Big-spending buybacks raise questions

By BRIAN GAYNOR

Share buybacks should have a positive result for investors, but some companies are not taking full advantage of this opportunity. They include Independent Newspapers (INL) and Rubicon.

Buyback schemes are value enhancing because they reduce the number of shares on issue and increase earnings per share. They also show that directors and management believe a company's shares are undervalued.

But it is important that shares are bought at a low price because this reduces the amount a company has to borrow and optimises earnings per share.

On June 14, INL announced it would repurchase just under 10 million shares or 2.5 per cent of its capital over six months.

A month later, it began the buyback at $3.85 a share. The repurchase went slowly, and stopped on August 24 after 3.5 million shares had been bought.

INL's share price dropped below $3 after the September 11 terrorist attacks and more than a month later, after the share price had risen to $3.29, the company resumed buying.

Finally, last Wednesday, INL completed its buyback by buying 4.4 million shares at an average $3.75.

Why did INL buy 4.4 million shares, or 46 per cent of its total buy-back, in one day? Why were the final 4.4 million shares bought above the market price? Who were the lucky sellers of these shares at $3.75? Why didn't INL buy at $3 or less after the New York terrorist attacks?

Rubicon's share buyback also raised some important questions.

The company was an aggressive market participant, and at the end of August bought 39 million shares in two days at an average price of 83c a share.

The buyback programme was completed nine days later and the company's share price quickly fell to below 70c.

INL and Rubicon's remaining shareholders would have been much better served if their directors had been less willing to pay top dollars for their own stock.

fuxh Advantage Group Will Advantage Group shareholders dump Evan Christian at next week's annual general meeting?

Mr Christian, who is standing for re-election as a director, has been chairman since February 1998 and under his stewardship the company has:

* Had its share price go from 60c to $5.65 and back down to 36c.

* Raised more than $30 million in cash through share placements.

* Reported total losses of nearly $60 million.

* Had shareholder funds go from $4.9 million to $64 million and back to $6.3 million.

If directors are to be held responsible for the performance of their companies, then Mr Christian has to go.

Not only has he been chairman for the past 44 months, but he has also been a well-paid consultant to the group.

Eric Watson, who owns 18.1 per cent, is probably the key to Mr Christian's future at Advantage. The two were close business associates but their relationship seems to have soured.

Mr Christian recently left the board of the Watson-controlled ElderCare. This suggests that Advantage Group will soon have a new chairman, a step that is long overdue. Evergreen Forests Evergreen Forests is one of the forgotten companies of the NZ Stock Exchange. It was floated in 1993 at $1 a share and has traded at around half that level in recent years.

The company's share price performance has been extremely disappointing, but forestry has been in a prolonged bear market.

Carter Holt's share price has fallen from $3.61 to $1.48 since Evergreen was listed, and Fletcher Forests has declined from $2.99 to 27c in the same period.

Evergreen held its annual general meeting last Friday in front of only 15 outside shareholders. The company has 21,200ha of planted radiata pine and its forests are rapidly reaching maturity.

Depending on market conditions it can dramatically increase output over the next few years.

Chairman Peter Wilson told the meeting that revenue for the three months ended September 30 was 61 per cent higher than in the same period last year on an 86 per cent increase in harvest volumes. This had a positive impact on profitability, but he noted that wood prices had fallen since September 11.

China and India were becoming increasingly important export markets, and could be the catalyst for a turnaround in the New Zealand forestry industry.

New Zealand investors have almost forgotten Evergreen Forests, but it has attracted wide overseas interest. Xylem and Hambrecht & Quist from the United States, with the Danish teachers and engineers pension funds, own 64 per cent of the company.

These are longterm investors who recognise that the group has good assets and management and will eventually benefit from an upturn in world forestry markets.

Evergreen Forests has a fully diluted net asset backing of 76c a share and its ordinary shares closed yesterday at 52c.

Get Rich Quick Schemes The Consumers Institute does an excellent job informing the public about dubious investment schemes.

Queensland-based Daniel Kertcher, who is trying to target New Zealand sharemarket investors, has been mentioned several times.

Consumer, the institute's magazine, says Mr Kertcher promoted overvalued Queensland properties to New Zealanders and many of these investors have lost large sums of money on their purchases.

Mr Kertcher is a former director of Metashare International, the company that promotes the Metashare share-trading system. The Consumers Institute is sceptical about the performance of this expensive system.

Mr Kertcher is now fronting get rich quick sharemarket seminars in Auckland that are independent of Metashare.

One this evening is on how to make money on the sharemarket and a subsequent three-day session is on share and options trading. This evening's seminar costs $89.95 and the three-day session is priced at $3490 a person.

Mr Kertcher is promoting a high-risk options strategy based on the Australian Stock Exchange. This is an extremely difficult strategy to master, even for investors with long experience of equity markets.

Meanwhile, Cube Capital, formerly Damba Holdings, has announced the conditional purchase of Metashare International and will issue 2.16 million shares in consideration.

Simon Wallace, Cube's managing director, says Metashare has 1800 subscribers and recorded a pre-tax profit of $A300,000 ($370,000) in the June 2001 year. He said Mr Kertcher no longer had any association with Metashare.

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