Opportunities Still In Depressed Market

Press, Volume CVI, Issue 31346, 17 April 1967, Page 17

Opportunities Still In Depressed Market

New Zealand’s present depressed share market will have caused some capital losses for shareholders, and the economic outlook is such that only an optimist could say that prices are likely to rise soon.

This state of affairs, however, does not mean there is a lack of opportunity for the investor with liquid funds. There is the chance to buy shares showing’ a high dividend return and an opportunity to buy into new issues at a favourable price.

For companies wanting to raise capital from the public must take into account current market conditions. A rising, buoyant market could mean a high premium on shares issued, while a falling, depressed market would reduce the price that could be asked.

At present. New Zealand shareholders are being offered a chance to buy into three concerns, all on attractive terms. Ajax-G.K.N., Lower Hutt, will float 700,000 10s shares to the public at 13s 3d each and T. and W. Young will offer to the public 70,000 10s shares at 13s 4d. In Australia, the giant Hamersley Holdings concern is seeking 25 million dollars from the public. Most Attractive Because of the expected difficulty in buying into the last two issues, the one by Ajax-G.KN. seems to be the most attractive for the New Zealand public. At the issue price, the dividend yield will be 6 per cent on the forecast dividend of 8 per cent and future prospects are sound. Last year this nuts and bolts, screws, rivets and hinges maker made £157,000, giving an earning yield of 15.7 per cent. The profit for the latest year to March 31 is expected to be about the lame. Equal Holding At the moment, the capital of the company is £1 million, held in equal shares by the huge steel firm of Guest, Keen and Nettlefolds, Brimingham, and McPhersons, Melbourne. The issue will raise this capital to £1,350,000 of which the public will hold 25.9 per cent.

The main interest in this company is the presence of G.K.N. which in the year to December 31 made a profit of £28.8m after a turn-over of £357m. G.K.N. is a leading steel firm in the United Kingdom and because of this Will be affected by the steel nationalisation which is expected this year. Perhaps about a fifth of the company’s total assets will be taken over by the State. Recently, however, G.KN. has shown more Interest in its Australian and New Zealand investments. N.Z. Steel Last year it announced It would invest £500,000 in New Zealand Steel to give it a 7.7 per cent interest in the equity capital. Besides the half interest in Ajax-G.K.N., it has substantial investments in Pacific Steel, Auckland, and a controlling interest in John Lysaght, N.Z., Ltd., through its direct investment in John Lysaght, Australia, Ltd. Late in March G.KN. formed a holding company in New Zealand with a capital of £lm to control general administration of its local investments. Its total investments in this country earlier this year were about £2m in book value. Just how much more investing G.K.N. is likely to do in New Zealand is difficult to forecast, especially in view of the better prospects available in Australia. But the chairman of the group (Mr R. P. Brookes) hinted on a visit here last January that there could be further development, when he said that his group would find no particular difficulty in establishing a whole series of secondary industries here. Hamersley Float. Recently the biggest floatation in Australian company history was announced with the Hamersley Holdings, Ltd., offer to the public of 10 million 50c shares at a premium of 200 c each. This will yield $25 million to the company, although this amount gives Australian and New Zealand investors only a 10 per cent shareholding. Of the paid capital—after this issue—of $5O million, C.R.A. will hold $27 million (54 per cent) and the Kaiser Steel Corporation $lB million (36 per cent). The investing public have a 15 per cent interest in C.R.A., so that the direct and indirect interest of the public in the giant iron ore ven-

ture will amount to 18.1 per cent.

In spite of the high premium, and probably because of the high although de-ferred-dividend forecast, the demand for the new issue has been very great, both in Australia and New Zealand. A spokesman for Daysh, Renouf and Company, Wellington, New Zealand brokers to the issue, told “The Press” last Friday that there had been very many inquiries about the new issue, and that the allocation of the shares to New Zealand was not nearly sufficient to satisfy the demand. Even now, more than a week after the shares had been allotted, the firm was still dealing with a large inquiry. Buying Restrictions A Christchurch stockbroker said that he thought that the demand would have been even greater, but that many people were resigned to the fact that these shares were unobtainable because of overseas credit restrictions.

There are four ways in which a New Zealand investor might purchase Australian shares.

First, deposits in an Australian or British bank or savings bank could be used, with money on deposit in Britain to be transferred to Australia of course. -

Secondly, sterling or Australian securities held before June 16, 1966 might be realised and the proceeds applied to the purchase of new or other issues.

In the third place, proceeds of dividends and interest from Australian shares may be held in Australia and used for new purchases of Australian shares; likewise rights to new issues and bonus issues may be so used. In the fourth place an investor may purchase Australian shares in New Zealand for New Zealand currency, and after transfer to Australia and subsequent sale there the proceeds may be used to buy shares not readily obtainable in New- Zealand. Such shares, however, must be transferred back and registered in the prescribed manner with the official depository of overseas scrip, the Reserve Bank. Aust. Shares The last method is cumbersome and inefficient It is also expensive, as besides the inevitable premium for the overseas shares used in this transaction, brokerage would have to be paid twice: once on buying in New Zealand and once again on the sale of the same share in Australia. For the new issue, of course, no brokerage would have to be paid. Where, however, overseas shares can be purchased cheaply enough—occasionally

a parcel is sold at a premium of as little as 2 per cent this approach could be used by investors who cannot avail themselves of the first three methods. It is obvious that the total holdings of overseas securities in the country—estimated at £250 million—will be a relatively constant quantity for the time that the current restrictions are in force.

T. & W. Young Another new issue that could be attractive to investors is the flotation of 70,000 10s ordinary fully-paid shares by T. and W. Young, Ltd. The issue price will be 13s 4d, plus brokerage and stamp duty. These shares have became available by an arrangement with major shareholders, to offer a portion of their individual holdings. As the paid-up capital is £368,743, the investing public will have a 9.5 per cent interest in this firm. The issue is being made to obtain stock exchange listing, but it will give interested Investore a chance to participate in a successful business. Established 1860 T. and W. Young, Ltd., was established in 1860, and is well known in the lower part of the North Island as a wine and spirit merchant, tea merchant, tobacco merchant, and hotel owner. The firm has substantial investments in 15 well-known hotels.

At 13s 4d plus expenses the dividend yield works out at about 7.3 per cent. The earnings yield is about 13.1 per cent. Profit covers the dividend 1.8 times. It is expected that a dividend of 10 per cent will be paid in the current year.