Share Prices Hare Risen More Than 36% In 1968

Press, Volume CVIII, Issue 31785, 16 September 1968, Page 20

Share Prices Hare Risen More Than 36% In 1968

The New Zealand sharemarket has gone through a remarkable recovery process in the eight months of trading this year. Share prices, as measured by the Reserve Bank’s index, have risen more than 36 per cent, surpassing at 1352 points, the previous record level of 1340 points set in February, 1965.

Whether “a day of reckoning” could occur is hard to foretell; possible sellers, who up to now have been reluctant to part with their holdings on a rising market, might soon change their minds, while the growing crop of new issues, which have not all found favour with the market, will help to alleviate the shortage of scrip.

Fletcher, which has announced a one for ten issue of 100 c shares at a premium of 50c, fell back 4c for the week, while the reaction to B.H.P.’s one for ten at 500 c follows closely that in Australia—downwards.

Neither of these issues bring worth-while benefits to shareholders. At 194 c, Fletcher shareholders will gain only 4c a share if the rights are sold. Fletcher made a one-for-five issue at 125 c in 1965 which was on more favourable grounds than the latest but! the difference between then I and now—which incidentally applies to other listed firms —is that companies cannot afford to give too much away to shareholders at the expense of servicing dearer capital. Most of the attention is on the two main insurance companies, N.Z. Insurance and South British, chiefly because these respectively write 73 per cent and 80 per cent of their premiums overseas. Since July, N.Z. Insurance ■ has risen 118 c to 410 c and paidi a 91c dividend, while South [ British has risen 135 c to 535 c. I N.Z. Insurance yields 3.5 per: cent on the 14$ per cent divi-1 dend, while South British yields 3 per cent on a possible dividend of 16 per cent. It was 14 per cent last year. Obviously, the market is expecting a bonus issue from at least South British and possibly N.Z. Insurance, from the capital profits arising from devaluation. Expectations of bonus Issues, and reaction to such announcements, have had a marked effect on the mood of the market in the last two! months. Whitcombe & Tombs

Last week, Whitcombe and Tombs announced a one-for-10 bonus which led to the shares rising 35c to 220 c. The news

of the Issue was not the sole reason for the increase; a better-than-expected profitrise of 12.4 per cent, and a 1 per cent bonus on top of the steady 9$ per cent dividend, also helped. The shares had fallen after last year’s profit-rise, possibly because of future uncertainty. From 148 c in January, the shares had gradually risen to 185 c before the latest announcement on Thursday The latest level is more in keeping with that ruling in 1965, and the possibility of maintaining the present 9$ per cent dividend—equal to 10J per cent on the old capital—is a sign that the directors are fairly confident of the future.

This is the fourth bonus by Whitcombe and Tombs since 1957. If a shareholder had bought 100 shares at 350 c in 1957 at a cost of 5350, he today would have 270 shares for an extra cost of 862, with a total market value of 5594.

The latest bonus by Whitcombe’s which will come from capital reserves, leaves Williamson Jeffery the only large printing and stationery group yet to announce a bonus issue. Coulls Somerville Wilkie announced a one-for-five last month.

On the latest results, Williamson Jeffery, which like Coulls is based in Dunedin, could well afford a bonus. Its profit rose to a record level, although it has not been disclosed, while the dividend has been maintained at 12$ per cent. In the previous year, this was covered 2.5 times, so that the cover in the latest year should be

greater, thus increasing the chances of a bonus. The shares sold in Auckland last Tuesday for 300 c, which yields 4.2 per cent on the latest dividend. While at this price the share is not cheap, prospects of a bonus make it a good share to hold. N.Z. Refining The decision by the Minister of Industries and Commerce (Mr Marshall) to fix in the future the N.Z. Refining Company’s refiner’s margin is an unpleasant shock to shareholders in the company. Although the majority of the shares are held by the five major oil companies, there is still an active and substantial market in them. Any action such as that by the Minister could have a serious effect on this public shareholding, especially as the scarcity of the shares has placed a high premium upon them. At the very least, the reason for his decision should he publicly explained by the Minister. Although the board is dominated by representatives of the oil companies which could suffer by the Minister’s decision, the directors have, by their strong protest against the action, also spoken for the many small investors who, although in the minority, have a relatively large and valuable investment in the company. Issues Calculation The current spate of issues by companies has raised the problem of how to adjust the shares once they become ex issue.

Briefly, the manner of adjustment for both bonus and cash issues, whether at a premium or not, is similar.

If a one-for-four bonus issue is planned, and the last price before the ex issue date is 200 c, then this is multiplied by four and divided by five. The ex issue price would be 160 c. Cash Issue If it is a one-for-four cash issue, then the only difference is that the cost of taking up the new share is added after the multiplication but before the division. Thus, a one-for-four issue of 100 c shares at par (100 c where the last price before the ex issue date was 200 c, would be 180 c. The 200 c would be multiplied by four to give 800 c. the cost of the issue (100 c would be added to give 900 c which would, when divided by five, give 180 c. If the issue is made at a 50c premium, then, on the previous example, the cost of 150 c would be added to 800 c to give 950 c. This, when divided by five, would give 190 c. Rights only arise from cash issues. No shareholder can be compelled to pay out more money for capital unless of course the shares are not fully paid up or have conditions attached to them. This latter aspect is uncommon. Rights Value The value of the rights, using the previous examples, would theoretically be the difference between the ex issue price and the cost of taking up the new share. For the issue at par, this would be 80c (180c-100c) and for the premium issue of 150 c, it would be 40c (190c-150c). If Fletcher, which plans a one-for-10 issue at 150 c, sells at 194 c before the ex issue date, the value after this would be 190 c. Using the method explained, 194 c would be multiplied by 10 and to this the cost of taking up the issue (150 c would be added The sum of 2090 c would give 190 c when divided by 11. The theoretical value of the rights would be 190c-150c. which equals 40c.