NGC out of share price puff

By Nick Stride

Friday 20th August 2004

NGC Holdings this week unveiled a better profit than investors had expected and promptly copped a fistful of broker downgrades.

Consensus forecasts were for a June-year profit of $77 million but it came in at $84.5 million.

On the day, investors jumped in with their cheque books, pushing the shares up to a record $3.02.

But by the close of trading on Wednesday the shares had slipped back to $2.89, lower than the $2.95 pre-result price.

Sharebrokers First New Zealand Capital and Forsyth Barr both moved their recommendations downward.

First New Zealand joins ABN Amro at "hold," while Forsyth Barr shifted from "hold" to "reduce."

Both brokers drew attention to the premium built into NGC's share price as investors try to second-guess whether NGC will be involved in merger or acquisition activity with Vector or Powerco.

On that front little new was forthcoming from NGC chief executive Phil James.

He said he didn't know what NGC's majority shareholder, AGL, was thinking; that he was still talking to Vector about "mutually beneficial growth opportunities"; and that talks with Powerco might resume now Australia's Prime Infrastructure is installed as the majority shareholder.

Investors and analysts remain ambivalent about NGC's prospects while shareholding and merger or acquisition speculation remains unresolved.

But at a well-attended briefing this week James pointed to various improvements in the company's operating performance.

Return on funds employed, for instance, was 14.1%, compared with 13.2% in 2003 and 9.9% in 2002.

Return on equity was 26.7%, against 10.5% in 2003 and 5.2% two years ago.

James said all NGC's businesses were operating in attractive markets, and all were returning their cost of capital.

But the process of review was continuous. Some businesses would become mature, and new opportunities would arise.

The potential for organic growth, he said, was limited, as were the number of potential acquisitions.

One opportunity was the potential for rationalisation of the LPG sector.

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