NZX shelf life shockingly brief for too many
Directors with industry skills, strong emphasis on organic growth key
The recent wave of takeover activity demonstrates that predators, particularly from overseas, see far more longterm value in our listed companies than we do.
Consequently, the NZX is a revolving door with many more companies leaving than arriving and our average listing period is much shorter than on other sharemarkets.
For example, the average listing period for the top 12 NZX companies by market value is only 19 years, compared with 46 years for the ASX.
Air New Zealand, which listed in 1989, is the longest-listed company in the top 12 group, while BHP first listed on the ASX in 1885.
A further seven top 12 ASX companies were listed prior to Air New Zealand’s 1989 debut; Rio Tinto (1961), Westpac (1962), National Australia Bank (1962), ANZ Bank (1969), Woodside Petroleum (1971), CSL (1984) and Wesfarmers (1984).
The banks and two major mining companies dominate this Australian group. Commonwealth Bank of Australia (CBA), the most valuable listed ASX company, joined the Australian bourse in 1991. Only two former Government-owned companies, CBA and Telstra, are in this group.
By comparison, five of the top 12 NZX group were originally 100 per cent Crown owned; Meridian Energy, Spark NZ, Mercury NZ, Contact Energy and Air New Zealand. In addition, Auckland International Airport, Port of Tauranga and Vector were 100 per cent owned by public authorities.
These eight NZX companies are less likely to be subject to takeover offers, particularly while they remain majority owned by the Crown or local public entities.
If we look back 25 years, to December 1993, we observe a similar pattern about the durability of ASX companies compared with the NZX.
Only three of the top 12 NZX companies by market value in December 1993 remain listed; Spark NZ, Air NZ and NZ Refining. The others — Fletcher Challenge, Carter Holt Harvey, Brierley Investments, Goodman Fielder, Lion Nathan, Fernz, Wilson & Horton, Natural Gas Corp and Whitcoulls — were either taken over or moved to overseas bourses.
Six of the top 12 ASX companies at present were listed in 1993 although Coles Myers disappeared and only recently returned as Coles Group.
Ten of the 20 largest ASX companies by market value 25 years ago remain listed while only five of the
20 most valuable NZX entities in December 1993 are still listed.
Considering this, it is worth looking at the longest-listed NZX companies and assessing how they have performed.
The longest-listed New Zealand company is Hallenstein Glasson, which made its sharemarket debut on October 1, 1947 (see accompanying table).
The company was established in Dunedin in 1935 as Hallenstein Bros. It was described as a “manufacturer and retailer of menswear, boyswear and shoes” in a 1974 investment report.
Hallenstein merged with Glasson in 1985 and Tim Glasson is the largest shareholder with a 20 per cent stake.
The retailer’s market value has increased from $232 million to just $337m in the past 25 years as it has struggled to make sustained progress in challenging Australasian retail market conditions.
The most successful companies in this group are Ebos Group, which listed in 1960, and Fisher & Paykel Healthcare, which made its debut in
1979.
Ebos, originally Early Bros Dental & Surgical Supplies, had a market value of only $10m at the end of 1993,
33 years after first listing. However, its transformation into a $3.2 billion company has been amazing.
The success has been driven mainly by Mark Waller, who is the current chairman and was CEO between 1987 and 2014. The group’s growth has been remarkable because it has been acquisition driven while most New Zealand companies have a poor record in this area.
Fisher & Paykel Healthcare (FPH), which listed in 1979, has also been an outstanding success although this has been due to organic growth, rather than acquisitions. It was originally listed as Fisher & Paykel Industries but changed its name to FPH in 2001 when the appliance business was spun off into a separate company called Fisher & Paykel Appliances.
FPH’s success has been based on excellent governance, the internal development of a strong management team and a consistent long-term organic growth strategy.
PGG Wrightson, incorporated in
1900 as Donald Reid, listed in 1982. In
2001, Reid merged with Pyne Gould Guinness and adopted the latter’s name. In 2005 Pyne Gould Guinness merged with Wrightson and became PGG Wrightson. The 1993 valuation of $52m is for Reid only.
The Colonial Motor Company, listed in 1962, is the last familycontrolled NZX company.
A majority of the 50 largest shareholders, who own 63.6 per cent, are Gibbons family members or descendants.
Jim Gibbons is chairman, Graeme Gibbons is chief executive and Stuart Gibbons is on the board.
Colonial Motors was incorporated in 1919, making it one of the oldest established listed companies behind PGG Wrightson, which was established in 1900, Sanford in 1904 and Allied Farmers in 1913 (the company listed in 2002).
Abano was incorporated as New Zealand Petroleum in 1961, listed a year later, evolved into retirement village operator Eldercare in 1999 and became Abano Healthcare in 2003.
At the other end of the performance table are Mercer Group, NZ Refining, Steel & Tube and NZ Oil & Gas, all worth less than they were at the end of 1993.
Mercer, formerly sewing-machine distributor Brother Distributors and Broadway Industries, is worth only $10m after being listed on the NZX for nearly 60 years, a truly remarkable record of underperformance.
However, the company, which is
52.6 per cent owned by Humphry Rolleston, remains confident, with its
2018 annual report boldly stating that it can “Design and supply innovative food processing and packaging systems to the world”.
The other three companies, NZ Refining, Steel & Tube and NZ Oil & Gas, have all struggled to create sustained shareholder value since they listed in 1962, 1967 and 1981 respectively.
The NZX is blamed for the recent reduction in listings but the exchange is only as good as its individual parts and has been let down by the poor performance of many listed companies.
Ebos and Fisher & Paykel Health are notable exceptions but it is disappointing to note that four of our 12 longest-listed companies have seen a reduction in sharemarket value since the end of 1993.
In addition, the four largest-listed companies in December 1993 have had the following negative experiences:
Spark NZ and Chorus have a combined market value of $9.8b at present compared with Telecom’s $10.5b valuation at the end of 1993. Fletcher Challenge, which was worth $6.2b in December 1993, had to be broken up because of illconceived acquisitions and too much debt.
Graeme Hart acquired Carter Holt Harvey for $3.6b in 2006 compared with the company’s December 1993 value of $5.9b.
Brierley Investments migrated to Singapore and is now worth only $1.1b compared with $3.5b at the end of 1993.
New Zealand companies would perform much better if they had directors with industry skills, developed better internal management development programmes, put a stronger emphasis on organic growth and avoided over-priced, debt-funded acquisitions.
Brian Gaynor is an executive director of Milford Asset Management, which holds shares in Ebos, Sanford, NZ Refining, Abano Healthcare, Spark NZ, Chorus and Fisher & Paykel Healthcare on clients’ behalf.