Forum Archive Index - November 2001

[nickk@quicksilver.net.nz]

nick

no....but funny thing is..he is irish!!!

nk

nick writes:

>          
> 
> 
> Gaynor: Frucor share offer looking tasty 
> 
> 21.11.2001 By BRIAN GAYNOR 
> Investors should think twice before rejecting the $2.35 a share bid for 
>Frucor. 
> 
> Although Grant Samuel has valued the company between $2.53 and $2.96 a share, 
>recent experience indicates that the company may not achieve the profit 
>forecasts on which this assessment is based. 
> 
> We need to look at Frucor's history to see why shareholders may be best 
>advised to disregard the independent directors' "don't sell" recommendation. 
> 
> In June 1998, the Apple and Pear Marketing Board sold Frucor to a consortium 
>of investors, mainly from Australia, for $50.4 million. 
> 
> In a complex capital reconstruction, the consortium contributed $18.7 million 
>and borrowed the rest of the purchase price against Frucor's assets. 
> 
> In the middle of last year, the consortium offered 62,625,000 existing Frucor 
>shares (50.1 per cent of the company) to the public at an indicative price 
>range of between $1.95 and $2.25 a share. 
> 
> The issue price was eventually reduced to $1.50. 
> 
> After its sharemarket listing in June last year, Frucor released a spate of 
>positive press statements and analysts fell in love with the stock. Most have 
>had a "buy" or "strong buy" recommendation for most of the past 17 months and 
>their valuations have generally been well above the company's share price. 
> 
> As one would expect, Frucor achieved its profit forecast for the June 2000 
>year because the prospectus was issued just six weeks before the balance date. 
> 
> But the year to last June was a different matter. Frucor reported a net 
>profit of just $11.7 million, compared with a prospectus forecast of $20.4 
>million, and operating earnings of $13.3 million in the previous year. 
> 
> The poor result was due to the disappointing performance of its V energy 
>drink in Britain. 
> 
> The Grant Samuel report revealed that Frucor recorded a net loss of $4.6 
>million between July 1 and October 26. Although the company is subject to 
>seasonal factors, this indicates that it is performing well below the year to 
>June. 
> 
> Frucor must earn $11 million this month and next to match last year's interim 
>result of $6.4 million. Based on experience, this is extremely unlikely unless 
>its advertising spending is slashed. 
> 
> There are several additional observations from the Grant Samuel report: 
> 
> * Frucor is highly geared, with shareholder funds of just $27.8 million and 
>assets of $124.1 million, including $33.6 million of intangibles. 
> 
> * The company's bid to establish itself in Britain has not been successful. 
> 
> Grant Samuel concludes: "The sales performance for the first four months of 
>the current financial year has been poor due to an overall decline in the 
>energy drinks market in the UK. Frucor's UK business is continuing to incur 
>significant losses and in Grant Samuel's opinion, may not be viable in the 
>absence of a strategic partner." 
> 
> When Frucor was floated last year a great deal of emphasis was placed on its 
>expansion into Britain. The success of this strategy was important because the 
>Australian-led consortium had extracted full value from the company and left 
>it with a highly geared balance sheet. 
> 
> The Australians now want to get out. They will realise a profit of more than 
>$220 million on their original investment of just $18.7 million if Danone's 
>bid is successful. 
> 
> Frucor's remaining shareholders should seriously consider accepting the 
>offer, but should wait until just before the December 7 closing date before 
>making a decision. 
> 
> The company is expected to report a disappointing result for the six months 
>to December 31 and may need to raise more capital to strengthen its balance 
>sheet. 
> 
> This suggests that its share price could fall well below $2.35 if the bid is 
>unsuccessful and Danone walks away
> 


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