Delegat's shares expected to beat $1.40

Jim Delegat has promised to put his own money on the line if prospectus targets are not met. Picture / Paul Estcourt

Shares in wine company Delegat's are tipped to trade at more than their $1.40 offer price when they list on Friday.

Joint lead manager ABN Amro Craigs announced last night that Delegat's $45 million offer of 32.1 per cent of the company was oversubscribed despite some earlier concerns about growth prospects.

Australasian institutions and New Zealand brokers were allocated a set $30 million of shares, ABN Amro Craigs said.

Another $15 million was set aside for Oyster Bay shareholders, Delegat's noteholders and the public. Not all Oyster Bay shareholders and Delegat's noteholders applied but those who did got what they asked for.

But allocations of shares going to members of the public were being scaled back, although figures on this were not expected to be available last night.

ABN Amro Craigs would not disclose the breakdown of allocations from the $15 million section of the offer. It said all were to be treated equally from now on so these figures would not be released.

The firm's investor banking director, James Beale, said the demand for shares and the dollar's recent drop could mean exporter Delegat's is well traded on Friday and at more than $1.40.

He acknowledged that it could be in a lead manager's interests to talk up share prices but said he genuinely believed the stock could go higher than $1.40.

He noted most brokers had wanted more stock than was available to them.

ASB Securities analyst Stephen Wright said: "I'd expect there to be a small premium - let's just wait and see."

The issue had been well received but it was possible that any general decline in the market could reduce any expected premium.

"Market conditions will also play their part at the time of listing," Wright said.

Beale described the fall in the New Zealand dollar as one of the "little tailwinds" Delegat's had experienced since setting the price at $1.40.

The drop could add up to $4 million to the targeted $13.8 million net profit next financial year for the export-oriented company.

The $13.8 million 2007 earnings forecast was based on January expectations of forward currency conversion rates that included US66.6c to the dollar compared with about 62.5c now.

"That $4 million ... is effectively the difference between those rates and where the rates stand now," Beale said. "So if those rates carry on forward, there's an extra $4 million or so of [net profit after tax] that can drop through to the bottom line."

On longer-term prospects, ASB's Wright said Delegat's was doing well in Britain and had good potential in the United States.

But no one could control the weather. "There are always risks and climate is one of their big ones."

Ongoing potential for help from a lower dollar will be good news for cornerstone shareholders Jim Delegat, Rose Delegat and Robert Wilton.

They took the unusual step of offering a sweetener of up to $22 million from their own pockets if prospectus targets were not met.

Should next year's net profit fall short of $13.8 million, they agreed to cancel some of their shares to boost the equity level of new shareholders.