GTP - Great Southern Plantations

[tech/a]

Re: Great Southern Plantations..

http://www.asx.com.au/asx/research/...me=&principalActivity=&industryGroup=NO#chart


50% increase in reported profits.

So could a fundamentalist please explain why the market has decided to sell off?

 

[Julia]

Re: Great Southern Plantations..

I've just spoken with the Company. Their explanation is that the projected profit was $400M and they "only" achieved $365M. When I asked from whom the $400M projection had come, ie the company or analysts, the response was "a combination of both".

There could also be some impact from the resignation of the Chairman who has been with the company since its inception, although this was announced some time ago, and they feel it wouldn't contribute.

When asked about any knowledge of any institutional sell-off, there was a degree of caginess but nonetheless a denial.

I guess there will be some of us watching with interest. I have too much of my portfolio in GTP and have been waiting for $5 to sell half the holding.


Julia

 

[profithunter]

Re: Great Southern Plantations..

They forecasted a 60% increase in profit but only made a 50% increase. The forecasted profit was already factored into the share price so they disappointed the market with their actual numbers.

 

[Julia]

Re: Great Southern Plantations..

Could another factor be the cessation of buying of the tree lots which always reaches its peak at the end of the financial year? Although obviously this has no direct bearing on the SP, there does seem to be reflection in the SP of what sales are achieved for the tree lots.

Julia

 

[Rafa]

Re: Great Southern Plantations..

I had already liquidated half my portfolio...
atleast this time there is a legitamate reason for the fall in the share price.

Could you please elaborate on this buying of tree lots Julia?

 

[stockman]

Re: Great Southern Plantations..

Doesn't make sense though because from what I've been told all their products were over subscribed.

 

[Julia]

Re: Great Southern Plantations..

Rafa,

I don't want to be quoted on this as I've not been involved in any of the GTP products other than the share price. However, a large part of their business is selling to individuals, super funds, institutions etc. of the actual tree lots which constitute the essenceof GTP's business. I think these lots have a ten year time frame. i.e. a buyer purchases a section of land containing the young trees. I don't think there is any return until the trees are mature and then logged for wood chips or similar. (the reason I bought shares in the first place was on the basis of predictions of world wide paper shortage - the chips eventually become paper - so fromthat point of view I don't get too worried about fluctuations in the SP in the short or medium term.
Reason for possible correlation to the drop in share price at beginning of the new financial year, is that purchase of the tree lots has apparently a very significant tax advantage. As I'm not involved in this, I don't really know what that is but a few months ago the government announced that the tax advantages would apply for at least the next 2 years. That was when the SP started to rise again, following a period of pretty much unexplained drops.
I gather that purchase of the tree lots in the 2004/2005 financial year allows the purchaser a considerable tax advantage for the bottom line of this financial year.

The suggested reason for the connection of successful selling of the tree or vineyard projects and its obvious optimistic predictions of future profits to the SP becomes obvious. It could be that, with the impetus of end of year buying of core business dropping off (it might not - we'll see), profits may fall and that is reflected in the SP.



You could contact GTP at 1800 258 348 and ask them to send you details of the tree lot purchase details. I did have their latest newsletter but have now thrown it out.

Re the over-subscription: I think this applies to the vineyards and some other project which for the moment escapes me, but I don't think the tree lots have been over subscribed. I stand to be corrected on this.

Julia

 

[TheAnalyst]

Re: Great Southern Plantations..

Why has the price dropped? the profit forecast was 8.75% short so should fundamentally equate to a 8.75% drop in the share price...but it has dropped from a share price of say $4.20 to todays last price of $3.60...that is a 15% drop which means according to its last profit of $365 mill it is fundamentally below value now....but the market has factored in the risk of future profit forecasts not being met.

 

[pegacat]

Re: Great Southern Plantations..

Hi Folks,

can anyone explain the valuation for GTP, and why it's only a fraction of, say, timbercorp?

GTP is currently trading on a price earnings of ~8, which in my book means that if it never grew again, it would still be undervalued - but instead it's been growing year on year at 50% or more for, well, years. It looks like it's growth is slowing down to more the 20-50 region going ahead, but on paper it still looks like it's really undervalued (plug the earnings numbers and a conservative '20%' growth forcast into a calculator (e.g. http://www.smartmoney.com/pricecheck/index.cfm) and you get a share price over $10. Alternatively, if you valued it the same as timbercorp, you get ~ $6, or against wilmott's you'd get ~$5+...

so what am I missing? Is there some big unknown in GTP's future that doesn't apply to the others, or is this a big buying op?

I read the fin article on timber recently, but while they talk about growth slowing, they don't seem to aknowledge the quantities of cash these folks are churning out... any thoughts?

P.S. I should say I've got shares in this critter already; wondering about laying more in...

 

[TheAnalyst]

Re: Great Southern Plantations..

I agree it does seem undervalued in regards to its sector but thats the market at the end of the day it is the big players (Investment banks, Brokerage houses and ratings agencies) that determine where a stock will sit.

In accounting there is a subject run by TAFE called "Advanced Business Performance Evaluation" and it teaches that it doesnt matter what a stock returns if the big money of the market decides that there is a risk or that a similar stock that is not returning the same as another stock but will still give it a higher valuation and therefore it will be at a greater price and will be revealed in it having a higher P/E ratio even though it earns less.

This is called BETA value and every stock has a beta value that is comparable to its sector avarage and it is then compared to the "Risk Free Market Rate" which is the the Reserve Bank of Australias cash interest rate.

In the market you will find their are many examples of this e.g. national Australia Bank, Bluescope Steel, Namio Cotton and property trusts.

The Beta value is a complicated calculation and it really requires a spread sheet to do it but you can always get an idea of a beta value just by a stocks P/E ratio even though you dont know its Beta.

In todays Finacial Review, pg 20; GTP has been given an net profit earning down grade by Macquarie as punishment for being $35 million short of its sales target, which according to macquarie equates to a 15% decrease in net profit so therefore the 15% decrease probally would have started at $4.50 ( the last recent share price high) being $0.65 cents being chopped off the share price so it should settle at $3.86 ( roughly) but remember it is common for the same institution or another comparable institution to say it is wrong it will meet the target a month later and the share price will increase afterwards again.

Take note of Multiplex recently and Just Jean, Evans and Tate and many other examples if you sold in the Institution Downgrade scare you will have big losses.



These are my opinions they are not to be relied upon seek an advertised financial experts advice

 

[ghotib]

Re: Great Southern Plantations..

I agree it does seem undervalued in regards to its sector ...

According to ComSec, GTP's sector is Diversified Financials, not Materials. I'm very vague about how companies are classified into sectors - I think it's a continual process based on their sources of revenue - and I don't know if a temporary misclassification is possible or what effects it might have.

I hold Timbercorp, which is classified as Materials but which derives an increasing proportion of its revenues from other agricultural activities. Although TIM and GTP use similar methods to raise finance, their business models are very different. IMO similarities in their performance from year to year would be coincidental.

Cheers,

Ghoti

 

[TheAnalyst]

Re: Great Southern Plantations..

Thats even better for the stock as it is diversified so if one section of the company is increasing sales this can offset losses on other sections.

Would you give me a basic run down on what its markets are and what each business segment and geographical segment inputs to revenues of the stock.

I to now hold GTP

 

[Julia]

Re: Great Southern Plantations..

Ghotib

Is the rest of the sector down as much as GTP? Every year I have found GTP drops at the start of the new financial year, when the last buyers for the tree lots have done their buying for the tax advantages.

I sometimes feel there is a continuing nervousness about the government possibly changing the rules again on the tax deductibility of Agribusiness companies and that that nervousness is magnified when something like a profit shortfall occurs. Does anyone else have any thoughts on this possible psychological barrier to the SP moving up somewhere near what it should be?

Julia

 

[GreatPig]

Re: Great Southern Plantations..

Julia,

Where do you think it "should" be?

It's currently $3.66, yet just over 2 years ago was around 65 cents.

Let me see... the share market allegedly averages around 10% a year, so that means it "should" be around 80 cents now

Of course that's ignoring the fact that a couple of years before that again it was around the price it is now...

Cheers,
GP

 

[Julia]

Re: Great Southern Plantations..

Hi Great Pig

Well, not that long ago it went to over $5.00. Why do you think that happened?

We all seem to be making guesses with this stock because the SP does jump about at levels out of proportion to any announcements.
If you have any predictions or helpful suggestions I'm sure all of us holding GTP would be very pleased to hear them.

Cheers
Julia

 

[GreatPig]

Re: Great Southern Plantations..

not that long ago it went to over $5.00. Why do you think that happened?

No idea. As I mentioned earlier, I'm only a technical trader and don't know what the company's up to. I'm only interested in where the price is going, not why.

If you have any predictions or helpful suggestions I'm sure all of us holding GTP would be very pleased to hear them.

No predictions, but I would note that GTP has fallen from nearly $5 right down to about 50 cents before, not that long ago, and it has now made a lower high than the peak back in February. The 180 day EMA is starting to turn down. If I was investing in this stock, not knowing anything about the company itself, I would be wondering about now if it's already been as good as it's going to get for a while.

Of course this is pure contemplation on my part and should not be construed as any sort of advice.

Cheers,
GP

 

[ghotib]

Re: Great Southern Plantations..

Thats even better for the stock as it is diversified so if one section of the company is increasing sales this can offset losses on other sections.

Would you give me a basic run down on what its markets are and what each business segment and geographical segment inputs to revenues of the stock.

I to now hold GTP

Was this directed to me? It sounds as though you're asking about GTP, which I don't follow, so I can't answer. Sorry.

Ghoti

 

[ghotib]

Re: Great Southern Plantations..

Ghotib

Is the rest of the sector down as much as GTP? Every year I have found GTP drops at the start of the new financial year, when the last buyers for the tree lots have done their buying for the tax advantages.

I sometimes feel there is a continuing nervousness about the government possibly changing the rules again on the tax deductibility of Agribusiness companies and that that nervousness is magnified when something like a profit shortfall occurs. Does anyone else have any thoughts on this possible psychological barrier to the SP moving up somewhere near what it should be?

Julia

Hi Julia,

Sectors just confuse me; I'm inclined to think they only exist in order to provide more derivatives for trading. I used to take performance against sector into account when I was looking at companies, but I gave up on that when I realised that companies I thought were similar were in different sectors.

I can't comment on what people might be thinking about the potential of GTP either - I'm very empty of information tonight. TIM jumped at the last announcement about the tax deductibility rules, even though the company itself said that it would have very little effect on the business. If people are seeing the source of profits for these companies as depending on their capacity to raise funds, then I guess the tax implications would be significant in their valuations. I don't know how you could test that though?

My impression is that you bought GTP for the long term in the expectation of continuing capital growth and possibly dividends. Is that right? Do you still think that the business (as distinct from the share price) is on the right track? If so, do you need to worry about the share price?

Cheers,

Ghoti

 

[pegacat]

Re: Great Southern Plantations..

Great Discussion Folks - thanks for some ideas.

So to summarise;

positives for GTP:
* excellent cash flow
* possible upside after this year's forestry review (might allow secondary markets for trading forestry investment products)
* high (but slowing) growth of ~ 50% pa

negatives for GTP
* moving into higher risk activities
* missed growth target (achieving ~50% growth instead of ~60%)
* concern by some analysts about long term paper prices

All very interesting; my personal view is that it's still a good long term investment, because the financials seem so healthy that the company could absorb a lot of bad news from future problems and still be very nice. I think their growth will slow in years to come, but at an estimated P/E of ~6 at the current price, it looks pretty good to me .

It'll be interesting to see what their annual report says mid-August!

cheers,

Pegacat

 

[Julia]

Re: Great Southern Plantations..

Ghoti

Thanks for your response. Your questions served as a good reminder to me at a time when I tend to get anxious about significant drop in SP which cannot really be justified by current announcements. Yes, I still feel OK about the company in the long term, andPegacat, this is reinforced by your comments (thank you), so no, I shall desist from feeling concerned about the SP jumping about in the short term.

Incidentally, Ghoti, your sign-off about life without music being a mistake is so, so right. Music can save our sanity at times.

Cheers
Julia