BIL lets down investment sector

By Peter V O'Brien

Friday 4th June 2004

Investors in the four investment holding companies listed on the NZX and having a relationship with this country through New Zealand-based shareholders would have noted the poorest share-price performance over the past year came from the one with the weakest relationship.

BIL International has become an Asian company with a rump of New Zealand shareholders. The company no longer has any investment interests in this country, having sold its 5.4% of Air New Zealand in January, and share turnover here has declined in recent years. There were 846,000 shares traded on the NZX last week and 503,000 in the previous week.

The remaining long-suffering New Zealand shareholders would have noted BIL's $US53.2 million profit for the nine months ended March 31, compared with a loss of $US40 million in the corresponding period of the previous year. That was a 6% return on shareholders' equity, which annualised to a modest 8%.

The company continued to be described "as an active investor with strategic shareholdings and active investment management aimed at extracting and maximising shareholder value."

It would be nice if reality matched the aspiration, given the group's dominant investments are UK-based Thistle Hotels, which has its own specialised management, and an interest in the "Weeks Royalty," which derives income from Bass Strait oil revenues in Australia. It is hard to see where the "active investment management" applies in those holdings, given their underlying specialised operations.

New Zealand shareholders may eventually see the opportunity cost of an investment in a company where they never get to a meeting unless they stump up with solid travel expenses to exotic destinations.

The other three companies provided better opportunities since last June. Guinness Peat Group, Hellaby Holdings and Infratil had excellent share price appreciation.

Guinness Peat's status as a UK company has had no negative impact on New Zealanders who would follow Sir Ronald Brierley through fire and flood, despite much of the company's day-to-day operations (particularly at this end of the world) being in the hands of other executive directors.

The group reported in March on the year ended December.

Net profit went from 2002's £42.46 million to £63.97 million, a gain of 50.6%. Shareholders received their usual 1:10 bonus.

Sir Ronald said it should be noted several abnormal items (mainly one-off sales and the recovery of past years' exchange losses) assisted the final result. "So we have embarked on 2004 with confidence, but not complacency."

The value of an investment company's share portfolio, as opposed to holdings in subsidiary and associate companies, is a key to its prospects. Guinness Peat's surplus over book value of the portfolio was £118 million, compared with £25 million a year earlier.

Good liquidity is another important element in an investment company's operational structure. Sir Ronald noted a cash balance of £272 million was close to a peak but would reduce in 2004.

"The board remains convinced of the benefit of strong liquidity, enabling major decisions to be readily implemented."

Infratil seemed to agree with that philosophy. The infrastructure investment group said it had no bank borrowings at March 31, unutilised bank facilities of $70 million and $23.58 million on deposit. Net profit for the year ended March 31 declined 20.2% from $28.14 million to $22.46 million but the former figure was after accounting for a $2.24 million gain from realised profits on divestments less investment writedowns. That figure was $20.01 million in 2003.

Infratil intended to concentrate its activities on infrastructure investment, where it has heavy involvement in airports, electricity generation and distribution, and seaports.

Hellaby Holdings has considerable industrial diversification, operating its investments in three divisions; automotive, industrial and retail. Net profit for the six months ended December jumped 49% to $9.3 million from $6.2 million in the corresponding period of the previous year.

Managing director David Houldsworth said trading conditions were expected to remain positive in the short-term. The company expected full- year earnings to "comfortably exceed" last year's reported underlying tax-paid operating surplus of $15.7 million.

Listed companies in the investment sector have enjoyed solid share price growth for a long time, with the exception of BIL. There seems no reason to think the pattern will change in future.

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