"You won't lose much money and you won't make much either."
Sir Ron Brierley on diversification

Guinness Peat Group plc (GPG), the investment holding vehicle ("corporate raider" to its detractors, "industry rationalisers" to supporters) chaired by New Zealander Sir Ron Brierley is a curious thing. Market cap around £700 million and holding ecletic investments in quoted-equity or subsidiary form across New Zealand, Australia, the US and the UK. It's one of those companies so closely identified with its chairman that share-holders concerned with succession-planning tend to worry.

Guinness Peat is one of the top-picks for 2005 amongst New Zealand brokers. Normally this would be enough to run the other way. But the company accounts are satisfactory on the criteria used by Capital Chronicle and one part of the portfolio looks especially promising.

In 2003 Guinness acquired control of Coats, plc and has since become sole owner. Coats is a 250 year-old UK thread-maker with near £1000m turnover and 22% of the world market. That makes them world number one. Coats also represents over 30% of Guinness' assets, a heavy gearing indicative of the board's confidence.

But why become excited about a thread-maker?

Can you say "Multi Fibre Agreement"? The MFA expired on 1 January 2005 after three decades of quota enforcement aimed at protecting the US and other developed world textile producers from lower cost competitors. China and India are expected to benefit the most from the demise of the MFA and the implied increase in volumes sold to the developed world - especially China which boasts seriously modern capacity on a scale lacking in India. Coats is present in both these key markets, particularly China.

There are WTO provisions to limit Chinese imports of textiles to the US to year-over-year increases of 7.5%. But these are China-specific, and may possibly not even be invoked. In any case, Coats geographic spread is such that it can supply whoever is ramping-up production to meet the expected increase in textile demand.

Coats also shows company specific signs of encouragement, particularly in converting debtors and stocks to cash. As the bedding-down of the company progresses this squeezing of the pips ought to improve working capital further.

Want a second opinion? Here's what Accrual - our UK scribe, sounding board, perennial cynic and accountant - thinks:

"Guinness Peat....

Well, the market has perhaps got wind of their success too, they are trading at a 52 week high. Rewards will never be as great as you or I might wish as the company is a vehicle for Brierley and pals. But they do invest for the long term. They have cash and I think they got a bargain with Coats. Expecting profits to rebound.

Coats had seen the light prior to their enforced demise and were moving stuff offshore, have proprietary technology, are well represented in mature and emerging markets (from a marketing and manufacturing perspective) - have cash in their property portfolio and, astonishingly, a well funded pension fund - which should have got better still (with luck). Dep'n policy is sound (motors 5 years, IT 4 years etc, plant can't remember but Ok). Note US pensions in pay't never increase. Oh to be a US pensioner.

Not really sure about their other investments...Staveley probably sound. Young's sound, they'll never get in there unless the family has a stupid falling out - but I expect the divis are Ok. Dawson International may be a problem [Editor: Dawson 100% written down, thus possible upside barring capital infusions] - just dropped out of the FTSE...They are heavily geared to success with Coats which should come.

Anyway as the man says "I liked it so much I bought the co" Well, 2000 this morning"

Finally, for readers wanting to get an idea of Brierley the Investor, here's an interview from 1999.

NB: The writer bought shares in Guinness Peat Group plc (GPG) shortly after this article was published. GPG is listed in N Zealand, Australia and the United Kingdom.

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