INTERVIEW: NZ Methven Says Profit To Keep Growing In '06

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Tuesday 9 November 1:37 PM

INTERVIEW: NZ Methven Says Profit To Keep Growing In '06

By Christopher Niesche

Of DOW JONES NEWSWIRES

WELLINGTON (Dow Jones)--Tap and showerware manufacturer Methven Ltd. expects profits to continue growing in its 2006 fiscal year, despite a forecast drop in like-for-like sales due to a fall in building activity.

While a forecast slowdown in residential construction might scare investors, Methven's Chairman Richard Cutfield said the company - which opened its initial public offering Monday - is more dependent on home renovations than new building and so its profits aren't so at risk.

Methven is conducting a NZ$36.2 million IPO, offering 25.3 million new and existing shares at NZ$1.43 each.

In the year to Mar. 31 2006, Cutfield said the company expects new home building to fall 16%, but renovation activity will only fall about 5%.

This will lead to an 8% drop in like-for-like sales in the 2006 fiscal year, said Cutfield.

But he said new products, such as its "SatinJet" shower heads, and further expansion into the Australian market will make up the shortfall.

More efficient manufacturing will also help the bottom line.

"Overall we're expecting to continue our profit growth," he told Dow Jones Newswires, but said he couldn't be more specific.

"We're seeing that renovation culture remaining strong," he said.

"We may be a bit conservative in our outlook because at the moment, with quite high new-build, tradesmen are quite scarce and we believe there's been a lot of renovation deferred."

In the year to Mar. 31 2004 Methven made a net profit before distribution to minority interests of NZ$5.0 million, and the company has forecast profit to grow to NZ$6.2 million in 2005, according to the IPO prospectus.

The company expects revenue of NZ$52.8 million in the 2005 year, up from NZ$47.3 million in the 2004 year.

At their current price, shares are forecast to trade at a price to earnings ratio of 11.8 and have an annualized net dividend yield of 5.1%.

Methven is holding the IPO partially to allow the current owners to sell half their stake in the company and partially to fund the purchase of the 40% of Methven Australia that the company doesn't already own, said Cutfield.

"We're anticipating that a lot of our growth is going to come from Australia, so we want to capture the full benefits of that," he said.

"It's obvious the Australian business has performed ahead of expectations and we've got high hopes for it so it seemed logical for us to go to 100%."

Currently the company earns about 35% of its revenue from Australia, with most of the rest coming from New Zealand.

But given the much larger size of the Australian market, Cutfield said he expects sales there to grow.

One unusual feature of the IPO is that the company has reserved a pool of 1 million shares for registered plumbers.

"We just thought it would be a nice touch to invite them to become stakeholders in the business, but we don't know how it will be taken up," said Cutfield.

Asked if he is hoping that the company's prospective plumber-shareholders would recommend its products to their clients, Cutfield said "they do anyway."

"We have huge support form the plumbers."

- By Christopher Niesche, Dow Jones Newswires; 64-4-471-5990; christopher.niesche@dowjones.com

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