GTP - Great Southern Plantations

[Boyou]

Just been reviewing this thread. Wondering if ABC watchers have been viewing 4 Corners tonight. "Tree Change" (Great Southern Plantations is writ large)

If you respect Chris Master's opinions...... and researchers (and I do) there was much food for thought in the report..

Is this type of industry sustainable? Are we sacrificing productive land to short term profits? Who cares? Is this type of question even appropriate on this thread?


Cheers, Y'all

 

[Portfolio]

It is important for valuing this company but its not new information.

 

[Ken]

http://www.theage.com.au/news/busin...breaks-says-ato/2007/04/11/1175971179961.html

 

[Out Too Soon]

http://www.theage.com.au/news/busin...breaks-says-ato/2007/04/11/1175971179961.html

For those of you who didnt read this or previous media releases or watched the TV news etc here is an excerpt. (It's old news by now but some posters have obviously been ignoring the facts)

"The Government last year legislated to protect investments in forestry managed investment schemes, provided at least 70 per cent of the expenditure is directly related to developing forestry."

Most of GTPs business is still forestry, once the ATO & govt finally stop scr*wing around & leave a permanent decision in place then GTP will be in a very solid position. Remember their cattle project was still over-subscribed despite the ATO ruling so not everyone invests simply to get a tax break.

 

[pch]

The oversubscription relates to this year where the changes do not apply. I expect next year also to be huge for them now that the transition arrangment is extended a year..

So I feel that just because its oversubscribed now is not an indication that people are in it for more than the tax breaks. In fact GTP even said publicly they expected the effect of all this was to have a boom in their non forestry while investors scrambled to take advantage while they still could.

The only way you can make an objective assessment about their non forestry is in the year the change takes effect, or if the test case results in GTP's favour.

I also feel that GTP is solid, however I do agree with Jackob though, that they face some *serious* dilution or *serious* additional debt to fund their stated aim of 35000 ha per annum until rotations from past projects become significant enough to cover it. (When that happens, the company will start paying down the debt they have thus far accumulated.)

You really need to study the financials with this company. They have enough cash reserve to buy land for this year at $7000 per ha. But next year they will need more cash - a similar amount to the debt they undertook. I believe they will do a similar arrangement to what they did with the last debt - defer interest to when the loan matures and use the capital savings of land rotation to pay the loan out. (Interest is still charged, but its not paid in the year it was incurred)

Assuming their rotation figures are accurate, they can easily pay out their existing debt with some left over.

But the loan maturity co-incides with their largest rotation year coming up (I think it was 2009 or 2011). Later years are actually not as good as this particular year, so the next debt they incur to fund the purchase of land will be tighter as they will have less capital savings from rotations..

Here are some key facts..

- They are now paying 30% more for land than they did last year
- At the time when they reported their cash reserves of a couple hundred million, they did not have that much 'unencumbered' land on the balance sheet - in other words, most of the existing cash reserves will be used to buy the land for this years projects as they do not have that much already bought
- GTP recognise increased land value as income in the year it increased. Think of it as reverse depreciation. So if they have their land holdings valued at $100 million more than it was last year, they will recognise that as income and it will positively contribute to earnings per share. (The encumbrance rule will then impact on this however)
- If they are paying 30% more for land, then the value of the land they already have should have increased a lot more than the 1-2% CPI figure that is usually associated with agri land.
- Land rotation savings are really not that significant just yet. Even the next couple of years of land available for use from rotation is way less than half the 35000 ha they want to plant each year.
eg say 10000 ha under rotation available and they buy 25000 more ha. 25000*7000 per ha = $175 million. But after this year they probably have some $40-50 million in cash reserves and need to go to the bank again (or issue more shares and dilute).

Now in saying all this, TIM share price also capitulated. TIM do not buy land nor have the same debt requirements. So I do feel the regulatory stuff is the issue and I do think that its currently below fair value (based on NTA alone and consider that those assets should rise in value)

But GTP will likely really start to hit its stride when the rotation figures start to kick in and take up more than 50-80% of their annual land purchase requirements. They won't need to borrow anywhere near as much as previously.

But to get to that, I did a really rough estimate that at $7000 per ha, they will need another $300 million over 3 years to get them through to when they have a lot of rotation. THEN they pay down the debt so you won't immediately get some great EPS. That will take another 2-3 years to flow through and then the company should be in a wonderful position.

At some point I think that common sense will prevail and the market will work some or all of this out How patient are you! GTP is the true test of the value investor

 

[BIG BWACULL]

Before i read geezs you wrote some S%$t there any way Good morning back to reading

 

[BIG BWACULL]

Sorry Mate after reading quite informative thanks CHEERs am a beginner mind you.

 

[BIG BWACULL]

At some point I think that common sense will prevail and the market will work some or all of this out How patient are you! GTP is the true test of the value investor
Reply With Quote

Well thats right GooD comes to those who wait Invest and forget is my policy if all the fundamentals are set in place than its a sure thing, Time and patience is our enemy (oh and dollars to start)

 

[Wysiwyg]

Well thats right GooD comes to those who wait Invest and forget is my policy if all the fundamentals are set in place than its a sure thing, Time and patience is our enemy (oh and dollars to start)

Good comes to those who don`t wait also!

So while waiting maybe one creates their own enemy.

 

[BIG BWACULL]

Good comes to those who don`t wait also!

So while waiting maybe one creates their own enemy.

YES but in some circumstances waiting is a GOOD thing and a wys thing but any way thats another Thread Cheers.

 

[pch]

Sorry Mate after reading quite informative thanks CHEERs am a beginner mind you.

Thats ok - I almost had the urge to reply with every stock cliche I could think of as an answer

eg

"Blue sky from here, buyers lining up, go go you little beauty so I can back up the truck and put it in the bottom drawer"

 

[Portfolio]

PCH where do you see this company in 5 years? Do you still see it making money through MIS? I think your bullishness comes from the fact that you do see MIS as sustainable whereas the market doesn't....hence the low PE given as earnings plunge post MIS.

 

[pch]

Good question (and I'm actually not bullish - I *always* listen to guys like Jackob and prefer to hear from negative people

The market thought it was sustainable for GTP at $3 until the MIS rules changed. Even if non forestry works out badly with the ATO ruling, my financial planner friend tells me that even now there are MIS schemes that operate as unit trusts without the tax breaks so its not unexplored territory. (but GTP has a much larger forestry exposure than TIM so the impact to them is less)

Thus I am bearish on TIM - time will tell there.

But I think GTP has upward potential because we now have certainty for forestry and the irony is that being slow to the punch has put GTP in a better position than TIM (they were slow to diversity).

But I also think there is bubble in land prices because of what GTP is doing. That will positively impact on earnings in the short term but if there is a collapse of MIS then the asset devalue would wipe them out (Which is I think Jackob's issue with the gearing they are undertaking to buy land at high prices without restructure of their schemes to accomodate) - But in saying that I don't see any dramatic collapse anytime soon..

Also, you can't ignore the capital savings from rotations - and that pretty much will start to bite (in a good way) in 5 years..

Also check out the recent post on HC by AlphaCenturian - he adds some other interesting points..

 

[doctorj]

Also, you can't ignore the capital savings from rotations - and that pretty much will start to bite (in a good way) in 5 years..

That's the other big difference between GTP and TIM - my understanding is that TIM only leases the land so they're unlikely to get much benefit from land rotation and are likely to be hit harder by rising land prices.

 

[Antics]

That's the other big difference between GTP and TIM - my understanding is that TIM only leases the land so they're unlikely to get much benefit from land rotation and are likely to be hit harder by rising land prices.

That's not entirely accurate.

TIM acquires the land then sells it into a trust and leases the land back from the trust.

From memory, TIM holds about a 40% stake in the trust that owns the land, and is also the manager of the trust - so takes management fees as well as its share of the rent and any capital gain on the land.

 

[doctorj]

That's not entirely accurate.

Cheers for setting me straight. You really do learn something new every day.

 

[barnz2k]

kinda get whats happening now..cheers.
But if the real turn for GTP will be in this big rotation in a couple years.. Why not wait a year or so before investing? Ofcourse there will be a change pending the final decision by ato, but the date of the rotation cant really change that much can it?

After the final decision is made, think there will be an initial big reaction to it? before settling out again?

 

[Nicks]

kinda get whats happening now..cheers.
But if the real turn for GTP will be in this big rotation in a couple years.. Why not wait a year or so before investing? Ofcourse there will be a change pending the final decision by ato, but the date of the rotation cant really change that much can it?

After the final decision is made, think there will be an initial big reaction to it? before settling out again?

The reason you dont wait is because the SP represents future value and earnings potential. By the time you wait, the SP will have been readjusted and you will be paying much more.

I am happy to buy now and get an excellent dividend while I wait for this adjustment, and then I will have an excellent capital gain as well.

Thanks
Nick

 

[Portfolio]

I still don't think GTP will be in the MIS business in 5 years (even timber). Why?
For anyone that watched the 4 corners show GTP have been propping up their returns to growers. However they can only do this for the first plantations as they are really small.

If you read the annual report you will see that the first growers ACTUALLY lost money after 10 years of investing without the top up.

 

[barnz2k]

cheers for the explanation nick!

I currently already have shares (bought at higher price damnit!!) and is equal to the most amount I have in any share.. So being a newbie, and theres still a lot of negative opinions, and not been paid in 4 months! I think ill hold what I have but not buy more..