F&P investors should split holidngs

CLAIRE ROGERS
Last updated 15:13 08/10/2012

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Investment research firm Morningstar is recommending Fisher & Paykel Appliances investors reduce their stake but still keep some shares in case Chinese whiteware giant Haier makes a sweeter takeover offer.

FPA independent directors recommended last week that shareholders snub Haier's offer of $1.20 a share, pointing to a report by independent adviser Grant Samuel that valued the stock at between $1.28 and $1.57 a share.

Morningstar analyst Nachi Moghe recommended investors reduce their stake in FPA to take advantage of the significant share price appreciation since Haier announced its intentions.

FPA stock was trading at $1.23 this afternoon - a 64 per cent premium on the 75 cents price before Haier's offer. The share price hit its highest level since the offer - $1.25 - on Friday.

But Moghe believed Haier, which already held a 20 per cent stake, could increase the offer price either before or after the current offer expires on November 6 (or December 23 if it is extended).

Moghe said a higher price bid by Haier could provide further fillip to FPA's share price, but conversely, the price would come under pressure if Haier failed.

Haier's main aim would be to get over 50 per cent shareholding in FPA and ''make creeping acquisitions'' of five per cent per year thereafter.

Morningstar was sticking to its $1 valuation of FPA shares, as it was not as optimistic as Grant Samuel about the Kiwi whiteware maker's prospects, he said.

The stock would suit investors with a high appetite for risk.

FPA's business to provide direct drive motors to other manufacturers presented a good opportunity but was still in its infancy. FPA was a dominant player locally with strong products, a good distribution network and promising potential in the United States and European markets.

A partnership with Haier should also yield significant benefits in the long term, he said, as together they would cover both the premium and mass appliance markets and FPA could leverage Haier's strong distribution network in China. But FPA's earnings growth was likely to be subdued for a while.

''The core appliances business faces a number of challenges including cut-throat competition, raw material cost pressures and fragile consumer confidence in the firm's major markets.''

He said Grant Samuel's valuation was also optimistic as it valued the appliance business at between 16.5 and 20.8 times earnings before interest and tax (ebit) for the 2013 financial year, when the market valuation of listed appliances companies suggested the range should be between 4 and 12 times ebit, and recent acquisitions in the appliance sector valued those companies bought at between 10.5 and 19 times ebit.

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- BusinessDay.co.nz

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