Healthy sign for Reid Farmers and a 'good' deficit for Genesis

Friday 17th August 2001

By PETER V O'BRIEN

The reporting round for companies with June 30 annual or interim balance dates has already become a patchy event in terms of profit results.

Companies with a rural base have done well, as shown in the figures from Reid Farmers and Wrightson, although they were expected to do well in the wake of booming commodity prices.

Reid Farmers net profit of $7.58 million - 65% up on the previous year's $4.6 million - was already reflected in the share price which closed 2000 at 86c, compared with a high/low range for that year of 90-60c.

The stock hit $1.35 last week, a level not reached for at least six years (if not longer) before easing 1c on Monday.

Buoyancy in rural industries was seen in the company's comment that operating revenue was 25% higher than in the previous year at $108 million.

Reid Farmers noted the result was the fourth consecutive increase in profit and gave a 19.4% return on average shareholder equity.

Despite the rocketing share price over the past 18 months, the stock was selling at less than 10 times historical earnings and the gross dividend yield was 7.8%, which may still represent reasonable value for potential shareholders, provided the rural boom continues into the current year and beyond.

Reid Farmers' statement of assets, liabilities and shareholders equity (usually shortened to the statement of financial position, as opposed to the now redundant "consolidated balance sheet") included substantial business in financial services.

Even so, the group held $17.44 million in cash at balance date, a healthy situation.

Chief executive Brian Bilas told The National Business Review the situation was unusual, reflected rural buoyancy and that June was low point for lending to farmers but the high point of inflow of funds from them.

Mr Bilas said the cash was held in short-term investments.

Substantial cash resources were also a feature of biotechnology company Genesis Research and Development Corporation's accounts for the six months ended June 30.

Genesis held $51.56 million in cash, an amount chairman David Irving said was sufficient to fund current and planned research and development activities for "several years".

The company's statement of cash flows showed $5.37 million in call deposits and $46 million in other short-term deposits.

Genesis had a deficit of $1.68 million for the half-year.

It might seem strange to describe that as a good result, because the deficit was $4.01 million for the corresponding period in the previous year. The company roared on to the stock exchange in September last year, issuing 5.75 million shares at $6 each.

They jumped to $8.48, before closing the year at $6.70 and declined steadily this year, closing on Monday at $3.95 compared with a 2001 low of $3.55.

A company like Genesis is, in some respects, disadvantaged in terms of share price. Its activities in biotechnology research and development are long term. The sharemarket operates short-term, where shares are traded for rapid gains (or losses, on occasions).

Investors' market expectations and aspirations can be incompatible with those of companies geared to long-term operations, but Genesis is well-placed to get the distance, a point Mr Irving referred to, saying:

"... Unlike many biotechnology companies, which depend on capital injections until products are commercialised, Genesis is substantially self-funding as the revenue growth shows ($12.6 million for the latest half, against $7.6 million at June last year).

Genesis continues to build long-term value by developing its patents and database, gene sequencing expertise, numerous therapeutics and discovery programmes and joint-venture partnerships."

The company's share price could also have declined, partly because of disillusionment with technology-based companies, although most of that hyped-up bubble burst well before Genesis came to the market.

Technology supplier Renaissance Corporation referred to the matter in its interim report for the six months ended June.

The company said its ebusiness subsidiary Conduit had positioned itself as a standalone entity with a market presence in Singapore preparatory to a listing there, the "technology bubble had well and truly burst" before the proposed listing was cancelled.

Renaissance's deficit before unusual items and tax was $1.76 million in the six months ended June, compared with a profit of $1.02 million in the corresponding period of the previous year.

The addition of unusual gains of $2.98 million after tax took the pre-tax surplus to $1.23 million (previous corresponding period $1.02 million) and adjustments for tax credits (2000, liabilities) and minorities put the final profit at $2.27 million, against $626,000 in the first half of last year.

Renaissance's share price closed 2000 at $1.24, after reaching $1.37 during the year, but was 66c on Monday.

There will be other ups and downs in relation to profits and share prices as the reporting round progresses. That is normal. It shows the total market, on which index movements depend, is a composite of many individual company units.

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