Forum Archive Index - May 2000

[Gerry Tyler-Smith <g.tylersmith@ext.canterbury.ac.nz>]

You insight and info much appreciated.

>>
>> 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
>
>
>
>---------------------------------
>Message sent by Snoopy
>e-mail  tennyson@caverock.net.nz
>on Pegasus Mail version 2.55
>----------------------------------
>"You can tell me I'm wrong twice,
>but that still only makes me wrong once."
>
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