Forum Archive Index - May 2004

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

Hi Snoopy

> As a consequence I think you need to reassess whether using a figure
> some 5 percentage points higher than the 15 year trend figure is going
> to give you realistic results.

Like I explained earlier I did obtain the risk premium of 7.5% for NZ from
the Price waterhouse coopers website - so admittedly it was not calculated
by me.  However I did reconcile it against the long run historical geometric
risk premium from the US market between 1926 - 2001 of 6% (from a study by
Ibbotson-Sinquefield) and considered that it was a reasonable assumption
that our market was more risky than theirs, and thus 7.5% seemed fair enough
to me.  Still, in hindsight  any historical figure used for future
prediction  - the past may be nothing like the future.  Interestingly Snoopy
when I looked further there are a number of different figures for beta for
WRI depending on the source of the information, so perhaps to be on the safe
side I should have calculated my own as well.

> > I used 11.5c
> >
>
> That figure was based on earnings at the peak of the commodity cycle,
> so I think it is a less realistic base figure than 8.5c that has already
> been forecast as the dividend by WRI management for this year.

Fair call.  The directors are always loath to cut dividends as it makes them
go red under the collar at AGM's, so I assumed that WRI will try to ride out
the low by not cutting theirs. Ive just this moment lost my appraisal
eport  - aren't they are also paying a special dividend to keep the div
around the same level?


> Both the figures $1.47 and $1.54 are surprisingly close to Norgates
> $1.50 bid.     That suggests to me that Norgate is not paying for any
> share price appreciation of WRI if he gets the reigns of control.   A
> tacit admission that he can't do better than the current management?

Very good. I guess the point of the exercise in the long run is the analyst
that can predict the future variables better than any one else 'gets the
gold'.  If I do decide to continue to hold WRI I hope you're right and I'm
wrong :-)

cheers Dean



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