By GEOFF SENESCALL
Guinness Peat Group sent a signal to the market that it is unwilling to tolerate its deeply discounted shares by announcing a buy-back of at least 40 per cent of its stock.
In reporting a record profit of sterling 112 million ($373 million) for the year to December, the company said yesterday that it was buying back shares through a convertible note programme.
This means GPG keeps its war chest of sterling 83 million intact while offering shareholders some relief from the share performance through income from the notes.
Based on GPG's share price of 136c, analysts estimate the notes, which have a face value of around 165c, offer an annual yield of nearly 15 per cent.
Merrill Lynch analyst Simon Gresham said it was a good move for the under-geared company and the restructuring offered some shareholders a way out without diluting existing shareholders.
"We see the company is trying to meet the objectives of all its shareholders by offering a fixed coupon instrument while still offering upside potential that the management believes is there in the company."
GPG believes its shares are worth 220c each. This compares to yesterday's closing price of 136c, which was up 3c on the news.
GPG chairman Sir Ron Brierley acknowledged some disappointment in the company's static share price, which was partly a product of GPG being somewhat "unfashionable" at present because of a trend that favours "new age" technology issues.
But he said the flight of capital into speculative issues had been to GPG's advantage as a value investor because the price of many traditional industry leaders had fallen back.
"Suitable buying opportunities have therefore been more prolific than originally anticipated with the consequence that GPG's level of reinvestment has been quite rapid."
Sir Ron said that while there were many undervalued assets for GPG to choose from, the trend towards technology stocks was adversely affecting the company's own share price performance.
"This distortion of relative values cannot endure indefinitely," he said.
GPG plans to issue up to 200 million convertible notes with a face value of 50 pence (165c) and a yield of 8 per cent.
Shareholders can exchange at least 40 per cent of their shares on a one-for-one basis.
The principal will be redeemed in five equal instalments starting on June 30 next year. Shareholders can choose to convert the amount due back into shares at 50p in 2001, 55p in 2002, 60p in 2003, 65p in 2004 and 70p in 2005.
GPG's New Zealand boss, Tony Gibbs, said the reconstruction offered was a genuine attempt to put value back into the hands of shareholders.
In addition to the note issue, GPG has retained its annual one-for-10 bonus issue. It has increased its dividend from 0.6p to 1p a share, payable on March 28 to shareholders registered at March 17.
GPG's record result was achieved mainly through the sale of Tyndall Australia last May for a sterling 95.5 million profit.
GPG tackles being 'out of fashion' with big buy-back
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