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Colonial is all dressed up with no where to go

Friday 11th April 2003

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Sharemarkets are supposed to anticipate company performance. But even though the domestic economy is expected to slow down this year Colonial Motor Co's share price is hitting record highs.

One explanation could be speculation about what the vehicle distributor will do to celebrate Ford's centenary. The US car giant's official "birthday" is from June 12-16 and some observers think Colonial will mark the occasion with a special dividend or bonus issue.

Unless they know something they shouldn't, there seems little reason to get excited.

Colonial's profits have been an up-and-down affair and rely on the strength of business and consumer demand.

Last year's bumper profit of $8.2 million was 63% higher than 2001's but earnings were flat at the half year and the company noted performance would be affected by the expected economic slowdown.

Since 1997, when Malaysia's MBM Resources took over from Guinness Peat Group as the largest shareholder, earnings have been boosted by property sales but in the past two years these have been negligible, indicating core earnings have strengthened.

In the meantime management is working on improving performance in the Auckland and Wellington metropolitan areas, where recent results have been poor compared to the buoyant regions.

Why MBM is content to sit on a 25% stake in a New Zealand vehicle distributor with limited growth prospects is a mystery, especially as it must share control with the founding Gibbons family, which has a stake of about the same size.

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