More downside seen for tottering Tower

By NZPA

Tuesday 5th November 2002

Fund manager Tower Ltd slid a further 3c this morning and could lose further ground before turning around, one broker said today.

Tower had 44 percent of its $621 million value wiped off yesterday after warning on Friday that instead of a $50 million-$70 million annual profit expected by analysts, it would post a $30million-$40 million loss.

Further writedowns of its Australian unit, Bridges, could push that to $88 million.

The company's shares plunged $1.57 yesterday to end on a session low of $1.98 in a frenetic unloading of the stock. It had previously traded at $3.55 before the company requested a suspension on Thursday ahead of the warning.

Sam Macdonald of Direct Broking said today that Tower, which opened at $1.95, had probably not seen the end of its slide, which he picked to reach about $1.70.

"I think there's still enough uncertainty in Tower to see some continued selling there.

"There were a few local buyers yesterday afternoon around the $2.02 mark, they bought a couple of million there. The problem really is the aussie side, and I would say that's where the selling's coming from," Mr Macdonald said

However, once it began to pick up again, the stock was unlikely to rebound very far.

"All of a sudden now it's a bit of a dog ...

"If you look at the Tourism Holding Ltds, the Tranz Rails, they get smashed because of earnings disappointments and we're a little bit shy to buy them again.

"They disappear off the radar screen and I think that people should just be wary of this -- it's not a stock that normally has a lot of volume in it and it could just go very quiet."

Despite the writedowns, Tower said its business was fundamentally sound.

However, New Zealand's second biggest fund manager with $22 billion of assets has provoked the market's ire by holding an upbeat roadshow to the professional investing community just over a month ago, with no hint of the troubles to come.

UBS Warburg head of research Richard Leggat said that in the current environment it was not uncommon overseas for stocks which announced negative surprises to have 40 percent of their value wiped off in one session.

Even after Friday's statement, the market was unhappy with the level of disclosure.

"People wonder what more might be coming, whether the company needs capital. Insurance stocks in general have struggled and it is fairly obvious that Tower's Australian operations in particular are not in a very good way," said Mr Leggat.

Analysts were still struggling to put a value on Tower because of the prospects of further writedowns.

Tower acting chief executive Keith Taylor said Tower would not need to raise more capital, and that at current prices a share buyback was an option.

He stressed that the company expected to return to "normal" profit in the current financial year.

The company bought Tower Australia in 1991, and in 2001 it generated 65 percent of profits. Even Bridges was profitable in the current year, but was likely to be revalued down because the value of all insurance companies was being cut, Mr Taylor said.

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