U.K. warning on ‘glamour’ N.Z. shares

Press, 4 February 1986, Page 26

U.K. warning on ‘glamour’ N.Z. shares

PA Wellington London-based stockbrokers Simon and Coates warn of the risk in buying shares of New Zealand “glamour” investment companies lacking a proven performance. In their annual review of the New Zealand stock market, the brokers say the proliferation of new investment companies reflects the beneficial effect of the Government’s liberalisation of economic and financial controls. “But the glamour rating granted to such companies before they have establised a good track record leaves substantial scope for setbacks if all the best hopes are not fulfilled,” Simon and Coates say. “We believe it would pay to concentrate investment in growth companies which have continued to devote their attention to their specialised business areas and who have an established track record.”

The review was completed in January after visiting New Zealand listed companies the previous two months. Simon and Coates says New Zealand’s strong economic growth in 1984 and 1985 was coming to an end and exporting companies faced a much stronger New Zealand currency than had been expected. This in many cases threatened to curtail seriously profit margins already being squeezed by the gradual phasing out of export incentives. Despite the exporting difficulties caused by a rising exchange rate there was a broad measure of confidence

that the economic opportunities, brought about by the dismantling of economic controls, would be beneficial for longer-term growth. The sharp rise in the New Zealand sharemarket at the end of 1985, however, had been based largely on a number of take-over deals and share stakes acquired rather than on expectations of outstanding profit growth during 1986. The rapid movements in exchange rates during December would have a beneficial impact on the profitability of many major companies. In several cases the outlook was now better than at the time of Simon and Coates’ visits. Their “buy” recommendations, with brief summaries, are: © Brierley Investments — overseas investments provide continuation of rapid growth. ® Command Services Corp — very low rating for a soundly based company. • Fletcher Challenge — good management not reflected in rating. ® Goodman Group — benefits from Australian merger not reflected in price. ® Smiths City Market — Move into North Island offers exciting growth prospects. ® Wilson Neill — good management and growth prospects.

“Hold” recommendations are: Allflex Holdings, Alliance Textiles, Apex Group, Donaghy’s, Fisher and Paykel, R. and W. Hellaby, Masport, McConnell Dowell, N.Z. Forest Products, New Zealand Oil and Gas, New Zealand Salmon, N.Z.I. Corp, Waitaki N.Z.R., and Wattie Industries.

Simon and Coates also say that if the pattern of the last two years is repeated, buyers may well see better opportunities around March-April when serious consideration is given to the trading outlook for companies and the “takeover fever” has eased.