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Tower's pre-split valuation of its New Zealand and Australian units is under fire for confusing professional and retail investors as the two companies' share prices continued to move in opposite directions yesterday.
Tower Australia shares were valued by independent experts Lonnergan Edwards at A$2 in information sent by the company to shareholders when the demerger plan was announced.
The combined group's shares closed for the last time at A$2.88 on November 10. On the ASX, the stock gained a further 11 to close at A$2.30 after the second day of trading yesterday. Tower NZ's dual-listed stock continued to fall, losing 7c to $2.10.
Prices at the close of trading in New Zealand yesterday mean a 10,000-share holding in the group worth $32,800 before the split was now worth $31,100 - 5.2 per cent less.
Credit Suisse analyst Arjan van Veen said: "The independent expert's indication of the value of the two separate companies is somewhat misleading in our view.
"It's attributing too much value to New Zealand and not enough to Australia, which we think is confusing the market quite a lot. There were quite material differences to what we determine the values to be.
"If there's confusion among the investment professionals, I hate to think how the average mum and dad that owns Tower stock is going to make an investment decision."
ABN Amro analyst Graeme Petroni held a similar view, saying: "The New Zealand company has fallen post-listing because it was allocated an inappropriately high starting point by Tower, and conversely the Australian group was allocated an inappropriately low price."
Management had estimated something like a 60:40 value split, "and the market's put a value at more 70:30".
Petroni said he believed that the inaccuracy of the estimate and a lack of detail on how it was derived had confused investors.
Tower Australia chief executive Jim Minto said discussion of valuation accuracy was "an interesting technical argument". "Whether it's right or wrong ... Tower shareholders are the only people who had Tower Australia shares on the day [the split happened] so there was no loss of value to anyone. But it does mean the rights have a significantly higher value than many people might have thought was the case earlier."
Rights to buy further shares at A$1.60 each in a $160 million Guinness Peat Group capital raising were issued with the new Tower Australia shares on Monday. Those entitlements will be traded until December 20.
Minto urged investors to either take up the rights or sell them. "If they do nothing they'll lose some value."
Rights not taken up by other investors will fall to GPG, which would increase its 19.8 per cent stake in Tower Australia as a result.
Despite Tower Australia's share price gains since Tuesday, Credit Suisse said it believed the market had yet to recognise its full value.
"We think there's a significant opportunity in this stock at the moment; the two separate entities are down around 15 per cent from the stock pre-demerger, there's no logical reason why it should be down."
Credit Suisse viewed Tower Australia as "a high growth company underpinned by attractive industry fundamentals". It has a 12-month price target of A$2.65 for the company.
It is less bullish about Tower NZ. "But if they get it right, there's a lot of value there too," said van Veen.
