Stocktake: Does Tower Have An Upside?
Sun Herald
Sunday June 8, 2003
What's driving Tower's share price?
Simon Jones , Macquarie Equities associate director: The reporting of a loss in its latest interim result, a capital raising and a downgrade of its credit rating by agency S & P .
Simone Fynmore , private client research at stockbrokers JBWere: A recent profit warning, the second in six months, combined with significant asset write-downs and a proposed capital raising have driven the share price sharply lower.
What's the best thing going for the company?
Jones: Tower is implementing some restructuring initiatives in its Australian business, which, if successful, will go some way to improving the outlook for the company. Related to this, it is leveraged to a turnaround in the wealth management sector.
Fynmore: If the proposed placement and rights issue are approved by shareholders, it should improve the balance sheet, capital strength and future position of the company. The capital raising could also see major shareholder Guinness Peat Group move to at least 30 per cent ownership, providing support longer term.
What are the big risks?
Jones: Pricing power for the group is going to be extremely difficult to achieve and the lower credit rating could provide further restraint on its ability to win and retain business.
Fynmore: Tower is trying to turn around its business in Australia at a time when operating conditions remain tough, having an impact on earnings, asset values and capital position. The disruption caused by restructuring is a key risk to earnings in the short term. The capital raising is crucial to the future stability of the company.
What's the three-year outlook?
Jones: The combination of a weak economy and the challenges of turning around the Australian business will continue to put pressure on earnings and valuations.
Fynmore: If successfully implemented, the moves being made in Australia to cut costs, and refine and refocus the business will be beneficial in the longer term. We expect brand and scale issues to continue for some time.
Is it a buy or sell?
Jones: Macquarie has an underperform rating on Tower, with no expectation of an appreciation in share price over the next 12 months.
Fynmore: Long-term sell.
© 2003 Sun Herald
