GTP - Great Southern Plantations

[mark_au]

Hi People

I have some GTP and have been reading this thread with interest.
Without going into detailed financials which others have done (thanks for all the hard work). Im basicially trying to determine if the business is fundamentially sound or not.

My Reasoning for getting into GTP was that, as we all know, logging old growth forests is not sustainable or desireable. So eventually only plantation timber will be useable. Given that there is only so much viable land, isnt it basically a matter of supply and demand, ie those with the most land/forests with enough capacity to supply the market with timber on demand wins ????

If plantations become the only place where timber is obtainable from, then wont they basically "own" the timber market, and they can dictate what the market will have to pay ???

Regards

Mark

 

[Jackob]

I have some GTP and have been reading this thread with interest.
Without going into detailed financials which others have done (thanks for all the hard work). Im basicially trying to determine if the business is fundamentially sound or not.

Hi Mark,

I am a bit reluctant to tell you, a GTP shareholder, that according to the previous discussions between Portfolio and I on GTP’s accounts, GTP’s main business – pulpwood (not timber) MIS – is in a state of chronic hidden loss. Please just check the thread for details.

Regards

 

[mark_au]

Hi Mark,

I am a bit reluctant to tell you, a GTP shareholder, that according to the previous discussions between Portfolio and I on GTP’s accounts, GTP’s main business – pulpwood (not timber) MIS – is in a state of chronic hidden loss. Please just check the thread for details.

Regards

Yep i read a few pages of the whole thread. i'll try to read some more today

What im trying to figure out at a more macro level, now that the "taxation" advantages have been hosed down, are plantations a viable business, i mean where is the timber going to some from in the future, if a sustainable business model cannot be found.

The way i see it is that
1) GTP are aware of the shortcomings of their business and are actively
trying to mitigate the deficiencies to make a viable business for the long term

or
2) they are aware of the shortcomings and are actively trying to cover it up and milk the shareholders for as long as they can untill the whistle is blown ;-)

Im hoping the answer is number 1

thoughts ???

regards

Mark W

 

[Portfolio]

In terms of having a monopoly in woodchip and therefore being a price maker rather than a price taker....not likely. The amount of chip coming out of South America (Esp Chile) is enought to feed the Japanese mills without us.

In addition there is less and less chip required each year due to recycling of paper which is growing at an exponential rate. I dont think the world will ever get to the stage where no new chip is needed but i do believe that South America has the plantations to more than fill this gap for the whole world (American and Japanese paper mills).

 

[pch]

At a macro level, Portfolio makes a very important point regarding the demand for the product. Last year the company in effect subsidised the returns for the 1996 investors.

You then have to weigh up other factors and try to answer some questions..

Since GTP buy their land and that cost is much more that the returns they get from a single rotation of that land for a plantation. But a rotation is a long time, so they have to take on a lot of debt to do so in the meantime. A useful excercise would be to work out current lease rates and see if the numbers stack up in a leasing model. If they still have to borrow to fund operations then your completely reliant on the future returns.. added risk - we see now they are propping up older projects..

But offset from that, if GTP is *better* at land and tree management now. They selectively choose the best growing trees from year to year and are much better at picking the optimal land, etc.

 

[Jackob]

… now that the "taxation" advantages have been hosed down, are plantations a viable business, i mean where is the timber going to … in the future, if a sustainable business model cannot be found.

If there is no "taxation" advantages to the so-called “customers” (investors) of the MIS industry, then the MIS industry can’t sell their so-called “products” (prospectuses) any more and the whole industry will shut down.

GNS (Gunns) used to run a timber (mainly woodchiping) industry without MIS in TAS successfully. But the land price there at that time was only a fraction of the present $7000/ha. At $7000/ha, it's hard to run the business any more.

The way i see it is that
1) GTP are aware of the shortcomings of their business and are actively
trying to mitigate the deficiencies to make a viable business for the long term

or
2) they are aware of the shortcomings and are actively trying to cover it up and milk the shareholders for as long as they can untill the whistle is blown ;-)

Im hoping the answer is number 1

thoughts ???

I think GTP is having a bit of both.

They capped the woodchip MIS revenue at ~$300m last year, the same as the year before. At the same time they hastily developed “non-forestry” MIS revenue to ~$150m. But all were IMO too late and too hasty to succeed.

Cheers.

 

[pch]

At the same time they hastily developed “non-forestry” MIS revenue to ~$150m. But all were IMO too late and too hasty to succeed.

One may argue that the new tax regime means their ineptitude and subsequent 'hasty' entry into non forestry may work better for them in the long run than some of their peers

 

[Fab]

I understand there are tax benefits in buying GTP but can anyone explain me how it works?

Cheers

 

[Nicks]

The stock is currently a ridiculous bargain.

It is way oversold, Huntleys also share this view.

GTP have 90% of their products in Forestry:

"the Government decided to give upfront deductibility provided at least 70% of expenditure is directly related to forestry"

The P/E on this stock is now getting ridiculous and by far to low vs risk.

Not too many times do you get an opportunity to buy a stock with such multiples and returns, the Dividends would be around 10% FF alone at this price.

I've grabbed a stack more.

 

[Nicks]

PE is 5.25.
Stock is Leveraged through Margin Lending at 50% I think, as it is seen as quite secure.
Dividends last year totalled 0.15c fully franked and should be higher this year as some of their investments for 04/05 and 05/06 start paying off.

This is a good opporunity not only for an excellent Dividend stock but I think once things settle and people catch on to these stats and the fact it was oversold, at current prices it represents an excellent opporunity for some decent Capital Gains in a fairly short time period on a relatively good stock.

 

[Jackob]

Too dangerous to catch a falling knife in any case.

Today GTP had another 7c (3.3%) slump to $2.05 with 3,000,000+ shares changed hands.

Looks like the instos are determined to push it well under $2 within days.

 

[Out Too Soon]

Too dangerous to catch a falling knife in any case.

Today GTP had another 7c (3.3%) slump to $2.05 with 3,000,000+ shares changed hands.

Looks like the instos are determined to push it well under $2 within days.

It did temporarily dip below $2 already & I was kicking myself then. Nicks is as per usual correct on this stock, it is wayyy oversold with lots of negative sentiment. What the stock market investors are ignoring at present is GTP does not exist purely because of a favourable tax law, they have a solid business, also the investors in their schemes are locked in, they cannot suddenly take their money elsewhere, whats more since the govt made their decision they have been making noises about changing it or at least softening it.
I wonder how many ppl close to the coalition parties are buying up big on GTP & co with a bit of insider knowledge (shock horror!)
Presently I don't hold but my finger has been hovering over the buy button for ages. I just dont want to buy a stock that may have a way to fall yet.

 

[pch]

This one requires careful analysis though.. Jackobs prior warnings on debt levels are bang on the money, and although we disagree on *when* they will need to raise more capital, they will have to.. (i am still gunning for next FY)

This will either dilute EPS going forward or gear them heavily..

But the market sentiment is definitely odd. TIM has held quite well the last few days, despite the impact on their business being greater. What am I missing there?

 

[Jackob]

Hi Pch,

Thanks for your view. I now suspect for this 7-day long GTP price plunge there must be something happening behind scene, and my suspicion is that GTP might be arranging a capital raising of ~$200m+ right now.

The following is my reasoning.

In recent years GTP funded all its new MIS projects by raising capital/debts/hybrids. At present GTP needs money for the following projects.

1) Last year GTP sold $400m+ woodchip projects, which need ~35,000 ha land to be ready by the end of March (next month). GTP has got ~5,000 ha land from rotation; so it still needs ~$210m to buy ~30,000 ha new land by 31/3/2007.

2) By 30/6/2007 I guess GTP is going to raise ~$300m or more revenue from new non-forestry MIS projects, which need ~$200m - $300m for preparation.

At end of last Sept, GTP had about $250m cash (including redrawable bank debt). So GTP still needs ~$200m+ new capital/debt for balance.

I know the my above suspicion is very hypothetical. So please don't take it too seriously. But it seems OK to explain everything. Assume GTP was really arranging raising capital now, then it had to go to brokers and the news might leak. This would cause instos selling off GTP (but not TIM).

Wait’n see. If my suspicion was true, then the GTP price should continue to fall like hell … until a sudden announcement and another big fall …

Again, folks, please don't take my guess too seriously.

 

[Out Too Soon]

Hi Jackob,
That's probably true, although I still think GTP is an incredible bargain (pe of 5.25 wow!) it's all a matter of timing & market sentiment, my finger still hovers over the buy button but that probable needed 200mill will push the sp lower yet.
I wouldn't be surprised though if early next year this stock is hitting record highs. Heres a story from the Australian that GTP followers should read http://www.theaustralian.news.com.au/story/0,20867,21238253-5001942,00.html

 

[pch]

I bought them at various times from 2001 to be a landowner.. but at the end of the day EPS has to grow.. non dilluted, its grown nicely. Add dilution and its very flat.

(except this year will probably have a big jump as all the non forestry is oversubscribed)

The gains from the rotation start to flow from 09 and really make a huge difference to their capital requirements, but before they can even take advantage of that, they have to pay back the debt they incurred in those years. (so do we wait another ten years?

Jackob I was told by inverstor relations that my estimate of the reserves, did not take into account Melville Island, so it may be their don't need to spend as much as the $175-200mil figure we were talking about..

I hold until I see the PDS for this year..

 

[Bongo_Boy]

Hi PCH,

so what are your new estimates for reserves and how much money will be needed ?

 

[pch]

I haven't made any yet.. and for continuous disclosure reasons they won't give me quantifiable numbers..

the gist of my question was that the latest balance sheet 09/06 lists 'unencumbered properties' at 58million. I divided that by 6000 and came out with around 9600 ha. So this would mean that GTP will be aquiring another 25000 odd ha this FY at some $7000 per ha based on the prices they disclosed in the latest report..

their answer was basically that the analysis I provided excluded the access to leasehold land on Melville Island... Nothing more (and I wasn't expecting any).

But when you try and do the math Jackob pointed out some time back that the woodlot to Ha is different for these areas.. Wheras before it was $9000 her ha based on 3 woodlots this area was 2 woodlots at $6000 per ha.. I've not factored this in.. So your guess is as good as mine..

 

[Bongo_Boy]

Thanks pch.

The figures you give are not too bad. It suggests that the number of ha GTP will HAVE to buy this year are 25000 minus Melville usage. Say 20000 ha all up.

The thing though is on official correspondence the company have said that only 5000 ha will be able to be used from their current landbank in 08 for 07 prospectus. This is not so good with 30000 ha HAVING to be bought.

That is a big difference. The company has also said that the forestry section of their business is cash flow positive but i can't see how looking at the figures.

Perhaps $7000 per hectare is too high a price to use for the amount per hectare they will pay. The $7000 per ha figure has only come from the last 3 month period between June and October (exclusive) and may not be representative of the true ongoing price. But even so i can't see where they can claim it is cash flow positive.

Reading the link above about the ATO just allowing a Pine and Mahogany plantation in Darwin i wonder if Great Southern has a similar plan. Their Moola Bulla station is over 660,000 ha and their Queensland stations much the same. Now if they could use some of that land for such a plantation, i could see where the cash flow would be very positive.

But as usual it seems you are having the same success in talking with companies that i do, and thus in understanding where they are at - not much. They must all take politician classes together on the weekends

 

[pch]

Perhaps $7000 per hectare is too high a price to use for the amount per hectare they will pay. The $7000 per ha figure has only come from the last 3 month period between June and October (exclusive) and may not be representative of the true ongoing price.

No it is representative - I asked this as well in prior correspondance and they pointed out what while they are paying more, the value of their holdings has also gone up.. (but their policy is to value 1/3 of their holding per year and they will still have to stick to independant valuations).

So you will see in previous posts we talked about this, and whether a 30% increase in price paid equates to a similar increase in the value of the existing assets under management. If it did, they will certainly be keen to recognise this as income (notwithstanding encumbrance).

Hence why I think the PDS is so important.. I feel they need to restructure their forestry offerings to accomodate this price increase in land. Whether they have too much room to move is another question..

Looking at their balance sheet I believe that they have enough cash to cover buying some 25000 ha, but once they do that, they are pretty much drawn to their limit and will need to raise more funds next year as the rotations are still not significant then..