Tenon says expected US interest rate hike will have short-term impact on housing activity

The annual meetings of Tenon [NZX: TEN] and its 60% shareholder Rubicon [NZX: RBC] were pedestrian affairs today as Tenon awaits a sales appraisal by Deutsche Bank.

Tenon has also begun paying dividends as fortunes rise.

The Tenon agm was held in Christchurch the morning and the Rubicon meeting a couple of hours later.

Tenon chairman Luke Moriarty highlighted how the company was enjoying the beginning of a profitable phase with many indicators now in its favour.

Federal Reserve chairwoman Janet Yellen strongly indicated yesterday she would support raising rates when the US central bank meets on Dec 15-16 due to rises in the labour market and because longer-term inflation expectations remain "well anchored."

Speaking at the company's annual meeting, Tenon chairman Luke Moriarty said the impact was unlikely to be anything other than a slowing of short-term growth, with underlying housing and demographic fundamentals continuing to support a longer-term recovery in housing activity towards mid-cycle conditions.

"That is the basis on which we are positioning Tenon," he said.

The Taupo-based firm derives 90% of revenue from the US where the housing sector has rebounded after a lengthy slowdown following the sub-prime mortgage crisis and global financial crisis.

Tenon is considering a possible sale with a strategic review under way, managed by Deutsche Bank, aimed at lifting shareholder value.

Mr Moriarty said that, since announcing the strategic review in August, Tenon had received "in-bound" interest from third parties which was still being investigated to determine whether a sale provided the best outcome for shareholders.

"We have asked Deutsche Bank to do just that for us by way of a formal process," he said. "That process is proceeding well, to plan, and although somewhat gruelling for all involved, we believe it will prove to be critical to value recognition for all Tenon shareholders."

In response to a shareholder query about voting control if sale options are identified, Mr Moriarty said it would then be up to shareholders to make their decision about a full or partial sale.

Given the confidentiality of these types of processes, Mr Moriarty said he couldn't say more at this stage but would update shareholders in the New Year "as events unfold."

He highlighted how the share price has shown strong performance to reflect trading.

Another shareholder asked if Mr Moriarty was an executive director, to which he replied NZX rules did not allow for executive directors but the senior executives reported directly to him and other board members.

The company's shares are trading at $2.65, having gained 55% this year after the company last year turned a profit following more than a decade of losses. The return to profit followed the US housing sector rebound and a more favourable exchange rate. While the company's share price has outperformed all the major global indices in the past year, on a comparable trading basis the board still believes Tenon has been and still is materially undervalued, Mr Moriarty said.

It paid out its first dividend in 17 years with shareholders getting 5c a share last month and Moriarty said the board's expectation, subject to the strategic review, is that dividend payments will be made twice-yearly. The next payment will follow the announcement of interim results for the half year to December 31.

In October, Tenon announced an unaudited financial result for the first quarter of its 2016 financial year, with earnings before interest, taxation, depreciation, and amortisation of $US7 million (excluding forex and project costs of $US1 million), more than double the previous year's result. The company said it was on track to achieve its previously announced internal target of earnings before tax, interest, depreciation and amortisation of more than $US20 million for the 2016 financial year.

At the Rubicon meeting Mr Moriarty put on his hat as chief executive of that company and spoke about the performance of Rubicon’s other shareholding in ArborGen which is involved in the genetics of forestry.

(BusinessDesk)

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