Market trades quietly in narrow range

Press, 25 September 1978, Page 20

Market trades quietly in narrow range

Commercial

By

ADRIAN BROKKING,

commercial editor

Turnovers on the New ■ Zealand sharemarket continued to be low last week,; 'although a firming tendency was apparent. Trading was confined to a very narrow range — on I most days 60 per cent dr | ( more of the turnover con-1 jcentrated on a dozen shares} ior less. Waitaki N.Z.R., Vacation Hotels, Trans Holdings, Steel and Tube, and U.E.B. were among those shares that [were actively traded, but not all Of them gained. U.E.B. was steady and Trans Holdings actually lost ground during the week. Trans Holdings did well in a difficult year, but perhaps not as well as the market i initially expected. The group has a relatively large capital to service, and earnings a share actually declined dur- ‘ ing the year. ■ The group is rapidly increasing its hotel interests, ’ but the expansion needs a lot of capital. As happens < often when a company is diversifying at a fast pace, i the growth in capital out- ■ strips the growth of earnings. i However, this may only be a matter of time — soon-' er or later the group will; consolidate, when earnings may be expected to catch! up. In Trans Holdings’ caseb

the process is retarded by the present weakness of the

Australian- tourist market, but this will probably come right as the Australian economy improves.

During the week a batch of June 30 reports came in, and on the whole these werei; not as good as earlier com-; pany reports. A number of; companies had to report;

sharp falls in profit, including Niven- Industries,! John Burns, and Brambles Burnett. It is probably significant that these companies are! engaged mainly as suppliers of services to the engineering and building industries, where obviously demand is still weak. I liked the full report published by Ajax GKN during the week for two reasons: first because of the attitude of the managing director (Mr B. Post), and second, 1 ' because the company is' making capital investments! at this very moment. For on-ce a director did I not try to grind a particular! axe, or put the blame for a 1 [lower profit in the Govern- 1 (ment’s lap. Instead a refreshing acceptance of the I economy’s needs, and the! understanding that a lower level of demand now may be ! necessary to ensure future 'opportunities.

And the company is anticipating these opportunities

by considerable capital investment now, when on the whole business confidence is low.

This makes good sense, al- ■ though psychologically it ■ may be hard to do. The business cycle is a ■fact ctf life — it has been ! with us since time immemo-

rial. Good times have followed bad as the seven lean years in Egypt followed the seven fat years in Joseph’s time. Business confidence, and the lack of it, have always accentuated the cycle, because in the boom every one wants to expand, thus bidding up scarce resources and adding to inflationary and other pressures, while refraining from investment — even contracting business — when the business cycle is on a downward path. Yet it is when resources are under-used, and freely available, that new investment may be achieved quickly, without frustration, and above all more economically.