Brokers spy value hidden in Coats

Brokers who chose Guinness Peat Group as one of this year's top picks on the sharemarket have three main reasons for championing Sir Ron Brierley's investment company.

ASB Securities believes the market has yet to fully appreciate the company's asset base and the huge value potential in Coats, the zip-and-thread maker.

The English firm, boasting 30,000 employees, was taken over by GPG last April with a £200 million ($539 million) investment.

Another GPG champion, First NZ Capital, sees the successful restructuring of Coats - which accounts for 35 per cent of GPG net assets - as having the potential to add at least 45c a share to GPG's net asset value.

First NZ Capital research head Rob Bode said that Coats, headed locally by director Tony Gibbs, was also a potential beneficiary of the expected fall of the local dollar this year.

This was because companies that held most of their investments overseas, such as GPG, experienced a rise in the value of their assets when the New Zealand dollar fell.

The third GPG fan among the nine broking firms that took part in this year's Business Herald stock-picking competition is GoldmanSachs JB Were.

The firm's head of retail, John Cobb, said GPG was given the nod due to the signs of operational improvements at Coats and the potential for corporate activity surrounding Rubicon and Tower, both of which feature heavily in GPG's New Zealand investment portfolio.

 

GPG, which became the investment vehicle of Sir Ron after Brierley Investments floundered in the 1990s, has a market capitalisation of just over $1.9 billion.

The company's investment track record spans sectors including financial services, motor vehicle distribution, foodstuffs, building products and gas distribution.

In August, the company disclosed a "modest £5 million result in conventional accounting terms" for the six months to June 30, saying it had been another active and productive half-year.

"As we have stated before, many of GPG's major sources of profit do not fall neatly into six- or 12-month reporting periods and some volatility must be accepted," said director Blake Nixon.

"For the same reason, the half-year is not necessarily indicative of the full-year result, when various transactions now under discussion or negotiation are likely to come to fruition."

Three reasons to like GPG

* The potential of its British thread-making business, Coats.
* An expected dip in the dollar.
* The likely corporate activity around GPG's local investments.

* The Herald Brokers' Picks competition is not intended to provide investment advice. Please consult a financial or investment adviser before making your investment decisions.