South Island Takes A Hit

Tuesday, 3 February 2009

South Island Takes A Hit
Deloitte South Island Index for December 2008 quarter released

South Island listed companies have not been immune from the bumpy downhill slide experienced by most financial markets, according to the fourth 2008 Deloitte South Island Index issued today.

The South Island Index fell by 18.4% in the fourth quarter (October-December) of 2008, with a record $694 million value wiped off the total market capitalisation of $3.08 billion. In contrast, the NZX 50 index was down 12.1% in the quarter.

The $694 million negative movement in the quarter was primarily due to the performance of primary sector companies Pike River Coal, New Zealand Farming Systems Uruguay and PGG Wrightson. Collectively, these three companies lost a combined $426.7 million of market capitalisation this quarter, amounting to 61% of the overall downward movement in the Index during the quarter.

Paul Munro, a corporate finance partner in Deloitte’s Christchurch office, said the results continued the negative trend of the third quarter of the Index. “The third quarter decline eroded all the value that South Island companies had created over the past two years and effectively put the market back at square one. This most recent decline continues to eat away at value and puts us firmly in negative territory.”

Mr Munro said the theme for 2009 would be “managing in volatile times”, and despite the gloomy analysis, shrewd companies would still be seizing opportunities and making the most of them.

“Clearly the recession and global financial crisis has impacted on expectations for 2009 but beyond the negativity of the current economic climate, there will be many active opportunities out there for South Island companies to grow. More than ever companies need to ask: What can we change? What can we do better? How can we reduce our costs or generate value?”

Unsurprisingly, few companies experienced gains in the face of the decline, but BLIS Technologies (+57.7%), Windflow Technology (+25.3%), Syft Technologies (+25.0%), Apple Fields (+22.2.%), Lyttelton Port Company (+10.9%), Postie Plus Group (+10%), Tasman Farms (+1.8%), Ebos Group (+1.7%), all bucked the trend and increased their market capitalisation.

In the case of Windflow Technology and Ebos, growth in market capitalisation came about purely as a result of the issuance of new capital. The other companies that achieved growth in market capitalisation during the quarter were all fortunate enough to see their share prices rise in the fourth quarter of 2008.

The biggest mover in terms of overall market value this quarter was Lyttelton Port which moved up four places from seventh to third overall, reflecting a $26 million increase in market capitalisation during the quarter. This occurred after it was announced that Christchurch City Holdings Limited was increasing its shareholding in Lyttelton Port in accordance with the “creep” provisions of the Takeovers Code.

Led by the Lyttelton Port gain, the port sector was the only one of the eight sectors to experience an increase in value in the quarter. The most pain was felt by companies in the primary sector (-31.8%), retail (-29.9%) and financial services (-15.6%). Overall, since the South Island Index’s baseline of December 2006, only the port and “other” sectors are in the black in terms of value, while retail is the poorest performing sector.

Ryman Healthcare remained the South Island’s largest listed company ($690m) as at 31 December 2008. It was followed by PGG Wrightson ($377.3m) and Lyttelton Port ($260.8m).

The Deloitte South Island Index measures movements in market capitalisation, tracking the performance of more than 30 listed companies with a registered office and/or a substantial portion of their operations in the South Island.

See... South_Island_Index__Issue_4.pdf

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