When you have a tiny stake in more than 200 listed companies, it becomes part of the daily routine to visit the PO Box and check out the daily deluge of correspondence. The most interesting items today were a typically miserable $4.22 dividend cheque from News Corp and the AMP and Alinta annual reports.
You’d hope that companies would be providing their shareholders with accurate information but Australia’s accounting laws mean that balance sheets often bare little resemblance with reality.
Take AMP and Alinta as an example. Flicking through the annual reports over a coffee this morning, it was very strange to see that AMP claims to have net assets of $7.97 billion when the market values the business at $20.1 billion.
Alinta is a relatively young company but the board has still produced a balance sheet claiming to have net assets of $3.78 billion when the company has just been sold for a valuation of $7.42 billion. Still, in the scheme of things that is quite accurate.
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I put it to Axa chairman Rick Allert yesterday that it was pointless producing a balance sheet claiming net assets of $3.9 billion when the market said the company was worth $13.17 billion. Asked which parts of the company were massively undervalued in the books, Allert pointed to the core Australian and New Zealand insurance business and the burgeoning Hong Kong operation.
The two worst offenders I’ve found so far are pokies giant Aristocrat and fund manager Perpetual, both of which are valued by the market at more than ten times their claimed net assets. This is because they have enjoyed exponential organic growth and the accounting rules don’t require them to accurately value this, unlike with a takeover where the market price you pay goes straight onto the balance sheet. Surely it’s time for boards to start leveling with their shareholders about these huge discrepancies.
The hunt is now on for Australia’s most inaccurate balance sheet and today we’re starting with 10 companies which are valued by the market at more than double the audited net assets produced in the latest annual report.
|Company||Net Assets||Market Capitalisation|
|AMP||$7.97 billion||$20.1 billion|
|Alinta||$3.78 billion||$7.45 billion|
|Aristocrat||$365 million||$7.57 billion|
|AXA||$3.9 billion||$13.17 billion|
|Babcock & Brown||$1.71 billion||$8.17 billion|
|Macquarie Bank||$5.34 billion||$22.04 billion|
|National Australia Bank||$27.97 billion||$71.53 billion|
|Orica||$2.67 billion||$10.43 billion|
|Perpetual Investments||$331 million||$3.38 billion|
|Reece||$376 million||$2.51 billion|