Tower on the rise after bad times

By PAULA OLIVER

Tower has begun to blossom in the eyes of at least one big broking house and, it seems, a mystery buyer of stock.

The financial services group was struck down by a poorly performing Australian arm and forced into a hefty $210 million recapitalisation earlier this year.

Its shares hit an all-time low and it was revealed that bank debt desperately needed to be paid.

Now analysts are predicting Tower is emerging from its pain.

The Australian Financial Review yesterday reported that Merrill Lynch in Australia had upgraded its recommendation on the stock from "neutral" to "buy".

Merrill also upgraded its expectation for the company's full-year profit next year by 30 per cent.

The stock is still being labelled one for a "patient" investor, but the tip from Merrill Lynch is sure to be welcomed by long-suffering Tower shareholders.

Merrill Lynch is not the only one predicting better times for Tower.

Macquarie Equities NZ investment director Arthur Lim said Macquarie had upgraded its profit forecast for Tower back in early October.

Unlike Merrill Lynch it was not yet recommending investors buy the stock.

The profit upgrades are partly based on improved financial markets and also on growth seen in parts of Tower's business.

More will be discovered when the Wellington-based financial services group reveals it annual result next Wednesday.

It appears that other parties are also attracted to Tower.

Heavy trading in the company's shares two weeks ago has been linked to rumours that an Australian financial services organisation might be interested in building a stake in Tower.

It has been rumoured in the past that Tower's fire and general insurance business could be a takeover target once the company gets itself back on its feet.

More than three million Tower shares changed hands for three days in the week beginning November 10 - a sudden pick-up from the company's regular trading activity.

The activity has now slowed.

No substantial security holder notices have been filed, meaning no shareholder has passed the 5 per cent barrier and no current major player has markedly changed its holding.

A market source said Tower shareholder Hanover Group had ruled itself out as the buyer.

Tower director and Guinness Peat Group boss Tony Gibbs yesterday said he was unaware of any new player arriving on the scene.

Market sources speculated that the buyer simply saw Tower as an undervalued company.

But it was also possible that someone was acting on the idea of a competitor sizing up part of Tower for takeover. Next week's annual result is being seen as a crucial step in Tower's progress.

"We still have concerns surrounding balance sheet strength, however the support of GPG and the ability to divest assets provides us some confidence in Tower's future," Merrill Lynch said.