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The Sydney Morning Herald

CBA shares on a downhill run

Author: Edited by Mark Todd
Date: 12/11/2002
Words: 929
          Publication: Sydney Morning Herald
Section: Business
Page: 22
Big punters seem to be growing a bit bored with the big bank.

Commonwealth Bank of Australia shares fell for the seventh day in a row yesterday, taking losses to almost $4 a share or $5 billion in market value.

According to market share figures, the biggest sellers were the clients of broker Deutsche Bank, which accounted for net sales of 1.5 million shares 16 per cent of the total traded.

One explanation is that some big investors have supported the shares in recent years, largely through the belief that the bank will able deliver big productivity improvements as it integrates the Colonial acquisition and sheds its cost-heavy structure as a former government-owned enterprise.

But recent results suggest the bank hasn't done as well on this front as its peers. November 1's profit forecast by chairman John Ralph (even though CBA said it doesn't make forecasts) of a flat first half certainly created more uncertainty.

In better news, funds management arm Colonial First State's FirstChoice master trust product has reached $1.4 billion in funds under administration after six months in operation. While clearly a success, the business is not seen as a material profit contributor at this point.

The recent appointment of John Mulcahy to replace the retiring Peter Polson as head of the investments division has also built an expectation that the change will mean a stronger focus on costs. But this is not so certain, given talk that Mulcahy is also extricating himself from CBA to take the top job at Suncorp.

Toll goes Express

Although the share price hasn't really reflected it, Toll Holdings's acquisition of the Mayne Express business is more than just run-of-the-mill.

Toll has made more than 30 purchases in the past decade but Salomon Smith Barney's Jason Smith goes so far as to suggest that this latest one is destined to become a company-maker in the same fashion as TNT, IPEC and Finemore before it.

Essentially, Mayne Express losing an estimated $4 million a year is a real turnaround story. It complements Toll's IPEC/DX operations and installs the company as a very close second in the express delivery game.

Salomon rates the risk inherent in Mayne Express as ``low" as Toll already has the ``infrastructure, technology and management" to derive about $20 million in synergies in the next two to three years.

And lest anyone gets the idea that Toll's growth is on the slide, the broker estimates it could increase earnings per share by 30 per cent in 2002-03 and the year after, even if it left acquisitions and new contracts to one side and did nothing more than manage the existing business.

Toll shares, which were recently split, eased 6c to $6.89, compared with Salomon's valuation of $9.37. ABN Amro last week initiated coverage of Toll with an ``add" recommendation and a 12-month target of $8.

The Mayne game

Stuart James is bracing himself for a rough ride at Mayne's annual meeting in Melbourne today, his first stint in the hot seat since Peter Smedley's controversial departure in August.

Smedley's tenure at Mayne, during which he alienated the medical fraternity with tough cost cuts and then investors with a profit warning, has left a sour taste in the mouth of many analysts. Even the long-awaited sale of the logistics business and a $75 million share buyback has done little to lift sentiment.

So the pressure is on James to shake off the perception that he is little more than a Smedley clone (the pair have worked together for years), more interested in cost cuts than bringing doctors back to the group's private hospitals and boosting patient numbers.

Selling several of Mayne Health's crummiest hospitals is seen as one small step in the right direction but shareholders will want greater evidence at today's meeting that more is being done.

There has been some talk of a couple of small-ish acquisitions but most think such a move is madness.

Harvey Norman kicks

There's been far less than usual written and said about Harvey Norman these past few months. Finally, though, there's a murmur that the retail sector's forgotten stock has seen its worst.

Harvey Norman shares, down 11c yesterday to $2.45 after going ex-dividend, are trading on a price/earnings ratio of 17 times forecast 2002-03 earnings per share. That's less than a 10 per cent premium compared to the broader sharemarket and a steep fall from grace for a stock that's regularly commanded a 30 per cent premium.

Some investors believe that the de-rating is either completed or pretty near to it. That's not to say that concerns about domestic growth and the company's overseas expansion are resolved: they're still there but the issues are now well and truly in the share price.

JB Were's strategy team a month or so back suggested it was worth swapping stocks such as Coles Myer and Fairfax for Harvey Norman but there's no real wholesale push by analysts yet. There are a few, though, who believe the 9.6 per cent increase in like-for-like sales for the first quarter augurs well for profit margins.

The firmer sales suggest Harvey Norman franchisees are doing better, which implies the company is paying less in subsidies to underperforming stores. Also, the electronics sales continue as items such as plasma TVs become more affordable and there are high hopes for the computer concept store, being trialled at Auburn.

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