Forum Archive Index - May 2004

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

Hi Dean,
 
> 
>You are right it may be a perfectly rational decision to lease rather
>than own assets from a bottom line viewpoint.  The point I was trying
>to make that it is important to compare apples with apples when
>judging a companys relative performance compared to its peers and
>whether its performance justifies any price premium that it enjoys in
>the market - if in fact this is the case. 
>

I think the reason for the WRI share price premium is that there has 
been a slump in profits at WRI rather than the share price being 'bid 
up' to a premium.   IMO the market is taking the view that the 
profitability of WRI will improve, and that in itself will dissipate any 
price premium while the share price itself goes nowhere.    Incidentally 
this is one area where I agree with Norgate.    I don't see huge gains in 
the share price over the next 12 months.  Perhaps $1.60 might be tops 
and $1.50 more likely.     But add on the dividend (2.5+6.0+3.0c per 
share) and that still translates to a very nice return.

I understand your desire to compare apples with apples Dean.   But I 
presume the company's relatively high level of leasing is management 
policy.  I am not sure what is gained by asking 'what if the management 
bought their real estate back', when it is clearly management policy not 
to do so.  And I can't see a Norgate controlled WRI raising extra cash 
to do that either.

>
>Like you I did not buy WRI
> for its ROE but as a turnaround prospect.  What I did see at the time
> was a company with a strong brand, little debt, the sector at a low
> point, and buying its shares at low valuations which seemed to boost
> the odds of a turnaround in my opinion.  
>

That was a calculated gamble.  I wasn't so confident about the WRI 
brand as you were at the time, so judged that it was too risky to buy in.   
As it turned out you were dead right and you have benefited 
accordingly, so very well done!  Nothing at all wrong with taking a 
calculated gamble!

>
>The stock has since turned
> into a yield stock for me as well and now I face the quandary of where
> can I get a comparable yield if I do decide to sell - I guess you are
> in the same boat?  
>

Exactly.   A company which is the leading player in its chosen sector, 
has low debt (although perhaps it is only defacto low because they 
don't own enough of their operational properties?) and one of the best 
yields on the market, even at $1.50.  It is very hard to see what I could 
replace WRI with.   PGG perhaps?    But that share is already under 
the thumb of PGC, so I don't see a battle for control looming there.    I 
know I am starting to talk like a speculator now, but there is nothing 
wrong with a little informed speculation!   I'm not sure I want to give up 
my seat at the rural reorganisation round table to Norgate.

>
>Also in regards to WRI I am a little concerned
>about their strategy. By investing in R&D and their Solutions strategy
>they appear to be heading along a differentiation path in what is
>essentially a commodity business. 
>

I think that is the point though.    WRI don't want to be 'just a 
commodity business' with the low p/e market rating that this implies.  
Personally I like the idea if going the more value added way, although I 
agree that the jury is still out on the success of this strategy.

>
>Whether this will work and have long
>term benefits to the company is anyone's guess but it is certainly
>impacting on their near term performance. 
>

Yes

>
>If Norgate and Co do manage
>to get control it will be interesting to see which direction they will
>take with the company.
> 

Is there any secret about it?  Norgate will need the dividend flow to 
fund his bid.  That smacks to me of a return back to the core business 
and the discarding of any value added dreams.

SNOOPY



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