BROKER COMMENT Highflyers in more ways than one

Press, 12 September 1987, Page 29

BROKER COMMENT Highflyers in more ways than one

The purchase by the major South Island-based retailer Smiths City Market Group, Ltd, of Smith and Brown, Ltd from Feltex International, Ltd, is a good opportunity to emphasise again the strategic position the retailer now holds in our sharemarket, says Mr Michael Sidey, of the South Island sharebroking firm Forsyth Barr, Ltd. “This is a continuation of its growth-by-acquisi-tion strategy complementing its purchase of Irvin and Stern Holdings, Ltd, last year,” he says.

“Unlike Hallenstein Glasson Holdings, Ltd, Smiths City Market has held its property assets within the balance sheet. This means that when you purchase a share in this company you are making investments in two sectors — property and retailing. This is a very important consideration. Most of Smiths City Market’s retail stores throughout New Zealand are sited centrally on prime or valuable real estate. These property assets share in the growth of commercial property values while providing the company with retail outlets. Generally these assets are not given full recognition in the company’s share price (e.g. Hallenstein Glasson Holdings, Ltd, floated the property assets into Prime Site Realty, Ltd, so the sharemarket will price them with other property companies). “The importance of

cash flow from retailing cannot be over-em-phasised. As witnessed during the past twelve months, many retailers have fallen victim to companies with high borrowings. These predators support their high gearing by buying into companies which have consistent cash flow. For the shareholder this cash content is also very important, particularly with the introduction of imputation imminent. A company such as Smiths City Market pays full tax (48c in the dollar) and the benefit of this will be the tax credit to the shareholder when filing his or her tax return,” Mr Sidey says. The many small shareholders in the Bank of New Zealand have been rewarded this week for their patience. The shares have risen sharply and are now some 25 per cent above their low for the year. The rise can be attributed to a number of factors. Firstly, the rerating upwards of New Zealand’s market leaders during the past three months and secondly, increased investor attention being given to banking stocks in Australia. The banking sector has traditionally sold at a discount to other sectors in the market because of the conservative and regulatory nature of the industry. However, with the Australian sharemarket having risen so strongly this year bank shares appear more fairly priced on fundamentals. This, combined with the prospect of deregulation in the industry, has resulted in a number of Australia’s leading entrepreneurial companies, namely The Adelaide Steamship Company, Ltd, and Ron Brierley’s Industrial Equity, Ltd, taking sizeable positions in the major banks. Ron Brierley is, of course, chairman of the Bank of New Zealand.

Air New Zealand will want to avoid a turbulent ride next year when it announces the arrival of its 25 per cent float. As the saying goes, the way to a man’s heart, and perhaps his wallet, is through his stomach. But regular commuters may be wondering whether their stomachs and their waistlines can cope with the ongoing flight war between Ansett and Air New Zealand. Digesting one’s Shrimp Cocktail and Beef Wellington during a half hour flight can be quite distressing. Even so, its unquestionably more palatable than the old rations of crackers and cheese. Our class consciousness has also been raised into orbit with service distinctions being made on board.

The high flyers are expected to continue their raid for market share — a battle which can only serve to benefit commuters. Apart from competitive pricing, benefits will accrue from extensions of flight services to those out of the way places. The stakes are high, Air New Zealand will want to be number one at flotation time. Ansett, 22.5 per cent owned by Newmans and 27.5 per cent by Brierley is aiming to show a profit in its pilot year. But the real question remains — given the alterations to in-flight menus, will Air New Zealand announce an increase in the size of their little white bags, Mr Sidey says.