By Jenny Ruth
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Thursday 16th September 2010 |
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Pyne Gould Corporation is making progress in refocusing lending back to the core consumer and commercial sectors and its proposed amalgamation with two building societies is likely to accelerate it gaining an investment grade credit rating and a banking licence, says John Cairns, an analyst at Forsyth Barr.
Finance subsidiary Marac's current credit rating is "BB+" with a stable outlook, recently revised from a negative outlook, below the lowest "BBB" investment grade rating.
"The quality of the Marac loan portfolio is improving; however, concerns over the balance of the property exposures remain," Cairns says.
Pyne's recent results showed Marac's impaired asset expense ratio jumped from 1% in 2009 to 2.2% in the year ended June 2010, driven by ongoing impairments within its property book.
"Property advances total $150 million and represent 13.6% of the total book, down from 28.3% in (the year ended June) 2009. The property market remains difficult," Cairns says.
The proposal is to merge Pyne's wholly-owned Marac with the Canterbury and Southern Cross Building Societies with Pyne ending up with about 70% of the merged entity.
"A banking licence will enhance access to funding and a reduction in the cost of funds," Cairns says.
Recommendation: Accumulate (downgraded from buy).
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