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Jitters continue after Enron collapse

THE multi-billion dollar company collapses continue in Wall Street, with another large company, Global Crossing, filing for Chapter 11 bankruptcy on Monday. Global Crossing will be the fourth largest collapse ever, behind Enron, after it lost $3.4 billion in the September quarter alone.

This collapse is being shared among a number of creditors, but the clear rise in credit risk will increase bank caution, which should affect the effectiveness of the Federal Reserve policy. Also, if the credit risks haven’t reached economically dangerous levels, the fact is that credit growth is likely to be weaker in the next cycle than it has been in the past two. Also, importantly for corporate earnings, the rise in leverage was one of the main factors that had pushed earnings per share growth stronger in previous quarters.

Therefore, the US recovery is still shaky, with mixed signals, and the Dow Jones has correspondingly reflected these signals. The Dow closed at 9865, retreating from its strong push through 10,000 earlier in the New Year.

Australia has remained relatively strong, with the banks really showing the way for the ASX 200. NAB is trading presently around $33.95, the CBA is strong at $32.70, ANZ is very strong at $17.65 with more upside and Westpac is at $15.72. No wonder self-managed super funds and allocated pensions have outperformed managed funds when structured overweight with the banking index.

Coventry Group

Recent board changes and improved profit projections have rekindled equity market interest in the Coventry Group. The company hit a year high of $5.25 in the past week, with a special fully-franked dividend due of 39.47 cents per share. This is due to be paid to shareholders on February 22.

The recent appointments of ex-BankWest chief executive Warwick Kent as chairman and Roger Flynn as a director have strengthened the board’s composition. Mr Flynn is a director of Wattyl Ltd and a former managing director of Siddons Ramset, an industrial fastener group that operates in a similar market to Coventry.

Recently, leading fund manager Perpetual Trustees Australia announced it had significantly moved up the company’s share register. Perpetual announced last week in a notice to the ASX that it had lifted to 9.7 per cent its holding in the national automotive and industrial parts distributor.

Coventry chief executive Barry Watson, who stepped aside as chairman to make way for Mr Kent, forecasted back in November a “much improved” trading result for the first half of the current financial year. Coventry Group is scheduled to release its interim result on March 6 and another dividend is due around May 2002.

Coventry Group has bitumen products and gasket manufacturing operations alongside its distribution division. The business is a very good barometer of the Western Australian economy, with a lot of the products distributed being used primarily in the resources industry.

The company has previously been considered boring, with no corporate plays and purely a dividend yield play. The dividends have been consistent, and the earnings steady over its corporate life with a conservative balance sheet. However, with the recent board changes, the company may be about to turn the corner and look for expansion opportunities.

The shares are currently trading at $5.20.

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