BROKER COMMENT 'Take losses, diversify’

Press, 5 March 1988, Page 25

BROKER COMMENT 'Take losses, diversify’

[ Since the October sharemarket crash Forsyth Barr and Company has covered in previous commentaries the defensive stance that investors should have been taking, says Mr M. J. Sidey, a director of the firm. [ That is, investors should have accepted losses on underperforming stocks, achieved a measure of liquidity. and diversified a portfolio by adding Government stock dr two-year debentures. I "Anyone who had methodically achieved these aims will be in a more relaxed mode than those that have not." | During the last fortnight companies have been releasing pro-forma balance sheets to comply with Stock Exchange disclosure requirements. These required companies to advise what their Sharemarket exposure was at December 31, 1987. so their losses could be quantified. I New Zealand's two largest Companies. Fletcher Challenge and Brierley Investments, received dispensation from the reporting deadline of February 29, both companies are due to report their interim results within the next fortnight. The news from those companies which have reported is not good. They show material write-downs in their sharemarket positions and generally increased gearing ratios. However, the market had already discounted most of what lias been reported, and the disclosures only served to confirm what the market already suspected. [This does not lessen the importance of the disclosures because they do serve to lift Uncertainty. This is positive fob the market as an informed investor can made rational decisions, and whether it is good or bad news the investors wants to know. [

“In addition, it is important to remember that in many instances these sharemarket losses are unrealised as the holdings are considered to be long-term investments." The collapse ofj the Petro- , corp sale to British Gas and '■ the subsequent I successful negotiation with' Fletcher Challenge was. the talking point of the week. This, plus buying support from Australia

for a number of New Zealand's market leaders, gave the Barclays index a I significant boost. Mr Sidey says, i One of the major benefits for Fletcher Challenge, will be the cyclical diversity an interest in the petroleum industry will provide. The Canadian timber subsidiaries are producing excellent results at present with buoyant world pulp and paper prices. It is conceivable that in the future these prices will weaken and therefore an interest in the resource sector may provide some insulation from a profit .decline in that event.

One international company that deserves attention is Elders IXL. the Australian conglomerate. Its recent profit report underlines the inherent strength of the group — net profit up 83 per cent, a one-for-four bonus, and a 9.5 c a share (9.5 per cent). Elders has been active in the last six months. The group has continued to expand its brewing interests in the United Kingdom. Indications are that these brewing interests, which are among the largest in the world, may be floated off into a joint venture company with a big property group. Such a move would release $2.1 billion in funds. Elders also stands to gain $1.68 from the sale of its 18.9 per cent Broken Hill Proprietary Company holding. These moves would greatly strengthen Elders' balance sheet and reduce debt to almost zero. Elders has also been active in New Zealand. Elders Resources. the listed Australian company, 48 per cent-owned by Elders IXL. is making a reverse take-over of N.Z. Forest Products (NZFP), and Elders IXL has purchased a sizeable stake in Rada Corporation. Control of NZFP allows Elders access to 15 per cent of North Broken Hill Holdings, which is now seeking to I merge with Peko-Wallsend. Last Friday. Elders announced it had purchased 19.9 per cent of Peko from Industrial Equity. The chair-: man of Elders, Mr John Elliott. predicted that Elders would do even better in the second half.