Two years of value-building by 34 listed South Island companies have been dashed in six months with more than $1 billion shed from their overall market capitalisation.
The fourth edition of the 2008 Deloitte South Island Index was released yesterday, and revealed a 18.4% index decline in the fourth quarter to December, losing a record $694 million of value from the total market capitalisation of $3.08 billion over three months.
Deloitte's corporate finance partner, Paul Munro, said the $694 million loss during the quarter was primarily due to the performance of primary sector companies Pike River Coal, New Zealand Farming Systems Uruguay and PGG Wrightson.
"Collectively, these three companies lost a combined $426.7 million of market capitalisation this quarter, amounting to 61% of the overall downward movement in the index during the quarter," Mr Munro said in a statement yesterday.
Broking houses ABN Amro Craigs and Forsyth Barr said the decline within the index was not surprising, considering the makeup and weightings of the variety of companies, the present trading environment and being smaller and underfunded.
ABN broker Peter McIntyre said most of the companies were smaller by market capitalisation, and with recent market volatility, investors had moved back to holding stocks in larger companies, with a more defensive outlook.
"South Island stocks have a more `breadbasket' [primary sector] background, including PGG-W, NZ Farming Systems Uruguay and Pike River," he said.
Forsyth Barr broker Tony Conroy said Pike River Coal, NZ Farming Systems Uruguay and PGG-W accounted for a large part of the downturn in the index.
"There's no surprise regarding the extent of the movement in the index. But there are still opportunities for investors with the likes of Ryman Healthcare and Pike River Coal," he said.
"There will be a strong impact from the drought in Uruguay on NZ Farming Systems Uruguay, and this flows through to PGG Wrightson, as they also write down their holding in the company, which is expected to have an impact of around $28 million," Mr Conroy said.
He noted there was a "question mark" over whether sufficient funding could be raised to meet necessary irrigation expenditure.
PGG-Wrightson also had yet to determine the Silver Fern Farms termination costs around its failed $220 million merger agreement.
"This is a business with inherently volatile earnings. We anticipate that the trading environment will deteriorate from here with declining commodity prices," Mr Conroy said.
Mr Munro said the index results continued the negative trend seen in the earlier third quarter of the index and put the index "firmly in negative territory".
"The third quarter decline eroded all the value that South Island companies had created over the past two years and effectively put the market back at square one," Mr Munro said.
Not surprisingly, few companies experienced gains in the face of the decline, but bucking the trend and increasing their market capitalisation were BLIS Technologies gaining 57.7%, Windflow Technology 25.3%, Syft Technologies 25.0%, Apple Fields 22.2.%, Lyttelton Port Company (LPC) 10.9%, Postie Plus Group 10%, Tasman Farms 1.8% and Ebos Group 1.7%.
The biggest mover in terms of overall market value was Lyttelton Port Company (LPC) which moved up four places from seventh to third overall, reflecting a $26 million increase in market capitalisation during the quarter.
Otago Regional Council-owned Port Otago maintained a 15% blocking stake in the LPC, valued at more than $40 million, but could be approaching delisting.
Mr Munro said led by the LPC gain, the port sector was the only one of the eight sectors to experience an increase in value in the quarter.
"The most pain was felt by companies in the primary sector, down 31.8%, retail -29.9% and financial services -15.6%.
Overall, since the South Island index' baseline of December 2006, only the port and other sectors are in the black in terms of value, while retail is the poorest performing sector," he said.
