Hype rules ahead of prices

By Peter V O'Brien

Friday 16th July 2004

Side issues, general statements and developments not directly associated with the current or potential value of securities had more interest recently than daily movements in prices on the sharemarket.

The directors of StoreFund said on July 2 they had decided not to proceed with the company's proposed share float and listing on the stock exchange. Chairman Alexander Toeldte said the decision was commercial recognition of the fact that subscriptions to the $30 million offer were below the directors' anticipations.

Underwriter ASB Bank and North Head, manager of Storefund, supported the decision. There's nothing unusual about a float being withdrawn due to lack of interest. The unusual came later when ASB Bank said it would take a majority holding in the BBQ Factory, an operation which was to have been one of StoreFund's targets.

The ASB move had no effect on investors because the bank's shares are not listed and the institution's only association with the stock exchange is a facility for listing its debt securities through ASB Capital.

On July 2 the New Zealand Exchange daily memo also included another of those curious company analyses commissioned from a researcher. This effort was a report on Heritage Gold, for which the company paid research firm Eagle Research Advisory Pty a consultancy fee. It carried a "spec buy" recommendation.

Companies should be able to find better ways of getting their messages to the investing public when suffering from broker indifference. Such a report would probably fail to circulate outside the company in the unlikely event of it carrying a strong sell recommendation. These exercises might give investors useful information but they have the potential to blur the boundaries between objective investment analysis and public relations.

A group of announcements between July 5 and 8 was confusing as to the formal identity of their subject. NZX issued an "initial listing and quotation notice" for Ashburton Building Society, giving that style under the Issuer Name heading. Subsequent publicity and information releases referred to ABS Canterbury and that is how sharemarket tables listed it.

ABS Canterbury is the organisation's commonly used name and effectively its brand name. This is more than a pedantic, nit-picking issue. An NZX-listing issuer is presumed to be a legal entity and therefore to have only one formal name. It seems there is little concern about apparent sloppiness in the case of the building society listed issuer's name.

The announcement from meat processor Richmond on July 8 about the takeover offer from processor PPCS at $3.11 for each outstanding share was understandable but unusual, even as these things go.

It said the independent directors of Richmond had decided to "provide" support in principle for a PPCS takeover; no positive specific recommendation by reason of price and related factors; and advice to shareholders on matters material to their decision whether to accept the offer.

The independent directors said $3.11 a share was below the independent adviser's valuation range of $3.48-4.01 a share. That price took an underlying value of $2.60 a share, to which was added 34c for the 2004 extraordinary profit (which would seem to be a one-off but related to asset value) and between 45c and $1.07 a share for 100% acquisition.

The directors made four other points, basically leaning toward the offer and said, "shareholders may form their own views of the underlying value of the company and what premium for control is appropriate."

Richmond's announcement was either a judgment of Solomon or one of Pilate. Take your pick.

Investment company Salvus Strategic Investments listed on July 8 and issued a statement notable for its extravagant puffery of what was hardly the year's biggest event. Independent director and newspaper columnist Roger Armstrong was quoted as saying Salvus had "achieved its mission of successfully listing its investment company."

It went on: "This is a phenomenal achievement for the team at Salvus who were unknown in New Zealand before this process began."

The rest of the statement was in similar vein but shareholders will now look for an operating performance to match the hype.

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