £500,000 worth of reported sales each week, but there are indications that twice as many sales are made. Turnover seems to have increased since the introduction of post trading, but if the council is right there is still a long way to go. Hopes Rose Hopes rose early last week after a fairly steady start to trading, and on Tuesday both New Zealand and Australian stocks climbed to their highest point of the week, but there was a steadying the following day. Australian issues were leading the way at the start of the week, then started to fall away more quickly than shares in the New Zealand list. New Zealand issues were lifting at the dose, but overseas shares were roughly in balance. Generally, trading was

trendless and confusing, ranging over 207 issues on a lower turn-over than the week before, with almost no outstanding features.

Australian stocks showed the sharpest fluctuations both up and down.

Broken Hill Pty., boosted the week before by news of the off-shore oil strike off the coast of Victoria, lost Is 3d of its gains to sell down to 43s 6d. Falling zinc prices were reflected by a drop of Is 4d to 19s by E.Z. Industries— a low point for the year. C.S.R. Ease Colonial Sugar was marked down 9d to 25s 6d—the lowest level so far since the split to Australian dollar units. G. J. Coles slipped 3d to 10s 9d, and Woolworths Id to Ils 6d. A.C.I. recovered Is 6d to 495, and Boral Is to 20s 3d. Leading retailers, Myers and Waltons, made good ex dividend gains. Advances were scattered through the New Zealand list with worthwhile gains by Firth Concrete, up Is 9d tn first business for some weeks, Porter up Is to 25s 3d, N.Z. Farmers’ Fertiliser, up Is 3d to 46s 3d, and Maple 6d to 9s 6d. Brighter prospects for forest products and increased output were forecast in a report late in the week from N.Z. Forest Products, and the shares reacted with a 5d rise to 22s 5d at the dose.

New Zealand Refining reached its highest point since 1964 in sales on Wednesday at 375, but eased to close at 36s 6d—6d higher than the end of the week before. Hay’s Plans Hay’s can go ahead with building its supermarket at Papanui now that the Building Programmer has given the project the green light. Work was delayed by the building programming regulations announced in last year’s Budget. This delay was a setback to the expansion plans of a vigorous retailing organisation.

Major capital moves were made by Hay’s to finance the supermarket—its third major project in suburban Christchurch.

In August, 1964, the company converted existing 5| per cent notes into 10s ordinary shares a year earlier than was provided for in the trust deed. This involved an increase of £75,000 in ordinary paid capital. Next came a bonus issue of two-for-five from share premiums account and this meant distributing a further £230,000 in ordinary capital. This was followed by a further convertible note issue of £575,000 on a one-for-two basis. Div. Forecast Directors’ forecast of an annual 10 per cent ordinary dividend on the higher capital was paid ih the 1965 year. Ordinary pay-out absorbed £80,500, while preference dividends needed £8837 £89,337 in all and only £17,918 less than the profit for the year. Interim ordinary 4} per cent dividend has been declared for the first half of the year. Doubtless the delay caused by the building programming regulations must have set the company some short-term problems. While the company had longer to wait before the new store would contribute to profits it was faced with finding £36,000 a year for interest. Satisfaction Hay’s must now be getting a great deal of satisfaction from knowing that a start will soon be made on the project at Papanui, much sooner than was anticipated. Hay’s shares have been treated with some reserve in the last few months, but now progress can be resumed the outlook is much better. This company has given an excellent profit performance over many years, reflecting a well-run organisation. Now that its immediate prospects are brighter the shares should come back into their own. Hay’s shares closed the week 3d down at 18s 6d, and at this level the yield is 5.4 per cent on the possible 10 per cent dividend. Flour Mills Canterbury Roller Flour Mills, in its accounts released last week, reported a sharp fall in net profit for the second year running. Big purchases of wheat in anticipation of a larger share of the Wheat Committee’s quota was the reason given for the fall in profit in 1964. Increased charges and falling sales volume were blamed for the latest year’s lowest result. Whatever the causes, the situation in the industry seems to be against the smaller mills and even the most astute management might find the tide running against it. Latest reported profit of £lB3l—down from £3021 the year before—does not cover the steady 8 per cent dividend requirement of £2OOO.