THE MARKET Fletcher, Brierley good for trend

Press, 18 March 1985, Page 33

THE MARKET Fletcher, Brierley good for trend

By

ADRIAN BROKKING

The firmer tone of the New Zealand sharemarket continued on Friday, and the general price level closed in the same range as the previous Friday, as the market recovered much of the losses of the first two days of the week. Share prices as indicated by Barclays’ index mirrored the trends in short-term interest rates during the week — falling when interest rates were rising, and gaining during the last few days when the short-term money market settled down. Apart from the liquidity crisis the major interest

during the week was the half-yearly reports by Fletcher Challenge and Brierley Investments, which were even better than market watchers had been expecting. This was demonstrated by the fact that both share prices improved after the announcement, instead of dropping as usually the case when the sharemarket has been discounting the expectation of good news. Brierley Investments reached a new high of 425 c, and the company’s market capitalisation — the total value of all its shares as measured by the market price — is now more than $lOOO million, the first time a New Zealand company has surpassed this benchmark. Fletcher Challenge, New Zealand’s biggest industrial and trading group, has a market capitalisation of about $950 million. As FCL has a greater net worth, and its interim profit was more than three times Brierleys’ it would seem that FCL shares are considerably undervalued by the market. Based on the earnings of the two companies for the latest full financial year, the price-earnings ratio for Brierley is about 15, and the PE ratio of Fletchers is about 7 —. that is, it is prepared to pay twice as much (15 years purchase against seven) for Brierley’s earnings than for Fletchers. Brierley Investments more than doubled its profit to $27 million — largely as a result of the improved profitability of the Australian subsidiary, Industrial Equities, Ltd, which had a profit rise of 87 per cent. Fletcher Challenge produced a profit of almost $lOO million, and is clearly well on the way to beat its own forecast of a profit for the full year of $l6O million

or indeed to beat the market consensus forecast of around $lBO million. The company’s detailed interim report gave a sector-by-sector breakdown of the group’s performance, which showed that — as expected — the most significant improvements were in Tasman Pulp and Paper and in the Canadian subsidiaiy, Crown Forest Industries. Tasman’s 1983 loss of $1.9 million was turned into a $20.1 million profit, and Crown Forest moved from a $2.1 million loss to a $20.4 million profit. The Tasman Pulp and

Paper turnaround was achieved in spite of the loss of 12 weeks production of Kraft pulp during the No. 2 recovery rebuild. Improved prices for both newsprint and pulp and higher volumes assisted the performance of the two divisions. The construction and property sector trebled its earnings from $7.1 million in 1983 to $21.7 million, with the biggest increase coming from “exceptional property sale” bv Challenge Properties. Construction profits were generally excellent except for continued disappointing results from Aus-

tralia. Even more spectacular was the profit increase in the rural and trading sector, which went from $2.6 million in 1983 to $13.7 million this year. Buoyant markets for wool, livestock, and farm merchandise, as a result of excellent seasonal conditions and devaluation, produced a record result for Wrightson NMA. Fletcher Fishing virtually doubled the previous full year’s result, because of devaluation, better real export prices, and improved productivity in vessel use and processing.

Meat earnings were lower because of the delayed start to the killing season caused by the introduction of new technology — read industrial action — by Southland Frozen Meat, and Dunedin Master Butchers Association. Needless to say the financial services sector — or at least Broadbank and Marac — fared less well in an extremely volatile and competitive environment, although the shortfalls by these two companies were offset by solid profit contributions from Broadlands Perth and Challenge Computers.