Special Report: GPG - Out Of Fashion?

By Perry Williams, ShareChat Wellington Correspondent

Friday 9th February 2001

Guinness Peat Group (NZSE: GPG) is one of those companies that fascinate many in the sharemarket community. Essentially GPG, chaired by former New Zealand-based tycoon Sir Ron Brierley, is an investment company with free reign to invest wherever and with whomever it likes - a rarity in today's tightly structured corporate world.

On top of that, it's a listed company that is not required to pay dividends and was widely expected to no longer even exist in the 21st Century. Now more than 10 years old, its latest report to shareholders suggests it's in no hurry to wind itself up. So why the disappointing share price? Perry Williams investigates.

It's been repeated many times in the past few years and still holds true to some extent in 2001. Sir Ron Brierley's investment group, Guinness Peat Group, is decidedly out of fashion. For the last few years, its determination to stick to what it knows best - looking for bargains in the 'old' economy - has been decidedly uncool in a sharemarket dominated by news of the tech-heavies. But as the gloss begins to fade from many hi-tech companies, GPG keep plugging on.

Many New Zealand sharemarket investors have shares in GPG because it's widely seen as a conservative and solid performing stock.

Merrill Lynch research shows that during the past eight years GPG has produced annual growth of more than 18 percent in its net asset backing. GPG puts this at $2.20 a share at present, some 80 cents above recent prices.

But despite good annual growth, GPG's share price had a very ordinary 2000. After the huge fluctuations on Wall St last April, GPG shares wilted and have not recovered yet.

That's a worry for many of GPG's shareholders - most of who live in New Zealand. But Brierley has a special something about him. Shareholders seem unwilling to give up their shares just yet.

In April last year, GPG offered a long-term lure to keep investors happy through a share buy back and issue of convertible loan notes. The idea was that up to 200 million shares would be brought back from existing shareholders who are able to swap them for listed convertible loan notes at about $1.56. Notes would then progressively phase out over five years allowing shareholders - during that specified period - to get a better return.

The big surprise came when the majority of brokers reported that established shareholders were deciding not to take up the offer. Instead they were looking ahead to the future and hoping that ordinary GPG shares may offer a greater prospect of capital gain.

Was that a wise move? Let's take a quick look at the history of the company.

Ron Brierley took over GPG in 1991 after he stepped down as Brierley Investments after a clash over the company's direction. Then it had fewer than 6000 shareholders after being raided in 1987 by Alan Hawkins. Sir Ron took a number of bold steps from here. He refloated the company and listed it in New Zealand in 1991 and in Australia two years later. GPG's shareholders grew to number over 35,000 and prospects were looking up.

Shareholders' funds, a key indicator of success for an investment company, have grown since from $90 million to over $300 million.

In between, there's been a number of daring and audacious backroom plots for stakes in companies. Some successful - others dogs. It made a much-publicised $27.27 million from selling its 34% stake in Colonial Motors to Malaysian interests and made over $280 million from selling its 52% stake in Tyndall Australia.

Other deals went horribly wrong. Brierley was forced to give up trying to gain a stake in financial services firm, Tower after a costly two-year battle. GPG wanted Tyndall to take over Tower to create a new Australasian force in the funds management industry.

Despite sitting on cash of over $500 million after the Tyndall sale at this stage last year, GPG has found no favour with its share price. It's currently hovering around the $1.43 mark - well off the year high of $1.60.

Its half-year results for the six months ending June 30 last year showed a 90% fall in profit. Brierley said the discount between the share price and asset backing meant GPG's true value was not being reflected. He said it would be premature to solve that by selling assets and returning proceeds to shareholders as GPG still had excellent opportunities available "but it will become a valid option to consider at some time in the future."

An analyst said GPG was definitely a stock with a difference on the New Zealand market.

"It certainly has a shelf life but it appears to have years to run yet. I can only see the deals getting bigger from here and that might be exactly what the company needs to boost the share price."

Currently, the company has a 44% investment in Australian-based Joe White Maltings and a 21% stake in Wrightson. GPG's involvement in Brickworks, the biggest maker of bricks in New South Wales, Australia - valued at about $740 million - was deemed as an excellent example of GPG's investment talent.

Other new investments made by GPG include Inchcape, an automotive group, the London Stock Exchange, GUD Holdings, IAMA, and TAB Queensland in Australia. It recently emerged as the bidder for Scottish textiles company Dawson International.

Brierley has previously acknowledged disappointment at the company's share price. He blamed much of it on the trend that favours technology issues.

Certainly then, the current trend away from hi-tech must be pleasing Brierley. As he mentioned last year, "This distortion of values cannot endure indefinitely".

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