THE MARKET Pre-Budget jitters ease sharemarket

Press, 17 August 1985, Page 24

THE MARKET Pre-Budget jitters ease sharemarket

By

ADRIAN BROKKING

Pre-budget jitters saw the New Zealand sharemarket ease this week, but there was no sign of panic — more a lack of buying support as domestic potential buyers moved to the sideliners. A few biggish falls by the index heavyweights made it lose almost 13 points yesterday, as Watties lost 10c to 460 c, Fletchers 7c to 335 c, and Brierleys 6c to 580 c. Four local companies stood out among the headlines this week: The Christchurch Press Company, Ltd; Mount Cook Group, Ltd; Skellerup Industries, Ltd; and Smiths City Market, Ltd. The Christchurch Press, which changed its balance date from March 31 to June 30, reported for the 15month period a group net profit no less than two-and-a-half times larger than that of the previous year — $3,123,568 against $1,267,802. Even when the figures are adjusted for the difference in period, they are not

strictly comparable, as sixmonths results of Finance and Discounts, Ltd, are included. However, whichever way the figures are kicked around it looks like a 40 per cent increase. The figures do not include the extraordinary items: $2,306,855 — mostly the dividend from capital reserves paid by NZPA Investments, Ltd, of $2,303,751. In any case, it all makes for a very handsome cash flow. Skellerup Industires, the second-largest Christchurchbased listed company, published its annual report during the week, in which the chairman, Mr P. J. Skellerup, said that the directors were confident that the group will maintain its growth in profitability during the year, in spite of many expected challenges. In the last four years the group’s profit has almost doubled, and the return on shareholders’ funds has climbed from 11.6 to 13.6 per cent. Group net profit in the latest year increased 12.5 per cent to $8.6 million. During the same period shareholders’ funds rose from $43.8 million to $67.4 million, and the book value of total assets employed from $67.9 million to $109.1 million. The 25 per cent dividend is covered no less than 4.3 times, and the company intends to maintain this dividend rate after the 50 per cent increase in capital because of the cash and bonus issues. Skellerup is expanding overseas, because in spite of C.E.R. Australian quotas lock out the group’s two products with the greatest export potential, waterproof footwear and waterproof clothing. And to the mountain goes Mohammed. Mount Cook Group reported a disappointing profit, but in most other respects is obviously doing quite well. Just as one swallow does not make summer, so one profit reduction does not spell out a trend, and the fall in profit this year can be attributed to a combination of “oncers.” The 1984 ski season was the worst he could recall in his 20 years as a board member, said the chairman, Mr R. W. Steele, when discussing the result with “The Press.” A better snow season at Coronet Peak might have bettered bottom-line profit by anything between $750,000 and $1 million. That of itself would have turned the profit reduction into a small increase. The development costs of

the Remarkables ski area, which could not be recovered during the year under review, took another large bite out of the profit. Unfortunately, the ski season is late starting this year, and at The Remarkables more than a month late.

The third factor affecting this year’s profit was higher costs, which were not immediately recovered because of the delay in the lifting of the price freeze.

Although devaluation is indirectly good for the group, as it is for tourism generally, it hurts Mount Cook Group directly in higher costs — fuel, spares, and the cost of running the group’s overseas offices. Last, but not least, Smiths City Market, Ltd, published its annual report during the week. This company has shown phenomenal growth especially in the last four years, and shareholders have been rewarded commensurately. According to a list, published by the Wellington sharebroker Jarden and Company, showing gross returns to shareholders for the three-year period up to August 9, Smiths City Market was the eighth best performer. The first four in the list are "blue-sky” companies, number five is Brierley Investments, also a corporate investor but with a much longer track record, and just ahead of SCM are Alliance Textiles and Sanford.

Just for the record, Progressive Enterprises ranks eleventh.

Group tax-paid profit quadrupled in the four-year period since 1981, shareholders’ funds trebled but capital only doubled.

The number of employees increased 78 per cent, and sales per staff member rose during the period from $81,084 to $140,997.

The earning rate on average shareholders’ funds is consistently above 25 per cent (last year 25.9 per cent). This outstanding performance has been reflected in the rise in the share price: from a low of 120 c in 1981 to a high of 670 c a week ago. This growth in shareholders’ investment is in no small measure the result of deliberate board policy. The managing director, Mr Kevin Smith, in a comment on the report, said that some three years ago, the directors had decided to put more effort into policies that would increase the return to shareholders, and to pay more attention to the share price.

They certainly succeeded.