Of Bulls & Bears

Friday 8th December 2000

Home is where the shares are

Ferdinand has heard some worried investors are reassigning the domicile of their locally bought shares to other exchanges. This can be done with companies like Telecom Corporation, Brierley Investments and Guinness Peat Group that are listed on more than one exchange. The driving force, apparently, is a deep mistrust of New Zealand's leftist government and fears its reaction to recent currency upheavals may be to implement exchange-rate controls. But the actions of those reassigning their home exchange from New Zealand to Australia may be futile as the two stock exchanges of both countries are discussing a merger.

Bendon imitates Dr Don

Reserve Bank governor Don Brash attracted his fair share of criticism when he used the "S word" (stagflation) in October. Ferdinand noticed his Monetary Policy Statement this week steered clear of such emotive language. Instead, a different but equally powerful economic term "deflation" has been raised this week by Bendon Group in its interim result. After announcing a profit of $1.63 million before interest and tax (a net profit of $21.9 million after abnormals) a company statement said, "The deflationary business environment in Australia and New Zealand has demanded continuing innovation in both product range and customer relationships." Ferdinand is not sure which scenario, stagflation or deflation, is correct but doesn't like the sound of either.

Cancelling shares doesn't suit Savoy

A company cancels its shares either to return surplus capital to investors or to make its shares more attractive. Companies in the latter category are generally "penny dreadfuls" whose shares are priced in cents and often spurned by investors as a result. Often, a resurrection to a higher price by cancelling shares can be the fillip a company's share price needs. Dorchester Pacific has been one to benefit from this approach. After scratching along at around 10c for years, it announced a 5:1 consolidation in July 1998. This pushed up the value of its shares to 55c and they haven't looked back (they are now trading at above $1). This approach does not always work, however. Savoy Equities implemented a 10:1 cancellation in October which took its price from 4c-5c to the heady heights of around 44c. Unfortunately, the shares have been drifting back ever since and have recently re-entered penny dreadful status by falling below 10c.

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