Evergreen grits teeth over share price

Friday 23rd November 2001

There are lots of rules and regulations dictating the content and layout of annual reports. However, these are minimum requirements and companies are able to add content or enhance disclosure if they wish.

To their discredit, and the disadvantage of their stakeholders, many choose not to.

Evergreen Forests is obviously a company that believes in keeping its stakeholders informed. Its latest annual report contains a detailed essay on the greenhouse effect and the role that carbon-absorbing plants like Evergreen's pine trees play in the process.

Written by forestry scientist Dr Piers Maclaren, the lengthy and lavishly illustrated article contains the sort of information that few outside the industry would come across. Of course, the article's findings are positive about plantation forestry and put companies like Evergreen in a good light. That is to be expected in annual reports and a magazine-style approach is more convincing than the typical annual report advertorial.

Reviews by chairman Peter Wilson and chief executive Mark Bogle are also informative and both betray a frustration at the company's share price, which lags its asset backing by a considerable margin. The annoyance is more than the cosmetic appeal of having a strong share price.

"Our intention is to grow the company but this objective needs to be tempered. While equity share market values continue to lag below appraised value, further growth that avoids diluting shareholder value is a challenge," Mr Wilson says.

Mr Bogle offers similar sentiments. "We remain committed to growing the company to capture further economies of scale but not at the expense of shareholder value. The company's low share price has constrained our opportunities for growth through forest acquisition in the past 12 months."

Financial reports show the company made roughly the same profit as the previous year at a little over $5 million on revenue up a third to $33 million. However, there is little use in making year-to-year comparisons as Evergreen is not an operating company. It has trees of varying ages that it aims to harvest (by sub-contractors) and sold (by a subsidiary) at the best price. When prices are low, as they have been for some time, harvesting is minimised.

"Because of market conditions, the company is harvesting its forests at less than the sustainable level," Mr Bogle points out, adding that more than half the company's assets are tied up in trees aged 20 and over. A graph also shows more than a quarter of its assets are represented by trees over the age of 25, which will need to be harvested over the next few years.

With its options limited the company has been buying back its shares and convertible notes. As well as demonstrating its belief that investors under-appreciate the company, this has proved a good investment.

The company, and its shareholders, will be hoping for more expansionary activity in the year to come.

David McEwen is an investment adviser and author of weekly share market newsletter McEwen's Investment Report. Web: www.mcewen.co.nz Email: davidm@mcewen.co.nz

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