Shares in "Faulty Tower" slump one third after profit warning

By NZPA

Monday 4th November 2002

Shares in Tower Ltd shed a third of their value this morning in the aftershock of Friday's profit warning.

The financial services company, nicknamed Faulty Tower by an angry professional market traded as low as $2.10 this morning -- some 40 percent below its level before the surprise profit warning was issued.

New Zealand's second biggest fund manager, with $22 billion of assets, later recovered to $2.25, $1.30 down on Thursday's level when the company requested a suspension of trade ahead of the warning.

Some brokers said the stock had been overly punished but at least one Australian broker was putting a value on it below today's trading levels.

On Friday, Tower said it was now forecasting a September year loss of $30-40 million. Previously, analysts had been predicting a $77 million annual profit.

Brokers are worried there is more bad news ahead relating to writedowns in the recently acquired Australian company Bridges. Tower appears to be yet another victim in a long list of New Zealand companies which have been sold pups in Australia.

Further writedowns in Australia were likely to push the annual loss up to about $88 million, Tower warned on Friday.

Forsyth Barr Frater Williams executive director Don Turkington said the professional market was incensed by Tower because just over a month ago the company had had a roadshow where it had portrayed a relatively upbeat outlook.

"Now, blow me down and they come out with the news that is very bad with more to come. We haven't had too many of these here but they have overseas and the market will cane you if you disappoint," Dr Turkington said.

If a company came out of the blue with bad news in a fundamentally weak market, then it would be punished, he said.

Analysts were still struggling to put a value on Tower because of the prospects of further writedowns.

"That (new write-down) could be quite significant. There are valuations in the market that are quite low, we understand," he said, adding that his firm would be downgrading the stock.

ABN Amro broker Nigel Scott felt that the selling had been overdone.

He said the underlying book value of the company was worth looking at.

Tower on Friday announced a management clean-out in addition to the recent departure of its former chief executive James Boonzaier, announced in July.

Acting chief executive officer Keith Taylor said he did not expect the losses to increase before Tower reported its results on December 5.

Mr Taylor said Tower had decided to write off some $34 million in capitalised items up front instead of over the normal three to five years because of uncertainties about their carrying value.

He did not accept there was a lack of confidence in the company.

"I think the feeling was we've had a number of management changes and gone through to review a lot of things, and in part some of the numbers are from that.

"We see a return to normal profit levels next year."

The company had also been hurt by poor performances from international investment markets, redundancy payments, and about $11 million in future losses that had to be accounted for now.

Tower was unlikely to pay a final dividend.

Credit rating agency Standard and Poor's on October 31 lowered Tower's long-term ratings to A- from A, and placed them on Creditwatch with negative implications.

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