Market sends Tranz Rail sliding

By Nick Stride

Friday 5th July 2002

Tranz Rail's share price this week slid to a two-year low but its big shareholders say they still support its business plan.

Amanda Smith, a fund manager at ING, said the company was heading in the right direction.

ING in May sold down its holding from 6.12% to 3.8%, partly because some elements of Tranz Rail's restructuring were taking longer than expected.

She said the recent falls were a symptom of weak markets and nervous investors here and around the world. "Particularly with overseas institutions, any hint of uncertainty or that things will take longer than expected and they dump the stock and ask questions later."

Another fund manager, who didn't want to be named, said the shares had fallen on relatively thin volumes.

Following the departure earlier this year of cornerstone shareholders Fay Richwhite and Canadian National Railways, local institutions were "loaded to the gunwales" with Tranz Rail shares and lacked the spending power to buy up on-market, he said.

He estimated the shares were trading at a ratio of about 14 times for this year's earnings and seven times next year's.

Following an article in last Saturday's Dominion rumours were circulating this week that Tranz Rail would be New Zealand's first WorldCom-style accounting casualty.

The argument was predicated on the company's treatment of work on its track network. Tranz Rail spends about $50 million a year on track renewals, repair, and maintenance.

Around half of that expenditure is capitalised as fixed assets and depreciated over 40 years while the other half is expensed in the year in which it occurs.

Local rumour was that Tranz Rail's share price slide was being caused by large institutional shareholders bailing out ahead of an impending scandal. But institutions rubbished the claims. ING's Amanda Smith said Tranz Rail's accounting policies were well understood and accepted among institutions.

Another fund manager said a local institution had sold its shares and was now spreading the rumours in an attempt to drive down the share price so it could buy back in again.

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