COMMERCIAL Market Under Pressure, But Some Opportunities

Press, Volume CVI, Issue 31210, 7 November 1966, Page 21

COMMERCIAL Market Under Pressure, But Some Opportunities

(By Our Commercial Staff)

Benjamin Franklin once said: “If you would know the value of money, go and try to borrow some; for he that goes a-borrowing goes a-sorrowing.”

Now this may be true for individuals—and of course there were few joint-stock ventures in Franklin’s time—but companies seem to have little trouble in getting new money at present. ’

The credit squeeze has created a strong demand for money outside the traditional channels and many firms are turning to the public for working and development capital.

So far most firms have preferred to issue debentures and nearly all these issues have been oversubscribed. There is no doubt that there is a strong preference for fixed interest securities at the moment. The increase in interest for Government and local authority stock and the investment policies of the large institutions have aggravated this shift away from equities. The result is a considerable selling pressure on the share market which seems to be reinforced by the feeling that the current year’s company results may not be so good.

The terms of trade are moving against us. Wool prices, although steadying recently, are lower than last year, and unless prices for

lamb improve, farmers could receive some £lom less for their meat this year. It appears likely that the level of spending will be lower this year. At the same time costs will almost certainly rise. A feature of many company reports are the many remarks by chairmen on the problem of keeping down costs. The possibility of a general wage increase does not increase confidence in this respect Companies which increase their borrowings need to earn more to service the increased interest charges, and if they increase share capital they need higher profits to keep I earning rates steady. J Two recent new issues that seem, however, worthwhile inI vestments, albeit from a long-

term point of view, are N.Z. Steel’s £6m issue and the issue of 400,000 10s shares at 6s 6d premium by Associated British Cables. N.Z. Steel was discussed here last week. Associated British Cables have an expansion plan which will cost £1,575,000, according to the prospectus. Of this amount the share issue will 'provide £330,000, and fixed interest finance another £400,000. The balance will come from retained cash flow in the four years to March 31, 1970, estimated at £422,000 depreciation and £455,000 retained profits. £32,000 has been allowed for issue expenses and contingencies. £486,000 will become working capital, £lOO,OOO on expanding the Christchurch factory, and about £750,000 on a new power cable factory, in Christchurch.

The New Zealand public will own 20 per cent of the company’s capital. This seems a good opportunity for the long-term investor to gain entry into a vital company. Another interesting development from the longterm point of view is the Broken Hill South discovery of big phosphate rock deposits. Phosphate is an important ingredient in fertiliser, and had not been found in Australia or New Zealand. B.H. South shares jumped 37 cents on the news and are currently selling for around 300 —25 cents up.