Forum Archive Index - May 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

>
> Assuming the 125m shares on issue after this offer, and on an After
> Tax basis: 1995: 1.56c 1996: 0.49c 1997: 0.67c 1998: 4.72c 1999:
> 2.55c This is projected to grow strongly to: 2000: 7 c 2001: 16.3c
> 
> I'm not convinced it's a bargain...
> 
As I see it, what you are being asked to buy into is a marketing 
plan.  Forget those 1995 to 1999 figures.  They are history now and 
runs on the board.   That 7c earnings for year 2000 is real.  The 
16.3c for 2001 assumes a successful market assault on the UK and 
South Africa -  and continuing growth in Australia.  It's not so far 
fetched a scenario as, in Australia, their main 'cold drink' rival 
Coca-Cola Amatil is in disarray trying to extract themselves from the 
mess they got into by going into the Philippines.

I, for one, think that if anyone can carry off this plan, then it's 
these 'Frucor' guys.  Just look at what they did with 'Just Juice'.  
That was effectively a waste product - unexportable apples mashed up.
But 'Just Juice' has come from nothing to being one of the strongest 
juice brands in the country- amazing.  The rise of 'V' has been even 
more incredible.

But with any investment you have to consider what will happen if 
things go wrong.   The 75% debt to equity ratio means this company is 
highly leveraged.    But it gets worse.   I rang up the organizing 
brokers today enquiring about the company assets and got this reply:

" re your query about the NTA, I'm told by our Investment 
Banking guys handling the issue that about half of the company's 
assets are brands, i.e. non-tangible, and that the balance of the 
assets and the liabilities are roughly in balance so that NTA is zero 
+/-.  And of course I got the line that it's a stock valued on 
earnings, not asset!

Regards  Don Lewthwaite"

Now for those who don't  know about 'brand valuation' this is done 
entirely on the discounted future cash flows of earnings.   So if 
sales of 'V' crash then so does the asset backing of the company.  
This means that in reality the company is much more highly geared 
than the investment statement lets on.  It's closer to 90% debt to 
equity ratio by my reckoning as I consider 'brand valuation' a hidden 
form of leverage.

A potentially  chilling end game is buried on page 56 of the 
investment statement, under 'Restrictions Imposed by Lenders'.

"Frucors ability to satisfy its obligations to pay interest and 
principal under its financing agreements will depend upon various 
factors including its future performance and results of operations."

In summary, this is a marketing plan on which you are being asked 
to bet the farm.  If it succeeds you can expect a steady growth in 
share price.   If it falls short (not fails, just falls short) you 
could easily be left with nothing  (company net asset backing is
zilch.).    I'm picking that the plan *will* succeed, but there will 
be some 'speed wobbles' on the way.   And during one of those 'speed 
wobbles' will be a far far cheaper time to buy into 'Frucor' than the 
price you will have to pay in the float. SNOOPY



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