Forum Archive Index - September 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Holden,

> 
>Tonight I thought I would dabble with trying to find value. 
>



As a confirmed 'value' investor, how can I fail to answer a post like 
that?...

I don't know anything about GTP except what you have told me Holden.  
However, often I find the best way to see if an investment stacks up 
is to compare it to an industry benchmark, rather than an industry 
average.  My favourite share in the forestry sector is Carter Holt 
Harvey.   

What I propose is a 'bout', with GTP in the red corner and CHY (this 
is the Australian ticker code for Carter Holt) in the blue corner.  I 
like to compare a potential investment with one of the best in the 
industry rather than just an average investment.

Shall we start?


>
> 
>What is GTP?
>~~~~~~~~~~~
>Great Southern Plantations (GTP) core activity is plantation
>forestry with operations in Western Australia, Victoria and New
>South Wales. The company manages investments in plantation
>timber.
>
>

It sounds like the nearest thing on the New Zealand market to GTP is 
something like Nuhaka or Evergreen.  My view is that maximum 
profitability from forests will be obtained when the company that 
owns the forest can add value in downstream processing.  So in New 
Zealand this means I favour those forestry companies that also own 
processing factories like Fletcher Forests and Carter Holt Harvey 
over Nuhaka or Evergreen.  However I don't have any evidence to back 
my view up.  I just feel it should be so.  Perhaps you can prove me 
wrong?

> 
>What made this stand out for me?
>~~~~~~~~~~~~~~~~~~~~~~~~~~~
>What made this stand out for me initially was that it wasn't much
>above it's 52 week low of 0.50 with it's current close of 0.65.
>
>


65c is, in percentage terms, quite a bit above 50c.  It is 30% 
higher!   Nevertheless GTP has historically been much higher 
again quite recently.  But there is no guarantee that it will ever 
get back there.  Nevertheless I agree with your basic premise Holden. 
 Better to buy low than high, particularly when a company is in the 
commodity business.


>
>
>I was looking for a company that wasn't performing well because I
>read that value companies often performing badly. A look on
>the chart does show that it has been on downward trend for about 
>the last 4 months.
>
>


The 'forestry industry cycle' (if there really is such a thing, 
sometimes I wonder!) tends to run in years rather than months.  
Nevertheless you seem to have found a company in GTP that has been 
through the turning point.  However, do I detect some sort of 
resistance point on the chart at near 70c?  I wonder if it is really 
in an uptrend now or just going sideways?  For the pure value 
investor of course, the answer to this question doesn't matter.

>
> 
>Some Numbers
>~~~~~~~~~~~~
>On to some numbers, this data is based on 2001 figures, is that OK?
>
>

That depends whether those figures are strictly relatable to the 
company 'GTP' that you see today.  Has there been a big rights issue?
Has there been a very large dividend payment?

>
> 
> Asset backing per share = .859913
>
>

Yet the price is only 65c.  This means the price to asset backing 
is 65/86 = 76%

But Carter Holt is even cheaper trading at only around 62% of asset 
backing.  A point to CHY. 

>
>
> Asset backing ratio = .75589
>
>

I was going to ask what that meant, but it looks like I just 
calculated it above.

>
>
> EPS = 16.3   <-- I didn't calculate this one 
>- what is a good EPS?
>
>

EPS stands for 'earnings per share'.   This should be compared with 
DPS or 'dividends per share'.   If the earnings per share is greater 
than the dividends per share, then this means that some of the 
profits are being retained within the company for reinvestment.  This 
is a good thing which should lead to share price appreciation over 
time. 

>
> P/E =6.02 Sector average P/E =19.24 
>

By this measure Carter Holt is expensive.  It sits on a P/E of 30.  
Score one to GTP.

>
>
>The dividend yield confused me. One site (an aussie one) said
> it was 30% but the NZHerald said it was 55.38%
>
>

One of them must be using outdated information for the dividend.  The 
dividend yield is: 

(dividends paid over the last 12 months per share)
/(current share price)

>
>
>P/E Growth Ratio = 10.00   <-- This
> I'm told is good the more it is above 1.00
>
>

Sometimes abbreviated to just PEG, this is a way of normalising the 
expected growth of a company in relation to its current share price.
And yes, ten is good, but it is based on a forecast for earnings over 
the next year.  The accuracy of this figure depends on the accuracy 
of the forecast.

>
> 
> Charts
> ~~~~~
> 

No comment

> 
> Misc findings
> ~~~~~~~~~~~
>- The balance sheet shows 2001 as having the highest shareholders
>equity over 2001, 2000, and 1999.
> 
>

The highest shareholders equity, period?  Or the highest 
shareholdwers equity in relation to debt?

>
> 
> Do I have the right idea? 
>
>

You most certainly do.  Was that really a first effort?  If so it was 
a remarkably fine one!

>
>
>>Could this be a possibly ripe undervalued 
>stock?
> 
> 

It might be.  But you haven't convinced me to sell my Carter Holt 
and switch to GTP yet ;-).  There is something very strange about 
that GTP chart

I've included a chart that I have drawn up with this post, comparing 
the share price movement of CHY and GTP on the Australian market 
over the last year.   They are in the same industry so, all things 
being equal, you might expect them to follow a roughly similar path.  
If you look at the chart both shares are rising until April 2002 when 
GTP suddenly plunges in value.   It looks like this is a company 
specific factor rather than an industry factor.   Your task, Holden,  
is to peruse the company news releases on or about that date and find 
out what happened  ( perhaps a share placement? ).  My feeling is 
that it will have a significant effect on the company's likely future 
fundamentals.  

Nevertheless, an interesting contest so far.

SNOOPY



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