IS MARKET TOO HIGH?

Sun (Auckland), Volume II, Issue 461, 17 September 1928, Page 12

IS MARKET TOO HIGH?

N.Z. BREWERY SCRIP BIG RISE IN FEW WEEKS By “NOON CALL.’’ Considerable activity in brewery shares has taken place over the past four weeks, and the prices generally have risen to comparatively high levels. New Zealand Breweries have been specially favoured, the market advancing 12s in little more than two months. The demand for brewerv shares has not been confined to New Zealand. Similar activity has been registered on Australian exchanges, where the turnover in proportion has been considerably heavier than in New Zealand. Viewing the position generally, Australian financial critics attribute the increased activity to the speculative element operating on the market in anticipation of a favourable verdict at the liquor referendums, and a resultant appreciation in market prices. That to a large -extent has been the case, but with the New Zealand Breweries, Ltd., there is an additional factor operating. There is undoubtedly a large section of investors holding the opinion that that concern has large hidden reserves, and that from these, in addition to disclosed surplus profits, worth-while bonus payments to shareholders will be made in the near future. A review of the company’s financial history since its inception in 1924 discloses steady progress, and a very pleasing growth of income from rents and interest on investments. Exactly what sum is received under these two heads, however, the annual report does not say. Net profits are shown in a lump sum at the profit and loss account. The total amount of investments was shown in the last balance sheet at £425,846. The balance sheet gives no justification, however, for the present high price of the scrip on ’Change. Net tangible assets are shown at approximately 10s 7d a fully-paid share. This, against a present market price of 535. Profits over the five years of the company’s existence have certainly been most satisfactory, the year ended March, 1927, being the only one in which a net return of over 20 per cent, on paid-up capital was not recorded. The question is, however, does the financial showing of the company justify the present price, which, based on a dividend rate of 10 per cent., allows a return of only £3 15s 8d per cent.? Despite the healthy growth of reserves, it is hard to see that the shares are not extremely highly priced, especially when a comparison is made with the net tangible assets. No doubt shareholders will participate in bonus payments in the future, but it is hard to see justification for the present high level of the market when the scrip is compared with that in concerns engaged in a more stable line of business. It seems that the market for New Zealand Breweries has been forced up largely by the speculative element gambling on the referendum issue, and that speculation this time has been overdone. The writer is inclined to agree with Australian critics, who contend that there will be some heavy unloadings before the end of the year, and that in the process New Zealand Breweries will find a truer level.