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Finance company sector still sound: Report

Tuesday 20th November 2007

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While the finance company sector has been buffeted by collapses and a fall in investor confidence, it is still sound, according to the latest report from brokers McDouall Stuart.

"Despite the apparent gloom, most of the sector remains, on paper, in good health. Profitability has been strong, liquidity has improved and the quality of loan books remains generally sound," analyst and report author John Kidd says.

He says that companies will need to adapt quickly to adjust to the changing situation, particularly with regards to how they source funding.

Kidd says there is a singular and collective challenge for all companies is to reinforce to the investor, the sector, and the wider economy, the vital importance of finance companies in New Zealand's funding mix.

"This will take time, and with the likelihood that further companies will fail along the way, the battle to restore confidence will be hard-fought."

He also says there are challenges for strong and weak companies and that consolidation will be considered an option.

"For companies starting on the back foot with weaker loan books, unbalanced maturity profiles and tighter funding lines, the road ahead may prove too much.

"For companies starting from relative positions of strength, there will be both challenges and opportunities.

"All companies, regardless of size, are likely to be considering consolidation options over the next 12-24 months. Some will be beneficiaries, most will not."

The report addresses the issues facing the sector as well as the impact of global events on the domestic finance sector.

It also includes an analysis of the major company failures to identify common risk markers.

"It also presents an applied analysis of the impact of drying debenture flows on finance company loan books, the results of which give reason for both concern and optimism," Kidd says.

The report titled, Flow and Ebb is available exclusively through Good Returns. It runs to 125 pages and covers individual companies as well as addressing issues. To order your copy please go to this page. Details of the report, price and a table of contents are available to view.

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