Forum Archive Index - February 2004

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

Hi Pat,
 
> 
>I was interested in your comment regarding the relationship between
>OST and the building boom cooling off.  I actually hold STU and have
>been wondering the effects of the downturn in the building sector on
>the company.
> 
>STU is a major supplier to the commercial and infrastructural building
>sector.  Assuming that the residential property sector does turn down
>within the next few months, I guess the effects on commercial 
>property would probably be less dramatic... 
>and would probably have no bearing
>on major infrastructure projects where STU (or OST, for that matter)
>operates.  In fact, given the type of interventionist government we
>currently have and the fiscal surpluses, I wouldn't doubt that if
>there were a general economic downturn (which is likely to happen in
>parallel to any residential property crash) that the lefties would
>push the fiscal accelerator and spend on big projects thus benefiting
>the likes of STU....  I would like to be proven wrong so that I sell
>STU in the short term with more confidence :-)       What's your
>views?
>

Interested in your position and to see the visual slide as produced by 
Phaedrus.    First let me declare my hand.   I like Steel and Tube.  
>From my meagre dealings with them as a customer.  From the more 
focussed approach they are taking to their business.  To the recent 
purchase of a wire company (I think it was) that seemed like a really 
sensible incremental expansion.   However, I am not a shareholder 
except indirectly through the very few shares I hold in OST (Onesteel) 
which owns 50% of Steel and Tube.

So why don't I hold?    I can't remember the normalised dividend rate, 
but my recollection is that the dividend yield as quoted in the 
newspaper is being made to look better than the underlying rate 
because of the recent payment of a special dividend.  IIRC STU are 
also paying out all of their profits as dividends so any downturn in 
business will reflect the cash return you get from them immediately.  I 
can't see anything wrong with this company apart from the fact that 
most of the sectors they operate in are in a kind of sweet spot and I 
know that sweet spots do not last forever.

My instinct tells me the next significant move for Steel and Tube is 
down.   But I also thought that a year ago when the price was around 
$3.40 :-).    I cannot explain why Steel and Tube is now trading around 
the $4 mark.  I haven't caught up with any big new projects that are 
sitting on their books which I suppose might explain it if you looked (?).
'Auckland motorway' perhaps?

I have a rule of thumb that says when a share gets to 20% above fair 
value you should look to the sell button and look at an exit strategy.  
Well Steel and Tube is there now.    I am always reluctant to get get 
out of a really well run business completely.  Perhaps Phaedrus has 
got it right by having a tiered exit strategy.    Or perhaps now is a good 
time to cash in the chips and, (saying as we can buy so many 
Australian dollars at the moment),  shuttle them across the ditch into 
Onesteel.  Unfortuantely I see OST as 'fair value' rather then 'cheap' at 
around $1.80.   But there has probably never been a better relative 
time to make the switch.

SNOOPY

discl: hold just a few OST




  
--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Stay on the upside of the downside, 
Anticipate the anticipation!"




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