Do we undervalue our own companies?

21:46, Sep 16 2012

Questions of value are top of mind this week, with a whole bunch of Fisher & Paykel shareholders weighing the odds of Chinese industrial giant Haier lifting its $1.20 offer.

Me? I'm not a shareholder, but the affair has given me cause to wonder exactly how well our stockmarket performs at valuing local companies. They certainly seem to be worth a lot more to overseas buyers than they are to us.

Now I know quite a bit of that is because Fisher & Paykel's international potential is arguably greater with Haier as owner and no doubt there's a control premium in there as well, but still it seems the company was undervalued on the market.

A week or so ago someone said to me that Tourism Holdings was a great buy because at its current price you were buying "two campervans for the price of one".

Given how many New Zealand companies are sold to overseas owners you would think that possibility would be priced into stocks more, especially in a case such as Fisher & Paykel which has already attracted Haier as a minority shareholder.

Last week Tower Investments CEO Sam Stubbs, who said Tower had bought its 3.7 per cent stake in Fisher & Paykel at between 35c and 50c, said Haier's $1.20 offer was a "steal". He said the offer should be at least $1.50 a share.

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Some say the markets are always right, but I can't help thinking they always end up being right - if only because a deal is done and you can't argue any more - but are not right all the time.

One reason to ponder such things is that with the upcoming listing of minority stakes in several state-owned enterprises, questions of value will be paramount.

It is acknowledged by most that the privatisations of the 1990s produced horribly suboptimal results for taxpayers and we are all keen not to repeat that.

Taxpayers, whether they back the programme or not, will want to get full value for their assets.

While people can and do argue that a listed private portion will sharpen these companies up, few are brave enough to say they are badly run now. They clearly are not.

So there should not be much of a discount on that front.

The dynamics of the listings - if they go ahead - will be interesting to watch.

Government wants to ensure the first is a success and will surrender some value to do so.

But, as one merchant banker said to me, that process can create problems for the second and third listings, partly because they are all in one industry and fund managers seek asset diversity.

We will be arguing about value a lot in the coming months.

Sunday Star Times