BROKER COMMENT An investors’ Budget

Press, 29 July 1989, Page 24

BROKER COMMENT An investors’ Budget

By

T. J. de Castro,

of the Christchurch office of Jordan, Sandman, Were

Thursday night’s Budget was on, balance, positive for investments markets, with bond prices moving ahead sharply yesterday. The indicator November, 1993, Government Stock moved down from a yield of 12.92 per cent to 12.63 per cent during trading yesterday. The cause was the Minister of Finance’s statement that there would be a nil Government Stock tender programme for the 1989-90 year.

Maturities amounting to about $3 billion will be financed by S.O.E. sales during the financial year to June, 1990. The lower trend in bond yields is likely to continue as institutional investors perceive a shortage of quality bonds over the next 12 months. This should bring a gradual reduction in all fixed interest security yields from about 12 months out and those investors who have prudently "gone long” with their maturities will be sitting pretty if this market trend continues.

The sharemarket has had a good week and the Barclays index has put on 41 points to close at 1979 at the end of trading yesterday afternoon. New Zealand investors are looking at a sharemarket which is short of quality investments which show respectable yields. Turnover continues to be dominated by Fletcher Challenge and Brierley, these two often accounting for 50 per cent to 60 per cent of the total value of shares traded: not a

healthy situation. In this environment, the Government’s S.O.E. sales, should these involve the investing public, are likely to be well received — providing the offer price is right. We should see details of the Air New Zealand issue in the next two weeks and this could be the forerunner of issues involving Telecom, Government Life Office, and possibly Electricorp down the track a bit. We hope the superannuation story was only half told in Thursday’s Budget and that there will be some more positive moves in the direction of encouraging savings and expanding superannuation funds in the private sector before too long. Government expenditure is still too high and at $29,160 billion it is estimated to be 42.6 per cent of New Zealand’s gross domestic product in the year to June, 1990.

INL announced its results for the 15 month period to June 30 yesterday and at $2O million after tax, the profit was in line with market expectations. The company is to pay a second interim dividend of 9.5 c, indicating an annual rate of 12.4 c, this dividend carrying a full imputation credit. The accounts show that very large redundancy and award recognition payments of $21.5M were involved with the introduction of direct editorial input during the 15 month period. To a large extent these payments were offset by a one-off profit in respect of the NZPA distribution arising from the transfer of Reuter shares. It is clear

we are going to see a strong balance sheet from the INL Group with an indicated proprietorship ratio of 64 per cent. The shares have shown a good rise from around the 395 c mark to 440 c and with one-off costs largely behind the group the share price should remain firm.

The PDL Group announced results for the March 31 year yesterday. For PDL itself the profit at $3.3M was above market expectation and provided earnings per share of 246 c. Net tangible asset backing per share was disclosed at 261 c and directors have announced a final dividend of 375 c a share carrying a full imputation credit. This makes the total dividend payment for the year 11.25 c per share, on this basis PDL shares at 155 are selling on a historic P/E ratio of 6.3 and are showing a dividend yield of 7.25 per cent tax free. In this market PDL shares look undervalued.

PDL’s subsidiary, Laser, announced a loss of SI.6M after a tax benefit of SI.3M. Not surprisingly no dividend is to be recommended. Lasercorp has been through a difficult financial year and the chairman, Sir Robertson Stewart, says that the company is now in profit. Meanwhile, with a large seller now finished Laser shares have shown a good gain from 14c to 18c — a 28 per cent gain over two or three weeks.