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Best of shares, worst of shares

By Peter V O'Brien

Friday 27th June 2003

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The year's biggest reporting round will start soon after companies close their books for the year ended June 30. Investors will learn if the market's assessment of share prices over the past six months has been valid.

The table shows the 10 highest performing stocks and the 10 lowest performers between the end of 2002 and June 20.

Westpac Trust Investments was omitted, despite a 28.7% gain, as the price is linked to that of the Australian-based parent bank. AMP was included on the basis of the large number of New Zealand shareholders, who probably still outnumber the total holders of many local companies.

Limiting both lists to 10 eliminated several companies whose share price performance was close to those chosen. For example, Fisher & Paykel Healthcare improved 22.2% in the past six months, compared with 31.3% for the appliance company, and Wellington Drive Technologies gained 26.3%.

There were clear reasons for the performance of those on both lists, but some of the lows reflected investor dislike of profit forecasts revised downward and other developments perceived as negative.

The messes in AMP and Tower explained price downgrades for those stocks, but other declines seemed to be based on knee-jerk reactions from brokers and their analysts, who punished revised profit forecasts and the impact of unforeseen changes to the trading environment.

Continuous disclosure might be a "good thing" in terms of an informed market, but it increases share price volatility.

The treatment of Briscoe Group was a weird example of instant reaction. For the year ended January 31 it reported a tightening of margins in the final quarter. Chairman Rosanne Meo told the annual meeting the board was "very conscious" the sharemarket reacted to the comment, and noted the share price seemed to have stabilised then increased consistent with the company announcing another rise in sales.

The Briscoe case seemed a textbook case of broker research and analysis based on deskwork and chats rather than groundwork. Assessing a retailer requires examination of what is happening in its stores as well as analysis of economic data. It would be interesting to know how many people in broking firms have ever shopped in a standard Briscoes store or watched the droves of people moving through them.

Jeweller Michael Hill International and retailer The Warehouse Group also suffered from profit forecast downgrades.

GDC Communications' downgrade was understandable given the company's difficulties in the past year as well as rapid reaction to real or perceived problems in any company associated with technology and possible scepticism about restructuring.

Top movers in the high performers' list were understandable.

BIL International's price benefited from the full acquisition of UK Thistle Hotels and Asian investors' competing for extra shares.

Meat processors Affco and Richmond reported improved profit. Richmond's price also rose after the PPCS takeover offer.

Independent Newspapers was another beneficiary of a takeover offer, although the company has been a consistent performer in terms of share price and profitability.

Hellaby Holdings has been discussed (NBR, June 13) in the context of investment companies. It is lean in head office administration terms and adds value to companies with an already good profit record.

TrustPower has performed well in profit growth. The share price gained from a buyback proposal approved last week.

The table of high and low performers and other companies close to the 10 show there is more to sharemarket assessment than tediously recording daily movements in the main indices, which are averages and under the dominance of heavyweights.

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