GTP - Great Southern Plantations

[Jackob]

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.

Fully agree with you, Portfolio.

Indeed we never saw a single GTP MIS project which made money.

All the GTP "profits" are just the upfront MIS management fees without deducting the full management costs, which should include tree husbandry, office expenses, interests on debt, "topping up", etc, in the whole project life span.

This was why we said GTP was running at a chronical hidden loss for many years now, and that the present pulpwood projects couldn't run any more without losses at a land price of as high as $6000/ha. (I think Pch also agreed with us at this point).

This was also why GTP's project sales jumped ~40% p.a. from 2004-2006, and its "e/s" was only kept around 40c/s, while its debts sky-rocketed from 0 to $2/share.

I reckon GTP's situation would certainly worsen this year, and its so-called "e/s" would has to fall if its project sales could only increase by 30% (as in the 1H).

 

[pch]

Yes Jackob I do agree and look forward to this years PDS to see if they address the shortfall..

The top up is listed under provision liabilities in the annual and here was the note they provided:

Check note 37

"The first three year’s projects, being the 1994, 1995 and 1996 Projects do share some common characteristics, in that they were the first of the Group’s plantations projects, management was outsourced and processing is to be completed through an independent contractor for a fixed fee based on relatively low throughput volumes and additional resource had been previously acquired for possible use in the projects.

The decision to use GSEC and the amount to be paid is assessed by the board on an annual basis and no decision in respect of the 1996 Project has currently been made. The board and management’s current expectation is that the 1996 project is likely to produce yields similar to the 1995 Project, though still lower than what would be expected from a new Project today. Whilst the Group has no legal requirement to do so, if it decides to acquire timber resource from investors in the 1996 project in a similar manner to the approach adopted for the 1995 project, an after tax expense of up to $6,700,000 may be incurred in the next financial year. It is the board’s current view that no consideration will be given to incurring similar expenditure for the 1997 or subsequent projects."

If I interpret that right there should be no further propping up. However all I can add here is purely subjective. A friend has visited many of these plantations and did say to me that the quality and density of the product in later years has improved a lot due to improved staff/breeding/soil management type practices.. bigger trees, better yield, etc.. but unfortunately I can't give you any better than that.

I did note that TIM has a good week on the back of an announcement of an increased price for their woodchips though.. GTP does see a little potential in the whole carbon trading thing, but while we do not sign Kyoto its non existent. Even then with Kyoto, its marginal at best..

All in all, this really shapes up as the make or break year but we are still short of the necessary info at this stage..

 

[savtin]

I have noticed that the volume of shares traded for GTP has been very high over the last several weeks. Surley a result of accumulation and tax loss selling ----could be a sell and buy back of stock by a large fundie.........

can anyone else with Technical experience comment on the large volumes yet in a sideways (no trend) pattern........you would expect with the companies fundamentals being sound and trading at below NTA that the move when it comes will be explosive and UPWARDS more importantly???????????????????

Regards
Savtin

 

[barnz2k]

wow GTP is currently up about 5% for today!
highest its been in a few months I think. peck of $2.19 today.
Start of upmove or just another small peak before retreating back to the $2 mark??

 

[pch]

No idea on what the price will do.. but here's the reason methinks

http://www.mffc.gov.au/releases/2007/07B015.html

 

[Dutchy3]

This stock will see 2.75+ before 2.00 again

OK so this is just a daily chart, not weekly, yet price and volume action for the last few months indicates to me that the worst is over ...

 

[bernardp]

Yes, the budget was good news for those holding stocks such as GTP - and hence we now see the increase in the sp. i imagine. The volume has been solid, the previous poster may well be right.

We had one of their representatives present to our tax practice a few months ago for their new project. The confidence their rep showed in the product was quite impressive. A good strategy for high wealth clients.

Will be an interesting one to watch.

 

[Ken]

GTP,

With such a big thread i thought there would have been some talk considering its up close to %5 again and closing on a high of $2.30. Dividend as well soon. So not the worst time to be holding.

Whether this is just another rise before another leg down make your own judgement.

But whats our valuation of GTP now?

 

[Dutchy3]

I'll standby my 2.75 mark before 2.00 again. Time line on this one not something I've an opinion on ... 2.30 close today ... really a beautiful chart set up for me.

 

[Ken]

Good news for the industry with takeo over offer regarding auspine.

Hopefully lift the status a little in industry for value companies.

 

[Kat82]

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.

Hi Portfolio,

I am trying to learn more about this company. Where can I find in the Annual Report about the first growers losing money after 10 years of investing? Also any idea when the next update on tax will be announced? Thank you.

 

[pch]

hehe, you don't think they would make something like that easy to find?

Its under provisions under the balance sheet. It will refer you to a note further in the report that adds an explanation. See the post I made week or two ago, I quoted the specific section..

 

[Jackob]

The HY (6 months from 10/2005 to 3/2007) results:

Cash reduced by $154M from $247M to $93M
Debt increased by $2M from $615M to $617M
Net debt (Debt - Cash) jumped by $156M (42%) from $369M to $525M
or say jumped by $0.50/share from $1.19/s to $1.69/s

9 months (7/2006 to 3/2007) vs 6 months (7/2005 to 12/2005):

Loss increased by $22.4M from $0.5M (in 6 months) to $22.9M (9 months)
or say loss increased by 7.11c/share from 0.16c/s (6 months) to 7.27c/s (9 months)

All welcome to have a close look at the above numbers and see whether anything wrong with calculations. Thanks.

I reckon the results is terrible. Huge cash outflow and sky rocketing of net debt.

At the present cash-burning rate, GTP 's cash reserve will be close to finish by the end of June, and it will almost have to raise money again. Well, I say "almost", so it might not do so next month. But who knows?

 

[kooka873]

Hi folks,

Thanks for the recent posts. I've been a holder of this stock for some years.
I saw the 4 Corners report as well & have been wondering about this company for a couple of years myself as to it's future & its MIS(s) .

I attended one of GTP's roadshows in Sydney a few years ago & was impressed with its spiel. Much water has flowed under the bridge in that time. What concerns me is its mix of investments, costs, Australia's future rainfall patterns & future direction.

My gut feeling on this stock is the uncertainty of the company's future direction. The company invokes a feel-good response with its regularly posted newsletters, but is heavily geared to more & more investments in what I "feel" is some questionable agricultural industries..................???
TAX benefits to investors seams to be the focus of this company without it where does the company expect to see significant earnings potential??

Thinking out loud.

Kooka

 

[Jackob]

Latest Euraka Report: http://www.eurekareport.com.au/iis/iis.nsf/cl?readform&t=d8AHUY&c=qsh1Df&u=ak/TRLyuk?opendocument


Dutton's MIS Cleanup Plan
By Michael Pascoe

The new public market for agricultural tax (MIS) schemes follows government concern over fees, prices and a lack of transparency inside the sector, the Minister for Revenue, Peter Dutton, has told Eureka Report.

In today's video interview, Dutton singles out “bad operators” in the MIS (Managed Investment Schemes) sector, who he hopes will be weeded out by the creation of a fully transparent, liquid market for MIS investments to be launched later this year.

Dutton has little praise for the existing industry, dominated by companies such as Great Southern Plantations, Timbercorp and Willmott. And although the stock prices of key operators such as Great Southern have been rising since the new market was announced in the federal budget, Dutton focuses on the failings of MIS schemes and his attempts at reforms though the creation of a secondary market. He says: “The idea is to try to introduce transparency into the market, have some liquidity in the market and have a situation where we can get some transparency into the pricing.”

Many Eureka Report subscribers will have interests in MIS schemes. Not everyone will make money. To read the industry's response to the new secondary market, see Timber futures' good news from Eureka Report last week, but it is clear from today's interview the industry may be facing a new push for reform.


The interview

Michael Pascoe: What are the policy aims in developing a secondary market for timber Managed Investment Schemes?
Peter Dutton: Well Michael, the idea is to try and introduce transparency into the market, have some liquidity in the market and have a situation where we can get some transparency into the pricing. We’ve had a concern in relation to many of the management fees that have been charged in this particular sector. We’ve had concerns about prices that consumers are paying at market and we believe through a secondary market arrangement that there will be some more transparency in the process and that, I think, is a good thing for investors in the long run in particular.

So there is a belief in parts of the Government that people are being lured into dud investments by that tax dodge up the front?

Well, I think what people in Government and in the sector realise is that there are good and bad operators like in any marketplace. Some people have very good returns on investments. Some people have better products in the ground than others. Some products are in more marginal country than others and they have different outcomes when the trees eventually are harvested, but what we do want to do out of this process is make sure that we’ve got markets and experts looking at the way in which these products are priced so consumers can have greater confidence in what they’re paying.

The industry seems to have seized on this idea as if they’re going to get a second bite of the cherry.

Well look, I can’t talk for the industry. All I can talk about is the motivation from a Government point of view and really from my perspective. I’ve looked at this. We didn’t want to get into an arbitrage situation. We didn’t want to get ourselves into a situation where people were trading in tax credits or anything like it so we’ve got some pretty stringent requirements in there. People have to hold their initial investment for a minimum four years and the ultimate aim, as I say, is to make sure that we’ve got as much transparency in the products, so that we have – wherever is needed – a rationalisation in the pricing.

There’s some uncertainty about how it will work … Hold it for four years. That extinguishes the tax benefit?

If people at the moment dispose of their share, and generally you’re talking about a distressed seller. Somebody generally again related to the promoter or to the person that’s put the product to market would purchase back that arrangement and, generally speaking, people would then forgo their taxation arrangements and the concessional arrangements that had been given to them to buy the product upfront. So that exists at the margins in the scheme at the moment. If people traded [after] less than four years then they would have their tax concessions forfeited, but as we go forward, if people have held the investment, the initial investment, for a period of not less than four years and they would be entitled to the upfront deduction and there would be transparency in that process going forward as well.

The pricing of the secondary market – what are you looking for? Isn’t there a danger that some of the promoters who are doing so well out of fees in promoting the tax side of it could pervert the market?

We’ll have some transparency of our own. We’ll be looking at what is a fair market price for these things to be traded so that we don’t have tax credits being passed from a primary to a secondary investor and the ATO will monitor that very closely, so it will be a true market value that’s paid for the product. People – analysts – will be looking at these products to see whether or not there is good value in the product that’s being offered to market and ultimately the sophisticated investors in particular, who will scrutinise these products, very quickly will soon tell us whether or not they’re good value for money.

Well, physically how would it work?

Physically how it will work is that people will conduct themselves on a secondary market, I would have thought, on a secondary exchange. We would have the capacity for institutional investors, for argument’s sake, or sophisticated investors or analysts in the marketplace to look at particular products and we would from there seek to marry up the buyers and sellers. So it would operate in a similar way to exchanges at the moment.

Are you looking to nominate an exchange to have that job or is the field open now?

I don’t think we’ve gone that far. We’ve spoken to some players in the market who believe that they could facilitate the process quite quickly.

Sorry. Players in the market. You don’t mean the big promoters who are already out there?

No, I’m talking in terms of exchanges and people who are bona fide operators at the moment, operating some of the biggest exchanges in the country. So that’s a detail that we need to work through but the important thing is to make sure that we’ve got the analysts looking at these products, to look at present values and future values and where opportunities might vest in some of these products, and they’ll soon discard the ones that don’t.

In the work you’ve done in developing this policy, what sort of expectation has built up about what these products will trade at in the secondary market as opposed to what they’re being sold for in the first instance?

I’ll let the market decide that. I’ll let the market determine what is good value and what’s not and they will soon let the market know what they’re willing to pay and I think that’s a good way in which it can operate.

But you can see some expert opinion on what it’s likely to be, in light of Great Southern’s experience and shortfall in returns and having to top up what’s paid to investors?

Well Michael, I know where you’re headed but I can’t pre-empt any of the market outcomes. I think it’s important that we have transparency in the process. We need to have people looking and independently analysing some of these products and I think there will be some that do better than others. Clearly that will be the case and we’ll see what the future holds.

 

[Portfolio]

Good interview. Any guesses out there as to what 1 woodlot will trade for on the secondary market? I'll start the ball rolling and say $1,200 for a 2003 lot (4 year old).

 

[Jackob]

Portfolio,

I understand GTP sells each woodlot for $3300. If it would be only worth $1200 in 4 years, then how could the woodlot MIS projects possibly survive?

No wonder Dutton emphasized the merits of “transparency” and the necessity to “weed out” “the bad operators”!

 

[Portfolio]

Its just a guess based on what was returned in the early projects. The official company line is that the early projects yielded much less than what they expect from todays project. But given that they wont give any facts on current yields etc i believe any investor to the secondary market would have to assume the actual yields produced.

Interesting discussion but i guess we will have to wait for it to start trading to know for sure.

 

[Jackob]

No matter how the new secondary MIS market will look like, it certainly will have most profound effects on the MIS industry.

Among all the MIS companies, I've observed that only one, that is WFL, has openly welcome the secondary MIS market in its ASX announcement. All the rest are silent.

The Govt's aim of the secondary market is quite clear, that is to increase "transparency" so as to "weed out the bad operators". Well, who are they, the "bad operators"? Won't we all have a guess? Didn’t GTP happen to be carefully mentioned near the end of the Dutton interview? Well, I am not too sure, but I don't know whether J Young would have a very good sleep tonight.

 

[Kat82]

Any idea why the stock price jumped so much today? Almost sold last week but my offer price never got hit. Wonder whether it is a good time to sell.