Forum Archive Index - May 2004

["Fiona Phibbs" <fibz@xtra.co.nz>]

Hi snoopy

I am at the moment doing a 'school' report on WRI and have found out a few
interesting things that you may be interested in.  You may be aware that I
have been a fan of WRI and have owned the company ever since GPG made their
bid a few years ago.  My analysis has uncovered a few things that have
'cooled my ardour for the stock'.  You are probably know that WRI has an ROE
that is higher than its comparable companies such as PGG and WKI and that
the market generally rewards companies that can earn better than average
returns than their peers by pricing them at a premium over their net assets
that is also greater than their peers.  Well have you ever disagregated WRIs
ROE?  If you do you may find some interesting things.... Basically WRI
boosts its ROE by having an asset turn that is greater than its peers and
this is achieved through operating leases instead of owning assets!  In fact
I believe that it does so at a rate that is almost twice that of its rival
firms.  If you adjust WRIs preformance to take account of this the its ROE
then drops to below that of the industry average and more in line with its
profitability which is also below industry.  I wonder how long its price
premium will continue?  What do you think??

cheers Dean

----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Wednesday, 19 May 2004 17:39
Subject: [sharechat] WRI battle warming up



Today I received the largest piece of mail that has ever come through
my postbox:  A full A1 size poster from Rural Portfolio Investments
which included insert photos of 'poster boys' Baird McConnon and
Craig
Norgate.

Well, if RPI wanted to get my attention they got it!   My attention
was drawn to the fact that MD Allan Freeth had sold his entire
shareholding in Wrightson's to RPI, a fact that somehow escaped my
attention on October 4th 2003 when it happened.    A quick search of
the Herald archives showed up Freeth's reason.   400,000  of the
shares that were sold were options just exercised.    This is not
uncommon if the option beneficiary doesn't have the spare few
$100,000s lying around in a cash bank account that would allow him to
own the shares outright without borrowing money for the privilege.

If we assume an option excise price of 57c and a head share sale price
of $1.45 that gives a figure of 88c of cash released per share sold.
That makes $352,000.   Add to this the $360,000 cash component of
his
salary that Freeth received last year and you have over $700,000 of
cash flowing into the private Freeth bank account in FY2004.

That caused me to have a bit of a chuckle when matched to the
Auckland Herald Freeth quote:   "I'm not a wealthy individual."
He can't even use the excuse of living in Auckland can he?   Somehow
I
don't expect to see the Freeth family queueing up at the soup kitchen
anytime soon! The catch phrase:

"Only $700,000 per year, how can I possibly survive."

doesn't pull on my heart strings either.

Nevertheless I accept Freeth's explanation in principle, if not in
tone.  I also note the cooment that the selling of his long term
holding 14,500 head shares was a broker mistake that will be
reversed.

Also in the mail this week I received 'my broker's' recommendation on
the WRI offer.

------------

RECOMMENDATION:
SHAREHOLDERS SHOULD ACCEPT THE CASH OFFER.

Prior to the announcement of the intended offer by RPI the shares
were
trading at $1.24 and are continuing to trade around $1.39 to $1.42
subsequent to the offer and release of the Independent Adviser's
report.

The recent performance of WRI has lacked consistency, the half year
to
31 December net profit was $2.735m, down 34%. Factors in this result
were changes in trading conditions in Livestock and Wool, the
underperformance of the Rural Supplies business, increased
competition
in the animal feed supplements market, slightly softer demand for
seed, and delayed expansion of the finance business. The drop in the
half year result followed on from the 2003 full year result which was
down 12.7% to $18.475m.

At the current share price of $1.39 WRI is trading on a forecast Price
to Earnings Ratio (PE) of 15.3 to 16x. Rural stocks historically have
traded on a PE of 10x or less and in comparison WRI's listed
competitor Pyne Gould Guinness is currently trading on a PE of 10.5x.

While the dividend yield of WRI is good at current levels the stock
appears to be overpriced and further share price growth, subsequent
to
the takeover, will be dependent on the company's results of which
there is no certainty due to the cyclical nature of its operations.

We feel better value lies elsewhere in the market and hence advise
clients to accept the cash offer and look to reinvest the proceeds.


------------


So it looks like they agree with me that accepting the cash offer is a
better bet than acquiring the RPI notes.

I am also aware that Norgate has questioned some of the multiples
used
in determining the WRI company valuation in the independent
adviser's
report.

I was told that the independent report will be in the mail to me this
week so I will be paying very close attention to some of those
underlying valuation assumptions that the  independent report
contains.

In the meantime I will be looking for more information from Norgate on
what he plans to do with the company.should his partial takeover be
successful.  Indications are he needs to keep the dividends high to
fund the leveraged nature of his bid.    Does that mean the
jettisoning of the Genesis Research investment, and a rather less
aggressive expansion into finance than might be desired my current
management? Norgate certainly hasn't said so, but reading between
the
lines,  I think it does.

In the meantime while things are warming up in the kitchen, I'll be
checking the ingredients in the pantry and, at the same time looking
at the kind of wall papering job I can do with the 'free wallpaper' I
have just received from RPI !

SNOOPY

--
Message sent by Snoopy
on Pegasus Mail version 4.02
----------------------------------
"Dogs have big tongues, so you can bet they don't
bite them by accident"


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