Forum Archive Index - March 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

Good article by Phil on the Ocker Shocker  - Sharechat front page

 

Many sectors in Australia are going through hard times - even worse for them because many in Australia have not yet experienced such things.

 

It is not just Australian divisions of New Zealand companies that are struggling - many Australian companies in their own right are having a tough time. Particularly affected are those in the retail and construction related sectors.

 

One company in particular is paint and stains manufacturer Wattyl. Even though Australian based Wattyl have a factory in Auckland and sales in New Zealand of about $50M - and makes respectable profits in New Zealand.

 

I was attracted to Wattyl because of the wit in the headlines about them  Because of that I have followed the
miserable performance of Wattyl (ASX - WYL) over the last few years, Some of the headlines have been

'Wattyl they think of our results?'
'Loss takes gloss of Wattyl'
'Wattyl performance loses gloss'
'Wattyl in need of some polish'
'Wattyl paints less than rosy picture'
'Wattyl stains it's copybook'
'Wattyl performance - from gloss to flat'
'Wattyl they come up with next?'
'Better varnish on Wattyl result'
'Wattyl forecasts flat profits'
'Wattyl performance more unrewarding than watching paint dry'


As the headlines suggest a pretty sad picture. Since late 1997 the Wattyl share price has fallen from over $7.00 to $1.94 yesterday. I don't have any -just an interested spectator.

The decline over the last few months has been dramatic. In spite of a poor financial performance (in line with a lot of similar Australasian companies exposed to the building sector and high raw material costs putting margins under stress ) a lot of the decline has come about how the company has managed it's profit announcements - along with analyst and shareholder expectations.

How companies manage these expectations is vital. Doing it badly, as some companies in NZ have found out recently, is a recipe for disaster and the market reacts badly - in some cases maybe a total over reaction. It is importancy that companies retain their credibility by delivering what they promise (good or bad).

In Australia the market is brutal when 'promises' are not delivered. Wattly started sending warnings that the current year wouldn't be as good as the previous year in October at their AGM. Shareprice then has drifted down to $2.92. When in late December Wattyl announced H1 profit would be $5M (down from $9M the previous year) the price went down to $2.60 odd.

When the H1 profit came in at an even lower figure of $3.6M all hell broke out and it is now $1.91.(a year ago it was $4.38)

The message from this little story is that companies do need to manage bad news well - otherwise shareholders will revolt and the company will become a pariah of the exchange they are on. Officiers of any company who may read this take
note. This applies to New Zealand as well - and a lesson for any New Zealand company contemplating listing on the ASX.

While on the subject of Wattyl,  contrarian or value investors might be interested in having a closer look. The current price is about 60% of book value. Total market capitalisation is now only $150M and as such must be a prime take over candidate.
Current years earnings are still likely to be about $10-$12M  - EPS $0.15. Wattyl been through restructuring and once market conditions become more favourable and margins get back to past levels large potential for upside.

Cheers

Peter