Tower sees share price nosedive

By RICHARD BRADDELL

WELLINGTON - Tower Ltd's share price has nosedived 22 per cent this year on the back of insurance sector woes and the loss of an Australian investment team.

Once the embodiment of share-price stability, Tower has performed worst of the four big transtasman life stocks this year.

It just headed off Axa's holding company, National Mutual Holdings, in the wooden-spoon stakes, after dropping nearly 90c to close at $4.36 this week.

The sector itself has languished after AMP's disastrous hostile takeover of Australian insurer GIO last year and the subsequent departure of its chief executive, George Trumbull.

The negative sentiment continues to plague AMP and the insurance sector generally is undervalued.

According to analysts, Tower's weak share price owes much to the departure of its Australian equities team and the negative view taken of that by the independent financial advisers used by Tower for much of its Australian distribution.

While the lure of money makes such departures a not infrequent occurrence in Australian funds management, their early replacement is vital and Tower's chief financial officer, Keith Taylor, said it should be completed within weeks.

But concerns about Tower are not confined to its funds management. In common with National Mutual Holdings, which has dipped 20 per cent this year, part of the explanation for Tower's lacklustre performance may lie in a large portfolio of income protection insurance.

Once hotly competed for by Australian insurers, the income protection market became unrealistically priced and several insurers have built up long "tails" of underfunded liabilities.

National Mutual's performance suffered in this area, but Tower Life Australia could be worse off because of a higher proportion of income protection.

Last year's acquisition of FAI Life more than doubled its income protection book to more than $A41 million ($52.63 million).

However, Mr Taylor rejected any concerns analysts might hold about Tower's income protection book, saying that, if anything, it was performing better than expected.

But even with these factors, one Australian analyst said he saw no reason to downgrade his forecast of Tower's first half net profit of $41.6 million, and full-year $79.6 million.

The market is making even high flyers like Colonial look like takeover targets. Colonial has hardly put a foot wrong and looks set to report a net 1999-year profit of $A410 million at the end of the month. But priced at 12 times earnings, it is hardly expensive.

But unlocking Tower's value through a takeover could prove tricky. With perhaps 30 per cent of its stock held either on behalf of people who did not collect their shares during the demutualisation under the tutelage of chief executive James Boonzaier, or by Tower's own investment operations, getting to the 75 per cent majority to overturn the cap on shareholdings could prove difficult.