Forum Archive Index - September 2000

[Chris <cd@ak.planet.gen.nz>]

Warner,

Just catching up hence delay.

Firstly I have now read the FFS Annual Report.  While the lumber and 
mouldings business is growing considerably and should continue to do so 
the company as a whole is still far from adding value to a forest estate 
that continues to go out the door as saw logs.  Lumber comes in a distant 
2nd in sales and the much touted mouldings/origin business etc a lame 
last. 

Now I do not doubt we have some of the best plantation estate on the 
planet, we can grow a tree faster than anyone, but unfortunately FFS is 
still trapped in the commodity cycle.  It is great to see N American 
lumber/moulding sales lifting but now we have the NZ market contracting 
and that's where nearly 50% of manufactured product goes. Is it not saw 
log prices that dictate the real worth of FFS?  Yes log demand is 
creeping up slowly and I would love to see a big price hike soon.  In the 
medium term I cannot see a big lift.  Growth in Korea and Japan will be 
the triggers to watch for.  FFS are doing a lot of work in both India and 
China marketing logs and lumber.  Neither country has much of a forest 
estate and both continue to consume fuel timber at alarming rates.  They 
just do not have trees to harvest.    Massive floods and devestating 
droughts are forcing politicians to covenant existing estates and plant 
more.  The lead time in these countries is 40+ years while we can realse 
value in as little as 26yrs with radiata. 

The lift in interest rates does not help FFS.  Forest companies 
historically perform badly in a high interest rate environment.  You are 
right rates have come down a fraction with some lenders but 6.5% to 8% is 
plus 23%.  Cost of capital in forestry is critical when the product is 
stuck in the ground for 26-35 years.

The little recognised drawback to forestry and lumber especially has been 
the cheap product in the steel, alluminium and concrete sectors.  They 
are competing products and their respective prices are coming off lows.  
If they lift so too will timber/lumber and logs to a lesser extent.  
Let's watch.
 
Anyway I endorse your thoughts re the value of FFS except I see its' 
value in a long term view while the market weights it more in the short 
term.  I have a solid exposure to FFS and like yourself I'm on the 
lookout for payday.

All the best 

Chris    

>Chris, you said "interest rates are still high". Mine have just dropped to
>8% which is not historically high at all. Its just the perception based on
>recent lows of 6.5-7%. I remember everyone getting excited when they dropped
>under 10% a few years ago. FFS has world class forests. I would suggest you
>go to smartmoney.com and do a company comparison. I have and from what I see
>FFS would be very attractive. 3-5 year growth forcasts are excellent and
>margins are no.1.
>R
>Warner
>

----------------------------------------------------------------------------
http://www.sharechat.co.nz/          New Zealand's home for market investors
http://www.netbroker.co.nz/        Trade on Credit, Low Brokerage. Join now.
----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/forum.shtml.