Forum Archive Index - July 2001

["Peter" <pmaiden@xtra.co.nz>]

Carter  Holt  Harvey  are having their annual meeting this week and 'The Herald' reports  there  could  be  some  searching  questions  asked about the company's current performance.

Shareholders  should  be  concerned  and disappointed as to how their company is performing.

Reported loss for the June 2001 quarter was $34M, Even taking out 'restructuring and non-recurring items' out their is a loss of $7M.

As  an  aside  it  is  interesting  that  CAH  have  reverted to the practice of emphasising operational earnings and not saying too much about real earnings.

Included  in the June quarter result was  '....all three recent acquisitions made positive earnings contributions despite difficult trading conditions. In the Pulp and Paper group the Kinleith, Penrose and Whakatane mills all achieved record or near record production in the quarter.'.

 

Also the continuation of   '..... has delivered profit improvement projects of over $200 million in the last three years.'  has had a favourable impact. However how long can a company save it's way to prosperity?

 

Taking these factors into account his does not say much for the underlying performance of CAH

Rolling  four  quarter  earnings show that the last 12 months earnings have been $113M.  That includes the $86M earnings in the September 2000 quarter. According to CAH prospects do not look too good for the corresponding period this year. If
the  forthcoming September quarter is similar to the just concluded June quarter than earnings on a annual basis to September 2001 are near enough to zilch.

This from a company with revenues of close on $4B, shareholders funds of just on $5B  and  long  term debt of $1,7B. In addition CAH doesn't currently have a tax expense.

No wonder shareholders are disappointed and frustrated.

 

Even  at  the  current share price of $1,75 the market is valuing the CAH future cash  flows  at  a negative $3.6B. This is how much economic value the market is expecting CAH to destroy in the future.

How does one then justify the CAH share price of $1.75?

 

If you use a earnings multiple the current price is about 27 times the past 12 months earnings. In a few months times it is likely there won't be any earnings to make this calculation.

 

Therefore justifying the current price has to be based on how CAH will perform in the future or speculation about a takeover or whatever.

But based on history (have a look at long term trends) what has changed to make them consistently earn over $250M per annum to justify the current price on earnings performance? Or when will CAH earn in excess of $700M to cover it's cost of capital? There is a lot of hope shown in the future when it comes to improved performance from CAH.

 

Ok - maybe at the bottom of a cycle - if so CAH missed out on the tops of the last cycle. Will they do it again?

If shareholders do ask some sesarching questions at the meeting it will be interesting what the CAH response is.

I have no direct interest in Carter Holt but take an interest in them because if large companies like Carter Holt are healthy
then the whole country is (economically) healthier.

 

Cheers

 

Peter