Three financial buys or holds

By Peter V O'Brien

Friday 3rd October 2003

Insurance and financial services group AMP and Tower have uncanny similarities. Both companies got into strife through overseas expansion, AMP to the UK and Tower to Australia, resulting in massive asset writedowns.

AMP's former chief executive resigned, as did Tower's, and there was adverse comment about their contractual payouts. Each company had a new chairman and a new chief executive, all four appointed in the past year, as well as revamped boards.

Tower recently completed a $NZ211 million in a 4:3 cash issue at 90c for each share, while AMP placed 222.22 million shares with institutions at $A5.50 each and had a share purchase plan for shareholders to raise another $A500 million, less issue costs of $A7 million.

The similarities did not end there.

Tower chief executive Keith Taylor said when the report for the year ended September 2002 was released that significant changes to the company's management, structure and finances were aimed at providing a "strong base going forward."

Mr Taylor's company had just reported a loss of $74.95 million for the year and followed it with a deficit of $154.37 million for the six months ended March, including after-tax unusual items of $133.35 million.

The chief executive and chairman Olaf O'Duill were still optimistic, the latter saying the proceeds of the $211 million capital raising would place the company in a strong capital position for future capital growth and profitability.

Similar bullish sentiments came from AMP chief executive Andrew Mohl in his company's report for the year ended December. He said the business portfolio and strategic positioning would improve in the medium term.

AMP remained focused on achieving long-term shareholder value through the disciplined execution of its strategy.

The company had a loss of $A896 million for the year, which was "small" compared with the $A2.16 billion in the ensuing six months ended June 2003.

Mr Mohl said AMP shareholders had every right to feel frustrated and disappointed "in light of the poor bottom line result and share price performance."

He could have been speaking for Tower when he said there was no "quick fix" for the mistakes of the past.

The board and management were determined to turn the company around and its objective continued to be maximising the long-term value of the business. AMP's demerger of its UK business has dragged on, as have other difficulties, leading Australian market observers to the view that the problems were greater than foreseen last year.

Tower and AMP had positive similarities, in that other financial groups got involved in both companies.

Guinness Peat Group (GPG) underwrote Tower's share issue and has two directors on the board and more than 13% of the capital. Hanover Group has 9.6% and seems to be missing out on board representation.

GPG and Hanover apparently saw a future for Tower, as did National Australia Bank in relation to AMP, having bought an initial 2% stake and increased it to 5.6%.

Participants in the AMP and Tower share placements and issues had a price improvement since they acquired the new shares, although they probably carry overall losses after including the cost of holdings acquired earlier.

AMP's placement at $A5.50 was made when the market price was $A5.60. It was $A6.65 on Wednesday, a gain of 20% over the issue price.

Tower's ex-rights price was $NZ1.20 in July, which took account of the 90c payable on a 4:3 issue basis, and was $NZ1.35 on Wednesday, showing a 12.5% improvement.

Shareholders in both companies will hope there are similarities in the companies' next profit reports, final for Tower (due in early December) and final for AMP (late February).

Axa Asia Pacific is the third of the Australia and New Zealand dual-listed financial services/insurance groups, excluding the basically general insurer Promina, which listed earlier this year.

The company seems to have few if any problems, apart from fluctuations in investment markets.

Profit for the six months ended June was $A287 million, before non-recurring items of $A368 million after tax, compared with $A134 million in the corresponding period of the previous year when there were no non-recurring items.

The difficulties in AMP and Tower could have affected Axa, because the New Zealand share price fell from $3.66 in March 2002 to $2.75 in September and fell further to $2.33 in March.

It closed at $2.95 on Wednesday, a gain of 27% in six months.

Appropriate investment approaches to the three companies seem to hold or buy Axa for solidity and the strength of the French parent (a massive, experienced international group) and to hold or buy AMP and/or Tower for hoped-for eventual recovery. The sale of the latter is an option.

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