Finance and markets

By Peter V O'Brien

Friday 2nd June 2000

No sharemarket sector can be immune from the malaise in equities when even the investment companies - those that invest in others - are dull price performers.

Share price information for the five companies in the investment category is in the table.

In this context, "investment company" means a group acting as a holding company for operating entities involved in the provision of goods and services. It excludes the type of listed investment company/fund dealing in equities as such, without being involved in the underlying activities.

The "sector" is narrow, particularly as Brierley Invest-
ments (BIL) and Guinness Peat Group (GPG) are overseas companies with secondary listings on the New Zealand Stock Exchange.

Its relatively weak performance in share price terms contrasts with the companies' reasonable recent operating results, although BIL is excluded from that assessment.

The Singapore-based group has struggled to reorganise its investment portfolio and generate profit from remaining equity positions.

BIL's report for the six months ended December included a statement extolling the unveiling of a "new corporate direction and investment strategy."

The unveiling had little effect on the share price, which has moved in a narrow band since December and last week was close to the year's low.

Chief executive Greg Terry announced a $83.28 million loss for the half-year, a matter that probably had more effect on the share price than the expression of a grand vision in his comments about the future:

"We are committed to growing BIL through investing in businesses where we can play an active role in managing and exploiting opportunities in growth sectors like technology."

"Our approach combines discipline and entrepreneurial flair, as well as the implementation of international best practices. In achieving the results sought by our shareholders, we are dealing promptly with assets which do not meet our new investment return criteria."

Mr Terry is the new boy on the block and may not appreciate the reaction of private, New Zealand-based shareholders to the type of rhetoric they heard for the past 10 years.

The other investment groups have been more circumspect in their comments, although that did not do much for their share prices.

Auckland-based financial services group Dorchester Pacific, which can still be described, broadly, as an investment company, has interests in consulting, finance and property. The consulting activities include sharebroking, investment advice and an investment publication.

Dorchester reported this week for the year ended March 31. Net profit was $2.42 million, compared with $1.82 million in the previous year, an increase of 33%.

Dorchester's finance business includes instalment credit repayment transactions. Such business has excellent cash flow and good profitability, provided the credit controls are strict and enforced.

GPG is Sir Ronald Brierley's latest investment vehicle, doing well and notably better than BIL.

Sir Ronald said in the report for the year ended December the net profit of £112 million was the highest the company had produced but, in the circumstances of a one-off £95 million gain from the sale of shares in Tyndall Australia, it was unlikely to be repeated in the foreseeable future.

Hellaby Holdings is a "true" industrial investment holding company. The com-pany's profit for the six months ended December was $7.3 million, compared with $4.6 million for the same period in 1998, "reflecting the company's concentration on increasing the contribution of its core subsidiary and associate com-
panies."

Hellaby said the net surplus of $4.2 million ($6 million) was due to the absence of "transactional profits" (apparently gains on acquisition/disposal of investments) and the policy of writing off goodwill on capital transactions in the period in which it was incurred, rather than amortising it.

The company wrote off $1.32 million in goodwill in the six months.

Hellaby has a spread of useful investments (including 81% of retailer R Hannah & Co) which seem to have the potential to increase group profitability.

The company is engaged in a share buyback programme that should underpin the share price.

Infratil is also a traditional industrial investment holding company, in its case specialising in utilities such as ports, power companies and airports.

It was worth noting last week that only BIL's shares were selling below net asset backing, while the other companies' prices were at a premium to asset backing.

There was nothing unusual about that pre-1987 but it has been rare since the crash, suggesting there could be underlying investor confidence in the sector.

That cannot be said about several other market sectors.

Investment companies' share prices

Company	Price 26.5 c	Price 31.12 c	% change from 31.12	2000 high c	2000 low c
BIL	35	40	-12.5	50	34
Dorchester	136	160	-15.0	160	121
GPG	143	152	-5.9	153	120
Hellaby	165	210	-21.4	210	160
Infratil	119	140	-15.0	140	105
NZSE 40 CapItal	1989.22	2206.69	-9.8	2173.76	1956.46

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