Following the hiving off of Crean's print and packaging interests into a separately quoted company, OakHill, the Irish Stock Exchange will have one extra listed company. Will this be good for the market, or will it cause further traumas for the Crean shareholders?
Crean's executive chairman, Mr Ray McLoughlin, always contended that the split would enhance shareholder value. If Friday's thin trading (one deal or one mark each) is any guideline, the initial reaction proves his point.
Prior to the ex-entitlement to the shares (one OakHill share for each Crean share) Crean's shares were traded at 97 cents. The ex-entitlement price was marked as 60 cents and Oakhill was traded at 68 cents. At a combined price of 128 cents, that represents, a 32 per cent gain. It also represents a good gain on the 100 cents to 110 cents per Crean share paid by Mr McLoughlin for around one million shares last May.
However, the new price represents only a minimal gain on the 120 cents quoted on July 27th. Indeed, the downward movement in the shares since then has been quite curious. Some shareholders mistakenly believed the decline was due to the shares going ex-entitlement. That contention was understandable as the hiving-off document specified Friday July 30th as the date when the shares would go ex-entitlement. While that was an "indicative timetable", Crean only issued a statement a week later - Thursday evening, August 5th - saying "Crean shares will trade ex the entitlement to receive OakHill ordinary shares on the Irish Stock Exchange and on the London Stock Exchange from 9 a.m. on Friday 6th August, 1999".
Obviously any shareholders trading last week with this knowledge, that was denied to others, had an unfair advantage and could be a form of insider trading, though hopefully stockbrokers would have told their clients the status of the Crean shares being purchased or sold. But anyone buying the shares last Wednesday, at 90 cents, for example, would in effect have got OakHill shares at 30 cents per share, or at less than half the price marked on Friday.
Looking ahead, shareholders will want to know if the prices quoted on Friday are warranted. With the sparse information available, particularly about the distribution of central costs, and with no pro-forma information on Crean, that can be difficult, but it is possible to glean a general view.
OakHill generated a net profit of £600,000 in its last trading period. Adding back goodwill, and a small allocation of central costs, points to a profit in the region of £4 million. That gives the company a historic earnings per share of 7.1p.
The crucial question is what price earnings ratio it should have. Adare is on a historic p/e of around 6 while Clondalkin's p/e is in the region of 8. Until OakHill proves itself, it should have a lower p/e than Adare and Clondalkin, both well run groups.
A p/e of 5 would give it a price of 35p (44 cents) and a p/e of 7 would point to a price of 50p (64 cents). On that basis, Friday's quoted price although at a discount to the net asset value per share, looks toppy, particularly as small market capitalised companies are out of favour. However, its rating will depend on how well it displays its independence from Crean which is the largest shareholder with a 20 per cent stake, and on this year's trading - the interim results in September should be a pointer.
Crean is now left with the food side which generated an operating profit of £11.3 million last year. Assuming interest of £3 million, central costs of £1.5 million and tax at 30 per cent, the historic net profit come out at around £4.5 million, giving an earnings per share of 10p. A conservative p/e of 7 for a food share would not be unreasonable which would point to a share price of 70p (88 cents). That indicates the cut in the Crean share price may have been over done. On a technical basis, the sum of the slimmed down Crean and the new OakHill, appears to be greater than the former Crean. Also, with the clearer focus, they are easier to value. However, Crean has been beset by problems and lost the confidence of institutional investors. That raises the big questions - can investors regain confidence in the uncommunicative Crean, and will OakHill be different and display its independence, or just be a group clone?
