Issues No Longer Sure Of Success

Press, Volume CVII, Issue 31501, 16 October 1967, Page 17

Issues No Longer Sure Of Success

Since 1963, when the share market in New Zealand was rising, 45 companies have taken advantage of favourable condi* Jons and made flotations to the public to gain stock exchange listing. However, the response to the latest flotation, that by Marlin Carpets, Ltd, Christchurch, suggests that this favourable climate no longer exists.

Marlin had all the attributes needed for a successful flotation: its profit figures, dividend, and prospects were good, and in spite of a 112 c premium on the 100 c shares, the dividend yield was quite satisfactory at 7.07 per cent.

But from the time the premium was decided, probably in July, to the opening of the issue in September, the market dropped 5.4 per cent, and there was the likelihood of a further fall in the share index.

As a resulf the flotation went out to a diffident market which took 60,000 of the 100,000 shares offered. Since the shares were listed last week, the quotations have ranged from 160 c buy to 210 c sell, and as yet there have been no sales. Because Marlin’s main object was to spread its share-

holding so that it eould gain listing, the failure to float the whole 100,000 shares is perhaps of secondary concern. But there is a lesson here

i for other companies contem- : plating public flotations, and i that is that a good company cannot at the moment hope I to float successfully at a high i premium, no matter what the : dividend yield may be. It will have to wait until an improvement in market confidence. Till now, there has been

little doubt that companies which have made flotations in the last four years have fared well.

Autocrat, Crothall and Company, Manthel Holdings, Rothmans, 1.C.1.(N.Z.), Schofield, Motor Holdings, and Associated British Cables have gone to the public at high premiums and been successful. Most were oversubscribed. As well, those who applied for shares to sell soon after listing—the stags—made good gains, too. Stags’ Losses The stags, lately, have suffered losses. Steel and Tube Company of New Zealand made a flotation in August at 200 c but the latest sale was 192 c. Marlin shareholders wanting to sell quickly will also lose. The table shows that of the six flotations since November of last year, the best gains have been made by Associated British Cables and T. and W. Young shareholders. The latter shares were very hard to procure, especially in Christchurch. Those who took up the invitation in Marlin and have seen the buying quotations as low as 160 c may take solace in the quality of their new investment. Marlin is one of three major carpet manufacturers in New Zealand, the others being the Felt and Textiles of New Zealand group and U.E.B. Industries. While the latter two blend synthetics into their carpets, Marlin uses only Drysdale wool, blended with New Zealand crossbred wool. Dividend Cover The company’s dividend of 15 per cent in the latest year was covered 2.2 times, and the earning rate on average shareholders’ funds was high at 22.8 per cent. Finance from the public issue will be used for factory extensions. From all accounts Marlin is still manufacturing at or near capacity to meet its orders, in spite of the economic conditions. An added advantage is that through its English association Marlin has access to overseas carpet developments. Company Reports Last week was an active one for local company reports and not surprisingly, most profits were down. Andrews and Beaven, which in 1966 increased its total dividend from 9 to 10 per cent, has reduced the

dividend to 8 per cent after a profit fall in the latest year.

Unfortunately for investors, the size of the profit fall was not indicated in the short preliminary report Until the accounts come out, probably next month, the market has to try to gauge the set-back in terms of the dividend reduction. This will be complicated by the practice of many companies of keeping dividends down to preserve funds and liquidity. Simpson, Williams Although Simpson and Williams’s 15 per cent dividend left only $2095 out of the $12,895 profit for the latest year, the company’s liquid position is extremely strong. The ratio of current assets to current liabilities is high at 2.4:1, but the most unusual aspect is that, unlike most companies, there is no overdraft.

Assuming that debtors will offset creditors, there is plenty of cash at the August 31 balance-date ($34,295) to meet the dividend and tax payments totalling $21,980. There is also plenty of leeway should Simpson and Williams require long-term finance for expansion. At the moment there is a mortgage of $26,000 which is only 15.7 per cent of shareholders’ funds.

Unless the company wants to expand its premises, Simpson and Williams seems well placed financially to meet any possible recession in the printing trade and retailing field. ,

Issue Div. First Latest When Price Yield Sale Price Share Floated c % c c A. B. CABLES Nov. 167 6.7 180 202 R. W. SAUNDERS .h Dec. 145 8.3 160 150 T. & W. YOUNG .... April 133 7.5 175 160 AJAX G. K. N. May 65 6 0 72 63 STEEL & TUBE .. Aug. 200 6.25 205 192 MARLIN .. Sept. 212 7.1 —