July 04, 1990

Article at Reuters

Top Australia firms don’t deserve bad press – study

By Wilson da Silva

SYDNEY – In the eyes of many potential stock market investors, Australian companies tend to be debt-ridden, money-losing operations.

Dramatic collapses like that of the Qintex group last year, and the current woes of Alan Bond’s corporate empire, have contributed to that view.

But what about well-managed Australian companies? Analysts McKinsey and Co think those companies have been unfairly tarred with the same brush as the once high-flying entrepreneurs.

Many Australian economists disagree.

In a recent study, McKinsey said the country’s top 30 companies were as profitable an investment as counterparts in the U.S. and Britain, and not all that debt laden.

“The worldwide attention given to the fall of so many of Australia’s flamboyant entrepreneurs of the 1980s masks the strength of Australia’s corporate sector,” the report said.

The average debt-to-equity ratio for the group was better than the average for 400 firms in the U.S. Standard and Poor’s index, McKinsey said.

The Australian top 30 also on average paid higher dividends than companies in the Financial Times index of 30 British companies and the 400 U.S. and stocks.

McKinsey said one U.S. dollar invested in Australia’s top companies in 1986 would in April 1990 have yielded a return similar to one dollar invested in the top firms of the U.S. and Britain. A U.S. dollar invested in the British companies of the FT30 index would have netted 1.70 dollars, and 1.50 dollars if put on firms in the S and P 400 of the U.S., the report said.

But wait just a minute, say Australian economists. The “Australian top 30” in the study are the leading companies of 1990, not of 1986. Of the top 30 in 1986, four have collapsed.

“There is good reason for (today’s) top 30 to be tarnished by the brush of the failed highflyers, since not so long ago the failed highflyers were at the top,” said University of New South Wales economics lecturer Jack Frisch.

Australia’s corporate image can only be improved when accounting standards are raised, “shonky” or questionable corporate practices are wiped out, and investors “feel confident that they are the owners of companies rather than the financiers of the lifestyles of overpaid executives,” Frisch said.

Professor Murray Wells of Sydney University’s Graduate School of Management also thought the study biased towards today’s blue chips.

Australian share markets are more volatile than those in London and New York, and the Australian companies should therefore have yielded better returns to investors, he said.

“I see a problem in extrapolating today’s top 30 back to 1986, because then you are picking the winners,” Wells said. “It’s going to end up distorted.”

Today’s top 30 include resources and steel giant Broken Hill Pty Co Ltd, Westpac Banking Corp, international media company The News Corp Ltd, diversified industrial conglomerate Adelaide Steamship Co and big aluminium producer Comalco Ltd.

Together the top 30 together represent 50 per cent of Australia’s stock market capitalisation.