Forum Archive Index - May 2000

["Ben Dutton" <bendutton@sharechat.co.nz>]

Snoopy,

Excellent work on digging up the facts on Frucor's NTA.

Just a couple of days ago there was an article in the Herald on The
Financial Reporting Standards Board review of the inclusion of brands on
balance sheets.  Check it out at:

http://www.herald.co.nz/storydisplay.cfm?storyID=138138

An interesting last paragraph:

"The United States does not have a standard for intangible assets, but
companies do not generally include the value of brands in their balance
sheets".

Are the NZ investing public being given a fair deal by the inclusion of
brand value in company balance sheets?  Quite a debatable subject...

Benjamin Dutton

----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Saturday, May 27, 2000 8:29 AM
Subject: Re: [sharechat] Frucor offer - reconstructed EPS FYI


> >
> > 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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