GTP - Great Southern Plantations

[abucs]

TheAnalyst, i think this is a problem facing much of the world. Certainly in the developed world but increasingly in the developing world.

Small rural areas are underpinned by small economics. I think it works well in isolation but globalisation means that the cheapest, most efficient produce floods the markets and the smaller operators have trouble competing and are eventually bought out or go under.

I'm not saying i agree with it. I don't want to see small-time businesss go under. As you say, this then threatens the viability of small communities themselves.

When i travel in Asia i see small scale (and medium scale) rural enterprises under pressure, usually because they have little scale or capital to stay ahead of technological advances - machinery, maintenance, pesticides, market power, genetics etc.

South America is showing signs of this as well.

Interesting that the government would be wanting to limit deductability specifically for the timber industry as at the moment they are all playing under the same deductibility rules (bar the 12 month rule). A torrent of city money is currently making its way to the bush and outbidding smaller rural buyers and making current holders 'offers they can't refuse'.

If the government really wants to do something it can use some of the billions of surplus tax money to implement irrigation projects and open up more potential farmland in my opinion. The amount of water wasted in the northern section of Australia is breathtaking.

 

[Jackob]

Great Southern are approaching 300,000 hectares of timber land that they own/control themselves anyway. In capping the sales at 31,000 - 35,000 hectares p.a. they won't be looking to buy too much more timber land.

GTP looks getting more and more thirsty for money to buy timberland. This year alone, GTP needs $200m bank loans to buy ~33,000 ha of timberland for the pulpwood project. Don't know where on earth the money will possibly be from to service the loans, let alone to return the principle.

 

[abucs]

Jackob,

From memory GTP needs 31,500 hectares of land for this year.
They have also started the rotation and draw down of Tiwi land.
This year that rotation / draw down will be a fairly modest 7,000 hectares.
So that is 31,500 - 7,000 = 24,500 hectares of land they will need (or have already bought).

Say average $6,000 per hectare = $147 million.
Great Southerns profit, with flagged increase costs will be at the very least $130 million.

So that's 147 - 130 = $17 million they will need for timber land (at most).

Great Southern have flagged that the loan arrangements are until the rotation/drawdown of land kick in.

In 2010-11 GTP is likely to rotate an ongoing 20,000 hectares x $6,000 = $120 million saving or 33c a share fully diluted. This will gradually rise to 35,000 hectares or close to 60c a share. Of course in addition, they will also have the income products sales and revolving revenue streams.

Rather than struggling to pay back loans for timber land, GTP are actually expanding and using the loan facility to break into the beef export business as everybody knows.

 

[abucs]

The truth is, if the price of land goes much higher, it won't be profitable to be in the agribusiness timber industry as the margins will be squeezed. Unless of course, you own the land yourself like GTP and do not need to buy or lease it in the first place. This is the comparative advantage GTP has been aquiring. In order to buy this comparative advantage, GTP has had to forego current cahflows. This has always been the case. Hence the limiting of the plantation sales and the emphasis on the income products to make up for the current cashflow deficit.

The great majority of that comparative advantage is close to having been already paid for.

Rival companies that don't own their land will be caught in landprice increase problems or new government restrictions and will be vunerable to having their margins squeezed. GTP will have more leverage here and be able to offer the customer a better deal.

 

[Jackob]

From memory GTP needs 31,500 hectares of land for this year.
They have also started the rotation and draw down of Tiwi land.
This year that rotation / draw down will be a fairly modest 7,000 hectares.
So that is 31,500 - 7,000 = 24,500 hectares of land they will need (or have already bought).

Say average $6,000 per hectare = $147 million.
Great Southerns profit, with flagged increase costs will be at the very least $130 million.

So that's 147 - 130 = $17 million they will need for timber land (at most).

Great Southern have flagged that the loan arrangements are until the rotation/drawdown of land kick in.

In 2010-11 GTP is likely to rotate an ongoing 20,000 hectares x $6,000 = $120 million saving or 33c a share fully diluted. This will gradually rise to 35,000 hectares or close to 60c a share. Of course in addition, they will also have the income products sales and revolving revenue streams.

Rather than struggling to pay back loans for timber land, GTP are actually expanding and using the loan facility to break into the beef export business as everybody knows.

Hi Abucs,

Thanks for your information and reply. I would like to discuss the following questions.

If only $17m were enough for buying the timberland needed, why would GTP have to arrange a $200m loan, which was 10+ times bigger than what it needed?

Given they have already got a $250m loan from ANZ this year, why wouldn’t they just squeeze the $17m into that existing loan to make it $267m, and save the time and money to negotiate with the same bank for another $200m loan which they don’t really need?

If the $130m said profit would be able to reduce any amount of loans, then why not use it to reduce the existing $250m loans to $120m in the first place to save $$$millions$$$ of interest?

Please read the following words of J Young in his 16/6/2006 open briefing carefully.

"Initially, we’ve put a new $250 million facility in place with ANZ Bank to fund the acquisition of cattle and vineyard properties, and we expect to increase our use of debt in future."

The phrase "Initially... and we expect to increase our use of debt in future" implied GTP had most likely used up all that $250m loan already. Well done, JY!

This $250m new debt plus $200m TREES-2/3 plus $200m coming debt makes a total debt of $650m, equivalent to $2.10 per share. This $650m total debts will cost GTP interest at least $52m a year, or say $17c per share per year. No wonder GTP said it would have a "burst of cost"!

This $650m or $2.10 per share debt burst, I guess, among many other things, is a prime reason for the current GTP share price plunge. This plunge started on 16/6/2006, just on the same day JY revealed the $250m + $200m new debt in the open briefing. No surprise at all!

By the way, the pulpwood land GTP needs for new project this year should be 35,000 ha, because the sales of the project was $315m (announced 29/6) and the application fee for the project is $9000/ha ($315m/$9,000=35,000). If 7000 ha will be from rotated land, then GTP still need 28,000 ha, which would cost $6000+/ha * 28,000ha = $168+m. The remaining $32-m from the $200m loan would conveniently be GTP's "working capital" as usual. (Forget GTP used part of its proceeds from the institutional share placement as its "working capital" last year? If anyone interested, please just ask GTP where has that money gone? Or why don't they use it to reduce GTP's current debt?)

 

[michael_selway]

I think it is a little more than just that abucs. I think it has a lot to do with rural towns and cities of any size remaining economically viable as in the best interest for Australia and this means also financially as this is the most important issue to the government otherwise the government would not have the slightest interest in minimising the amount of tax deductability.

TIM is a better business than GTP do u think?

thx

MS

 

[abucs]

Jackob, I take your point regarding the 35,000 hectares. I was including the GST, but perhaps this isn't included in the announced revenue figures. In which case it will be 35,000 hectares.

Reading the announcement, it says they hope the $200 million facility will be in place by the end of calendar year 2007. So it is not to buy land for this year as all of that land will have already been bought and planted and be well into its first year of growing.

Further the structure of the $200 million is not so much a loan but a non equity 'raising' in the form of a land/property trust against the existing land bank that GTP has acquired. This is further to the announced plans to focus on capital management. Here they are using the value of their land bank instead of another HYBRID.

It boils down to this - everytime Great Southern has wanted to expand they have diluted the share base. Now instead, they are using debt against their company assests. A lot of people don't like that. Fair enough.

Every time they are raising money it's to benefit them in the future. For timber the benefit is 10 years down the track, for the income products it's when the cumulative revenue of ongoing yearly income pays the money back for the land bought. People don't like that. They want the good times to be sooner, not pushed further into the future even if they will be even better times. People want dividends. Institutional investors want dividends. Fair enough.

Great Southern flagged the capping of the increasingly expensive timber purchases as they were reaching a desired level of a large sustainable land bank. They also flagged that the number one priority would be now focusing on the capital structure. People read dividends. GTP are restructuring their capital and expanding again.

GTP continues to buy land. Now it is mainly cattle land. But also vineyards, olive groves and for the short term more timber land until they reach 350,000 hectares.

This is costly but it gives them the strength to borrow against their accumulated assets such as the $200 million facility we are talking about.

Other competitors can't do that. GTP are in a strong position. But they are deferring the good times (cashflow = dividends) well into the future on the plan of even better times. Shareholders not in for the long term don't like that. Fair enough.

GTP's shareprice swings will continue with short term players getting in and out and either making lots of money or being burnt, depending on if they get an upswing or downswing.

John Young and the top 3 institutions now hold 45% of the stock. It will be interesting to see if this holding is reduced or expanded. If it is expanded then I expect the volatility in the shareprice will be reduced and the wait for the good times would be nearing an end. If not, then the wait for the long term players will continue with the opportunity for extra investments to make money from the short term swings as they wait.

 

[TheAnalyst]

GTP currently has a PER of 6 with no profit downgrade or any earnings warnings.....I am back in!!!!!

 

[Nicks]

I hear you. This is an awesome price to get into this stock with just on the returns alone, and when it catches on the capital return on the stock should be nice too.
Im back in.

 

[CanOz]

You don't think it might continue to slide a bit more?

Too many long red candles for me.

 

[TheAnalyst]

It really is taking a slide but for no real apparent reason. What next a per of 1? I dont think so!

 

[CanOz]

I see your point. I think if it is going to reverse, you'll see a Doji first. A combination of F/A and T/A for entry could give you a bit better entry price.

Good luck with it.

 

[TheAnalyst]

Chart does not look good at all! But we need reasons and yes there are some but they should not be cutting so deep. The event I would be looking at here is a hard and fast surge in price.

 

[The Once-ler]

I have come to realise that the goverment will surely curb tax cuts as the large purchase of rural land for these investment purposes continuing at this present rate is having a negative affect as the next step will be to buy even small farms and will lead to a demise and diminishment of country and rural towns.

You summed it up fairly well here. This greed that is happening wont be able to continue. This is a highly risky investment, the PE ratio is irrelevant. Once the government fixes up the crazy tax laws that allow these greedy companies to rape and pillage the rural community so that they can make a loss for their even greedier MIS investors, the profits will disappear. Why else are GTP able to pay so much for land? Think about it?

What is wrong with paying a fair amount of tax?

Lets plant some more grapes ehh!!!

The smart money got out ages ago.

Good luck.

 

[michael_selway]

GTP currently has a PER of 6 with no profit downgrade or any earnings warnings.....I am back in!!!!!

Hm it keeps falling, what do u think technically is teh bottom?

thx

MS

 

[Jackob]

Another busy day, another deep plunge!

The big drop, the huge turnover, the shrinking buyers’ market depth vs. swelling sellers’ depth... can't make one imagine this steep slide will stop anywhere soon. More on the way.

This market is of no reason? Too naive to think in this way. The reasons have been there. Just check the previous posts in this thread.

I owe Abucs a reply, but too tired to do it.

Good luck!

 

[TheAnalyst]

What a plunge indeed! but it must stop soon. Support should be at a per of 7-8 at least but as we have seen it has refused to stop there so technically and fundamentally it is in the over sold area at present and unless there is a valid reason; say a profit downgrade then it will have a reasonable bounce, so currently I am now looking at time duration and comparative per's.

 

[TheAnalyst]

What a blood a bath

 

[GreatPig]

If it closes around this level today (in the $2.50s), it will have broken below the low of October last year and be looking back to 2004 for support levels.

Maybe Split Enz were wrong, and the history of 2000-2001 will repeat - 50 cents here we come!

GP

 

[TheAnalyst]

I am glad that all I am is a short term trader or else it would have been a waste of time on this one this year. I would still like to know the real inside reasons by the big players for the huge sell down of GTP.