BROKER COMMENT Small spark back in sharemarket

Press, 28 November 1987, Page 30

BROKER COMMENT Small spark back in sharemarket

By

M. J. M. SIDEY,

Three days of rises, the America’s Cup ruling, Fletcher Challenge’s excellent quarterly result, and the Brierley A.G.M. have given the sharmarket back some spark. The bear certainly has not gone as the damage has been great but there has emerged a more positive feeling coupled with a rekindled confidence that the market is within 10 per cent of its bottom. Undervalued and oversold quality stocks received recognition. On Thursday we saw a strong lift from Fletchers, Equitlcorp, lEP, Ceramco and other selected stocks. However, turnover remained relatively light and the market has more work to do. Accumulation is inevitable and healthy but the important factor this week is the first signs of a change in investor sentiment. Commercial radio on Thursday evening played “Sailing Away” and “Pick it Up” (The America’s Cup songs) and very quickly the good carefree days of Capital Markets at $8.50 came flooding back. On the announcement by the U.S. Court that the pending "Big Boat” challenge is valid Capital Markets again caught a small wave and surfed from $165 to $1.90 in very quick time. Can it all happen so quickly? Nobody knows the answer to this, but it’s a real tonic thinking about it.

Three important events in the last few days give reason for some positive attitudes:— the U.S.A. budget deficit cuts; the Government’s intention to produce an “Economic Package,” and the Hawke/Lange summit’s positive statements on an accelerated CER. Along with moves throughout Europe and Asia this shows that governments are acutely aware that investor confidence and economic activity are vital to the maintenance of stable economies. Each Government seems prepared to play its part. There can be no doubt that there is a long way to go yet, but the right steps are being taken. It is to be hoped that- these moves are pursued with vigour. The emergence of a limited amount of corporate activity involving producing companies which have quality earnings and strong cashflows should be an indicator to potential investors. Barwon Farmlands, Ltd, is an example of a sound company which fills the above criteria. Restructuring of the Australian company from a cotton farmer into a food/ liquor and hotel group is completed. Wilson Neill, Ltd, has recently lifted its shareholding to 40 per cent, and with Colin Herbert being appointed as chairman, effectively provides Wilson Neill with control of Barwon. Barwon’s food and liquor interests provide sustainable

director, Forsyth Barr, Ltd.

cash earnings and with absolutely no exposure to equities it has a strong balance sheet Also it has the ability to take advantage of available opportunities. A conservative estimate of Barwon’s property holdings provides a net tangible asset backing of sAusto.3o a share. The excellent result from Fletcher Challenge helped boost investor confidence this week. Sharemarket falls don’t stop true producers from earning solid profits. Fletcher Challenge is now on target for a S6OOM profit for the year after a quarterly profit announcement of $242M (including a SI22M extraordinary profit). The benefits of long-term planning offshore are now

starting to flow through, with earnings of SSOM recorded from the North American operations. A significant turnaround was made by Tasman Pulp and Paper from a SIS4M loss in the 3 months to September 1986 to a $200,000 quarterly profit in 1987. This was despite the earthquake damage incurred in March, and the high exchange rate. Officers elected to the Christchurch-Invercargill Regional Stock Exchange for the ensuing year were: Chairman, Mr T. B. Anderson; vicechairman, Mr M. C. Mathias; secretary, Mr B. T. Finlay; committee, Mr J. P. Egden, Mr K. G. Lee, Mr A. R. Munro, Mr M. H. Piper.