GTP - Great Southern Plantations

[Duckman#72]

"We must ensure there are no impediments to plantation investment and, as part of this, the government is determining whether the current tax regime is providing an appropriate investment environment".

Hi abucs

I'm a GTP holder as well.

I don't know what else the government can do to make it more attractive to investors - unless they start to make it a 125% tax deduction. The current regime has done wonders for the agribusiness sector. Particularly after the ATO sorted out their Tax Rulings and there are no longer the "cowboys" in the industry selling everything from tea tree plantations to ostrich farms.

Hope the public keep pouring it in - I'm happy to be a shareholder.

Duckman

 

[savtin1]

Duckman#72 and abucs

For one they can delete that dreadful sunset clause......so that the 12 month pre-payment rule stays in place until 2020 at least...that way the sector and the respective companies won't have to wait with bated breath each time it is up for renewal (as is the case in June 2008) which i think they will comment upon in this years budget (i think in May)......

anyway what are all your thoughts in regards to when GTP will finally crash through the $4.00 barrier....it's been awhile but I will sigh a relief when it finally gets there.............i am also hoping for a good (strong) half -year result...next tuesday.....fingers crossed.......

cheers
savtin

 

[abucs]

Duckman72 and Savtin1. I agree the government has been very helpful and they see the industry as important in many ways. I was also thinking about a 125% tax deduction as well. It's been done before. It would help in the event of the top tax rate coming down to 40%. I have talked to John Young before about this and he didn't think a tax reduction would hurt sales so much. I'm not so sure myself though, every point tax reduction would translate into a lower overall return i would thiink. Although last year, over half the investors were not on the higher tax rate.
A 125% rule or an icrease in sales would be enough to sale past $4.00.
An extension of the sunset clause would be nice although in 2009 GTP will start to rotate about 20,000ha that will not need the 12 month rule and thus give them an advantage over competitors if the rule is scrapped. I think GTP is a good investment but in a strange way it will only get extremely good as far as dividends are concerned when the plantation sales slow down and GTP doesn't have to spend a greater amount each year on land purchases.
In combination with land rotation and income from cattle, grapes and olives, the dividend could soar over 40c, and drive the share price towards $10. We just have to wait. I think over the next 5 - 7 years we'll see a slow rise to the $10 mark.

 

[savtin]

Hi all GTP holders please find below a great article on the company released recently,

Australian Money Trees, Part II
The Rude Awakening
Wall Street, New York


Joel Bowman, reporting from the chilly woodlands of upstate New York...

Yesterday, in part one of his report from down under, Steve Sjuggerud introduced you to an amazing investment idea that gave new meaning to the old, "money doesn't grow on trees," adage. If you missed the first installment of this you can check it out at:

http://www.howestreet.com/articles/index.php/daily?article_id=2073

We return to the sun burnt land today where Steve pulls the figures together and shows you why investing your greenbacks in green trees might not be such a bad way to go. Actually, you could stand to make quite a healthy return. Read on below for today's Rude Awakening...

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

Australian Money Trees, Part II
By Dr. Steve Sjuggerud

In yesterday's Rude Awakening, I introduced you to a very unique timber investment. An Australian company named Great Southern Plantations (GTP.AX) buys timberland, then sells interests in the timber harvests to individual investors. Once the harvest occurs, Great Southern replants and sells the next generation of timber harvest to a new set of investors. It's a terrific business model...and one that benefits from some very sizeable Australian tax breaks.

For reasons that I explained in yesterday's column, Great Southern's shares were obliterated back in 2001-02, but have recovered nicely. The company's sales have recovered dramatically too.

From A$50 million in fiscal year 2002, sales at Great Southern grew to A$300 million in FY2005. Sales in FY 2006 could easily exceed A$400 million. And as financial planners that have just been added to the sales force get going, FY 2007 could see sales of A$500 million.

For a company experiencing this kind of growth, you might think these shares would trade at growth-stock prices. You'd be wrong...

The consensus estimate of earnings from analysts in Australia for next year is A$0.57 cents per share. At a share price of A$3.50, that puts the P/E of Great Southern (based on analyst estimates) at about 6. Man that's cheap!

Great Southern pays out a nice dividend too, in the 5% range.

The sweet spot for Great Southern really gets going in 2009. I say this because this is when the big "rollovers" start to happen with existing timberlands. Right now, Great Southern's cash flows aren't great, because they still have to use the cash coming in to buy timberlands.

But by 2009, they'll have about 20,000 hectares a year rolling over... that's 20,000 hectares of land they can "resell" at no cost to them.

At the moment, business is almost too good... Great Southern is able to sell more investment products than it has available land. So it's been borrowing money (by issuing what are basically convertible bonds) to buy chunks of land.

Great Southern has acted opportunistically. At this moment, I'm writing to you from Margaret River, Western Australia. On my way down from Perth, I passed winery after winery. This is wine country.

Great Southern has used the proceeds from these convertible bonds to acquire some existing vineyards and cattle lands. They can package and sell these as investments similar to their timber deals, with returns coming to investors much quicker than with timberland. This also diversifies Great Southern, so that it doesn't have to always rely on timberland.

The biggest concern to me with this company is that it continuously issues convertible bonds to buy new properties. This process will "dilute" the shareholders. Of course, if these borrowings create value above the cost of capital, the dilution is no problem. But there's one thing that makes me comfortable enough to recommend Great Southern... and that's John Young's stake...

John Young owns nearly 50 million shares of stock (out of the 300 million shares outstanding). So he personally owns about one-sixth of the shares. As of the latest annual report, John owned no convertible bonds.

John Young is a Big Cheese at Great Southern, the Managing Director. The last thing he'd do is dilute his own wealth by issuing any more convertible bonds than are absolutely necessary to run the business properly. So while I have concerns about future dilution of shareholders, I know that John Young will be looking out for his own shares, and will do his best to limit hurting his own wealth.

Looking at the valuation, Great Southern's timberlands were independently valued in June of 2005 by the highly- respected real estate firm CB Richard Ellis at A$620 million. As of its latest balance sheet, Great Southern had about A$120 million in cash. So in just earth and cash alone, you're looking at almost A$750 million in value. Yet the stock market value of Great Southern as I write to you is A$1 billion, which is about $750 million in U.S. dollars.

Beyond just the land and cash, you've got the portfolio of investor loans (paying Great Southern 12%), you've got Great Southern's loyal customer base (60% of Great Southern's 30,000 customers in the latest year were repeat customers), and you've got Great Southern's distribution base of 5,000 financial planners.

Remember, the investment product Great Southern sells is irresistible to individual Australian investors... It gives the average investor a generous tax benefit immediately, AND it provides them a nice return on investment in ten years time (I wish we had things like this in the States!) It's also irresistible to financial planners, as Great Southern pays out large commissions.

Great Southern can practically grow as fast as it wants. Remember, the big profits will start to show in 2009, as larger tracts of land are able to be resold. Since Australians are still skeptical of these tax-related things, I think the shares are a bit hated. For now, Great Southern is cheap at a forward P/E of 6 and paying a dividend yield of 5.3%. But the uptrend since 2002 is clearly in place.

All this is well and good... But it's not the important thing. The important thing is the ever-increasing pile of timberland that Great Southern gets paid every ten years to hold and increase. That is the jewel.

Remember Otto von Bismarck: "Investing in paper securities was a fine and quick way to get richer, but the repository of true wealth should be land on which you could grow trees."

With Great Southern, that's exactly what we get.

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

 

[Julia]

Savtin:

Great article. Pity it's not on the front page of the AFR or SMH.

Regards

Julia

 

[michael_selway]

Savtin:

Great article. Pity it's not on the front page of the AFR or SMH.

Regards

Julia

yep,

that dilution of shares is an issue, but seems its under control for the moment

thx

MS

 

[abucs]

Hi Michael. Yeah, i don't like the dilution either. Perhaps the companies announcement on other debt strategies means the dilutions in the future will become less needed (diluted even).

Hi Julia. Hopefully the recent international roadshow presentations will entice foreigners into the GTP market as well. Maybe this article came out of that. If so, hats of to GTP directors..

Hi Savtin1. Great articles and very informative. Thanks very much.

 

[abucs]

Shareholders Buying

Date Shareholder Name Previous % New %

13-12-05 UBS Nominees Pty Ltd 0 6.79
16-11-05 Commonwealth Bank Group 9.09 10.11
02-11-05 Orion Asset Management 0 5.04
26-10-05 Commonwealth Bank Group 7.77 9.09
02-06-05 Commonwealth Bank Group 6.63 7.77

Shareholders Selling

No Shareholders Selling



Substantial Shareholders List

Lattitude Holdings Pty Ltd (ATF Carlton Trust) 47,178,957 17.04
Commonwealth Bank Group 30,282,097 10.11
Orion Asset Management Limited 15,081,629 5.04
UBS Nominees Pty Ltd and its related bodies corporate 20,332,425 6.79


Will be interesting to keep an eye on the top 4 holders. If they hold and buy more it could force up the stock price quite rapidly. They now hold 39% of the shares available.

 

[savtin1]

Results are out. Woooooo eeeeee 219% increase in revenues and $108 million in plantations alone an increase of 70%. this is a very good result....


Go GTP should hit $4 tomorrow.......................

 

[michael_selway]

Results are out. Woooooo eeeeee 219% increase in revenues and $108 million in plantations alone an increase of 70%. this is a very good result....


Go GTP should hit $4 tomorrow.......................

Hehe yes i hope so

Btw what do u think the 2006 NPAT and EPS estimate will be now for the full year based on below and the new half year results?

http://www.asx.com.au:80//asxpdf/20060228/pdf/3vnfgxltzm7py.pdf
http://www.asx.com.au:80//asxpdf/20060228/pdf/3vnffhn3kbkpk.pdf

thx

MS

Michael, Selway,

My break -up is as follows:

1. Timber plantations = $79 million + $285M (same figure as last years second half result - hopefully proves to be conservative) = $364M

2. Vineyards - Based on the 1000 Ha projection = $80 but lets book in $75M

3. Olives - $55 million.

4. Cattle - $10 million

This gives us a total sales figure of $364+75+55+10 = $504Million much more than the conservative estimate of Macuaries Report which had stated $400M.

Note also that the proportion of the "other than plantation" is about 28% similar to what they forecast at the AGM of up to 30%.

Now the recoginsed revenue for the year will be as follows:-

1. plantation (recognised say 48%) = 364 x .48 =175
2. vineyards - (recognised = 90% a figure i got from GTP) = 75 x .9 =68
3. olives ( recognised = 70% same as above) = 55 x .7 = 38.5
4. cattle (85%) = 10x .85 = 8.5
5. deferred revenue of $150 m

therefore we have the following:
175+68+38.5+8.5+150 = $440Million add the other revenue as per last year say another $20million and this gives us Project Revenue of $460Million (45% increase on last years figure)

profit = .389 (similar margin to last year) x 460 = $178 million

Their EPS was affected last year due to the acquisition of the two companies
Environmest and the Tiwi Island Plantations as they issued more shares resulting in the dilution of the share registry. It is a short-term pain for a long term gain. they have approximatlety 300Million shares and with the new TREES3 (which can be converted in the future) some analysts would include these shares in the diluted EPS so i think it is 350million diluted shares....therefore my forecast EPS would be basic EPS 178/300 = 59cents ad diluted would be EPS = 178/350 = 50cents per share.

 

[michael_selway]

Not much movement today

It seems probably the Sales in the 2nd half will be the deciding factor?

thx

ms

 

[savtin1]

I don't know about that....I think you'll see some major buying in the next two weeks..The company will be holding some Institutinal Roadshow presentations to investment bankers and to other institutional investors in the coming days....this should spark some interest....the good figures coming out of GTP can't be ignored for too long............i guess time will tell.

 

[savtin1]

Hi Michael,

My revised sales forecasts are as follows: -

1. Timber plantations = $108 million + $265M (same figure as last years second half result - hopefully proves to be conservative) = $373M
2. Vineyards - Based on the 1000 Ha projection = $80 but lets book in $75M

3. Olives - Now based on 800 Ha $64 million.
4. Cattle - $15 million

This gives us a total sales figure of $373+75+64+15 = $527Million much more than the conservative estimate of Macuaries Report which had stated $400M.

Note also that the proportion of the "other than plantation" is about 28% similar to what they forecast at the AGM of up to 30%.

Now the recoginsed revenue for the year will be as follows:-

1. plantation (recognised say 48%) = 373 x .48 =179
2. vineyards - (recognised = 90% a figure i got from GTP) = 75 x .9 =68
3. olives ( recognised = 70% same as above) = 64x .7 = 44
4. cattle (85%) = 15x .85 =12
5. deferred revenue of $150 m

therefore we have the following:
179+68+44.5+12+150 = $453Million add the other revenue as per last year say another $20million and this gives us Project Revenue of $473Million (45% increase on last years figure)

profit = .389 (similar margin to last year) x 473 = $183 million

Their EPS was affected last year due to the acquisition of the two companies
Environmest and the Tiwi Island Plantations as they issued more shares resulting in the dilution of the share registry. It is a short-term pain for a long term gain. they have approximatlety 300Million shares and with the new TREES3 (which can be converted in the future) some analysts would include these shares in the diluted EPS so i think it is 350million diluted shares....therefore my forecast EPS would be basic EPS 183/300 = 61cents ad diluted would be EPS = 183/350 = 52cents per share.

 

[abucs]

The 1/2 year roadshow presentation has just been released.

Glad to see the emphasis on Capital Management and the moving away from the hybrids and the focus on non plantation products.

i think this would be the the no. 1 issue for institutional investors who want to see an income sooner rather than later.

Great Southern previously had an institutional rising with a GTP shareprice of $4.65 or so. If they can sell the GTP story (and especially the income/cashflows) then the price could head up towards that level.

Cheers.

 

[Julia]

I don't know about that....I think you'll see some major buying in the next two weeks..The company will be holding some Institutinal Roadshow presentations to investment bankers and to other institutional investors in the coming days....this should spark some interest....the good figures coming out of GTP can't be ignored for too long............i guess time will tell.

Hi Savtin,

I have to really admire your unquenchable optimism re GTP. I felt that way a while ago, but have since completely lost my emotional attachment to this stock. I'm still holding but will be very happy to sell most at $4 if it ever gets back to that.

There are too many other companies out there to which is attached much less volatility and anxiety imo.

All the best

Julia

 

[Nick Radge]

Here is some shorter term analysis I have done on GTP

www.projectstreamer.com/users/reefcap/GTP_Daily/

 

[Julia]

Here is some shorter term analysis I have done on GTP

www.projectstreamer.com/users/reefcap/GTP_Daily/

Nick;

Thank you. That's really interesting. You point out that your analysis is from a short term point of view. Could you make some general comments regarding GTP from a longer term investor point of view. In past years the stock has increased at the end of the financial year when investors in the MIS plans boost sales and the SP appears to enjoy a similar rise.

Are you able to comment on the range you might expect the SP to achieve in May/June this year?

What comments could you perhaps make regarding the holding of GTP for the longer term, i.e. 12 months?

With thanks

Julia

 

[michael_selway]

Hi Savtin,

I have to really admire your unquenchable optimism re GTP. I felt that way a while ago, but have since completely lost my emotional attachment to this stock. I'm still holding but will be very happy to sell most at $4 if it ever gets back to that.

There are too many other companies out there to which is attached much less volatility and anxiety imo.

All the best

Julia

The only last thing i can see is the final report in 6 months time

Then we will truly see what the market thinks of GTP, hopefully start of a true up tend that can last a long time

thx

MS

 

[It's Snake Pliskin]

Here is some shorter term analysis I have done on GTP

www.projectstreamer.com/users/reefcap/GTP_Daily/

Nick that is good commentary. Is this what you do with your charting service?

 

[Nick Radge]

Snake,
Yes, this style is being blended into the current subscription. It's a more personal touch and which enables better understanding and teaching.

Julia,
I can't offer too much, suffice to say that I'm retaining my bullish outlook for GTP. I have my clients long at $3.15 and we'll hold that until significant bearish volume appears.

Nick


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