Bullish tone continues

Press, 25 August 1980, Page 22

Bullish tone continues

By

ADRIAN BROKKING,

commercial editor

The bullish mood of New Zealand investors continued apace last week, and the indices continued to set records on four successive days, to come back a bit only on Friday. The N.Z.U. index reached a peak of 463.09 on Thursday, and gave up less than half a point on Friday to close at 462.65 — a gain of 5.89 points on the week. This represents 1.3 per cent, and the total gain since the beginning of the year is 29.4 per cent. Last week the role of catalyst was taken over by Challenge Corporation. The shares had been rising strongly ahead of the profit announcement, and investors were not disappointed when the company reported a bot-tom-line profit of $22.5M. However, the profit from trading operations rose only 6.6 per cent to $13.5M, and the end result was considerably assisted by lower tax, higher capital profits, and

an increased share in the profits of associate companies. The results took in six months trading by Broadlands, but only three months’ equity share in Tasman Pulp and Paper. This latter share came to S2.BM, and it is obvious that — as a spectacular recovery is expected in Tasman’s fortunes — this equity share might well rise to something like $12.5M for the full year. Challenge increased its dividend from 15 to 18 per cent — three months ago shareholders were promised a minimum of 17 per cent — with the final 11 per cent being tax-free. A further cause for cheer is the fact that Challenge has- plenty’ of room for further tax-free dividends. A major commercial development during the week — although it has so far not affected the share market — was the revelation that C.F.M. and Borth-

wicks are having talks with view to a closer association. At stake is the rationalisation of the four works in the south of the North Island which constitute the Borthwicks . - C.W.S. operation, in which Borthwicks has a 65 per cent interest

It is no doubt not just a cliche when the chairman of Borthwicks (Dr W. A. Bullen) says that the negotiations are “delicate.” Although Borthwicks only owns three works, it has many killing arrangements) with other works, and a marketing agreement with C.F.M., so that it markets 20| per cent of the New Zealand! lamb kill. Another difficulty would be the existing Borthwicks! shareholding in C.F.M.,1 which is about 20 per cent; C.F.M. therefore cannot issue too many shares to Borthwicks in of the acquisition of anyi interest, as it would not’

w’ant to become classified as a., overseas company. In any case it would not want to pass to Borthwicks too much control. ■ Waitaki-N.Z.R., which started the ball rolling, seems to be on the sidelines for the time being, especially by the pronouncement from the Meat Board that it would rather see an association between ‘ Borthwicks and C.F.M. than one between I Borthwicks and Waitaki. A C.F.M. - BorthwicksC.W.S. would form a grouping of eight works with •about 25 per cent of the New Zealand kill, whereas a of Waitaki-Borth-Iwicks-C.W.S. would control 113 works and some 40 per 'cent of the New Zealand kill. I Obviously, the Meat Board Isees the former as leading potentially to. strong competition between two major New Zealand chains, and the patter as leading to domif nance of one group, even if iwholly New Zealand-owned.