Forum Archive Index - September 2000

[Mike Hudson <MHudson@placemakers.co.nz>]

Warner wrote

"Mike, Ive just read the Fletcher FFS report which arrived yesterday. My Q
is why is their so much concern about the debt problem at FFS. I read that
Debt to equity ratio now stands at 35%,down another 2% this is below the
world industry average of 50%. Why then is there so much focus on this when
NTA has increased to $1.67cps, which is after Liabilities and Intangables?
Ist his because the books are overvalued and hence the realisation of assets
may be lower, therefore increasing real debt to equity. Thanks in advance
.Any ideas as to how "overvalued" they may be given a near 50% discount to
NTA. Still seems over discounted to me. Warner"

I must confess that whilst I know a lot about FLB I am not an expert on FFS;
I am merely passing on the gossip I hear in my involvement with the timber
industry. I have not seen the FFs balance sheet as I quit my shares a couple
of years ago at $1.30 which was a substantial loss on their listing price.
Of course, according to some chatters, if I still held them I would not have
made a loss at all (is that the last word? ) I have never liked forestry for
the reasons that Chris outlined in his excellent recent post.

As far as the debt/equity ratio is concerned I suspect that the CNIFP is off
balance sheet i.e shown as an investment without the assets and liabilities
shown separately. I could be wrong about that as, as I said I have not seen
the accounts.  I have no idea how the NTA is calculated but it will be in
the fine print in the report somewhere.

Sorry I can't be of more help but here is some information from the CS First
Boson research. I don't think I am breaking any rules in posting it here as
it is freely available on the website. www.csfb.co.nz
<http://www.csfb.co.nz> 
They have a HOLD (sell?) recommendation as the current price.

During 1998 harvested log volumes fell 18% YoY to 3.14mm3 due predominantly
to the Asian Crisis and its impact on the Korean and Japanese log markets.
In addition, log prices declined on average 25%-30% in US$ terms. Since that
date there has only been recovery of around 10% in $US in spite of the V
shaped recovery in Non-Japan Asia. Radiata volumes into Japan remain flat
but price is back up to around US$65 m3 FOB for A-grade. The price rises
have been effected mainly due to stronger K-grade demand from Korea setting
the benchmark. However inventories are now looking fuller and the chaos in
US lumber markets and downturn in Australasian lumber markets (due to lower
building activity) is likely to increase export log availability and put
pressure on prices in the near term. The Russians also seem to be taking the
current opportunity to increase market share in Korea as NZ producers
attempt to ram-pup prices in that market.
 
The recent weakness in the Kiwi dollar is assisting cashflow with A-grade
realisations in $NZ back to around 1997 levels. However FFS debt is US
denominated and the weakness has resulted in ballooning debt and interest
payments

Cheers
Mike H







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