SHAREMARKET Investors too tough on Fletcher Challenge?

Press, 22 July 1989, Page 28

SHAREMARKET Investors too tough on Fletcher Challenge?

By

NEIL BIRSS

When it comes to Fletcher Challenge at present, the sharemarket cannot see the wood for the trees. The company’s shares fell another 3c to 457 yesterday, bringing the fall for the week to 8c and the fall this month to 18c, or a drop of 3.7%.

Almost a million Fletcher Challenge shares changed hands yesterday, following substantial sales all week. The trend was against the general drift of the market, which rose 8.4 points on the Barclays industrial index, rises outnumbering falls 24 to 17. The market shows signs of climbing back to where it was a fortnight ago — particularly if Fletcher’s stops falling. Fletcher’s is being sold down on lower newsprint prices, and on pessimistic comment about the outlook for newsprint overseas.

Newsprint prices have indeed fallen. Last year United States West Coast newsprint prices were about SUS6SO a metric tonne. Early this year they were down to SUS6OO to SUS6IO a tonne. Now they are running at SUSSSO to SUS6OO a tonne. The cause is the number of nnewsprint mills coming into production. More are on the way, and the pessimists say that newsprint prices will fall further. But Fletcher Challenge and other big producers sell newsprint to the giant publishing chains in contracts that cover two years ahead. Thus the present prices already reflect the expected prices well ahead when the mills being built come into production. Don’t bet too much on newsprint prices continuing to fall over the next two years. They

may rise as forward contracts take account of increasing supply being met by more demand, and by the phasing out of some production. Some newsprint mills will be converted to producing higher quality papers, where demand is still strong. The high cost of shipping bulky newsprint means that supply increases in the United States do not necessarily mean lower newsprint prices elsewhere in the world. Prices in Australia and New Zealand, and Brazil (Fletcher markets) will be related to local production capacity.

More important is the relative value of newsprint output to Fletcher Challenge. In the year ended June 30, 1988, the whole forestry and forestry products industry section of. the company produced less than half the sales of the group. Paper sales were less than a fifth of total group sales, and this includes lightweight coated papers, which are not affected by newsprint over-capacity. Market pulp, another section of forest products in the group, is about 60% the size of all paper, and its prices have been strong. Fletcher Challenge has suffered more from the strength of the Canadian dollar against the United States dollar than it has from falling newsprint prices.

Rosy Applefields Applefields is performing well. The shares rose 10c to 190 yesterday, up 18c (10%) this month. They have more than doubled .since February. Applefields options jumped 40c from 100 this week.

The company’s bumper share crop is caused by: & The company’s initial court

victory against the Apple and Pear Marketing Board’s imposition of transferrable crop certificates, an up-front charge on new fruit production. © The 8000 cows Applefields has grazing on its 27 dairy farms. The Dairy Board’s final pay-out has given Applefields the same economic lift as it has the Waikato and other dairying areas.

• The few avenues for investing in New Zealand’s primary industry via the sharemarket. Applefields shares have scarcity value. Mainzeal, Mair Mainzeal Group, now in control of the Christchurch-based trading and manufacturing group, Mair Astley, has no plans to change the direction of the company. Mr Peter Menzies, executive chairman of the Auckland property developer and investor, and Mr John King, another Mainzeal director, have joined the board of Mair Astley.

Mr Menzies said from Auckland last evening that Mr John Edwards, managing director of Mair Astley, had a plan for the group and Mainzeal was happy that this should be followed. He described Mair’s as a very good company.

Mair Astley has extensive interests in Auckland through the merger between Mair and Astley which created the company, but Mainzeal has no thoughts of seeking a transfer north. So many of Mair Astley’s interests were in the South Island that Christchurch was the place for the headquarters, Mr Menzies said.

Mainzeal gained its initial stake in Mair Astley through its merger with the investment com-

pany, Leyland Growth, in May last year.. Before the merger Mr Menzies and Mr Roy controlled 77 per cent of Mainzeal, then described as a property developer.

Mr Menzies said that Mainzeal had regarded the Mair. Astley stake from the beginning as something to hold rather than to trade.

Early this month Mainzeal lifted its stake in Mair Astley from 36.4% to 42.9%.

Sale regretted The sale by Waitaki International of its investments in Christchurch and Nelson to the New Zealand arm of Life Technologies, of the United States, is sad comment on the entrepreneurial spirit of New Zealand, though of little account to Waitaki shares.

Biotech is the other prong in the new industrial revolution to electronics and computing. For an agricultural country it is sad that technology developed at local cost will to to American interests.

American Technologies executives say the company will rapidly expand production in Christchurch. They should be welcomed. Waitaki’s bioscience operations could have been closed, or the researchers shipped elsewhere. But it is still to be regretted that our own capital cannot carry this research through in an industry.

What is wrong with our spirit of innovation and business adventure, when such a dazzling industry is quietly sold to overseas competitors, while we get excited about casinos?