South Island companies post strong performance

South Island companies ended 2009 on a high by making considerable gains in the last quarter, with the 33 -strong Deloitte South Island Index increasing by an impressive $614 million or 17.7 per cent.

This is the strongest quarterly performance by the South Island Index since its benchmark opening date of 31 December 2006. Comparatively, in the three month period ended 31 December 2009, the NZX 50 increased by a modest 2.2%, the ASX All Ordinaries by 3.0% and the Dow Jones by 7.4%.

The stellar performance of the Deloitte South Island Index can be attributed to Pyne Gould Corporation and PGG Wrightson collectively raising nearly $450 million in capital during the period. However, even excluding this capital raising the Deloitte South Island Index still made gains in market capitalisation that outperformed the NZX 50.

Paul Munro, a corporate finance partner at Deloitte in Christchurch, said that in the past 12 months companies have largely focused on business fundamentals by minimising risk, managing cash flow and cutting costs. “Many companies have concluded in the past year that their capital structure and, in particular, a high level of debt is not sustainable and a significant recapitalisation of the company’s balance sheet has been necessary,” he said.

“It is not surprising we’ve started to see sizable capital raising and the performance of the Deloitte South Island Index for the quarter was definitely buoyed by the capital raising efforts of Pyne Gould Corporation and PGG Wrightson,” he added.

For the second quarter in a row, the biotechnology sector has performed well, gaining 39% in market capitalisation compared to its position in the previous quarter. This growth was once again led by Pacific Edge Biotechnology (up 65%) and BLIS Technologies Limited (up 22%).

At the opposite end of the scale, the only sectors to lose ground this quarter were Retail, Port and Other with small declines of 3.3%, 2.3% and 2.6% respectively.

There were also a few changes to the make-up of the Deloitte South Island Index this quarter with new entrants Silver Fern Farms Limited and Kathmandu Holdings Limited. Syft Technologies Limited has exited due to its delisting from the Unlisted trading facility.

Kathmandu enters the Deloitte South Island Index ranked in third place behind NZX 10 participant Ryman Healthcare and PGG Wrightson who, after successfully raising capital in December 2009, has returned to the top three in the Deloitte South Island Index after dropping to sixth place at the end of the September 2009 quarter.

Mr Munro said that we are now definitely starting to see debt levels of New Zealand and Australian companies fall in spite of the fact that banks are slowly showing an increased willingness to lend on acceptable terms, given greater credit availability and a more optimistic economic outlook. “We believe the recent capital raising activity has yet to run its course as companies are preferring to increase their equity rather than their levels of debt. For example companies such as Synlait and Pike River Coal are already murmuring about public equity raising in the next 12 months,” he said.

Other findings:

• Dunedin’s Scott Technology Limited’s share price climbed $0.35 in December 2009 following the release of its after tax profit of $265,000 for the financial year to 31 August 2009. This resulted in a $10.0 million (35.0%) increase in Scott Technology’s market capitalisation during the last quarter of the calendar year.
• Smiths City Limited also contributed notable positive growth in market capitalisation during the quarter to 31 December 2009 – climbing $3.7 million or 21.2% compared to the closing September 2009 position.
• Ryman Healthcare continues to be an outstanding performer gaining $125 million (13.7%) in market capitalisation. For the first time since December 2007 the monthly closing market capitalisation of Ryman shares was in excess of $1 billion.
• In dollar terms, two of the three largest declines in market capitalisation during the quarter were experienced by the new entrants, namely Silver Fern Farms Limited and Kathmandu Holdings, down by $40.7 million and $18.7 million respectively. Although Kathmandu has closed the December 2009 quarter ranked in third place and within striking distance of second placed PGG Wrightson.

Movement in Sector Indices – quarter to December 2009

About the Deloitte South Island Index

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. For more, including the full list of companies in the Index, download “Clearer Skies Ahead: The Deloitte South Island Index:8th Edition” from www.deloitte.co.nz.

Last Updated: