Short-term caution by BNZ Finance

Press, 19 June 1979, Page 21

Short-term caution by BNZ Finance

In view of the recent Government measures to reduce the growth of private sector credit, and the volatile conditions prevailing in the capital markets it would be unwise to make any predictions on the outcome cf the trading results of BNZ Finance Company, Ltd, in the short-term, says the chairman (Mr G. A. Chapman). “However, because of the steps taken over the last two years to broaden the range of financial services, strengthen management and enhance the group’s relationship with the Bank of New Zealand, I believe the group’s medium-to-long-ierm prospects for growth are excellent,” he says in the annual report. During the last financial year the BNZ Finance Company widened the range of financial services offered and is closely examining areas for further diversification. Previously the business was restricted to the provision of loan and lease facilities to the commercial sector.

But, the 1977 merger with First New Zealand International, Ltd. permitted the integration of that group’s money market activities into the BNZ Finance group.

Referring to these money market activities (conducted by BNZ Finance Discount Company, Ltd) Mr Chapman says buoyantt rading was experienced, particularly in the early part of the year. “Towards the end of 1978 the group viewed with concern the possibility that interest rates would tise and progressively shortened maturities of all negotiable securities held.

As a result of this a high level cf liquidity has been retained within the group.

“While this action tended to reduce profitability in the short-term it considerably reduced group exposure to incurring future losses on existing trade port.olios. “The strong upward movement in both public and private sector rates experienced during November, 1978, and April, 1979, has justified this action,” Mr Chapman says. Regarding debenture stock,

the company will this month introduce an additional option for shorter-term investments. Until recently the terms ; available ranged from 6 months to 5 years. The new option will be known as “at. call after three : months" and will be pro- I vided for those who wish to invest on secured basis at a competitive rate for three I months but retain flexibility of calling for early' repayment or allowing the investment to run beyond three months, Mr Chapman saysAs reported, group net profit rose 50.2 per cent to $781,000 in the year to March 31, on gross income : 56.3 per cent higher at $10.5M. The profit was after providing $247,000 more for tax at ] $648,000, $4OOO more for depreciation at $30,000, but nil for minority interests ; compared with $9OOO previously. ]

A tinal dividend of 8.5 c a share (8.5 per cent) is| recommended, which makes I the annual rate 14.5 c a share. Last year a 5c a share interim dividend and a 7.5 c a share final dividend were paid, making the annual rate 12.5 c a share (12. j 5 per cent). Tile dividend requires i $428,009 and is covered 1.8 times oy the profit. Shareholders’ funds rose $1,159,000 to $6,266,000, including share capital up $645,000 to $3,223,000 after a one-for-four cash issue made in October, 1978, $72,000 more for capital re-' serves at $850,000 and $442,000 more for revenue reserves at $2,193,000. The earning rate on the shareholders’ funds rose from 10-2 per cent to 12.5 per cent. The shares last sold for 160 c for a dividend yield of 9.1 per cent and an earnings yield of 17.3 per cent. The price-earnings ratio was 5.8.