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| Jenny Ruth's Column | | For archival copies of Jenny Ruth's Column click here... | | | | 5th November 2006 | The vagaries of share market pricing can be difficult to understand sometimes.
IT company Renaissance Corp. has a couple of years of stellar results behind it and is promising another record profit this year.
It is forecasting a 20 per cent increase in pre-tax profit after last year’s 121 per cent net increase and the previous year’s 72 per cent rise.
Yet its share price has been on the wane since hitting a record $1.60 in January and it was trading at $1.26 mid-week last week and the trend was still decidedly down.
The biggest part of Renaissance’s operations is its Apple products marketing and distribution – it has sole rights to Apple products within New Zealand – and Apple’s own share price has been soaring lately.
Most recently that’s because in mid-October it reported its best quarter in 30 years. While its sales of iPods, a runaway success for Apple since the launch five years ago, were up 35 per cent on the September quarter last year, it also surprised analysts with a 30 per cent jump in Macintosh computer sales.
Apple has switched its computers to Intel chips and its latest version of its operating system, Mac OSX Leopard, is able to run Microsoft Windows, broadening its market appeal and providing the company with an opportunity to move the Mac from a niche product into the mainstream.
It is also benefiting from what it calls "the halo effect" which has iPod users becoming familiar with Apple’s systems and turning to Macs.
Apple is also launching a new matchbox-sized Suffle iPod this month which will sell in the US at about half the price of the previous model. It should be available here in about a week.
Since July, Apple’s shares have surged from just above US$50 (NZ$75) to more than US$80.
The current quarter, which includes Christmas, is the busiest of the year for both Apple and Renaissance and Renaissance managing director Paul Johnston says iPod is the number one gift for Christmas and demand has already started lifting in the last two or three weeks.
While trends evident in the US take time to be replicated here, Johnston says the halo effect is happening here as well.
The other parts of Renaissance’s operations are also performing well, although the company doesn’t provide divisional breakdowns. Its education division which provides computer and management systems to schools has a number one or two market position and its Insite division, which makes upmarket computers has a number of high-profile installations, including at Peter Jackson’s Weta Workshop and Massey University.
Its Conduit division, which provides transactional web-based systems and which used to struggle to break even, recently completed the Ferrit website for Telecom and Johnston says it has a backlog of seven months work, forcing Renaissance to beef up its staffing levels to meet demand.
One substantive reason for Renaissance’s shares being depressed back in May was that major shareholder, Singapore-based Acma, sold its 26.2 per cent shareholding and founder Mal Thompson sold his shareholding down from 17.5 per cent to 15.3 per cent through a share placement.
Thompson said at the time he needed money for personal reasons but that he remains comitted to the company. He also pledged not to sell any shares within 12 months.
Finance director Clive Lewis says the placement went to a range of investors from high net worth individuals to institutions and that some of those may not have been long-term holders which might explain some of the stock price weakness.
Or perhaps the stock has just fallen below investors’ radar. Barry Lindsay at First NZ Capital thinks so. He estimates that at $1.26, the stock has a 13 per cent gross dividend yield compared with the 6.8 per cent market average. He’s expecting the company will pay an 11 cents a share total annual dividend after the 4.5 cent interim payout. | | You can buy a transcript of the interview behind this column ($5) or subscribe to a year’s worth -- 48 interviews ($100) by emailing: info@jennyruth.com | |
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