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Companies Riding Crest of a Value Wave

14 September 2005

Companies Riding Crest of a Value Wave

Fisher & Paykel Healthcare tops the 2005 PricewaterhouseCoopers Corporate Value Report

The 2005 PricewaterhouseCoopers Corporate Value Report released today confirms the NZX’s continued strong performance, with a median return in the year to 30 June 2005 of 23%, compared to 20% last year. Almost 82% of companies delivered positive returns, slightly down on the 90% that reported positive returns in 2004. A total of 69% of companies surveyed achieved total shareholder returns exceeding their cost of equity, compared to 73% in 2004.

PricewaterhouseCoopers Corporate Finance partner David Bridgman said the strong NZX performance reflected another year of solid IPO activity, but this was tempered by significant takeover activity. “This year six companies listed and raised $290 million, but these IPOs have been overshadowed by the delisting of ten companies with a combined market capitalisation of $2.8 billion,” he said.

The Corporate Value Report analyses data relating to 68 companies listed on the NZX with a minimum market capitalisation of $38m. The PricewaterhouseCoopers ValueWeb methodology ranks each company against 11 criteria including total shareholder return, liquidity and volatility, ownership concentration, intangible asset value, revenue growth, margins, and price/earnings ratios. These indicators are combined to produce a holistic view of overall value performance for each company.

This year Fisher & Paykel Healthcare Limited, the designer and manufacturer of medical equipment products, topped the 2005 rankings. David Bridgman said Fisher & Paykel Healthcare delivered best overall value for shareholders because it had “relatively low financial risk, high intangible asset intensity and solid growth”.

Joining Fisher & Paykel Healthcare in the front row of the Corporate Value Report’s First XV rankings are SKY Network Television (#2) and Waste Management (#3).

Mr Bridgman said these companies adopted a strategic approach and considered a broad range of value indicators to deliver superior performance in terms of value creation. “It’s relatively easy to drive up a single measure such as revenue growth at the expense of other areas of performance like profit margins and total shareholder returns, especially over the short term.”

Mr Bridgman said the introduction of international financial reporting standards over the next two years would shift attention from reported earnings to more fundamental measures of value. “Earnings may in many cases become more volatile under the new rules. Over the initial period we consider a number of companies will have serious communications challenges to confront, particularly around changes to the accounting treatment applied to their intangible assets.”

The new standards come into force on 1 January 2007 (although companies may choose to adopt the new standards from 1 January 2005) and replace the existing ‘historical cost approach’ with rules that govern the recording of intangible assets and contractual positions at ‘fair value’. The Corporate Value Report also shows that around 15% of companies surveyed have a market capitalisation lower than the carrying value of their assets, revealing a need to reconcile these two views of value for investors.


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