Share prices mark time

Press, 1 May 1978, Page 21

Share prices mark time

Commercial

By

ADRIAN BROKKING,

commercial editor

The price level on the, te»v Zealand sharemarket fcas virtually steady last r.eek. with trading disrupted by the shortening of the week because of Anzac Day.) However, daily turnover) figures were not at all bad,] and on Friday more than) bOO.OOO shares changed] hands. The rise of the reported] turnovers on the New Zea-j land sharemarket has been! disparaged by the people] who look at the enormous volumes traded daily on Wall Street, where recently on the New York Stock Exchange alone 63.5 M shares changed hands in one day. But when these figures are compared with the relative rises of the two countries’ economies. ’ they compare quite favourably. The gross national product of the United States is more than 100 times larger than the New Zealand G.N.P. But that is not the whole story: tme would also expect a direct relationship between the rise of income per capita and sharemarket activity. Having regard to these factors. and without trying to be too accurate —in any case,! here a spurious exercise—it] Is obvious that there is ini New Zealand, through the] medium of the sharemarket,! i high level of involvement] in investment by the private sector.

Not only did the market mark time during the week, It was virtually steady on the

month—the price level as indicated by the N.Z.U. index being virtually the same on Friday as it was on April 3. Some profit-taking is probably responsible for this. Also, the proportion of bad profit reports increased during the month. Although these should be discounted by now, a succession of them is bound to influence investor sentiment.

However, there is an abundance of high-yielding shares about, with good dividend cover and backed up by good company performance, and the selective buyer should have no trouble finding a promising outlet for his or her funds.

One of the star performers recently has been Radio Avon, which sold at 140 c at the beginning of the month (110 c at the beginning of the year) and 190 c last Friday. Radio Avon is undoubtedly the success story among New Zealand’s private radio stations. Some of the buying interest, especially earlier in the year, is no doubt attributable to Auckland interests connected with Radio Haurj aki and Capital City Radio. ! But quite a few shares must lhave been bought by private i investors who simply decided that Avon shares were ia good thing.

The company came to light during the week with a fine profit result: earnings more than doubled, after considerably higher charges,

and ' the dividend almost trebled, to 35 per cent.

| The dividend is covered 1 2.5 times, and the dividend yield of the shares at 190 c is 9.2 per cent. Comparative figures for the average of 40 market leaders . are 2.6 and 8.2 per cent. On that basis, therefore, the shares are worth their price, and more. But it would not be surprising if the market were to take a cautious attitude to the company’s growth prospects. After all, you cannot do more than saturate a market.

Perhaps the company’s best growth prospects might lie in taking up the maximum share permitted by the regulations in other radio stations, and lending its expertise to maximise those investments. Another feature of the I month was the referral by the Examiner of Trade Practices (Mr A. E. Monaghan) to the. Commerce Commission of a proposal by Fletcher Holdings. Ltd, to increase its shareholding in Tasman Pulp and Paper Company. When asked by “The Press’’ why he had so decided, Mr Monaghan said: “the Commerce Act, 1975, permits me to consent to proposed mergers but does not permit me to reject them. If I form the opinion i that a merger is likely to he ; against the public interest, ifhen I publish that fact and

then enter into conciliation with the applicant company on why I oppose the application. If I am still against the merger, then the matter goes to the Commerce Commission for a decision on my unfavourable opinion.

“The Commerce Commission has never sat on an application for a merger or takeover, although it has sat frequently on other commercial matters. It has discretionary powers not to release the details of a sitting, but its sittings are usually public. If the Commission is' asked to decide, then release of the details will be its prerogative. But in the meantime I must keep confidential the details of the application made by Fletcher Industries to obtain a greater shareholding in Tasman Pulp and Paper Company.” * However, the details of the Fletcher proposal were published by other sources. It may be summed up as follows: — (1) Fletcher’s would increase its holdings in Tasman by taking up its portion of the rights issue planned for later this year and next year. (2) Fletcher’s would subscribe 50 per cent of any rights sold by another large Tasman shareholder, Australian Newsprint Mills. (3) Fletcher’s would stabilise the Tasman heah share price by buying Tasman shares when the price falls below 94c (this price to be increased by any increases in net asset backing after April 1) and selling them if the market price reaches 188 c, or any lower price that Fletcher’s may determine.

This proposal, of course, is consistent with Fletcher’s view — well publicised — that it would be advantageous to both - Fletcher’s and Tasman if Fletcher’s were to take a greater interest in the latter. If allowed, the move might increase Fletcher’s share of Tasman to about 45 per cent.

My goess, for what it is worth, would be that the stumbling block is the 24 per cent shareholding in Fletcher’s by CSR — an overseas interest; although if Fletcher’s were to partly buy out A.N.P., one direct overseas interest would be exchanged for a smaller indirect one. Meanwhile, Fletcher shares eased slightly during the month, from 198 c to 193 c (they were 180 c at the beginning" of the year) while Tasman eased from 145 c to 135 c.