Forum Archive Index - October 2000

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

Of all the stuff that comes across my desk one of the things I make sure that I never miss reading is the newsletter from the NZ Timber Insudtry Federation which is edited by the fiesty Wayne Coffey. I am sure that Wayne won't mind me sharing these two snippets on CAH

 

1.

Fire Sale?

Following a recent leading article published by the National Business Review about CHH attempting to buy log market share by purchasing logs on the open market (often at prices well above prevailing market prices) and increasing cynicism by the investment community about this strategy (evidenced by a savage fall in the CHH share price to a 10 year low) we are getting increasing and widespread reports of a rapid buildup in CHH log stock piles round the country, particularly at Kinleith, Maramarua. log yards in the North, and Korean log Spec-S around ports in the South Island. Some estimates put the stock pile at 395,000m'. The general theme is out of -spec. logs without a home.

Not a great time of year to be stock piling logs - unless you will pay a premium for colour.

Worst of all we hear sapstained sawlogs without an export market being chipped.

But it's a great way to study for stage I Economics.

With Korean buyers well aware of the CHH dilemma (and along with New Zealand buyers starting to lick their lips) there is a growing expectation of a f iresale.

Of course the company could tough it out - which it is quite capable of doing with its strong f financial resources, but sooner or later disgruntled shareholders are going to scream enough is enough.

'You can't make money selling your own logs; why on earth are you buying other people's at a premium to add to your own marketing problems'.

NBR noted CHH complaining that its customers needed to learn to become more efficient so they could afford to pay more. Customers(certainly in our industry)are not known for enjoying insults from their suppliers so little wonder historically preferred suppliers have suddenly become the suppliers of last resort.

Most customers confronted by a wall of wood however look on more in bemusement.

It's all good for a giggle but not for long suffering and now embarrassed shareholders.

2.

CHH

If you want to invest in forestry the easiest, most flexible and most profitable way might be to buy some CHH shares this week selling at Asian crisis levels of $1.60; against a net tangible asset backing of $2.65 and a p.e. of just 7.

That's a huge vote of investor no confidence in the stock, now N' 2 on the NZSE 40.

The September pulp and paper index has been heading the wrong way recently and that affects CHH's perceived value.

CHH's parent, I.P.'s stock in August 2000 hit 32.07 down from a year high of $60.00 so there is considerable negative sentiment about the company generally.

The building industry in Australasia is also more subdued.

But apart from these two factors and some homely lunacy on how to corner log markets there is no fundamental reason for this stock being a dog.

The dividend yield of 4.8% is a bit light but in view of better earnings forecasts and minimal debt is more than sustainable.

The best thing CHH could do (and the market is telling it that) is to give a lot of money back to -shareholders.

Too much cash left lying around for idle hands well practiced at burning it is not a good thing. Meanwhile the company (NBR 29/9)

Suggests the way forward f or its customers is to become more enlightened!

Any thoughts on CAH

cheers 

Mike H

disclosure Hold CAH and considering increasing position