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Mini e-boom makes whales of minnows

Friday 18th February 2000

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Shoeshine doesn't geddit. But then he probably never will. A year ago four minnows of the Stock Exchange - New Zealand Salmon, Spectrum Resources, Habitat Group and Paynter Timber - were muddling along, doing not very much and turning in negligible profits if any. Their combined market capitalisation was around $7.5 million.

At the close of trading on Tuesday their market worth was $173 million, a 23-fold increase. The only constant is that they have yet to generate any significant earnings.

How did $165 million of shareholders' paper wealth appear so abruptly? The answer, of course, is the four have dumped their old businesses and stepped into the brave new world of e-business.

In recent weeks the party has come off the boil. Shares in E-Phone, formerly Habitat, reached 83c at one point but have slipped back to 61c, a calamitous fall for any normal, non e-bubble company. Paynter has been at 48c but has fallen back to 38c, Newcall (New Zealand Salmon) is down 22c on its 74c high, and Spectrum is fetching a mere 33c after peaking at 43c.

Whether these companies will ever generate enough earnings to justify current share prices remains to be seen.

But a quick examination shows there is more substance to their new activities, or to some at least, than e-scoffers might fear. Those shareholders who are still hanging in there from the old days have a lot to thank their past directors for and they might like to think about selling up while the going's good.

Take Newcall. A year ago, shareholders owned a company with a 50% stake in Chilean salmon and trout farming venture Aquacultivos.

Profits had been good at one time but slid from 1996 as an oversupply of farmed salmon hit world prices. New Zealand Salmon sold its Aquacultivos shares and became a cashed-up shell. With the stock dragging at 15c the company was capitalised at just $2.1 million.

It took off again last June ahead of the July announcement it would pay $9 million in cash and shares for Newcall Communications, set up by CTW Beta Company, a subsidiary of Charroong Thai Wire and Cable Public Co. Following a one-for-one rights issue Charroong now owns 48.5%.

Newcall focuses on the small business market, offering toll calls and high-speed data. In December it signed a deal with Telecom to offer a mobile service. It has plans to expand into Australia and the US. With the shares at 53c it is capitalised at $65 million.

Habitat's shareholders will be equally joyful. Originally formed to develop luxury apartments in Wellington, the company went through numerous control changes and sold the last of its properties in 1998. It no longer had a reason to exist but a parade of players approached directors with plans for the cashed-up shell.

The shares, sliding along sideways at around 20c, took off in November when Habitat said it would buy E-Phone, the maker of pre-paid and credit-card fed terminals for accessing the internet. Last month it bought the Voyager VPhone card and voice-over-IP businesses in New Zealand. Earlier this month it announced the first commercial application of its technology with an agreement to supply Al-Muntazar Islamic Services with a CD that carries the Koran in several languages and allows access for Islamic communities worldwide to the Musafir website.

It is building up its internet access terminals in New Zealand and will soon launch a CD-based product for roaming email users.

Those mystified by the technology will be impressed by the share price. The company that 12 months ago was capitalised at $1.9 million now has a market value of $68 million.

Spectrum's rehabilitation is equally startling and equally mystifying. The old company distributed its only asset, shares in Vietnam nickel miner Asian Mineral Resource, to shareholders, leaving it with a market capitalisation of around $480,000.

In December it announced a new direction as an investor in information technology. Last month it agreed to pay Wel Energy $2 million in cash and shares for Wel Technology and called a rights issue to raise $10 million. Wel Technology is in the final stages of a agreement to provide source code to "a leading international software company" and the price Spectrum paid will drop if the deal falls through. On such nebulous information the market now values Spectrum at $30 million.

If the valuation techniques used by e-punters are valid the last of our companies, Paynter Timber, is probably a raging buy. Paynter's Timber milling operations hadn't turned a decent profit in years and the company announced in December it would sell its timber assets and buy Eforce from founder Mark Fulton for $250,000 and a bundle of shares and options.

Eforce, an "infomediary portal," doesn't have any customers yet but plans to market its products to Paynter's shareholders. It is offering Powerchoice, a tool to allow members to compare electricity prices online and switch supplier; Amazon Freightlink, a system of bulk-freighting purchases from Amazon.com; Co-Buy, which advertises online a price for products that falls as more buyers appear; and online magazine subscription service Subscribe Now.

Paynter's shares, worth around $3 million a year ago, are now worth a modest $10 million.

One unsurprising aspect of our mini e-bubble is the complete absence of any revenue or earnings information on any of the businesses that have listed on the Stock Exchange by the back door. When these companies start to report, expect some gigantic price-to-earnings ratios to appear on the share tables.

In the meantime the brave might want to do a bit of shopping. How about Aquaria 21, Cue Energy, Grocorp Pacific, Kingsgate, Manor Inns or Summit Resources?

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