GPG seen as under valued

Suzanne Kinnaird
Suzanne Kinnaird
Sir Ron Brierley's GPG continued to trade at an unusually large discount to value, Forsyth Barr broker Suzanne Kinnaird said yesterday.

"The current share price appears to assume Coats is worthless, listed investments are discounted by 10% and unlisted businesses by about 20%. They are unreasonably harsh assumptions, in our view."

GPG shares last traded at 80c but are valued by Forsyth at $1.32 a share.

GPG's first-half result this week provided an update on thread maker Coats, revealing a substantial first-half sales fall but margins holding up better than expected and debt lower than expected.

Forsyth Barr had increased its full-year Coats forecasts but reduced its longer-run sales and margin assumptions, leaving the valuation unchanged.

GPG reported a loss of 24 million ($NZ57 million) for the six months ended June, despite a gain of about 7 million on the sale of MYOB.

The main contributors to the loss were foreign exchange losses, Coats and Capral Aluminium.

A further loss in the full year was expected, Ms Kinnaird said.

GPG's key value driver remained Coats.

The latest result showed a more significant sales decline than expected, although it was similar to the results of other yarn manufacturers.

"It is reasonable to expect a recovery to profitability in 2010.

Once the European crafts business has returned to profit, probably not before 2011 given the difficult environment, we believe GPG may consider a sale or, more likely, partial sale and a pro-rate distribution."

That would remove much of the value uncertainty around the company and should reduce the current large discount to valuation, she said.

In August, Sir Ron reiterated that GPG was still working towards a substantial release of value to shareholders in 2010 or as soon as possible thereafter.

GPG probably intended a sell-down or distribution of Coats rather than a winding up of GPG, but any such plans would need to await more normal market conditions, Ms Kinnaird said.

 

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