Forum Archive Index - January 2000

["vincent.wang" <vincent.wang@xtra.co.nz>]

Hugh/Nigel

 

I guess you would agree that when people buy or sell shares, they make decision on the basis of profit forecast, not historical data.  And profit forecast is derived by setting many assumptions.  Different people do have different assumptions.

 

What I can see is the world would have some higher inflation(higher than in 98 and 99), this is based on the assumptions of:1) the world economy is recovering(demand- pull); 2)the oil price hiking(cost- push).  And inflation would trigger the interest rate rise, provided other things being equal (of course, you would say, the higher interest rate would curb the emerging inflation, that's why economics is so interesting.  Why people say economics is a" dismal science"?)

 

I have not indulged myself to look which bank Nufarm borrowed the money at what rate and in which currency and term.  My statement is just a general statement:high gearing company would need to pay more interests than they did in 98 and 99.  But I would agree that this impact would be limited on short term loan.  (for good management company like Nufarm, long term loan should have been secured long time ago)

 

As the world economy recovers, the prices of commodities would recover too(because demand pull).  I guess this is why many economists predict that Kiwi dollar and Aussie dollar would appreciate(16-18 percents) in next 12 months.(both countries are resources rich)

 

As Nufarm is a dual listing company now, I would think its next financial statement would be in both Aussie dollar and Kiwi dollar(because N.Z. is still Nufarm's largest shareholder base)  When converting its income and profit into Aussie and/or Kiwi dollar, provided other things being equal, its figures would shrink. (unless when they made the budge, they already built in this factor. Do they have the vision?)

 

Nigel, you said" you have to slash revenue and profits by close to 30% before I can see justification for $4.00 share price", I personally think this view is dangerous.  Because for many manufacturing businesses, slashing 30% revenue could make a profitable company becoming a loss-making company, this is due to the period(fixed) costs involved in the manufacturing business.  >From Nufarm's financial statement, I can't see how much fixed costs( operational) they have, because they are included in "operating expenses".  But, bear in mind, the interest expense is also a sank cost, that means no matter how small your revenue is, you still need to pay this cost.  If their revenue did drop 30%, I would say their share price would drop below their NTA($1.98).

 

Having said all of these, I personally still think  Nufarm is a good company.  And Mr. Kerry Hoggard is one of few executives in N.Z. who delivers his promise.  I personally respect him, although he made a technical mistake in share trading recently.

 

Anyway, its good to have such a discussion with you guys.

 

RGDS,

Vincent Wang

Disclosure:holder of Nufarm shares