Forum Archive Index - September 2002

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

Hi Holden,

> 
>Thanks for a thoughtful response representing a bout :)
> 
>I'll try to fill in some blanks as I go.
> 
>
>>
>>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.
>>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?
> 
> 
>does downstream processing mean they would be 
> the ones actually making the paper?
>
>

Yes.   If the GTP timber is chipped for making high quality paper in 
Japan, the theory goes that the company selling the end product paper 
will get a much higher price for the finished article than GTP 
received for the chipped wood that went into making that same paper.
Of course, a much higher price doesn't necessarily mean a higher 
profit as we have to take into account input costs.

Paper is also a commodity.   So having the expense of running a large 
paper factory while the price of paper is under pressure, does mean 
that that paper making business might not be making good profits.  In 
fact the acquisition of a large paper making business in England 
might, with retrospect, be seen as the beginning of the end of the 
Fletcher Challenge empire.

This is why I said 'in theory' it is better to add value yourself 
with your own downstream processing, but you may be able to prove me 
wrong!

  
> 
>>>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?
> 
>I wasn't sure what that meant.
>rights issue - A privilege granted to shareholders to buy new shares
>in the same company, usually below the prevailing market price. I
>haven't seen any mention of this in the news at stockness or on the
>company website http://www.great-southern.com.au/news.cfm
>
>



In this context I am speculating that a whole lot more shares were 
issued to the market at a cheap price.  After new shares are issued 
at a discounted price, this effectively devalues the intrinsic value 
of the pre-existing shares.  In other words there is no distinction 
between the old and new shares after the new shares are issued so the 
old shares are worth less.  This effect, new shares being 
issued at a discount, would be seen on the share price chart as a 
sudden step downwards.



> 
>- From the news there was a "special dividend payment" (not sure why
>it is special) of $0.30 on April 15 2002. Is that a very large
>dividend?
> 
>



'Special' indicates it is a one off payment that it is not expected 
to repeat in the future.  Special dividends can play havoc with 
earnings per share and dividend per share calculations.  If you 
calculate 'dps' including a special dividend it will give you a 
misleading picture about what to expect in the future.

Is 30c a large dividend?  In this context, with the shares trading at 
$1 before this announcement, definitely yes.  The special dividend 
alone means that shareholders will be getting a cheque in the post 
for nearly a third of their investment!  If you go back to the chart 
this explains why the GTP share price spikes up so sharply in April.
This payment would be a nice little bonus to the shareholders who 
were not expecting it, and others who wanted in on the action would 
have bought in forcing the share price up. 

The reason why the share price then falls away so sharply a few 
days later is because the share goes 'ex' dividend.  In other words, 
those shareholders who buy the shares after the share price plunge 
are no longer entitled to that special dividend of 30c.   Therefore, 
all things being equal, they would be prepared to pay 30c less for a 
GTP share, compared to before the date it went 'ex-dividend'.  Was 
there an ordinary dividend payable in addition to that special 
dividend?

>
>
>>>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.
>> 
> 
>New figures came out only yesterday so I'll revise some numbers.
>Assets had increased according to the balance sheet giving a new
>asset backing per share of 1.03093847. The asset backing ratio is
>about the same as CHY now at 0.6207936 or 62.07936%
>
>

OK that means CHY loses its advantage on that score.  This is not 
surprising as in commodity businesses that are asset rich, the share 
price to net asset backing, when expressed as a ratio, trends towards 
a constant number.

>
> 
>Ok, here is both the EPS and DPS
>EPS = 16.3
>DPS = 9.0
>
>

This means the company retains 16.3-9.0= 7.3c per share within the 
company.  This 7.3c can be used to develop the company so that it can 
make higher profits in the future. 


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

If we include the 'special' dividend, then the annual dividend 
payable is:

30c + 9c = 39c

Based on a (current) share price of 65c, this gives a dividend yield 
of 39/65= 60%.   This is close to the dividend yield as published in 
the NZ Herald, so we can assume this is what they did.  It doesn't 
exactly match because the share price may not have been 65c on the 
day the NZ Herald did their calculation.

If we leave out the special dividend, then the dividend yield 
becomes:

9/65= 13.8%

It looks like the NZ Herald is the correct dividend yield, albeit 
misleading as that special dividend is not going to be repeated.


>>
>>> 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
>>shareholders equity in relation to debt?
> 
>Not sure what you mean here. Shareholders equity as follows:
>2001 = 171 741 000
>2000 = 160 863 000
>1999 = 82 218 000
>
>


Most companies are funded by shareholders equity and debt.  It is 
usually the mix of the two that is of interest to look at.  You can't 
tell very much from the shareholders equity figure alone.


> 
> 
> 
>April 15 - Special dividends of $0.30/share. I don't understand what
>this press release means. Talks about franking credits and some sort
>of discount.
> http://stocknessmonster.com/news-item?S=GTP&E=ASX&N=214387
>
>


My translation of this press release goes like this.

For tax reasons the directors feel it would be a good idea to pay all 
shareholders 30c per share.  However, the directors don't *really* 
want to pay out that much money.  So instead they are going to offer 
shareholders the chance to take the equivalent value in shares 
instead of the cash.  To give the shareholders who want to take up 
the deal an incentive to do this they will issue these new shares at 
a discounted price (10%).

This is definitely the reason for the (existing) share price to drop.

>
> 
>May 1 - Appendix 3b, conversion of options. 460 000 shares where
>allotted through the exercise of options at $0.88/share. Could this
>possibly be the reason? I'd imagine that supply has just increased
>by a rather large amount that this would lower the markets perceived
>value of the stock. Supply and demand, no?
>
>

In the simplest terms your answer is correct.  However, I would tend 
to think of this in terms having an existing cake (the business) 
which suddenly must be cut into smaller slices.  The total cake 
remains the same size, but the issue of new shares means that all 
those with existing shares must accept a smaller slice of the cake.

Does this make a difference in this case?  I don't know if 480,000 
new shares makes that much of a difference.  How many existing shares 
were out there? 

>
> 
>May 3 - Change of directors interest. Don't really understand this
>document, looks like the director had options which got exchanged
>for ordinary shares.
>http://stocknessmonster.com/news-item?S=GTP&E=ASX&N=215635
> 
>

I suspect this is just the reality of the May 1st announcement 
taking effect.  Is the figure of 480,000 repeated?

SNOOPY



---------------------------------
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e-mail  tennyson@caverock.net.nz
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