Market mixes it up

WA Business News’ Wealth Creators may be sitting on enormous fortunes, but that wealth is predominately on paper. And while the stock market can push the value of an individual’s shareholding up, it can just as easily make the wealth disappear.

Just ask Great Southern Ltd managing director, John Young.

In the two days after the Australian Tax Office flagged it was considering stripping up-front tax deductions for the non-forestry managed investment schemes, which generate significant income for Great Southern, the share price of Mr Young’s company plunged almost 30 per cent, wiping $34 million off the value of his shareholding.

If the ATO had not dropped the bombshell on the managed investment scheme industry, Mr Young would have been ranked 12th on our Wealth Creators list instead of 14th, with his paper profit in tact at $124 million instead of the current $103 million.

However, it hasn’t always been as frustrating for Mr Young. In February 2005 he benefited from his company’s surging stock price and cashed in seven million shares near the stock’s peak of $5, pocketing $32.5 million.

Michael Malone is another who has watched his multi-million dollar profits virtually evaporate overnight.

Shares in iiNet Ltd, the company Mr Malone founded, plummeted 60 per cent on the day they resurfaced from a six-week trading halt following a serious of internal accounting errors that forced the company to slash its earnings forecast by 40 per cent.

About $18.4 million was wiped from the value of Mr Malone’s shares, which were valued at $30.5 million when iiNet’s shares were suspended on April 18. But, in the months that followed the fall-out, Mr Malone spent $4.3 million buying 6.3 million shares in his company.

Mr Malone has since made a paper profit of $3 million on those shares with his total shareholding in iiNet now only $2.1 million less than it was prior to its earnings downgrade a year ago next week.

John Schaffer and his sister Danielle Blain have also felt the brunt of the market’s impatience with profit downgrades.

In late 2004, Schaffer Corporation Ltd’s share price sat at about $15, valuing the pair’s stake in the group at $63 million. But after a profit downgrade on the back of tough trading conditions for its automotive leather products business and UrbanStone division, Schaffer’s share price fell to $9.50, with Mr Schaffer and Ms Blain’s stake plunging $23 million in value. The stock continued to fall during 2005 and hit $4.50 in May last year, valuing Mr Schaffer and Ms Blain’s paper worth at $19 million.

The stock has recovered to $7.50, leaving Mr Schaffer and Ms Blain’s share valued at $31 million.

Meanwhile, in early 2005, Evans & Tate Ltd’s then executive chairman Franklin Tate sat on shares worth $31 million at $1.08 each

But when significant debt troubles were revealed in June 2005, E&T’s share price dived, falling during the following 12 months to a low of six cents, slicing Mr Tate’s share value by $29.2 million to $1.8 million. The winemaker’s share price was 15 cents at the time of printing with Mr Tate’s holding worth $4.4 million.