When dogs start barking again

By Peter V O'Brien

Friday 27th February 2004

Investors who ignored the minimal time spans of panic-driven, gun-slinging speculators were justified with operational recovery in stocks downgraded since 2002.

AMP's forecast for its imminent profit result for the year ended December was announced on Monday.

The Australian financial services and insurance group upgraded its "underlying business" results for the year from October's $A402-535 million to $A600-620 million.

Final deficit of about $5.5 billion would include a $A3.6 billion loss of its UK business (now HHG), according to Australian estimates, yet to be confirmed.

That writedown and others were recognised as one-offs, with the sharemarket concentrating on fundamental recovery when it closed on Monday.

AMP's share price in New Zealand was $5.55, compared with last Friday's close of $5.17, itself a daily improvement of 17c and a weekly gain of 35c.

It seems someone knew something and acted accordingly but the gain in this country was less than 10%, so our market watchdogs probably passed on the issue.

Various gurus earlier doubted the task chief executive Andrew Mohl and his colleagues set themselves.

Mohl could be forgiven a smug smile, assuming he maintains the performance.

Media will, as usual, highlight one- offs when AMP reports, conveniently forgetting their reaction this week to the operational profit forecast.

That would show again that some financial journalists have no practical business experience beyond attempting to balance their bank statements and calculating how they meet mortgage or rent payments.

AMP's share price needs solid growth before returning to the (issue-adjusted) $NZ6.45 ruling at the end of 2002, but it went down to $NZ3.59 (again issue-adjusted) over the past year.

A similar situation occurred in New Zealand's attempt to imitate AMP, known as Tower.

Company chairman Olaf O'Duill told the annual meeting in mid-February he looked forward to "the prospect of advising you of a significantly improved outcome next year."

Tower had a $210 million rights issue on a 4:3 basis 90c last year.

The issue-adjusted price was $1.13 at the end of 2002 and $1.36 on Monday, a gain of 20.4%.

That was admittedly below the indices' gain over the period but good enough to justify counter-cyclical investment.

The approach covers situations where companies reported apparent losses, reducing shareholders' equity available for operations.

Genesis Research Development Corporation was another slated in recent uninformed and nonsensical media comment about poor results (see below and the O'Brien column on page 35).

Counter-cyclical investors would admittedly take a big gamble on Genesis, which could take years to pay off or months to collapse.

Genesis recorded a deficit of $12.7 million in the year ended December, to add to the previous year's $10.68 million loss.

The company stretches investor faith, being a biotechnology research organisation at the far edge of science.

Genesis' shareholders' equity was down to $27.21 million at December 31, compared with $39.91 million a year earlier.

Investors who rely on advisers in such cutting-edge operations have a problem.

It can be a case of the "blind leading the blind" (apologies to the visually-impaired).

Companies like Genesis can take up to five years or more to produce profitable results.

Few investors and brokers have that attention span.

Genesis could go broke, given one of its apparent skin disease cure breakthroughs proved a duff.

It could equally prove a sensational investment if achieving a first.

Investors in companies such as Genesis must realise the "frontiers of science" are open to everyone.

Recovery and counter-cyclical investments have those two sides.

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