Broking house confused by BIL values

Press, 6 September 1989, Page 37

Broking house confused by BIL values

Wellington reporter

Brierley Investments, Ltd, gives a confusing picture of the value of its assets by including “anachronistic” book values for subsidiaries and associates on its balance sheet, according to international broking house, James Capel. While the firm gives BIL the thumbs-up for recent restructuring, it says BlL’s increasing bias towards operating subsidiaries rather than quoted investments makes assessment of the company’s value more difficult. “As the proportion of subsidiaries rises, so the net asset value calculated from the balance sheet becomes increasingly anachronistic as a statement of the true asset value,” the report says. “Whatever value is ascribed to a subsidiary, it carries less force and credibility than one based on the share price of a listed investment in the open marketplace of a stock exchange.” By roughly updating the company’s balance sheet, James Capel calculated that net asset backing per share stood at sAustl.Bl, compared with the $1.48 shown in the balance sheet. The broker rated BIL a “buy” for its further recovery potential. “We expect the price discount to asset backing to narrow considerably, with asset backing itself

growing faster than the market as a whole.”

BlL’s price earnings ratio of 8.2, falling to 7.1, •

meant “our forecast 1989/ 90 earnings pays scant regard to the profit potential of operating companies such as Tozer Kemsley and Millbourne, Magnum, and PrintpacUEB, the entrepreneurial spirit of management, and a long history of successful investment.” The recent restructuring, including the sale of lEL, had BIL a “simpler, more cohesive, lower geared company.” The report was one of two distributed to the news media by BIL. The other, by Londonbased Kitcat and Aitken, said BIL appeared to be returning to favour. “We expect increasing international support for the shares from investors in the U.K. and U.S.A. as the group increases its investments there,” it said.

As increased recurring earnings were produced, the shares would come to be assessed on earnings as well as trading grounds, it said. The James Capel report said the relatively depressed state of the New Zealand economy meant there were likely to be large investment surplusses. But signs of economic recovery could mean a pick-up in international investment interest in the medium term.