Share prices too high, chief of Brierley’s warns

Press, 10 January 1986, Page 9

Share prices too high, chief of Brierley’s warns

By

Simon Louisson

in Wellington

The chief executive of Brierley Investments, Ltd, Mr Paul Collins, believes the New Zealand share-

market is overvalued, particularly in the investment sector, and questions whether the recent rise of the market is justified by expectations for the year. “Our concern is that 1986 could be a very difficult year for the New Zealand economy. The flow-through effects of the new Govern-

ment have not yet applied,” he said.

He is particularly concerned about the effect of the drop in farmers’ incomes, which will pass through to rural towns and ultimately to urban areas. Exporters have lost confidence because of the high value of the kiwi dollar and

lost export incentives, and investment by trading companies is down, which, he says, does not augur well for the future.

Mr Collins questioned whether a rise of Brierley shares from 835 c to up to 930 c this week was realistic considering it was on such

low turnover. The shares had risen 10 per cent on turnover of 200,000 when there were 280 million shares on issue.

“If the share price rise could be solely attributed to an informed market re-rat-ing the prospect of Brierley’s in the future then one could be totally relaxed about the rise as it stands at the present time. “But if the rise was solely due to people saying the rate of growth was always going to carry on at an unlimited rate, then we are not going to get the same rate of growth in the future,” he said.

While the company is expecting a result well above last year’s, the shares have already risen 70 to 80 per cent above the level of four or five months ago.

Mr Collins said that it might be gratifying to see the price of BIL shares rise, but when the profit result was announced the shares may fall because of exaggerated expectations. He also believes the market has over-emphasised investment companies, which

in the end rely for profits on the trading companies they invest in. He expects most trading companies to report

greatly reduced profits on last year. “The market places such a huge emphasis on the investment sector that it probably has got that whole sector out of proportion to the rest of the market place. “At the end of the day the market is saying that investment companies are

leaner and more aggressive than the companies they

acquire, but by the same token trading companies are the backbone of the economy. “Trading companies are where productive investment must come, and if there is no productive investment we won’t have a

strong viable manufacturing sector,” he said. But Mr Collins said that because of Brierley’s range of investments, in New Zea-

land and offshore, its time in the market, and its people resources it was insulated to some extent from a downturn in the market.