Analysis shows a clear fall-off trend

Press, 8 July 1986, Page 31

Analysis shows a clear fall-off trend

By

SIMON LOUISSON

I in Wellington

i While a number of Companies have reported reasonably acceptable profit results this year, a recent analysis by Auckland brokers, Jordan Sandman Smythe, suggested the results may mask the true picture. The brokers compared the first half year results

of companies reporting in the manufacturing, trading and service sectors, with the second half. While the result is not across-the-board, the trend is clear — the second half performance of most companies was markedly down on that of the first.

A clearer picture on the constraints on profitability is now emerging, said Jordans.

"There are a number of common factors behind the generally poorer performance of trading companies in the second half.”

They include reduced demand, lower margins, exposure to the rural downturn (particularly service sector companies dependent on the rural sector), the level of interest cost on borrowings in the second half compared with the first half, exchange rates, the higher cost of financing current stock and more competitive trading conditions, the brokers said.

These factors will be emphasised repeatedly in the annual reports of company chairmen in presenting their 1987 outlooks. While economists and forecasters are generally pointing to an end to the current recession by the end of the year, some more conservative financiers are warning investors to be more cautious.

They point to the $1.6 billion predicted cut in farmer spending which has not yet impacted on the urban sector. The pessimistic voices point to the seemingly never-end-ing upward spiral of the

sharemarket, where fundamentals such as tangible assets have fallen well out of line with the value placed on companies by optimistic investors.

The message from the Jordan analysis seems to be that investors might do well to have a closer look at companies’ fundamentals and base their investments on those, rather than the seemingly bottomless bullish sentiment of the New Zealand market.

The following table highlights the deteriorating trend in the second half. The table compares pre-tax profit in each half of March year companies in the manufacturing, trading and service sectors with the corresponding half in the previous 1985 year.

Fst half Sec. half UEB % +17.7 % -73.0 OHL Corp -1.2 -50.6 Lust’oid -10.2 -73.0 FTC +3.3 -31.2 Progres +28.7 +1.0 Carbor +22.0 -49.0 Auck Gas -4.9 -158.0 E Adams +16.9 +50.3 INL +40.6 -4.8 CPD -0.7 -38.0 F and P -69.4 -66.4 M. Gro -5.8 -24.0 H. Berry +37.0 -53.0 PDL +65.0 -68.9 Allflex -147.0 -47.0 NZ Steel -50.0 -43.4 W. Hor +75.0 +90.3 Taylors +46.0 +125.0 CCL +96.0 +58.0