Contrast Between N.Z.-Aust. Widens

Press, Volume CVII, Issue 31381, 29 May 1967, Page 17

Contrast Between N.Z.-Aust. Widens

Last week’s hectic activity on the Australian scene, both on the stock exchanges and in the field of exploration, again highlights the growing contrast between their economy and ours.

While investors are reaping huge capital gains on Australian share markets, prospectors are finding all kinds of minerals and oils on the land and in the sea which prompted one financial commentator to write, “You name it, we’ve got it.”

In New Zealand the rise that came after the mini-budget has given way to a flattening trend, both in share prices and turn-over although in the latter sense Christchurch has been the exception.

Wool prices continue at their low level and last week’s Smithfield lamb prices —which about now traditionally show a fall—were down significantly. Announcements by nine companies in the latest week again raises the question of how firms will fare in the next year or so. Three reported lower profits for their latest year, another anticipates a lower result and three announced profit rises. Truer Guide The guide to business conditions applying at present however, would seem to be contained in the interim reports of two—Tasman and Porter Motors—rather than in the other nine. For, if the example of Mason Brothers is a true one, then the final six months to March 31 covers a vastly different economic climate from the half-year to the end of September 30. Mason Brothers reported an improvement in its group profit for the six months to September 30 on that for the same period the previous year, when directors made their interim report in November. But in the next half-year, the position changed completely and directors in a preliminary report in May said that the profit for the full year would be well down on the previous year’s peak. Tasman Interim Tasman has raised its interim dividend from 5 to 5) per cent in spite of an expected profit fall for the current year which ends on October 31. The reason for this fall is blamed largely on strikes. This increase in the interim suggests a rise in the total dividend from 10 to 11 per cent, which on the ordinary capital of £9.7 million would require nearly £1,070,000. The profit last year was £1,775,612. Directors have no doubt looked beyond the current year in deciding upon a dividend increase. Tasman has good export prospects, helped a little by the increase in its newsprint prices in Australia as from January 1. Porter Motors, which holds the General Motors-Holden franchise in the Palmerston North and Feilding areas, sees a much lower profit for its current year. The trend is expected amongst firms in the motor trade.

The big advantage with these firms, however, is than in past years they have made very good profits and high dividends have been well covered. Good Cover Porter Motors’ 121 per cent dividend in the last year was covered three times, while Schofield’s 25 per cent dividend was covered 3.5 times.

These shares can take a pro; fit slide and still maintain

their dividend at the high rate. On the other hand, Prestige N.Z.’s latest profit of £111,043, which is down 11.5 per cent, has a cover of only 1.4 per cent on its steady 15 per cent dividend. This company floated off 300,000 of its 5s shares to the public in October, 1965, at 14s each, which returned a dividend rate of 5.4 per cent. At the latest price of 10s, the dividend yield is 7.5 per cent. U.E.8.-Bremworth Strong rumours persist about a merger between U.E.B. Industries and Bremworth Carpets, and early last week spokesmen for both companies declined to comment on any such move. An announcement, however, could come this week, because the managing director of U.E.B. (Mr J. N. C. Doig) has just returned to New Zealand with the trade mission to North America. Should a take-over by U.E.B of Bremworth take place, it would leave Marlin Carpets, Christchurch, as the only carpet manufacturer in which the public can buy—once the public issue is made in August Steeles Carpet Industries was acquired by U.E.B. last year, and Tattersfields was acquired by Felt and Textiles earlier this year. Feltex N.Z., which also manufacture Riccarton carpets, is controlled by the parent company, Felt and Textiles of Australia. U.E.B. needs another 8 per cent in the shareholding of Knightsbridge Carpets (formerly McKendriek Consolidated) before it has a 50 per cent interest but its interest of 42 per cent gives it, in practice, control. Mr Doig is Knightsbridge’s chairman and U.E.B. has agreed to make an offer worth 9s 6d for each of the remaining ordinary shares before the end of 1968. Because of this, the present price of 8s Id for Knightsbridge would give a tax-free profit of 17.5 per cent over 18 months. Marlin Carpets Marlin Carpets, which uses no artificial fibres in its carpets, will float off 100,000 of its 10s shares to the public in August at a premium yet to be disclosed. The attractiveness of this issue will depend on the company’s profitability and this will not be known until July. Some heavy trading in Canterbury Frozen Meat rights has contributed to high er than usual turn-overs on the Christchurch exchange lately. Two weeks ago, 39,313 rights were traded, and it appears that this was partly caused by an institution not wanting to take up its rights to the issue.

Since then fewer rights have been traded but overall turn-over for the latest week was 101,000 or so com-

pared with 147,000, 101,000 and 112,000 in the preceding weeks.

During February, March and April, the weekly turnovers ranged from around 63,000 to 83,000, with one week returning 95,000. Hamersley Float Not the least of the excitement on the Australian investment scene was caused by Hamersley Holdings, Ltd. Thousands of people watched Thusday’s stock exchange listing of Hamersley—Australia’s first straight iron ore stock and the biggest flotation in Australian company history. Probably never before has so large a number of people —about 26,000 individual shareholders and many more “stock exchange dabblers”— had a financial interest in a company stock. Shareholding Of the ssom capital of Hamersley, C.R.A. holds 54 per cent and the Kaiser Steel Corporation 36 per cent, leaving only 10 per cent for public trading. This relative shortage of scrip on the market has helped to sustain the interest in the company’s shares. On the eve of Hamersley's stock exchange debut a Melbourne broker—Leonard G. May and Sons—predicted sharply rising gross profits for the group over the next seven years. Once the development loans have been redeemed, the company's annual cash flow should be more than s2sm, the broker said, and with that figure likely to rise Hamersley’s position for future borrowings would be strong and the company could grow without resort to future equity capital. However, very rapid expansion in early years could necessitate further equity capital raising. Japanese Contracts But with the Japanese steel mills slightly dissatisfied with their Australian contracts and perhaps hesitant to commit themselves too far into the future, it might be prudent not to be too optimistic on the score of rapid future expansion.

The “Australian Financial Review” said this week that although the matter was but of their control it was unlikely that the directors of C.R.A. or Hamersley would be anxious to see a huge premium develop on the shares initially. “A large premium can put a great strain on a board, because if they do not live up to the optimistic hopes of the market and the brokers—expectations which the board may not always completely share—then they could in the future face unhappy shareholders who have paid high prices in the market for their shares.

“In the early 1960 s when B.H.P. reached dizzy heights and almost every broker in Australia was recommending them or buying them for the United States, many people who later incurred market losses of over two dollars a share were not happy.” Helped Crusade The Financial Review added: “This contributed to the support given to Mr Albert Shepherd, whose crusade was based on a confusion between the nature of income and market gains and losses. “It is perhaps not surprising that B.H.P. is not encouraging United States shareholders to buy shares because | these holders played a big part in both the rise and fall between 1960-63. “Currently, B. H.P., C.R.A., and now Hamersley are riding high and all have very good prospects, but their top ranking board members could be excused for taking a second look over their shoulders at the market.” The role of the institutions could have an important bearing on the future price of Hamersley shares. But the fact that Hamersley will not pay dividends before 1970 rules it out for the trusts and the superannuation funds, and diminishes its attractiveness for the other institutions.