Carter Holt tips buyback to escape doldrums

By Nicholas Bryant

Friday 31st March 2000

Timber giant Carter Holt Harvey is considering a share buyback as its drooping share price slumps close to 1987-crash lows, despite improved trading conditions.

With a buyback trend set this week by Contact Energy and Infratil, CHH chief executive Chris Liddell has indicated the company may do the same with some of its heavily discounted stock.

"A buyback is one of the many things we're looking at," Mr Liddell said.

CHH today receives a cheque for $2.1 billion, the balance from the sale of its dysfunctional South American partnership, Copec.

Mr Liddell said $423 million of the proceeds would go toward buying Australian timber processing company CSR, announced last month, while other money would be used for paying short-term debt.

But the large remainder is only loosely tagged according to the CHH boss.

"We are looking at a range of acquisition opportunities but, if those don't meet the standard we want, then a share buyback becomes more likely."

The indication of a possible buyback, the least desirable use of funds, is symptomatic of the ailing state of the stock market according to analysts.

They say some shares' performances are now so bad many companies are focused on using spare capital for high dividends, as has been evidenced by this year's benevolent, tax-beating round of interim results.

Having closed at a year low of $2.51 last week although it has traded as high as $3.76 and has been valued by analysts at $3.66, Contact Energy bosses said "enough," and on Monday announced Contact would buy back 5% of its shares during the next 12 months.

Infrastructure and utilities investor Infratil New Zealand, whose chief executive Lloyd Morrison has been highly critical of institutions for not recognising what he sees as great value, has announced it will buy back close to 10 million shares.

Meanwhile CHH's Mr Liddell said he accepted the shift in interest from old to new economy stocks but was puzzled by the company's $1.65 share price and, given positive shareholder reaction to its strategies, bemused at how out of favour the commodity sector had become.

Mr Liddell and other CHH bosses believe the commodity market has hardly been better. The company's pulp and liner board contracts are fully sold and strength looks likely to remain in crucial Asian markets.

Prices for radiata pine pulp are up, selling for about $US600/tonne and liner board is up at $US500/tonne. The log market is favourable in Asia, except Japan, with prices edging up. Tissue continues to do well, while wood product markets are positive here and in Australia.

The company is expecting a good fourth-quarter result in early May and was heartened on Thursday with news ratings agency Moody's had recognised its strong fundamentals and raised its unsecured debt rating from Baa3 to Baa2.

Mr Liddell said the only negative blip on the radar for the next 18 months was a possible domestic interest rate rise and Australian GST-spurred decrease in residential construction.

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