Forum Archive Index - April 2001

["ashbb" <ashbb@xtra.co.nz>]

I suppose many have read the article below already. I'm wondering what chatters feel about the sentiments expressed here, particularly in light of Capstone's recent performance - will that have a bearing?    ashbb

WELLINGTON, April 4 (Reuters) - Buying into newly listed New Zealand forestry and technology company Rubicon Ltd is a cheap entry into Fletcher Challenge Forests with the added bonus of a possible capital return, New Zealand's largest fund manager said on Wednesday.

AMP Henderson Global Investors has moved to a 10.75 percent holding in Rubicon, which floated on the NZ Stock Exchange last week as one of the residual companies from the former Fletcher Challenge Ltd (FCL) conglomerate.

"We like the bulk of the assets it's got at the moment and in particular their (Fletcher) Forests shareholding which we think there's a lot of upside in," AMP equities manager Stephen Walker told Reuters in a telephone interview. "We think that Rubicon is going to do very well out of that."

Former FCL divisions Fletcher Forests and Fletcher Building were spun off into separate companies while technology and residual assets were put into Rubicon -- the shares of which were issued to former Fletcher Energy shareholders.

Rubicon puts its net tangible asset backing at around NZ$0.88 but has been trading in a range of NZ$0.40-NZ$0.49.

It closed on Wednesday unchanged at NZ$0.44.

AMP Henderson, which manages more than NZ$9.5 billion in NZ funds, inherited about three percent of Rubicon through its holding in FCL Energy, which was sold to Royal Dutch/Shell Group.

It moved to 10.75 percent at an average entry price of around NZ$0.42-NZ$0.43 per share and a maximum of NZ$0.45, Walker said.

AMP also holds more than five percent of Fletcher Forests and Fletcher Building, he added.

"We just love the Fletcher companies," Walker said.

"We are very positive the Fletcher companies now that they have their own boards, have proper stewardship and the people are actually focused on these assets rather than a bigger group."

Within FCL, the Building and Forests divisions had their own stock on issue but there were strong balance sheet and voting links which Walker said led to market discounts.

"There is a significant increase in value from the removal of those discounts," he said.

Fletcher Forests shares, which went as low as NZ$0.24 in November last year, closed on Wednesday at NZ$0.32 while Fletcher Building shares closed at NZ$2.33.

MARKET UNDERVALUES RUBICON

Walker said Rubicon's steep discount to its asset backing had created a market opportunity for AMP.

"Our conservative assessment of the current prices and values of the assets is that the discount...is far too big," he said.

Given that half of Rubicon's assets were in Fletcher Forests shares, with another chunk in Capstone shares, Rubicon should be trading around NZ$0.55, Walker calculated.

"We see a lot of upside in Forests from the resolution from the Central North Island (CNI) partnership with the sale of that through the receivership process.

"We think on a six month view the value of Forests and therefore the value of Rubicon will be significantly higher."

Fletcher Challenge Forests has written off its holding in the CNI partnership, a joint venture with China's CITIC that collapsed in January under the weight of low log prices and an acrimonious dispute between the partners.

FCL Forests has said it expects to get some of its money back through a second mortgage it holds over the partnership.

Brokers were valuing Fletcher Forests at around 45-50 NZ cents, Walker said, and he expected it to get there in around six months -- once the CNI receivership was resolved.

"With the removal of some of the uncertainty you'd have to be trading closer to that," he said.

"Rubicon gives you a very cheap entry into forests, in a way. Forests are about half of the assets so you could say that if you believe the value is 85 cents you're buying the forests part at market value and you get the rest of it for free -- and there is some value in the rest of it."

CAPITAL RETURN POSSIBLE

Walker said he did not see his fund remaining so overweight in Rubicon on a long-term basis.

"We don't see ourselves being a long time holder of this size in the business that Rubicon becomes, its biotech and venture capital-type activities, but it's going to be 12 months before it gets there and I think there is significant value realisation to come before that."

"Given our outlook for Forests -- that when Rubicon eventually exits Forests it will probably be over-capitalised for what it wants to do -- we see a reasonable potential for capital return at some time in the future."

(c) Reuters Limited 2001