GTP - Great Southern Plantations

[pch]

jackob..

I'm not an accountant, and I'm posting this based on no research, but it seems to me there are ways around this..

eg amortise revenue over say 2 or 3 years by changing the 'management fee' structure
restructure so that say, a wholly or partly owned subsiduary does the 'tree husbandry' and charges a fee to the MIS promoter

your thoughts? The 70% thing hasn't really bothered me that much actually.. I'm more worried about all that money spent on cattle

 

[Out Too Soon]

I'm no accntnt but I have a good memory & despite the never-ending doom predictions on this co. they're are still around & surprising the doomsayers. I look forward to the dividend this December & will continue to profit from the sp gyrations.

 

[Rainmaker2000]

I'm not sure how forthcoming GTP has been so I'll just post this message from the SHV thread.........

Hi guys....sorry to fill up the post box...just did a little more analysis....the $4 million before tax, as in 10% of total profit is ONLY for the company owned acres........that is, SHV manages about 35 000 acres (40k next year) and the $4 million dollars is only water for 3300 acres which are companies owned and that's still skimping on water apparently...the 'investors' are responsible for the rest......I can now understand why that question marks the viability of the entire sector at least for this year........that's $1212 dollars an acre extra for water which no investor and financial advisor would 'foresee' when they made the 'investment'........just this year would kill the aenimic 4% return which these guys pray for when they avoid tax.....that is a very interesting development and explains why TIM has been dropping and SHV although I don't see it as such a negative for SHV as there are positive elements of this....note that the chronic water shortage probably does not affect GTP forestry much at all

 

[pch]

Saw this today - bit late I know..

http://www.abc.net.au/rural/news/content/2007/s2064181.htm

So how would they pay for this I wonder?

 

[Out Too Soon]

Nice little break out yesty but the buying volume looks quite thin today.
Now they have a 50% interest in a wood chipping mill I feel I no longer want to be associated with them.
Have to wait for a real up trend to dump them though. Guess patience is the word.

 

[barnz2k]

i noticed this too. I think if they make another break towards $3 im gonna sell. Hopefully at about even or slightly above entry..
I just dont have support for them now, even their fluctuations are less and just stagnating around the low 2s.

 

[pch]

Can you imagine the fallout if this is comes to pass?

http://www.businessspectator.com.au/bs.nsf/Article/DAscenzos-high-rolling-gamble-93QRP?OpenDocument

 

[barnz2k]

pch - please correct me cause I dont fully understand this.

Basically once this goes through court, either the Tax Commissioner wins his 'adaption' of the law - and basically concretes this whole deal about tax structures etc which are causing havoc on the industry and causing investors to sell, or he LOSES and has to pay back a whooole lotta cash to the companies fighting against him? As his speculation has caused their share price to fall?

So if he does lose, could we see money heading back into shares like GTP, and a nice cash deposit made to the companies themselves?

And if he wins, is this going to bring forward the downside by confirming the outcome sooner than expected?

 

[Rainmaker2000]

I'm pretty exposed to Timbercorp which mainly does agriculture projects, not forestry and Select..I used to own GTP....My view is that the market has already priced in the abolition of MIS...

Thus if they lose the case, I don't expect much negative share action......I'm not sure if you've read the legal opinions (me being a lawyer too) am of the firm view that the ATO interpretation will be thrown out. Simply because these companies just use the same deductibility provision everyone else does. It would be an interesting judgement in favour of the Commissioner.....

I would not assume that if the Commissioner loses, then MIS is here to stay......there will be a positive share price reaction.........but the Commissioner will then just ask the Government to legislate his new view just as the positive view on forestry will be legislated.........

With the new labour government in office, they will not decide to do this quickly.......and since this industry creates a lot of jobs but is not good for average farmers, it will certainly be very interesting all round....either way I see plenty of upside but not so much in GTP

 

[Jackob]

This year's annual report is out today.

EPS (diluted) = 20.7c down 49%
DPS (whole year) = 11c down 3c

They are in stark contrast with the following "brokers' consensus" (given by COMSEC).

----2006 2007 2008
EPS 41.6 43.7 46.4
DPS 15.0 15.0 15.0

 

[pch]

i don't know whether you noticed Jackob, but a lot of the things we speculated would happen as much as a year ago has come to pass..

That's just from reading the presentation - haven't gotten round to the nitty gritty of the actual financials yet..

 

[Rainmaker2000]

What particularly interested you Pch.........I found GTP's future plans to be basically identical to TIM's although it is clear that GTP is far more advanced.....for example, their new investment products are presented to be far more earnings accreditive than their MIS projects.....while this is a tough proposition to believe, I always thought there was a chance that once these guys went 'back to the drawing board, they could come up with some better investment products.......after all, lots of 'farmer Joes' make exceptional rates of return off the land and GTP has more economies of scale than them........

I always thought there was a lot of value embedded in this sector and there are now some signs that people are realising that these companies have been discounted far too much.....for example, check out the new agricultural fund that is being floated on ASX.......agriculture funds management is now becoming a growth industry of sorts and GTP and TIM already have a large proportion of the finite land assets

 

[pch]

Hiya

I also think GTP is in much better shape than TIM, not only for the asset base, but also the minimal exposure to Murray/Darling water issues. TIM also have had a pretty crappy operational cashflow right now whereas GTP's has been good. I've always been in favour of them buying their land, despite the debt it takes, because all they need to do is sit tight and within 5 years, land rotations take a massive chunk of capital expenditure away.

But, in the meantime they have a lot of debt, margins tightened up because costs increased and the regulatory framework changed around them. Last year the $1 million super thing would have hit them of course, but they strangly don't mention the income tax rates where now you have to earn a lot of money before being taxed at the highest rate.

But all that aside, Jackob and I at various times discussed GTP's debt. Took me a while to get what he was saying, but in the end we concluded that it was inevitable they restructured their upfront free - which they now have increased.

I notice they also are going to amortise the income they recognise, probably to get around that 70% rule. That was also predicted.

I also suggested they will probably change the way they revalue their land to book income that way - they have dropped the discount discount rate and booked some 30+ million of income from this (and they suggest the value they care carrying is conservative for some of those land assets)

There are other things too, but it would take too damn long to write about

I am pleased they reduced the amount of cash they burned as I expected them to need another $300mil by now. Instead, they drew another $50mil from their bank facility and extended their credit by $100mil. Aha, but EPS is half what it was

Still, despite me saying all of this, I think it will be quite a while before GTP will have any significant rise SP. Investors and funds are much more short term oriented than GTP's eventuall payoff time.. I thought this report was so-so, for all of the positive things, there are things that make you go hmmmm

 

[Jackob]

Pch,

Yes, we did discuss GTP’s debt and related issues at depth, and concluded that GTP would have to increase its pulpwood project upfront fees, otherwise it wouldn’t survive, as its projects were in a state of hidden chronical loss.

Now, thankfully, our views have been graciously confirmed by GTP announcements that it will “restructure” its pulpwood projects by raising the upfront fee by 47% from $9090/ha to $13,400/ha.

A 47% jump of application fee to $13,400/ha! Well, it’s of cause seemingly good for GTP, but is it also good for investors? How much returns should still be expected from schemes? Would other MIS managers (such as TIM, GNS ...) also follow GTP to raise fees? What if they wouldn’t? In that case, would anyone still rush to buy GTP's before June 30 next year? … I reckon uncertainties and dangers are obvious.

It also reminds me other questions: How was the final results of GTP’s 1996 pulpwood project? Anyone knows anything of it? Still keeping "topping up"? Or just leave as it is?

The other item of GTP’s “restructure” is reducing the CAPEX from $7000/ha to $5500/ha for the pulpwood projects. It looks like as if GTP has changed its strategy from buying lands at $7000/ha … to … renting? Just as TIM has been doing for years and now for GTP to follow? A ~$500/ha pa rent (~7.1% on the capital of $7000/ha) over 11 years just makes $5500/ha?! If this change is true, it can again confirm the failure of GTP’s old strategy.

… More might follow later …

 

[Rainmaker2000]

I do prefer the TIM exposure to GTP, but I agree their operational cash flow is appalling at moment, verging on troublesome...........I like TIM cause they put most of their efforts into their long term agreements (mainly 23 yrs) which produce their 'annuity style' income and cause they do 'real crops' mainly.......next years annuity income will be $300 million and its only just beginning, which is pretty significant since their currently capitalised at $550 million......TIM is also moving to a 'less capital intensive' business model.........I honestly think the 'investors' will be there for these products whatever they charge, mainly cause they pay off the 'advisors' so much

 

[pch]

Pch,

The other item of GTP’s “restructure” is reducing the CAPEX from $7000/ha to $5500/ha for the pulpwood projects. It looks like as if GTP has changed its strategy from buying lands at $7000/ha … to … renting? Just as TIM has been doing for years and now for GTP to follow? A ~$500/ha pa rent (~7.1% on the capital of $7000/ha) over 11 years just makes $5500/ha?! If this change is true, it can again confirm the failure of GTP’s old strategy.

… More might follow later …

Jackob you always give me too much homework to do! I never looked at this bit..

Lets make a bet. If they get through to 2011 or 2012 where their major rotation kicks in (co-inciding with when their capitalised debt is due and paid by that saving), then you owe me a beer!

Whether I care by then is another story!

 

[Jackob]

Hi Pch,

I would never mind to buy you a beer or so, but I suspect the GTP pulpwood business game may wind up soon.

I reckon the decision of raising the application fee by a hefty 47% to $1340/ha would never be taken easily, if John Young had not been prepared for a possible wind-up in his mind.

As we discussed months before, a genuine pulpwood project could never survive on a $9090/ha application fee when the land price had surged to $7000/ha or more. I reckon that a $1430/ha level fee would be the minimum to survive. So if customers are scared off at this minimum level, why not simply let them go?

On the other hand, the returns on pulpwood projects are never good, and GTP has NO money to “top up” them any more. Even if the fee were kept at $9090/ha, how many investors would still keep coming any way?

So, why not let the game be over? Alas!

 

[The Captain]

Well Jackob, maybe you should change your name to doom and gloom. You never have anything good to say about this company. I am never suprised to read your comments, but have you ever seen their plantations, yes have you done any real work and visited the plantations. If you had you would have seen a huge difference in the size in the trees in the plantations over the years. Later projects are 3 times the size of earlier projects at the same point in the projects life. While earlier trees did not have many of the advantages of the latter projects ie genetic selection.GTP did the right thing in topping up earlier returns. They wont in the future as there is no need to. Last results for 2006 returns to growers looks to be about $4300. What will we see for the future? maybe by 2009 - 2010 we should see returns of about $7500. Not a bad little earner. What about the change in Government and now the guarantee of carbon credits return to investors, another very positive aspect. And the test case should also prove to be in the industry's favour. I agree that at the moment s.p is down and may not change for some time and the short term future does not look positive for s.p. growth, but GTP is here to stay and will be a very profitable company for the future.

 

[Rainmaker2000]

Captain, it's good to hear some observations about the actual growth of the trees, but your input in relation to Jackob is unwarranted..........GTP's been a dishonest company and its whole product proposition to its investor is, well, not totally legit is it............I think its totally legitimate to take 'a glass half full' approach to the company and management.......although I do see value in the sector but GTP is my last pick

 

[The Captain]

GTP's been a dishonest company and its whole product proposition to its investor is, well, not totally legit is it............I think its totally legitimate to take 'a glass half full' approach to the company and management.......although I do see value in the sector but GTP is my last pick

Rainmaker, I am not saying that GTP is the best thing since sliced bread. But that there are positives and its not all doom and gloom. If you want doom and gloom check out Queensland Paulownia. In the not to distant future we are going to hear all about this failed company and the really dishonest part of MIS. There will be lawsuits over this one very soon and I suspect that it will change MIS forever.