Tenon says expected US interest rate hike will have short-term impact on housing activity

Thursday 3rd December 2015

The first US interest rate rise in nine years, expected later this month, is only likely to cause a short-term slowdown in the recovering house construction market, shareholders of Tenon, which sells wood mouldings in the US, have been told.

Federal Reserve chair Janet Yellen strongly indicated yesterday she would support raising rates when the US central bank meets on Dec 15-16 due to on-going gains in the labour market and because longer-term inflation expectations remain “well anchored”.

Speaking at the company’s annual meeting, Tenon chair Luke Moriarty said the impact was unlikely to be anything other than a slowing of short-term growth, with underlying housing and demographic fundamentals continuing to support a longer-term recovery in housing activity towards mid-cycle conditions.

“That is the basis on which we are positioning Tenon,” he said.

The Taupo based firm derives 90 percent of revenue from the US where the housing sector has rebounded after a lengthy slowdown following the sub-prime mortgage crisis and global financial crisis.

Tenon is considering a possible sale with a strategic review underway, managed by Deutsche Bank, aimed at lifting shareholder value.

Moriarty said since announcing the strategic review in August, Tenon had received “in-bound” interest from third parties which was still being investigating to determine whether a sale provided the best outcome for shareholders.

“We have asked Deutsche Bank to do just that for us by way of a formal process,” he said. “That process is proceeding well, to plan, and although somewhat gruelling for all involved, we believe it will prove to be critical to value recognition for all Tenon shareholders.”

Given the confidentiality of these types of processes, Moriarty said he couldn’t say more at this stage but would update shareholders in the New Year "as events unfold.”

The company’s shares are trading at $2.65, having gained 55 percent this year after the company last year turned a profit following more than a decade of losses. The return to profit followed the US housing sector rebound and a more favourable exchange rate. While the company’s share price has outperformed all the major global indices in the past year, on a comparable trading basis the board still believes Tenon has been and still is materially undervalued, Moriarty said.

It paid out its first dividend in 17 years with shareholders getting 5 cents per share last month and Moriarty said the board’s expectation, subject to the strategic review, is that dividend payments will be made twice-yearly. The next payment will follow the announcement of interim results for the half year to Dec. 31.

In October, Tenon announced an unaudited financial result for the first quarter of its 2016 financial year, with earnings before interest, taxation, depreciation, and amortisation of US$7 million (excluding forex and project costs of US$1 million), more than double the previous year’s result. The company said it was on track to achieve its previously announced internal target of earnings before tax, interest, depreciation and amortisation of more than US$20 million for the 2016 financial year.

BusinessDesk.co.nz

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