Forum Archive Index - December 2002

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

When considering an investment it is my belief that any investor
should consider possible alternatives.  New Zealand being a small
market means that often there are not any real alternatives.  Indeed
this is the case for those wanting to 'invest in steel'.   Over the
last 3 months I have made several posts dealing with STU, OST and BSL.
 My thinking about these is all 'in the archives'.  This post is all
about putting numbers to the projected earnings and the investment
returns they imply.

I have made some earnings estimates, together with future share price
estimates to help us estimate a compounding rate of return, over three
years, for all three shares studied. Three possible investments in the
steel industry are being evaluated here: 'Steel and Tube' ($NZ3.10), 
'OneSteel' ($AU1.75) and 'BHP Steel' ($AU3.10).  Closing share prices
on Friday 13th December 2002 are the figures brackets.  Projected
dividends in cents per share for each of the years FY2003, FY2004 and
FY2005, followed by the estimated closing share price at the end of
FY2005 are as follows:

Company, dps. FY2003, dps.  FY2004, dps FY2005, share price EOFY2005

Steel & Tube (STU): 19c, 23c, 23c, $3.30
OneSteel (OST): 6.5c, 8c, 9.5c, $1.96
BHP Steel (BSL): 20c, 30c, 20c, $3.10

For New Zealand 33% rate taxpayers (ignoring exchange rate 
fluctuations) , the returns are:

Total After tax income + Capital Appreciation; Compounding Rate of
Return over 3 years (after tax)

STU: 19+23 +23+ (330-310)= 85c; 8.4%
OST: (6.5+8.0+9.5) 0.66 + (196-175)= 36.8c; 6.5%
BSL: (20+ 30+ 20) 0.66 + (310-310)= 46.2c; 4.7%

For 39% taxpayers, the figures are slightly different:

STU: (19+23 +23)(0.61/0.66)+ (330-310)= 80.1c; 8.0%
OST: (6.5+8.0+9.5) 0.61 + (196-175)= 35.6; 6.3%
BSL: (20+ 30+ 20) 0.61 + (310-310)=42.7c; 4.4%

For Australian Taxpayers (ignoring exchange rate fluctuations) 
the returns are again:

Total After tax income + Capital Appreciation; Compounding Rate of
Return over 3 years (after tax)

STU: (1.176)(19+23 +23) 0.7 + (330-310)(0.85)= 70.5c; 7.1%
OST: (6.5+8+9.5)  + (196-175)(0.85)= 41.9c; 7.4%
BSL: (20+ 30+ 20)  + (310-310)(0.85)= 70c; 7.0%

(Based on corporate tax rate of 30%, and capital gains tax of 
half that rate 15%, and NZ supplementary dividend factor of 1.176)

All of these figures assume no growth in the market for steel.  
This is why the BHP Steel and Steel and Tube share prices are flat
over the three years studied (the STU price is only boosted because of
the impending buyback of shares).  The growth in the OST share price
reflects the inventory handling efficiency improvements only.  If the
above assumptions do not hold, then returns can be expected to vary
significantly from those published here.

SNOOPY

Disclaimer:  These projected rates of return are indicative only and
highly sensitive to the way in which it is assumed the business will
develop, and variations in the buying price for the shares concerned. 

They do not consider tax issues as they apply to different 
individuals.   It is strongly suggested you contact your investment
advisor before taking any action on this information.


---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
----------------------------------
"Sometimes to see the wood from the trees, 
you have to cut down all the trees."



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