Mercer Group shares at record low; outlook uncertain

Thursday 20th October 2016

Mercer Group shares are languishing unloved at a record low on the stock exchange as the unprofitable stainless steel fabricator restructures its operations, undertakes a refinancing to keep it afloat, and faces questions about its products after one of its stainless steel silos collapsed last month at Fonterra Cooperative Group's biggest factory in Edendale, Southland.

Shares in Mercer Group last changed hands a week ago at 1.3 cents, the lowest level the shares have traded at since NZX records began in 1967.

The metal manufacturer, whose history stretches back to 1884 when founder James Mercer started a South Island coppersmithing and metalworking firm, has lost three-quarters of its value on the stock exchange this year, reducing its market capitalisation to $4 million. Shareholders at the company's annual meeting in Christchurch this week approved a plan to inject $7 million of new shareholder equity to repay debt and keep it afloat following three years of losses.

Chief executive Richard Rookes told shareholders that the silo collapse is still being worked through by its fabrication division and the cause and any impact on Mercer is "unknown at this time". Mercer's equipment is in the majority of dairy plants across New Zealand and news reports today say an additional four Fonterra silos have been found to have cracks. Fonterra wasn't immediately able to confirm the reports.

"Whatever the outcome, it's not going to be good news for Mercer," said Grant Williamson, a director at brokerage Hamilton Hindin Greene, noting the company may face compensation claims.

"They have had some extremely difficult periods and they have to undertake a pretty substantial capital raise," Williamson said, adding that a lot of the money raised would be used to repay debt. "It will certainly strengthen the balance sheet but they certainly need to turn around their operational performance."

While the company's sterilisation technology appeared to have good potential, it would take time to bring to market and the company needed to turn around the performance of its stainless and slicing businesses to try and achieve at least break-even so they are not burning any more cash, he said.

"It's a possible turnaround story but I think it's going to remain a struggle for the company for some time until they can really turn around the operating performances of their different divisions," he said. "There's really very little investor interest in this stock at all."

BusinessDesk.co.nz

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