NZ sharemarket ‘depressed by economic news

Press, 20 September 1982, Page 22

NZ sharemarket ‘depressed by economic news

Bv ADRIAN BROKKING. commercial editor

Bad economic news sent prices sharply lower on the ■ New Zealand sharemarket last week. As measured by the NZU index the price level fell some 3.3 per cent, and the index closed on Friday al 632.87 — not far above the year's low of 624.72 set on July 19. shortly after the freeze was announced. The market so far this year has fallen about 13.5 per cent from its peak.

None of the news was exactly new: the -world economic recession — with its effects on our export prices, especially pulp and paper — has been around for quite a while. Investors had obviously ignored these facts, and it took a number of events to press them home. In the beginning of the week Mr Muldoon made a gloomy assessment of the world economy, and NZ Forest Products announced that it was looking

at cutting back its working week.

This was enough to set prices tumbling, and the report from Fletcher Challenge did nothing to stem the tide, mostly because of the cuationary statement by its chairman. Mr R. R. Trotter.

The company’s profit performance was not all that bad. The results achieved by the company's forestry and rural sectors were about as expected, the manufacturing and merchandising division, as well as the finance division. did very well.

The major set-back was in the corporate sector, which incurred a loss of $13.1 million against a profit of $2.2 million last year. The loss was partly made up of foreign exchange losses of $5.6 million and $4 million spent on development projects in forestry and energy. The company adopted a conservative approach to the accounts by writing off this loss against current profit instead of capitalising at least part of it. as many companies would have done. Cynics have already been heard to say that the company did not want this year's profit to look too good, so that next year's profit might not look too bad. Some investment analysts are talking — "off the cuff" at this stage - of a profit of

$B5 million for the group next vear.

The group's liquidity appears to be quite good. It was undoubtedly Mr Trotters statement on immediate prospects, although realistic and in accord with what many market observeers have said before, which did the damage. In his brief statement on the result he said that the deterioration in international economic conditions was having an increasing impact on the timber, pulp and newsprint ocprations at Kawerau.

rvaweruu. "These same economic factors are now affecting the whole domestic economy. "Most of our business . areas will be trading in more : difficult conditions. It will be ; hard to maintain the same i level of earnings in the cur- . rent year." he said. At their current price it 1 may be expected that the I Fletcher share price will be ■ underpinned by its high yield. ' especially high for a market leader. At 173 c the shres have a . dividend yield of 9.8 per cent. I and a price-earnings ratio : around 4.1. Assuming that ; the price remains steady but . is in due course adjusted for i the 17.5 per cent final divi- I dend. the dividend yield would be an unbelievable 10.3 per cent. '