Forum Archive Index - October 2002

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

Long term followers of the 'focus investment group' discussion 
board will know that the Lyttelton Port Company shows many 
characteristics of a truly excellent company.  Nevertheless up until 
2 to 3 months ago the price you had to pay to get the shares on the 
market has fully reflected this.  It's been too pricey!

However, just recently things have started to go wrong for LPC.  
They have lost a couple of big container contracts, there is rumour 
of labour unrest and a very public spat between the management and 
the largest shareholder, the Christchurch City Council, has brought 
into question whether they really are on the right track.  Naturally 
the share price has responded negatively and has traded down to a 
figure of $1.39 (allowing for dividends) in the last week, which is a 
figure not seen in years.

However the share has bounced off this support level (gulp, I'm 
sounding like a chartist now, perhaps one of our resident chartists 
would like to confirm this is right!).   According to my broker has a 
solid bank of buyers lined up at $1.45 should the share price fall to 
that level.    It is currently trading at $1.46.  

For a different measure of the downside risk of LPC we can look 
at the share price to NTA ratios of other ports:

Ports of Auckland:  Price $6.00  NTA $3.25  => Price/NTA = 1.85
Ports of Tauranga: Price $7.95  NTA $3.20  => Price/NTA = 2.5
Southport:  Price $1.65  NTA $86.3  => Price/NTA= 1.9

If we take this as a reliable range then a net asset backing of 48c, 
as LPC now has, implies a share price of 89c to $1.20.    By this 
measure then, the price of LPC has definite downside risk.  However, 
I don't believe the share price is likely to descend so low.    Even 
$1.20 the upper figure would be an all time low for his company and I 
find it hard to believe that all of the hard work achieved by 
management since floating has been undone by this latest trouble.

So what is it that has allowed the Lyttelton Port Company to enjoy 
such extraordinary profitability compared to other ports?   It is 
situated next to the South Islands largest population centre.   They 
have some important captive customers like the fuel companies that 
have invested a large amount in storage tanks that th aren't going to 
walk away from.   Ditto for the cement companies where it makes sense 
to do business through Lyttelton when much of the South Island's 
building is done in Canterbury in general and Christchurch in 
particular.    There is no free land around Lyttelton so it is 
unlikely another port company would be able to step in and compete.

Pacifica Shipping's Mark Crout, is on record as saying that it uses 9 
New Zealand ports and it is Lyttelton that has the highest charges.  
When Pacifica, which specializes in local coastal shipping, started 
operations in 1983 port costs at Lyttelton made up 3.4% of total 
costs.    Today that figure is 17%.     How can the Port of 
Lyttelton get away with such relatively high charges?   Because of 
their strong market position!    None of these fundamental factors 
have changed with the loss of container business.  Less trumpeted by 
the media is the increase in coal and wood exports, which thanks to 
the long-term agreements with Solid Energy and the 'wall of wood' 
will continue to drive growth.  I do expect a patchy year for LPC in 
2003 while the labour problems are sorted out but I think that in a 
years time these problems will be seen for what they are: Short term 
noise in the development of New Zealand's most successful port.   In 
the meantime, while all the trouble is in the headlines, I believe 
there exists a golden opportunity to buy into LPC at a very good 
price, as I have just done.   Readers who would like a more 
'quantitative approach' as to why LPC is a good buy might care to 
look on the focus investment group for my latest post on this 
company.

SNOOPY

Discl:  Just bought into LPC at $1.46


---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
----------------------------------
"Stay on the upside of the downside, 
Anticipate the anticipation!"



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