Forum Archive Index - October 2000

["Mike Hudson" <mikehudson@clear.net.nz>]

A bit more rambling on Fletchers on Fletchers and life in general. Interestingly there have been no complaints on Sharechat about FEG or FLB, presumably the FEG holders are happy and the FLB holders got what they expected.

As far as FFS is concerned I agree with those who take the view that the investor (or should it be punter) has only himself/herself to blame for the predicament they find themselves in. Rule number one of playing the stock market "Only put in what you are prepared to lose."

As we all know markets are driven by greed and fear. The greed phase saw small investors pile into a situation where they were hoping to make a quick buck, dazzled by an apparent NTA of $1.70 per share and assuming that the FLP lightning was going to strike twice in the same place. I am not being wise after the event re the valuation as I have said before that forests assets are notoriously difficult to value and at the end of the day they are only worth what someone is prepared to pay (look at the asset backing of meat processing companies back in the seventies and eighties)

As I have mentioned several times cash flow is what is critical to FFS not asset backing. FFS has been for sale for about two years so the chances of a buyer emerging now were never that great. New money had to came from somewhere and as borrowing was out of the question it had to come from either placement or a rights issue. Imagine the outcry if the board had decided to place 1.6m shares with institutions at 25cents (screams of favouritism to their mates, trampling on the small shareholders, etc. etc) at least by taking the rights path issue all shareholder have the opportunity to participate or to sell their rights.

Now we are in the fear phase. According to the brokers reports I have read the fair value of FFS is in the 75c to 85c range. They have the time and expertise to analyse the company and crunch the numbers which are not straightforward due to the complex detail around the CNIFP and in the absence of anything else I have to accept their judgement. Nothing has changed to the fundamentals of the company except that the rights issue will strengthen the balance sheet, although to be fair CITIC are playing harder ball than expected and log prices have softened a bit but this should be offset by currency movements. And yet small investors seen to be bailing out in droves; I assume it is the small investors who are selling as not more than 3 or 4% of the company has changed hands in the last two or three days.

I for one will be taking up the rights and putting the shares in the bottom drawer. I agree with Ian Andrews re transfer of value. I remember NZP as well, I think Eric Ian and myself were the only ones who took up the rights issue and we all made a killing.

For those hoping for CAH to ride up on a white charger will be disappointed, the Commerce Commission would never allow it. The only likely buyer is Weyerhauser but I am sure that if they are still interested they will wait until things settle down after the rights issue.

John Redgrave remarked that there was a correlation between his losses and the shares most frequently talked about on Sharechat and perhaps there was some ramping and hype on this board that if I understood him correctly influenced the share prices. It would be nice to think that the members collectively could move markets but I doubt it , we merely reflect the opinions of the many thousands of small investors out there who are generally interested more in the quick buck than in long term gradual growth

Whilst on the subject of ramping, I wish we could stop using the term. To me ramping is defined as the manipulation of share prices, usually in small companies, by insiders (including brokers). Whilst I am sure that it takes place in NZ nobody on Sharechat has the ability to ramp anything. I propose that anyone who uses the word in future should be condemned to spend three nights sleeping on Ril’s floor.

As far as the Board of Directors are concerned they have done what they see fit is best for the shareholders but as has been pointed out they have presided over the decline of this company over many years. They have rubber stamped too many shonky proposals from headstrong executives. Two of the problems as I see it are

1. They have been very loyal to senior management, very few top men have been fired. There is a saying in the company "the more you lose, the higher you go" This seems to have encouraged a cavalier attitude. This is illustrated with a conversation I had with Hugh Fletcher (name dropping Hudson!) three or four years ago. I told him that I was concerned about the steel investment in China but he put my mind at rest by telling me that they were only putting their toe in the water and the exposure was limited to $5m. And yet it cost us at least $70m.The Board must have been approved this but who carried the can?
2. They play continual musical chairs, no one ever seem to be in a job for long enough to be responsible for his decisions before he is moved to the next assignment. I hope that the transfer of Terry McFadgeon to FFS does not come into the same category. Alexander Todte will have a different style from Terry and there is bound to be an unsettling period at FLB while Alexander gets his feet under the table and brings in the changes he is sure to make.

I have not seen anything about who is likely to be on the boards of the new companies but I would bet dollars to donuts that it will be the same old faces. IMO the board members should accept collective responsibility for the Fletcher fiasco and fall on their swords. I hope that the institutional holders of FLB and FFS make sure that this happens.

Whilst talking about FLB I note in the daily email I get from one of the brokers that they reckon that FLB is selling at 54% discount to fair value.

Just caught up with the Commerce Commission news re FEG/Shell. Oh dear! Now the FEG holders will be upset as well. I assumed that the company must have had a wink from the Commission before they made the restructuring announcement but obviously not. Now people are baying are baying for Deane’s blood for making the announcement too early, probably the same people who were moaning about the lack of information last week. Damned if you do, damned if you don’t My guess is that the announcement was made before it was planned to pre-empt leaks, too many people were in the know.

Where does it leave us? Unless the Commerce Commission can be made to change their mind in the "National Interest" is probably means three stand alone companies as the Forest recapitalisation appears to be set in concrete. At least the FEG management will be pleased. Seeing as Shell values FEG minus Capstone and Rubicon (they should have left out the Rubi) at $8.30 why should the shares drop? But they will. Greed turns into fear again.

Discuss

Cheers

Mike H