City Pacific CIY

[Dimebag]

I've been building a smallish holding in this stock over the last week or so.

Bought 400 shares @ $4.07 last week and another 600 @ $4.05 this afternoon.

This stock looks like it has a lot of promise.

Another very bullish profit forecast was released to the market today. $33m forecast (vs last year's $12.5m). Undiluted eps of 47c and dividends of 30c to boot [although please note fully diluted eps will be closer to 30c]. CIY have a history of achieving and exceeding forecast figures, so my opinion is that such forecasts are quite likely to be achieved.

The stock has moved positively today. Its up 7cps to 404c as I type, but note it went ex a 10cps FF dividend today. (A$40 cheque on the way. Cool :).

In my view this is an outstanding growth company at a very reasonable price. It is achieving an outstanding ROE, and its non-capital intensity means very high dividends can be paid whilst rapid growth continues to be achieved.

There are risks, of course, being a finacier to property developments, but the management behind this company seems astute and prudent. Loans are only made to high quality developers, and to date bad-loans have been virtually non-existant.

As CIY as still a relatively small company, I imagine there are both considerable growth opportunities ahead, as well as continued scope for further recognition of the stock, and thus a PE re-rating.

Management appear very competent and their track record is second to none.

My gut feeling is that this stock will be a winner.

Any comments?

Dimebag (Holds 1,000 CIY)

[Dimebag]

Couldn't help myself

500 more @ $4.20

Would have had them for $4.15 if DirectBroking had been quicker! (although to be fair they only took a few minutes).

Dimebag

[OldRider]

Agree with you Dimebag,I looked at this company November 2002,price then $1-98.They manage three funds lending the proceeds mostly into mortgage backed securities,and have no debt themselves, just collect fees for their efforts.Presumably the risks are carried by the funds.Seems to be a good scheme. Has shown great and steady growth in fundamemntals this far,my data shows PE 17.93 EPS 20.91 DY 5.06% NTA 24c DPS 19c so I must be a bit out of date.
Round 75% of shares held by top 20 holders.It came in slightly below my purchase criteria so I didn't buy then,wish I had hope you do well with them.
Edit: News today:http://stocknessmonster.com/news-item?S=CIY&E=ASX&N=158275

[OutToLunch]

I agree too, they look good albeit with slightly higher risk. I was watching them closely back in mid 2003 with a view to purchasing the options, but in the end decided there was too much risk involved. Stupid decision - back then, the options were 60-something cents. Up over 300% since. [xx(]

[Dimebag]

No sense in ruing past 'lost profit'. We all miss good stocks.

Further, just because the price has gone up doesn't mean it was necessarily a bad decision. I personally believe that if it doesn't fit your criteria, then you are best to stay out. You may miss profits, but you will also miss losses. There is always another good stock around the corner.

What is really senseless, however, is refusing the stock another look because of a feeling that one has 'missed' the stock for good. Such sentiment is often expensive and merely rubs salt into the wound.

Regardless of past profits, my feeling is that CIY still has a long way to run yet. I have often looked foolish in the past making such predictions, but I believe CIY could well hit $6.00 before the year is out.

At $4.15, they have a forecast gross yield (to Australian residents) of 10.3%! For a growth stock!

Their forecast, fully diluted PE is just 13.8x, and I suspect 2005 should show very impressive growth again. Should CIY achieve their 2004 guidance, and then predict more bullish growth for 2005, CIY could really soar.

Gerry, what do you think of this one? Seems like the type of high quality growth stock you like.

Comments from anyone else?

Dimebag (Holds 1,500 CIY)

[Dimebag]

An e-mail I just sent to my ex-finance lecturer (I'm now working as a research assistant for him part-time over my summer break).

Though it too good to scrap and might be of interest to others.

Cheers
Dimebag



My latest stock tip is City Pacific (CIY) on the ASX.

Closed up 8.4% today (after allowing for it going ex-dividend) at $4.15 and is looking very hot. I've managed to accumulate 1,500 at an average price of A$4.08 (mostly buying today).

The assessment is based on both fundamental and technical grounds. Fundamental analysis is and should always be the cornerstone of a stock pick, but paying attention to market dynamics and investor psycology via charts can drastically increase the probability that the stock will ascend quickly once bought, and minimise the probability of a fall. Its more about 'listening to the market' and looking for validation of your take on the company rather than trying to trade any periodic patterns.

The stock is looking very strong and is coming out of a reasonable period of price consolidation. Profit takers/portfolio diversifiers are largely out and stronger holders in. The lack of movement for some time will have flushed out weak speculative holders who rode the previous trend. A firm base of longer--term holders has thus been established, and moves like today will create attention for the stock and re-attract speculative funds. The stock is primed to move! Increasing demand and more limited supply!

The company is a very dynamic and innovative growth company in the financial services sector. They are showing outstanding growth in profitability, and today upgraded their earnings outlook for the rest of the 2003 financial year.

They are sitting on a forecast gross yield of 10.3% (for Auzy residents). They are achieving a ROE in excess of 50% and are growing earnings at tripple digit rates ($4m in 2001, $12.5m in 2002, and $33m forecast for this year). Their forward PE is about 9x but after taking into account outstanding options and fully diluting all recent stock issues, it is closer to 14x.

The company continues to have considerable growth potential and very visionary and innovative management. Such profit growth (and profit growth is required for sustained signficant stock moves) is thus likely to continue in my view.

CIY is still a relatively small company and largely undiscovered. Management hold large blocks of stock which makes for entrepreneural and shareholder oriented leadership, as well as reduced supply. A given demand for the stock will thus push the price that much higher. The top 20 shareholders have 75% of the stock.

With continued outstanding fundamental performance, price increases, and such a tantalising dividend yield, as CIY gets larger it is sure to attract more and more institutional interest, driving up demand that much further. Current market cap is around $370m.

There are no guarantees of course, but in my opinion the probabilities look good.

Regards
Lyall

[miner]

*CIY: Forecasts another record full year
City Pacific Ltd has forecast a full year profit up 165 per cent to $33 million after the core financial services business reached a new level of funds inflow and prudent investment of the $23.5 million raised via the recent options sale.
CEO Phil Sullivan said revenue for fiscal 2004 is expected to be just over $50.5 million, up 122 per cent on the previous year.
EPS is forecast to be 47c up from 20.91c last year and dividends per share 30c vs 15c last year.
It will be the company’s sixth consecutive year of upgraded forecasts and record profits.
Mr Sullivan said implications of accounting standard AASB 1009 and Urgent Issues Group Abstract 53 means City Pacific could book a $3.3 million after tax profit contribution from listed 55 pct owned subsidiary CP1 Ltd. CIY also has 9.6 pct of financial services company Terrain Australia Ltd.
CIY up 18c to $4.15

Cheers
Miner

[OutToLunch]

I did a few sums, looked over their accounts and finally decided to jump on board for a small holding at 4.11. I do like the look of this co. and have been watching them for a while. The latest announcement was enough to hit my ‘buy’ button. I was still interested in the options, but the divi yield (well the forecast yield anyway) looks pretty good over the longer term. And they seem to be well aware of the overheated Aussie property market and are targeting their products accordingly. Sounds very sensible to me.

[thereslifeafter87]

Just a few quick questions/comments.

Why do CIY seem to burn cash? whenever they report, their cash levels are always extremely low.

Also, why do CIY issue such large dividends while having to issue new stock (in the form of options) to fund such dividends?

Otherwise, the stock looks great....

[OutToLunch]

As far as I can see, the options sale late last year was a selldown by existing option holders with the condition that the options were exercised immediately. So it effectively just brings forward the dilutionary effect of having the options exercised later, while giving the co. 23.5m to fund their activities. The forecast divi is high, but given management's record they're presumably very confident of continued high cashflows to be able to pay out at that rate. After all, profits are running at well over half gross revenues.

I also don't think they need to hold a lot of cash as they're not a capital-intensive business.

Of course I am inviting eggs onto my face here, but I think CIY's story is a positive one all the same. Up over 1900% since their IPO three years ago, and still flying.

[Dimebag]

Hi Team

Thanks for your thoughts.

Surprisingly (to me at least), CIY has looked a little weak over the past few days. There appears to be some resistance around the $4.15 and $4.25 areas that perhaps more regard should have been paid to.

None-the-less, I am extremely bullish about CIY.

CIY continue to spread their wings, with continued geographic expansion, as well as new product initiatives, likely to drive growth over the coming years.

Like Gerry has mentioned recently, I too am beginning to cultivate an approach to selecting successful growth companies that to a large extent is based on my impression, or 'feel' for the company.

Some companies just seem to give off the right vibes for me. One can sense the urgency, optimism, focus, and competence. They speak in shareholders' language. The figures also do a lot of talking. Performance targets are met and exceeded and seldom is there any need to front excuses for substandard performance or dashed expectations.

Surprises tend to be positive.

This doesn't mean I've disregarded the figures. Quite the contrary. The figures will always be the bottom line (excuse the pun) and bread and butter of a stock pick. But the numbers by themselves are inadequate. One must get a feel for whether they are betting on a superior company.

My personal feeling is (like outtolunch) that CIY's story is very positive and that their growth curve has some way to go yet. With continued amazing eps growth, and excellent dividends to boot (which are also liable to grow considerably over the coming years), I believe CIY has many of the hallmarks and makings of an outstanding stock pick.

Time will tell.

I will continue to accumulate below $4.00.

Dimebag

[Alban]

Hi Dimebag - CIY has certainly been a wonderful performer to date and their statements are extremely bullish.

A concern I have is:

"Chairman Ian Donaldson told the company’s annual general meeting that a property downturn would have a minimal effect on City Pacific’s business, with directors confident of doubling earnings per share by 2006."

Now maybe I just don't understand property downturns or the property market but, by my reckoning, if developers stop borrowing money, CIY loses income. If development stops completely, then CIY's bottom line would look very shaky. I can't understand how Mr Donaldson can make this claim. Or am I missing something?

Thanks for pointing out another interesting stock. :)

[Dimebag]

Alban

In the event of a property downturn, country-wide property development will not come to a complete halt. There will merely be a decrease in the level of construction activity.

Elsewhere in the CEO AGM address, it is pointed out that there was an som $47b in new constructin work commissioned during that year. In the event of a downturn, this may fall to, say, $40b.

Remember, the property market has many diffenet sectors, of which overcrowded sectors such as inner-city apartments are but one (note that CIY has no exposure to such developments). Redevelopments and construction in many other sectors are liable to be affected significantly less than these overdone areas, and these are the areas CIY;s funding is targeting.

With CIY having current FUM of around $650m they clearly still have a very small market share, (considering about $47b in funding for new construction is required each year), so they still have considerable scope to 'cheery-pick'.

Considering that they are growing so quickly, and are still so small, they believe that a macro-scale downturn would not hamper this continued growth and prosperity.

Certainly arguable in my view, considering their massive outperformance of the sector growth over the last 5 years.

Regards
Dimebag

[Dimebag]

Cantab

Thanks for your comments mate. My apologies for the delayed response.

Some very valid concerns there - particularly the $1.9m default you mentioned. However, considering they got another developer to assume and complete the project, CIY probably got away unscathed.

In terms of 'higher return higher risk' argument concerning their rather high on-call and one-year deposit rates, CIY may well be able to offer higher returns without necessarily assuming large risks if they have carved out a competitive advantage.

CIY's upper management appear to be experienced property developers. If they can successfully inject that knowledge throughout the firm's operating activities, they will be more knoledgable and discriminating when assessing loan applications from developers.

The result would be much quicker response times, more flexible conditions, and probably more competitive interest rates if the effects of adverse selection can be reduced through being more discerning in their choice of borrower. These are all liable to be generating the very profitable repeat business CIY has been successfully winning.

Risks certainly exist, but I have a good feeling about CIY. Management appear to have successfully used their superior industry insight to find a very profitable underserviced niche market and to swiftly execute an entry which has capitalised on such an opportunity. No doubt more such opportunities exist within the financial services industry, and if CIY successfully capitalise on many more, CIY's growth story could have significant milage to run yet.

CIY creeping back towards $4.10 today. Interesting stuff.

Thanks for your comments.

Regards
Dimebag

[MPC]

Well these have moved upwards over the last week or so to 4.50. I know nothing about these apart from what you guys have written but have been watching to see how your picks go.

Where to from here? Where is the next resistance point?

Cheers,
MPC

[Dimebag]

MPC

Yes CIY have been doing quite well lately. Last sale at 454c as I type.

CIY appears to have experienced a classic break-out from previous resistence at 425c. There was quite a good shake-out over the last six months. The stock was well preped for a move and it appears to be eventuating.

Potential resistance at 455c, but with a bit of luck, CIY will blast through this. They are still in the relatively early stages of a new price-move so CIY's price could continue to advance strongly for a while yet.

They are hitting new highs on good volume, after a good period of price consolidation, with the strong fundamentals to underpin the move. There is simply no better time to buy a stock IMO.

The stock appears well on the way to hitting $6.00 by the year's end (as predicted above).

Cheers
Dimebag (Holds 1,500 CIY)

[Alban]

quote:Originally posted by Dimebag

They are hitting new highs on good volume, after a good period of price consolidation, with the strong fundamentals to underpin the move. There is simply no better time to buy a stock IMO.


For once, I'll disagree.

Unless you are a v. short term trader, the best time to buy this stock was 18 months to about 9 months ago. It's up by a factor of two or three since then, depending upon exactly when you made your purchase. Of course, I say this assuming the fundamentals supported a purchase at that time. I don't know if they did or not.

(Just me being mischievous Dimebag ;))

There's some e-mail for you if you want to check it. :)

[Dimebag]

Alban


Quote:
"Just me being mischievous Dimebag"

I'd expect nothing less from you Alban ;)

My comments were intended to be of a more generic nature. You are certainly right that buying CIY some months back would have been far more preferable than purchasing today. But generally, as far as buying criteria goes, the best time to buy/be in a stock is when it has outstanding fundamental characteristics, and it is breaking out on strong volume into new highs, after a long period of price consolidation.

As you mention, it is highly likely that this was also the case with CIY some 12-18 months ago.

Regards
Dimebag

PS I've checked my e-mail. Thanks for the prompt!

[OutToLunch]

Looks like CIY have sprung into life after dozing off for a little bit. What a shame I didn't grab some more!

It will be interesting to see how the current price compares against the latest forecasts. I am away from home at the mo' and don't have any numbers at my side - does anyone else?

And look at that... pre-open quotes have buyers at 483. This baby is absolutely flying! Just did a quick sum too based on their latest forecast which I have just found (33m NPAT), shares on issue of ~90.5 mill, and a share price of 470. I get a forecast PE of about 13-14. Doesn't that seem cheap for a company that's growing so quickly?

[MPC]

Wow, have a missed something? I came home today to see these at 5.00, is there some new information out?

Actually I got a few of these for a laugh without knowing anything at all about them at 4.10 about a month ago. Thanks for the tip guys.
Now when to sell???

Cheers,
MPC

[Dimebag]

No new news.

Just your classic break-out. It had sound fundamentals and a sound chart base. My third post in this thread discusses the buying and selling forces at play behind this base formation.

CIY exhibited similar antics last year when the price moved very swiftly from around 220 to 425, before cooling off for about six months.

I for one am enjoying the ride. I can think of much harder ways to make $1,500....

When to sell? Depends what kind of trader you are. Clearly CIY cannot keep going up at this pace for long. At some stage it will pull back and steady. However, when that will happen is not at all clear.

CIY ran up almost 100% last time before consolidating.

CIY is a very good company growing very quickly. Such powerful earnings growth can underpin strong and substantial price moves. The PE is still well within the bounds of reasonable.

More upside is certainly a strong possibility. I still think it will exceed $6 by xmas, but at this rate it could do it by easter!!

Dimebag

[Dimebag]

"I can think of much harder ways to make $1,500..."

I just had a think about that. Thought back to my school days when I worked at Pak'n'Save for about $4.50 and hour after tax.

It took 333 hours of hard labour to make that much money back then! (and I did, buy the way. Managed to save about $1,500 over the course of a year or so. That was the beginning of my capital base which I subsequently put in the market!).

Dimebag

[OutToLunch]

I wonder if CIY will be contemplating another share split within the coming year?

Jeesus look at the buyers lining up pre-open again. Anyone have access to that broker's report that apparently came out recently?

[OutToLunch]

Announcement this week that CIY and Indigo are going to float a new JV, Indigo Pacific. New shares at $1 a share, priority given to CIY, CP1 and Indigo shareholders and investors. Min parcel 3000 shares, free options at the rate of 3 for 5 excersable at $1.50 in 3 years' time attached.

A surprising lack of reaction to this announcement as far as CIY goes. I will be keen to see the prospectus (mailed on 14 April, so they tell me). If it is anything as successful as CIY and CP1 have been it will be a ripper! Will be keen to see the numbers in the prospectus before I decide to take the hammer to the piggy bank though.

Anyone else got thoughts on this?? Seems tempting (depending on the numbers to come)...

[OutToLunch]

Anyone still watching these guys? And is anyone taking up the Indigo offer? 3 days until the offer closes, and my bloody prospectus/application form hasn't arrived in the mail. Just as well I was able to download it from indipacific.com.au in the meantime. I contacted City Pacific and asked if the offer was open to NZers, and the reply was that all shareholders of CIY would get a prospectus.

Any other NZ CIY holder not get their prospectus?

[OldRider]

My prospectus arrived quite some time ago.
I wasn't enthusiastic, my take on things is that the promoters will get for $200,000 plus their "significant expertise and investment opportunities",what new investors will pay $25M for, with even more options thrown in for the directors and promoters as well. Thus NTA after IPO of only 50c or so.

Have I read it right? It seems a sucker play to me.

[OutToLunch]

Yes it does seem a bit thin on the ground doesn’t it. I read it through, searching for some solid figures, and it’s certainly looking like a good little spinner for Indigo and City Pacific.

It’s a bit like NZ’s 42 Below in a way – expensive and not proven. However I think as a spec play it has more promise then FTB in that Indigo Pac will have strong ties to CIY which has already been very successful, and they are intended to work together quite closely and in a complementary fashion. So I’ve decided to have a bit of a play anyway, for better or for worse. Certainly not a core stock for me, but what the hell, I’ll take a small punt & see where they're at in a year or two. [:0]

[OldRider]

I'll follow and see what happens,with the big drop lately in CIY I would think between the two CIY's the better choice.My bet would be for a listing well below the dollar.Glad my CIY were bought some time ago,those that bought near $5 recently must be thoughtful.

[OutToLunch]

Did some more reading and the lack of numbers or any real substance has become a real concern. While CIY has been very successful, I am beginning to see this new float as a bit of a ride on the coattails of CIY’s success rather than a genuine opportunity for expansion that’s in the interests of the shareholders. So I’m out now too & happy to watch this one from the safety of the sidelines.

And the final nail in the coffin was this article from the Courier Mail:

Investors will require giant leap of faith
John McCarthy
12apr04

CITY Pacific is fast becoming a brazen deal maker but its latest play with property developer Indigo Group requires investors to make a leap of faith.


It may be that the planned property investment company the two have formed, Indigo Pacific Capital Ltd, and are now flogging off to the public, will prove a bonanza for shareholders.

After all, City Pacific's previous spin-off CP1 has been a huge success, coming as it did in the middle of the property boom and ending up one of the best floats of last year.

City Pacific itself has had astounding success in building its funds under management which is expected to reach $1 billion by the end of the year.

Under the latest deal, City Pacific and Indigo will hold 25 per cent each in the new Indigo Pacific.

The remaining 50 per cent will be sold off through a $25 million float capitalising the fledgling company at $50 million or more if there are oversubscriptions.

Indigo Pacific will buy equity in companies formed to carry out developments identified by its board and Indigo Group. It also will provide debt funding for projects in much the same manner as City Pacific and, apparently, in the same leisure and lifestyle market.

While Indigo Group has been developing residential and commercial properties since the 1980s, Indigo Pacific has no performance history for investors to use as a gauge and therefore shareholders are being asked to make a considerable gamble.

Investors will be trusting that the two companies will use their significant expertise to generate profits because both will have stakes worth $12.5 million if the float is successful and significantly more if it is oversubscribed to $35 million and even more if options are exercised at $1.50.

That stake came to both companies very cheaply. It cost them $100,000 each in seed money plus the promise to provide their expertise and some of their projects.

Not only is that a cheap entry into the company, but City Pacific and Indigo are being rewarded before they do anything, which must raise questions in investors' minds.

By why bother with it at all? What would be the point in buying shares in the unproved Indigo Pacific and the performance risk it carries when you could buy shares in the strongly performing City Pacific which has exposure to Indigo Pacific anyway?

Indigo Pacific managing director Mitch Nielsen says that's a question for investors to decide but points out that people who got into the City Pacific float have done extremely well. Both companies dispute it but there is enormous room for confusion in this deal because it is not clear what sort of company is on offer and whether there is any conflict of interest.



It appears that Indigo Pacific is a competitor of City Pacific, or at least has some crossover, so how can shareholders be certain that Indigo Pacific will be given free rein, particularly when City Pacific has a 3-2 advantage on the board?

Nielsen says City Pacific is mainly a debt funder whereas Indigo Pacific will be primarily an equity fund, but there will be debt funding and when there is it will be second mortgage lending, a much riskier proposition than first mortgage.

This is not spelt out in the prospectus and it should be because the second mortgage lender ranks behind the first mortgage if the project goes belly up. It should also mean that the lender earns higher interest rates because of the higher exposure, but how Indigo Pacific structures its lending is also left out of the prospectus.

Th

[OldRider]

First media article i've seen,seems to sum it up better than I could.It does seem to me though that if the oversubscription level is reached the promoters stump up another $100,000.

After offer NTA 50.66c at minimum subscription level,48.36c at maximum & 48.45c at over. Who else can get near 50% commission on investments? must make it rather longer for company to reach decent dividend level.

I couldn't find anywhere what the exercise price for the directors options were either,and my suspicious mind wondered about this. Article suggests it will be $1-50. Too many things I don't like, still think CIY better choice of you want to get into this sector.

[mark100]

Hello all, this is my first post on this forum as I have only discovered it recently. I have been a holder of city pacific since they floated and I am also a holder of CP1 and have subscribed for shares in the new indigo pacific. I am not just a mindless follower of city pacific’s deals and have shareholdings in several other non city pacific related companies. I evaluate every company on its own merits.
It is worth noting that John McCarthy from the Courier Mail has never written a positive article on city pacific so why would he change his tune now? I wonder if anyone has actually done some calcs to try and forecast the earnings of Indigo Pacific Capital? Also you may have noticed that Queensland Investment Corp has stumped up $6m to emerge as an 8.5% shareholder. $40m of applications were received of which $35m will be accepted as the prospectus allowed over subscriptions of up to $10m.

The first project they are investing in is the Kelvin Grove Urban Village. If you are familiar with Brisbane you will know that it is only about 2km from the CBD, is close to the Kelvin Grove QLD University of Tech campus and adjoining the Victoria Park Golf Course. So the location is very good.
There are 210 apartments planned and 4000-5000sqm of retail property. Assuming the apartments are 2 bedroom, I would expect an average sale price of about $400k each to give sales of $84m. I have researched price per sqm metre for prime retail space in Brisbane and have come up with a figure of $12000 per sqm. Assuming 4500sqm of space this gives sales of $54m and total sales for the project of $138m.
After doing these calcs I came across The Indigo Group's web page which mentioned this project as a $140m project. So my figures must be about right. Also interesting to note that ciy may use the retail property as an opportunity to launch their property trust. The trust is slated to own the retail properties within Martha Cove.
So this means the Kelvin Grove project is forecast to return around a 40% margin on costs.
Profit = 140-100 = $40m
Phil Sullivan informed me that Indigo Pacific would take a 50% stake in each development assuming $25m was raised. Now that $35m has been raised this will rise to 75% if we pro rata the numbers in the prospectus.
75% Equity = $30 before tax to Indigo Pacific over a period of say 2 years.
$15m NPBT in 04/05.

The Palm Cove redevelopment is forecast to cost $70m. There will be 110 1, 2 and 3 bedroom apartments on the beach. No road or empty space between the resort and the beach, it is on the beach. Also there were rumours in the fin review a while ago that another 6 villas may be built on the beach front but I will ignore this from my calcs. Steve Mackay informed that it is premium stuff.
Looking at real estate web pages I have found a 2 bedroom beachfront apartment for sale at $800000 and 2 three bedroom apartments at $1m and $1.2m. So I will assume that the average price received for the apartments will be $850000. This gives sales revenue of $93.5m, a profit of $23.5m and a margin of 33%. 33% sounds reasonable as I doubt ciy would be trying to sell us in an investment that only just made the grade ie 20% margin.
Profit = $23.5m
Now that $35m has been raised this will rise to 68.75% if we pro rata the numbers in the prospectus.
68.75% Equity = $16.15m before tax to Indigo Pacific over a period of say 18months (may be shorter for this one as it is only a redevelopment, but use 18 months to be conservative)
$10.8m NPBT in 04/05

The $3m investment is debt funding is mezzanine so say interest rate of 25% is charged pa.
NPBT = $750,000 in 04/05

Total NPBT = $26.5.

Administrative, occupancy, employee expenses will be Nil as city pacific are providing these services. I will assume expenses of $500,000pa as expenses related to maintaining an ASX listing.

NPBT = $26m
NPAT = $18.2 assuming 30% tax

$18.2m / 70m shares = EPS of 26cps and a PE of 3.8 based on $1 per share.
No div will be paid in first year but div of 75% of earnings are to be paid in dividends starting in t

[OldRider]

mark100: Very informative and reasoned,I hope this first post of yours is the forerunner of many more. The quality of posting on this ASX board is in my opinion somewhat superior to the NZX board.

For me your last paragraph is the most telling,my opinion remains that CIY,with the way it has set itself up,is the better choice,and I should add to my holdings even at the present price.Time will reveal what was best. Do you have an opinion of future earnings growth of CIY? Look forward to seeing it.

[OutToLunch]

Yes thanks Mark, I have also read your posts on HC and they are very informative. Must admit the Courier Mail article spooked me enough to pull my IPA application, premature though that may have been. Instead I grabbed another bunch of CIY at 4.30, literally minutes before the price started rising again. Can't help but feel that CIY are going to really fly later this year, and if IPA do well, so much the better for CIY. Like you said, CIY would lose their credibility completely if IPA was a dog, but all the same I think CIY is lower risk and yet still very, very attractive at current prices.

cheers

[mark100]

Thanks for your comments OldRider and OutToLunch. Yes I do post a bit on HC under the name of peterdoobes. Why I use that name is a long story.

Yes I agree that ciy is very attrative at current prices (4.55) and is lower risk than Indigo. I think is is quite possible that ciy may reach $6 by the end of this year which represents a gain of 32% from here. While Indigo is higher risk, if they can get it right it may be $2 by the end of the year and along with the free options gives me a chance for some really good gains. Of course this benefits ciy also.

You may have noticed that on HC I last estimated EPS of 58cents for ciy in the 04/05 year. If this was to be achieved you can see why I think $6 is possible.

Where did I pull this figure from?
I have kept track of ciy's monthly FUM figure since they listed. This is available on their web page however these days they only update it every couple of months.
Since listing ciy's NPAT as a percentage of FUM has been as follows:
July - Dec 01, 3.42% annualised
Jan - June 02, 4.10% annualised
July - Dec 02, 4.54% annualised
Jan - June 03, 3.47% annualised
July - Dec 03, 4.38% annualised
Jan - June 04, 5.03% F annualised

The forecast figure is based on ciy's NPAT forecast of $33m for the year. Taking away the 1st half profit of $11.5m and the CP1 contribution of $3.3m financial services will deliver a 2nd half NPAT of $18.2m. Average FUM for this 6 month period will be approximately $723m.
It looks like FUM will end this financial year at around $810m. Lets assume FUM continue to increase at $30m a month until Dec 04 and then grow at $25m a month until Jun 05. The FUM as at June 05 will then be around $1.14b, giving an average FUM for the financial year of $975m.
What will the margin be? The margin forecast for this 6 month period is 5%, significantly higher than previous periods. I think this is due to higher weighting of mezzanine funds in the FUM figure which earns a better margin. This should continue as the option sell down generated $23m for them that was immediately invested in the mezzanine fund. Also there are more options that should be all exercised in the next few months that will generate another $8m or so.
To be conservative we will use a margin of 4.5% for the 04/05 year.
This gives a NPAT for the 04/05 year of $43.9m.

Now comes the part many have over looked. CP1 (cpk) has a 50% stake (was 40% but has recently increased to 50%) in the Martha Cove c*****development. Construction has started, I visited the site in Nov and they were just starting. Stage 1 (68 of the most premium blocks) sold out in a few days when it opened.
CP1's annual report forecasts the project to return a NPAT of around $250m over the next 3 years or so. CP1's share of this is NPAT of $125m. Ciy owns 56% of CP1 so ciy gets $70m from CP1 over the next 3 years. $3.3m of this is booked this financial year. In the 04/05 year the project will be in full swing. Therefore around a third of the profit will be booked, giving ciy a boost of around $23m.

So 43.9 + 23 gives approximately $67m.

If Indigo Pacific can succeed and make around $18m as I calculated in my previous post ciy gets another $4.5m boost via its "free" 25% stake.

Ciy also has a 10% stake in Terrain Aust (ter) which is a good turnaround story although the current share price would not indicate so (I don't hold) This may give ciy a few hundred grand as well.

This gives a total potential NPAT for ciy in 04/05 of around $71m. Assuming all the options are exercised there will be 113.7m shares on issue. Therefore EPS may be 62 cents.

Also if the margin of NPAT to FUM can be maintained at 5% and FUM can grow at $30m a month for the whole year we get slightly better figures.

What happens when the Martha Cove project ends? CP1 will not be paying out all their earnings from this project. If they retain around 25% of profits they will have a significant amount of capital available to invest in new projects. I'm sure that is what CP1 shareholders (myself) would be hoping, so we should be able assume that

[Dimebag]

Mark100

Many thanks for your astute comments. You clearly have considerable knowledge and experience in the property sector/investment, and we all appreciate you taking the time to share your thoughts with us. I look forward to any further comments you may have.

Have to agree that CIY look to be good value at current levels. The fact that they can grow eps whilst paying such generous dividends is also a considerable positive. Mathematics and simple valuation theory will show what a tremendous impact this can have on a stock's value.

A recent news release stated their FUM were already $750m. Fund flows have been $40m p/m lately and have been exhibiting an accelerating trend. Its interesting you have projected a decline in the rate of $$ growth. Clearly the rate of percentage growth must decline in time, but $$ growth is less certain.

Isn't the Australian mortgage fund market of some $800b in size? (I could be completely wrong on this figure - I just vaguely remember reading it somewhere). If so, CIY's market share is minisule and while they can continue to outflank their competition due to their superior expertise and connections, one could reasonably assume fairly rapid growth for at least 3-5 years yet.

On the other hand being conservative is clearly a virtue with investment, and the softening property market should probably be borne in mind.

Interested in your thoughts.

Regards
Dimebag

[mark100]

Hi Dimebag, my assumption of a slowing in the FUM growth per month was simply to be conservative. The rate may well increase, it probably will as their fund gains further acceptance in the market. This will just mean EPS will be even better than I am estimating! In any case I would be very happy with EPS next year in the order of 60c.
While I am not an investor in the mortgage trust a friend of mine who is received a letter from ciy in the mail today (it seems only investors, not shareholders get these updates). Some selected parts of this letter are as follows:
"City Pacific share price as expected dropped back marginally during the past couple of weeks as shareholders took profits in City Pacific to purchase Indigo Pacific shares"
"Now that the Indigo Pacific offer has closed we expect th City Pacific share price to recover as it did immediately after the options offer"
"We thank you again for your confidence and assure you that we will make Indigo Pacific another profitable investment"

I hope they are right!

cheers
Mark

[mark100]

ciy in trading halt. S8 and Breakfree, 2 Gold Coast based property management companies are also in a halt. So we have 3 gold coast based companies all in the property industry in a trading halt. What's the deal??

cheers
mark

[silu]

You can be sure that its good news because that always happens when I get interested in a stock -> it takes off without having bought any ;)

Cheers,
Christian

[OutToLunch]

Hmmmm... wonder if they're all getting into bed together (the companies, that is)? Some kind of merger or other joint venture?

[OutToLunch]

Well my guess was close by the look of it... but all I can say is 'b-ugger'. I hope CIY know what they're doing... [xx(]

City Pacific bid
John McCarthy
13jul04

DEVELOPER and fund manager City Pacific is set to launch a $170 million takeover of warring Gold Coast resort management companies S8 and BreakFree.

The three companies went into a trading halt yesterday with no comment, but the deal could be announced as early as this afternoon.
The takeover is expected to have a significant scrip component, making it dilutive for City Pacific.

City Pacific shareholders have enjoyed a phenomenal ride since the company listed at 20 in 2001. It is now trading at $4.64.

It has also forecast it will hold $1 billion in funds under management by the end of the year.

BreakFree chief executive Tony Smith is expected to continue to manage the business after the deal, while S8 boss Chris Scott will walk away.

But merging the two businesses may prove a headache because of their bitter history.

The expected deal would also diversify City Pacific from its core of funds management and project financing and create a $600 million company not entirely dependent on the property market.

S8 failed in its takeover bid of BreakFree last year.

BreakFree shares last traded at $2.32, while S8 traded at $1.04

[mark100]

I like ciy the way they are - they would have plenty of growth over the next few years without this. Why complicate a winning formula?

[OutToLunch]

Well it's all off -- hopefully that's a sign that CIY are being very selective about what they enter into, and how shareholders would fare as a result. I'm encouraged that they've backed out. WIll be interesting to see what happens over coming months though, clearly they're keen to expand and maybe one or both of the other two might come back to them later on for more talks. For now, like they say though, business as usual. :)

[mark100]

Well they've come back for S8 with an all scrip deal. I coudn't imagine them wanting to be competitors with BRK so maybe they will try for some sort of alliance/JV?

[OutToLunch]

Hi Mark,

Interesting -- obviously CIY really want to expand by taking out one or both of these companies. 307 CIY shares for every 1000 of SEL's 70-odd million shares dilutes CIY shareholder's interests by around 23%, roughly speaking. I can live with that, so long as CIY get more than 23% of extra growth out of having SEL in their stable -- entirely possible, I would like to think. By offering a 40% premium to SEL shareholders CIY are saying that they see very good value in having SEL on board.

I wouldn't want to be a Breakfree shareholder right now, surely this makes CIY/S8 a strong competitor for them. Perhaps this will force BRK's hand too and we'll see a bit more consolidation here.

[mark100]

OutToLunch, Wed's Financial review said that ciy could get access to new high grade management rights through its relationship with developers. Apparently S8 and BRK can't get access to this stock. It also seems ciy has a relationship where it will get access to management rights on Sunland's new stock. S8's chairperson was quoted as saying ciy could be a serious player in the industry even without S8 or BRK. Now that ciy and S8 have joined BRK must be wondering what is the next step for themselves. Apparently BRK was going to enter into an alliance with Sunland a while ago but this got interupted by S8's bid for BRK. Now ciy and S8 have the relationship with Sunland.
I'm sure we haven't seen the end of this yet.

cheers
mark

[Dimebag]

Interesting set of developments

My initial reaction to the proposed merger was somewhat similar to Mark100. All scrip merger - sounded like management had little faith in the value offered by the current share price and the sustainability of earnings streams if they were so readily looking to diversify.

However, I've spent a little bit of time checking out SEL and BRK over the past few days and both companies seemed quite promising and good value. Infact, in and of themselves they could well have made quick good stocks to own.

However, CIY must be sure they can add signficiant value in order to be prepared to pay a 20% premium to market. SEL looked undervalued but so did CIY. What is being achieved by a scrip merger otherwise? CIY shareholders could have bougth SEL on market.

Perhaps this wealth distruction is being represented in CIY's share price today? down 13c to 440c last time I checked.

From what I picked up, it looked like BRK had an alliance with SDG. Perhaps I have this wrong.

Interestingly, unless I haven't kept up with subsequent developments (I've only just begun researching), SEL ownes 21.5% of BRK. BRK has an alliance with SDG, and SDG has an alliance with CPK which is one of CIY's subsiduaries (56% owned)! Interesting web of companies.

Might spend a bit of time looking into them. BRK looks like quite good value at current prices in and of itself - might even be worthy of its own thread.

Comments?

[stephen]

See thread I started on SDG.

Fab P/E, ROE. Worrying cashflows, although it's a bit hard to tell from the financial statements provided exactly what's going where - which is a worry in itself.

Good track record though, extending over 20 years. Davidrob made some encouraging observations about the makeup of their property portfolio.

[OutToLunch]

This is all quite fascinating isn't it -- like you say Mark, it looks like there will be a few more moves played yet. I've heard comments from elsewhere that consolidation was ready to happen in this sector anyway, and this looks a bit like it. Hopefully for the long-term good for CIY... [8D]

[mark100]

Dimebag,
BRK and SDG were apparently planning to enter into an alliance last year however it got interupted by the hostile takeover bid for BRK by S8. S8 manged to get 21% of BRK but could not get any more and sold this holding earlier this year. So there is currently no alliance between BRK and SDG and S8 no longer has a shareholding in BRK.
Now it looks like ciy will secure S8 and combined with ciy's relationship with SDG (through its financing activities and CPK) it looks like BRK is left out in the cold. The S8/CIY/SDG combination will be a stong competitor to BRK and that is why I think BRK will join the fold at some point in the future. This is obviously what ciy wants.
When ciy can get its property trust off the ground (I understand that they have not indentified any properties at a reasonable price) they will be a very complete property player. They will have interests in developing, financing, ownership and letting.

cheers
mark

[Dimebag]

Hi Mark100

Thanks for that information. At that stage of my investigation I had only read the 2003 annual reports. Thanks for the update.

As you mention, BRK are beginning to look somewhat lonely. I had initially thought that BRK looked quite promising as a stand alone investment, but in light of the soon-to-be-assembled CIY/S8/SDG backed trio, the sustainability of BRK's existing competitive position is beginning to look a little shaky. At current prices, with PE ratios in the high teens, I think I'll pass (even though it has for me the considerable attraction of having the same ticker code as Berkshire Hathaway - the investment company of my investment idol Warren Buffett).

CIY are beginning to look a bit firmer in the lead up to their annual result. Up 8c to $4.87 today. Should be a pearler.

I managed to just recently pick up another 200 shares in the 460s to add to my position.

The mail-out research report issued by CIY indicates that they were forecasting eps of $0.52 for 2005 pre-S8-merger, and for $0.50 post merger.

This is encouragingly minimal dilution, and probably worth while when the improved diversity of earnings streams, and increased scope and reach for growth opportunities for the CIY group moving forward are borne in mind. I have been encouraged by CIY's management in the past, and with the absense of indications to the contrary, I am happy to back their judgement at this stage.

If CIY land $0.50 next year the current price represents less than 10x earnings. It is unlikely the stock wouldn't put on at least 50% given that performance. 15x earnings would be $7.50, plus a $0.20 final dividend and a forecast $0.39 full-year 2005 dividend.

Quite attractive returns are on offer in my opinion, and I am happy to hold, and occasionally add, to my position in CIY as events unfold.

Regards
Dimebag (Holds 1,700 CIY)

[OutToLunch]

Hi there Dimebag,

Always appreciate your comments on this site. I too have been watching CIY lately and building up a small holding.

Here's a way of getting into CIY for less: Buy SEL at current prices and then wait for the CIY takeover. CIY are offering 307 CIY shares for every 1000 SEL shares, which, at a SEL price of 1.35, allows you to get into CIY at an equivalent price of about 4.39-4.40 compared with the current market price of 4.87. You'd pick up a small SEL divi but miss the upcoming 20c CIY divi, but even with that accounted for you're getting in more cheaply. And even if the SEL takeover doesn't go through (I think that's unlikely), SEL on their own are looking good and trade on a fairly low valuation relative to their growth rate. Just a thought. :)

[OutToLunch]

I loaded up on SEL this morning at 1.35, just in time -- just look at the ripper result that CIY has come out with! This co (CIY) is absolutely flying, and seems to have plenty of legs yet. Note the hint that they are looking at 'structural issues' with respect to 'liquidity' in the current financial year, which in plain english I presume means another share split is coming up. Together with hoped-for inclusion in the ASX-200, this augurs extremely well for CIY. :D

[Dimebag]

Hi OTL

Yes the situation you mention with SEL is interesting.

Based on CIY's closing price of $5.14, and SEL's closing price of $1.40, there would appear to be a significant arbitrage opportunity available. Even if we account for the 23cps CIY dividend in the pipeline, and gross it up to 32.86cps (and thus CIY's adjusted price being $4.81), we see that the equivalent price for SEL should be $4.81x307/1000 = $1.477 ~ $1.48.

The current price offers a 5.5% discount to market.

However, this may reflect the possibility that the deal will not come to fruition. It should be remembered that it is still a revokable offer at this stage.

If CIY's stock continues to soar, the effective price CIY is offering for SEL is increasing, and there is thus the increasing possibility that CIY will simply walk away from the deal, or use such a possiblity as leverage to renegotiate the offer terms (i.e. the exchange ratio).

The discount offered may reflect this. On the other hand, it doesn't appear CIY's style to use such hard-ball tactics to in that regard perhaps the discount is unreasonable?

In any case, for me my transaction costs are sufficiently high to render the arbitrage opportunity uneconomical. I'll leave the arbitrage to the bigger players (for now ;). (Perhaps I could have bought SEL last week instead of CIY though??)

As you mention, CIY's result was fairly strong, although in most regards in line with expectations I thought. The exception was the final dividend which was set at $0.23 as compared with the forecast $0.20. Nothing wrong with that!

They are forecasting $59m in earnings next year. However, things are slightly less rosy than one might initially conclude as a majority of next year's increased earnings will be coming from profits from associates (i.e. property development earnings). Such earnings are more lumpy and unpredictable, and therefore less valueable, than their ongoing management fee income. They expect management fee income to only increase some 15% next year (despite a 40% improvement in FUM).

This would indicate they expect and are pricing in some margin erosion. This is not necessarily a bad thing if it means margins are returning to more sustainable long-term levels. Also, it may simply reflect the reduced amount of funds committed to their high-margin (and also higher risk) mezzanine financing. They may also be being characteristically conservative with their projections (they have exceeded past guidance massively in the past).

Still, with that said, their property development income is still repeatable in nature (they expect strong ongoing contributions from the likes of CPK), and FUM are still showing strong growth, so the success story at CIY is still continuing. They still look to be a bargain at current levels ($5.14) at a mere 10.34x next year's projected earnings.

I'll be keeping all of mine.

Cheers
Dimebag

[mark100]

Hi Dimebag,

They may only be forecasting a 15% increase in financial services income but remember this:
In 2001/02 they originally forecast 1.25m which through subsequent upgrades ended up as $4m
In 2002/03 they originally forecast 5.7m which through subsequent upgrades ended up as $12.5m
In 2003/04 they originally forecast 25m which through subsequent upgrades ended up as $35.5m (from financial services).

This is consistent with Phil Sullivan telling me that they are aways conservative in their forecasts. However I would expect margins to drop a bit this year. If you read my previous posts I think I have estimated a profit of about $66m which I reckon may turn out to be pretty close (excluding S8)

cheers
mark

[OutToLunch]

Hi Dimebag and Mark,

Appreciate your comments. Thanks too Dimebag for correcting what I'd mentioned above, viz. grossing up the CIY divi. I should also mention that I discovered (after buying SEL) that they'd already gone ex-div -- that'll teach me to rush in without checking all relevant details. No matter.

I think it would be unlikely that the takeover wouldn't succeed. S8's CEO is on the record as saying that he's enthusiastic about what CIY are trying to do (and he's agreed to sell down his own personal holding to CIY), and, as CIY's price climbs, S8 shareholders are going to be more likely to want to accept the offer. I agree that CIY don't appear to be into hard-ball tactics, and, after all, (correct me if I am wrong here as I have no financial qualifications whatsoever!!) it's a 100% scrip bid so it's not costing CIY any more to offer their shares at current prices than it would if the CIY share price was lower. It just makes it a more attractive offer to S8 shareholders. I'd be very surprised if the rqatio of 307 CIY shares for every 1000 SEL shares was changed -- CIY clearly want S8, and so surely they wouldn't want to risk the offer failing by lowering the ratio.

CIY is also still a small player in a large market, so they have plenty of room to expand and capitalise on their winning formula. A combination of increased liquidity with a share split (I'm picking a ratio of 3:1 or close to that) and inclusion in the ASX 200 will attract more instos to the CIY register, which will raise their profile, which *should* lead to a re-rating of CIY to a more respectable PE (12? 14?) relative to their growth rate.

Basically I don't think you can lose with this one. I'm keeping all of mine too!

My only concern is that CIY have a track record now of consistently exceeding their own forecasts. Woe betide them if they ever post a result bang on target!

[thereslifeafter87]

Hi all,

I just checked out CIY's recent result today, and I must say it is totally outstanding.

My calculations put it on a PE (based on this years diluted EPS excluding one-off item) of 14.

Forecast PE is 8.4 based on managements 2005 projections. Considering they always outperform forecasts this is insanely cheap!

Check out various other financial service companies, and their PE's are much higher, with much lower growth expected.

I guess CIY's PE is this low to compensate for the extra 'risk' of being involved in property. But what risk? on a forecast PE of 8.4 I see little or no risk.

CIY has incredible margins. Higher than any company I have ever examined. The likelihood of losses from this company is so low that it doesn't bear thinking about.

A PE of 14 is stupidly low.

CIY also has strong cashflows - 28 mill from operating activities, and another 15mill from financing activities.

One question I have is why CIY is issuing shares to acquire SEL?
Surely the acquisition could be funded off the balance sheet and provide less dilutive returns for investors that way?

One small problem with an otherwise fantastic company

I just wish I had some cash! :)

assuming they make 59m next year, and the PE is rerated to 20 that puts CIY on a shareprice of $12!

This is certainly not unrealistic, in fact with continued earnings growth of this magnitude, it would not be too fanciful to attribute to CIY a PE of 30 (depending on the buoyancy of the sharemarket generally). This gives us a SP of $18!!!!!

Even if the PE stays at 14 we still get a price of $8.40 - a 60% return! Not bad for a years worth of doing nothing.

[k1w1]

quote:Originally posted by thereslifeafter87

Check out various other financial service companies, and their PE's are much higher, with much lower growth expected.



I've followed this thread and hold CIY and SEL. But I've still got a question. Why are they better than MFS (ASX)currently on a PE of 5.2 and a div yield of 14.7% which I've punted a fair bit of the K1W1 Aeronautical Super Fund on. Feeling very lonely about it. Have I missed something ?

[Dimebag]

Hi Mark100

Excellent points. As your figures clearly demonstrate, CIY have a habit of not only exceeding guided figures, but exceeding them spectacularly! I believe this means we can place great faith in projected figures being at least attained as there is no doubt a margin of safety built into the projection. And we should not be as overly pessimistic in our projections by simply assuming CIY will only achieve what is forecast! Roll on 2005!

OTL

Yeah I'm inclined to agree with you - it just doesn't seem like CIY's style to walk away/renegotiate. There could still well be an arbitrage opportunity here for those that way inclined (as I mentioned, for me the trading costs are prohibitive).


Hi TLA87

I agree with most of your conclusions, but not with most of your figures.

My calculations put it on a PE (based on this years diluted EPS excluding one-off item) of 14.

CIY made a net profit of $43.8m, including a one-off gain on their IPA stake that was brought to account of $8.3m. So their ongoing earnings were $35.5m (exactly meeting their updated guided figure).

After all options have been exercised, CIY will have 113.6m shares outstanding. Fully-diluted eps are therefore $35.5m/113.6m = $0.3125. At $4.94 their PE is 494/31.25 = 15.8x.


Forecast PE is 8.4 based on managements 2005 projections. Considering they always outperform forecasts this is insanely cheap!
CIY are forecasting earnings (before any contribution from the proposed merger with SEL) of $59m. Using the 113.6m shares figure again, we get predicted 2005 eps of $59m/113.6m = $0.519. At $4.94, CIY's 2005 forward PE is 494/51.9 = 9.51x.

However, at this stage it looks very likely that the SEL transaction will be completed. If this indeed proves to be the case, CIY will suffer some earnings per share dilution, at least in teams of the 2005 financial year. This has been projected as decreasing CIY's forward earnings projections from $0.52 to $0.50 [see the research report that was mailed to shareholders a few weeks ago].

So CIY forward PE would appear to be about 9.88x.

(Also, as mentioned above, this projection needs to be kept in the context of CIY often exceeding projected profit guidance in the past).

Check out various other financial service companies, and their PE's are much higher, with much lower growth expected.
This is not always the case. You may be refering to the large insurance and banking companies like ANZ, CBA, NAB, AXA, QBE etc. However, these are very large, well established, and entrenched companies with long track records.

More importantly, banks in particular have very high levels of earnings sustainability and visibility. In fact, with many residential home mortgages on their books with terms of 10 years or more, earnings from year to year from these contracts are virtually assured.

Even so, PE's tend to congregate in 13-15x area.

Also, as has been mentioned, as much as 1/3 of CIY 2005 projected earnings comprises forecast property development income. If you look at the property development companies, they tend to trade at PE multiples of closer to 4-5x (see DVN, SDG for example), reflective of the fact that we are at the peak of the property cycle.

Obviously, with all that said, CIY are an demonstrably incredible growth stock, and few financial services companies could claim a recent track record as spectacular as CIY's. Growth prospects moving forward also look good, but it must not be forgotten that trees don't grow to heaven. CIY's earnings growth must slow to a more sustainable pace in coming years. At this stage the market appears to be refusing to assume high growth rates will persist beyond the next year or two. If you believe this to be unduly conservative (as I do) then CIY could be worthy of some of your investment dollars.

I guess CIY's PE is this low to compensate for the extra 'risk' of being involved in property. But what ris

[k1w1]

Great post Dimebag, I look forward to your response about why CIY and not MSF....

[thereslifeafter87]

Dimebag,
You seem to have miscalculated when adjusting for the one-off item. Remember that it was 8.3 million before tax. After tax its closer to 5.5 mill. So, NPAT = 43.8 - 5.5 = 38.3 mill . THerefore PE on the basis of diluted eps = 14.6

Agree with yor other points. But CIY also has a lare amount invested in its mortgage trusts. Surely it could redeem a portion of this to fund the acquisition, or acquire a short term loan facility to provide cash until it can redeem such funds.

[k1w1]

wazza haps wid da shaar priz, homesz ?

[major]

Hi Mark100,
I have read a number of your posts and I do remember someone discussing CIY a number of years ago on another forum(now defunct). Anyway your predictions for earnings are pretty accurate and I for one am impressed.

I have recently joined their books in a grand style and expect a reasonable return.
I noticed in CIY's presentation, while they were happy to forecast earnings in a few different varieties, they avoided forecasting an EPS figure while indicating NPAT and an increase of 34% for '05.
I understand it should be easy to work that out, but I think their reason for doing so is otherwise.

Do you still expect EPS around the $0.58 you indicated back in April and what effect will the SEL aquisition have? I feel they avoided an EPS figure because of the unknown quantity as yet from the aquisition and also their further desire to keep increasing shares on issue.
Have you any comments on that?

CIY's long term PE is approx. 11 but from it's shareprice in past years can run a PE anywhere into the high teens. In that respect I expect a shareprice leading upto end FY05 of between $6.50 to $7.00.

Given the SEL aquisition plus a few other initiatives that might come about, we may be in for a surprise.

Possibilities for this year are:-
*>34% increase in net as flagged.
*A possible revision mid year to that figure.
*Larger dividend for '05.
*Purchase of S8 adding approx. $12-14 Ml to the net and most probably EPS positive in '06.
*More shares on issue increasing liqidity.
*Possible inclusion into ASX 200.
*Attractive then to Fund managers.
*Possible purchase or merger with BRK.
*Possibly adding similar advantages as with SEL although I suspect BRK is possibly their real target (in wanting to retain management while disposing of SEL's).
*More lots developed at Martha Cove than original plan.
*More projects announced re. IDA and CPK.
*CIY continuing rapid expansion and diversification.
*Interest rates rising may see bigger margins and higher profits for CIY as borrowers (developers) attempt to lock in rates to contain and cap costs.
etc.etc.

Ofcourse the bad news could be, exactly the opposite to all of the above!!!!!

I apologise if I bored anyone but I only very recently (2 weeks) took an interest in CIY and I am happy to receive yours or anyone else's comments while waiting for my dividend, haha.

[major]

Hello again,
I forgot another important possibility in that while everyone views rising interest rates as bad news, I feel there may be some good news for CIY for the reasons I mentioned in my previous post as well as the fact that rising interest rates will see an increase in investment inflow and Funds under Management will increase as investors are attracted by higher returns for their SMSF's and term deposits.

Rather than a decrease in monthly inflow from $30Ml to $25Ml as flagged in the Tolhurst review we could actually see the opposite as investors are drawn in by the higher interest rates on offer and CIY are possibly more agile than the banks in this respect and could well benefit.

If you remember back when homeloan rates were 17-18%, you could easily earn 14-16% on any funds invested so it is not all bad news in that respect.
In that same era, I dare say CIY (hypothetically) could have offered investment rates of 18% and had retirees and SMSF trustees queued up to invest their money while lending it out at 20-21%.

Also as time goes on and projects get larger and more expensive, the amounts borrowed also need to increase accordingly, and therefore so does CIY's returns from the larger loans.

Well let's hope anyway!

[major]

Hello Mark100 and others.
Is anyone following CIY lately? I have posted a couple of comments on HC that I would like anyone to make comment on.

Has anyone got any comment to make on CIY's proposed industrial land purchases and residential land purchases in Melbourne. The land is already picked out and negotiations are well underway.
Phil Sullivan has made comment that the industrial land purchase is consistent with CIY's strategy to diversify. CIY are ready to proceed but deal is contingent on finding suitable JV partners that they are currently in discussions with at the moment. There are a few interested parties. Similar to prior deal already struck elsewhere where CIY supplies the funds and developer (SDG?) carries out all the planning and construction.

Also I am very interested to hear any info from anyone regarding the proposed sell down of Director's shares over the next few months, supposedly to insto's. Any news, anyone? I hope they are not preparing to sell any on market although there has been some consistent heavy selling between $4.89 and $5.00 of late. I presume it will be offmarket for obvious reasons.

There was good discussion on this thread but seems to have lost interest, hope we can get it going again because CIY seem to be active although quiet.

[major]

I should clarify that where I refered to CIY in the above post it should actually have been CPK.
I was 55% correct!!!

The industrial developments are to be large scale and between CPK and a JV partner, or partners.
Sullivan has stated they are ready to purchase if suitable partners can be found.

As far as the Directors selling I read it recently and I will try to locate my source. The reason given was to free up more shares to the market, something we are aware tha CIY is striving to do.
Directors selling is not considered a good look though, for whatever reason.

[soulman]

City Pacific, if everything goes accordingly should get a half yearly profits from its core financial services of around $25-$27 millions (JUN-DEC 04/05). I am hoping for a dividend of at least 16 cents for the half. Hopefully, everything goes well for them with their subsidiaries (CPK and IPA).

I think CIY merger with S8 create a public profile for the company since it will be on the newspaper and other publications. CIY only get a mention about 6 times a year if they are lucky.

Phil Sullivan owns nearly 50 million shares of CIY and CIYO. The guy is one wealthy mother. I have been doing a bit a research and it seems he is the one selling down the options in December last year. (21 millions CIYOA options of his). Hence, the money from the proceeds is invested back into the company and not himself. What a nice and sensible CEO. Wish him a lot of luck and consequently, all CIY shareholders will prosper.

[mark100]

Major,
Sorry I've taken so long to get back to you but I actually don't have any new news. All I know about the proposed industrial development is what was mentioned in the Courier Mail on 11 August. The article stated that negotiations were underway on an industrial project in Melbourne that would diversify revenue and may be sold into the planned property trust. I would think that CP1 would most likely do this rather than ciy directly.
Ciy's forecast of $59m NPAT for this year gives full diluted EPS of 52 cents (After all options are exercised there will be 113.7m shares). These figures exclude the S8 deal. As you noted my forecast for diluted EPS was 58c ($66m NPAT). I am still confident this will be met. CIY historically makes a conservative initial forecast.
My forecast is rougly made up as follows:
FUM 30/6/04 - $780m
FUM 30/6/04 - $1100m CIY Forecast
This gives average FUM for the year of $940m.
In 01/02, the NPAT/FUM margin was 3.6%
In 02/03, the NPAT/FUM margin was 4.1%
In 03/04, the NPAT/FUM margin was 5.9% (Excl one off gain)
For 04/05 I'll assume the margin drops to 4.5%. While this is against the trend, I am being conservative. This gives NPAT from financial services of $42.3m. Note that in the last half of 03/04 they made $24m. This annualises to $48m with no growth so I have been very conservative with $42.3m. Could be as high as $55m if things went well.
In CP1's 2003 Annual Report, the Martha Cove project was forecast to deliver NPAT of $250m. CP1 originally had a 40% equity stake to give it $100m. CIY would get $55m of this through its 55% stake in CP1. Last year CP1 increased its stake in the Martha Cove project to 50% which should increase CP1's profit share to $125m and CIY's share to $69m although I note in CIY's latest presentation they are still only forecasting a return of $55m. Maybe this represents a downgrade in expectations of the project of maybe they are being conservative. For my forecast I'll assume CIY gets $55m.
Phil Sullivan informed me a couple of months ago that the percentage split over 3 years would be around 40/40/20, giving NPAT of $22m to CIY this year. Note that CP1 has an option to purchase adjoining land at Martha Cove which may extend the project further.
CIY has 25% of IPA. IPA has forecast NPAT of $10m this year. In my previous posts I rougly estimated NPAT of $18m. My forecast depends on IPA's 2 developments getting well underway this fin year and a lot of asumptions. IPA must be very confident of their $10m figure as the forecast was made back in May. Knowing ciy's management maybe their will be upgrades. I'll assume IPA makes $12m NPAT this year. Of this CIY gets $3m.
This all adds up to NPAT for CIY of $67.3m (EPS of 59c).

I read in the AFR that S8 was estimated to have cash earnings of $9.5m this year. CIY will need to issue 23m shares to pay for S8. Using my forecast above, the S8 deal would dilute cash EPS from 59c to 56c. Based on he goodwill arising from the acquisition, ciy my have to ammortise around $5m a year. This dilutes reported EPS to 53c. The S8 deal will dilute EPS but will create a more diversified company, give S8 better opportunities, improve stock liquidity etc which may enable ciy to trade on a higher PE.

I note that The Juke on HC recently speculated that ciy was going to raise funds at 4.30. I rang ciy on friday but Phil Sullivan and Steve Mackay were not available. I spoke with another person who has been very helpful in the past. She was not aware of any capital raising but confirmed that the directors had been dealing with a couple of brokers regarding a director sell down (similar to last years) to reduce the primary shareholder to around 30% from the current 50%. This has been expected for a while so maybe the price is going to be $4.30? She said that ciy would normally only look to raise funds if there was a good mezzanine deal that required funds but she was not aware of anything curently. I suggested that maybe they were raising funds to get ready for a cash bid for Breakfree but was told 'definitely not'
She did not

[major]

Hi Mark,

Many thanks for the time and effort you put into replying to my posts.
It was very much appreciated.
As I stated originally, I have not been in CIY for long but am rather heavily invested.

The board and management impressed me with their reliability as well as their ability in being able to make things click together extraordinarily well and also in their ability to make significant profits with no debt and from very little of the company's actual assets,(re. listed investment ventures and FUM as their source of capital).
I am certain a few others will attempt to follow their strategy but it takes more than just a plan to succeed.

As far as a capital raising, I can't see the need at the moment except as you mentioned, but in any case, if they did raise capital, I would be reasonably confident that the follow on benefits to shareholders would be significant enough to justify this board's actions. Currently they seem to be more interested in building the sharebase and shares on issue rather than raising capital, at this stage anyway. I did notice though in past announcements('03?) though, Phil Sullivan did state that a rights issue may be a possibility at some point.
Your ability to be able to contact the company and have shareholder concerns addressed properly is a feather in the cap for them. Many companies when not short on funds treat their shareholder's concerns with contempt, but will bend over backwards when approaching shareholders for capital. Hope CIY don't change.

I have a few more thoughts I will run your way shortly if you don't mind.

Once again thanks.

[major]

Based on CIY's announcement to the ASX today, (and also Mark's comments relayed from his discussion with CIY), I suppose I was reasonably correct in presuming CIY were not interested in raising any capital at this stage.

The announcement, rather than putting the matter to rest though, has left a big opening for doing what was first suggested by Juke and the article, although maybe not for that particular purpose.

While the article may have got CIY in a slight fluster as evidenced by their rapid reply and incorrect forward date of 9th September, the second paragraph to me is of great interest in what it avoids saying, and therefore is a little concerning.

While not being straight down the line and calling the article incorrect, they have chosen to describe it as "factually incorrect". To me this implies that while the facts may well be incorrect, the premiss may not.
This is further supported by the statement that they have no intention of raising capital in a bid to alter the terms of the aquisition of S8. While this statement may also be correct, they seem to have deliberately avoided denying they are intending raising capital for any other reason!
If there was no intention to raise capital at this point for whatever reason, I feel they would clearly have stated that, but rather, they have clearly avoided doing so.

So, in light of the proceedings today, and comments from Juke and the AFR, I get the feeling that rather than being correct I may be quite wrong in what I presumed?

Any comments please?

[OutToLunch]

Hi Major,

I also picked up on this apparently careful wording -- it would seem that CIY are definitely keeping the door open to future capital raisings if required. My understanding (correct me if I am wrong) is that CIY have low cash levels, so any new undertaking involving capital outlay presumably would require some kind of capital raising. So long as it means improved long term growth for CIY, I don't have a problem with that.

[mark100]

Including a cash component is not such a bad idea. Say they pay cash for $25m and issue scrip for the remaining $75m (offer say only 235 ciy shares for every 1000 S8). This would result in slightly more shares been issued as CIY would have to raise cash at a discount to the market which may not be a bad thing if it gets the offer over the line before any other bid emerges.
I still can't see brk making an offer. It does not seem likely that s8's MD would sell out to brk considering the hostile relationship between the two and the fact that only a year ago S8 tried to get brk. Of course brk could make a higher bid but I would think that ciy would have enough firepower to outbid brk. Obviously we don't want ciy having to up their bid as this only increases the dilution.

cheers
mark

[major]

Hi all,
What we now know is that BRK have stated they are not interested in S8 at this point.
BRK have also previously indicated they are not interested in CIY's advances towards them either. BRK are satisfied with their own interests at the moment.

SEL boss on the contrary, has gleefully accepted the CIY offer and cashed in part of his holding regardless of shareholder's thoughts, and the shareholders will probably follow suit considering the CIY shareprice will ascend leading upto the Sept 20 Ex Div date which should see them receiving the equivalent of somewhere between $1.75 to $1.85 per share by then.
Bearing that in mind I don't think CIY need to offer a cash component and I believe part cash/ scrip takeovers confuse and infuriate shareholders and see them selling on market where there will be heaps of buyers trying to arbitrage.

As all this evolves we have to remember that CIY really don't need S8 to survive or prosper.
BRK or anyone else bidding higher for S8 than what CIY has proposed is probably unlikely when we factor in the likely worth of CIY shares by the close date. SEL is a good fit maybe with CIY's ability to source new clients for the S8 business and also to fulfill the desired prerequisite of issuing more shares while being e.p.s. positive in a year or so.

I feel and strongly hope CIY will not budge from their current offer. No other offer for SEL will mean shareholders face the prospect of a crashing shareprice while waiting in hope for another offer which now looks unlikely.

CIY have a valuable formula already and if they can't aquire SEL at the right price they should move on.
BRK on the other hand appears overpriced in comparison to SEL and definitely would not be as attractive to CIY (opposite to what I previously figured), who, if successful with it's SEL bid, will put pressure on BRK's ability to source new clients.

Another point to bear in mind is that if Phil Sullivan and the other Directors do the right thing and contribute along with ordinary shareholders to any rights issue or SPP, they will not only be diluting their shareholding (in the bid for SEL) but they will also be stumping up over half the funds needed which would not be an attractive thought to them when they could simply issue the shares for the purchase while achieving a major prerequisite of the deal in the first place, although suffering dilution along with everyone else.

All in all, after 10 years or more of seeing some bonehead directors and management in action, I think these guys are some of the best operators I have seen and I tend to be confident that whatever they have planned is about ten steps ahead of what we are contemplating!

I'm rapt to have someone to talk to as you have probably guessed by now!!!!!!!!
I am new to the company so please excuse any mistakes or misthoughts(??) I have made and feel free to correct whatever you see as lame.

[mark100]

Major,
Another point to note is that S8's chairperson was quoted as saying ciy could be a major player in the letting industry even on its own simply because of the good stock they could get access to. This was said back when ciy was bidding for s8 and brk.
So ciy do not need to overpay
I note that perpetual have not seemed to have increased their stake in s8 further and are still below 10%. If they were planning to block the bid I thought they would have bought some more.
Another thing to note is that shareholders in s8 may own these shares because they want exposure to a pure property letting business. In its place they are being offered shares in a company that, no matter how good we think it is, is predominantly a financier of development. This may not be to everyone's liking.

cheers
mark

[major]

Hi Out To Lunch,
I am confident also.

Hi Mark,
I agree with your points and not only do CIY not need to overpay, but also CIY may decide to go it alone (or through a JV or deal with BRK) and not issue >$100 of shares. I'm sure they will pick up similar to SEL's NPAT in a few years and save the shares and eps. They would have thought this out though.

If PPT attempt to block the deal and CIY walk away, well whoops, it will be costly for them with BRK uninterested!
As far as the shareholders of SEL, I feel as shareholders, we are all invested primarily and foremost to make money, rather than a love of a particulat business activity, and in that respect Mark I suppose if the price is attractive enough they will take it. Your point shows though that it would be imperative for CIY to explain the business to SEL shareholders who may be a little wary and perplexed by it, as I was.

On other subjects, I would love your opinions.
Recently, 10 Aug. 04 press release, Phil Sullivan happily acknowledged that CIY now had a cost base of below 15% and that CIY expected to maintain that through 2005.
CIY's net of $44m was acheived on revenues of $59m.
CIY's forecast figures for 2005 are even better with $59m net from $67m in revenues without S8 ownership factored in.
SEL achieved a net of $8.45m on revenues of $50.4m.

Obviously CIY will struggle to maintain (if not impossible) <15% cost base if it is successful in it's bid for SEL and obviously Phil hadn't factored that into his statement of maintaining <15%, or else CIY has some amazing cost savings lined up for both CIY and SEL.
Based on their past growth, S8 will probably go close to virtually doubling CIY's forecast revenue once aquired, yet will only add maybe approx. 20% to the NPAT.

Just as a matter of interest, I noticed these '04 statistics recently.
I am to an extent, comparing apples and oranges. Oh well I admit to little knowledge of these companies!

MFS have $1.5 bl FUM and have a staff of 130 or more. (But can boast a low pe and good div. yield)
CIY expected to have $1.1 bl FUM end FY05 but with a staff of about <20 if my memory is correct. (correct me if I am wrong).

IOOF had $16,000 ml FUM with a NPAT of $42ml and a current pe of approx.10.1
* CIY had $750 ml FUM with a NPAT of $44ml and a similar current pe of approx.10.3 (based on CIY figures).
Hmmmm, seems like room for an improvement in pe as CIY get on the screens of more instos.

[OutToLunch]

Well well well, CIY are now in a trading halt. I notice that SEL (and BRK) are not, so this seems like something that concerns CIY alone. Wonder if this is anything to do with the supposed $4.30 capital raising that's been rumoured over the last few days? What a pain, having to wait until Monday to find out. Major, Mark100, Dimebag, et al, what do you make of it??

[mark100]

No idea on this one. I am planning to go to the S8 AGM tomorrow morning so I hope I don't miss any news.

cheers
mark

[major]

Well with people throwing money at them at the rate of $30ml a month and CIY knocking back 85% of borrowers I don't think they're broke!!!!!

This company seems to be just full on!!!!!!!
How have you guys handled all this for the last few years? They seem to have so many irons in the fire that anything is possible in a short space of time with them.
The comments contained in announcements etc. imply they are always proposing or evaluating something new.

While a little scary, my guess is maybe something to do with the land deals and JV partner/s down South.

2nd guess is a capital raising of some sort for a purchase. Come to think of it, being in pre-open, I'll make this my first guess.

3rd guess is an announcement re purchase of another company, along with a raising maybe.

4th guess is CIY has bought the site of the Australian embassy in Indonesia.

and 5th guess is Phil Sullivan is making a run for the Prime Ministership as a Gold Coast independent!

If only we knew yesterday!!

[major]

Mark,
please let us know about the S8 AGM when you get time. It really is significant to all CIY holders now and I am glad you've got the opportunity to attend. I'm sure CIY will get plenty of mention as S8 board and management try to sell the deal to their shareholders.
The CIY AGM should be good too I would imagine if they share some of their plans.

[major]

Just one more thing,
After having read the AFR article, my overly suspicious mind viewed the BRK announcement to the market as being not really necessary and even more so considering CIY had virtually debunked the whole article in their announcement to the ASX.
The main reason I could fathom (to fit in with my cockeyed theory) was that they were infact possibly clearing the way for a smooth takeover of SEL by CIY.
BRK's announcement struck me as almost being an assistance to CIY.

Considering the apparent disharmony between SEL and BRK there is little reason for BRK to be assisting in making the takeover go smoothly by confirming they are not a competitor to CIY in a bid for S8.
Having gone this far in my drunken state, I then deduced that BRK, may well be still very much involved and in favour of CIY taking over both SEL and BRK. Hence their friendly assistance.

This trading halt may not involve them at this point but I would not be surprised to see them in further discussion with CIY.

[soulman]

I thought it would be another sell down by the directors, most notably Phil Sullivan 11 odd million CIYO options. Before it was the CIYOA $1.00 options and now this is the 30 cents CIYO options.

I just hope that the stock won't move down too much. I hope the price will be in the range of $4.20 instead of $4.10. Hence, overall $4.50 for a FPO. I also hope the placement will not be entitled to the final dividend. Otherwise, NO GOOD.

[major]

Hi Soulman,
There are more qualified and experienced people regarding CIY on here than me to offer comment but I would like to mention a few points regarding your post and in particular the CIY announcement.

I think the purchasers of those options do infact qualify for the dividend being well before the Ex date and to quote from the announcement "the expected immediate exercise of the options" eludes to that fact. Once again CIY have been cautious in their particular wording eluding comment regarding the dividend. Once again, if the purchasers did not qualify, I feel CIY would have been more than chuffed to have stated so. So I think you can count on it.

In that case, CIY have been a little deceptive when they state the sale raised $4ml for the company because when the payment of dividends are accounted for, the net value to CIY would be approx. $945,000 only, less costs, and, less than a quarter of what they are claiming.
That is less than 1 days flow into their FUM and offset by significant dilution of e.p.s.

Another point in relation to the heading of the announcement "City Pacific places Directors options to increase company free float". How did City Pacific come to place those options when they were legally owned and held by individuals (as distinct from acting in their position as Directors). That heading then raises another question, if brokers were involved on behalf of CIY, who paid the costs? If no brokers were involved and City Pacific (acting through their Directors) themselves (as stated) placed the options on behalf of the Directors (who legally held those options as individuals and legally distinct from the company), should not have other option holders as well have been approached by CIY for their options to be placed on behalf of the owners?
Simple maths gives us an approx. figure of $4.07 for each option sold so it does appear that costs may have been incurred, but that totally depends on the exact numbers of course, ie. 13.5 ml and $55ml may have been quoted as approximates.

I would have liked to have known by actually what amount the number of shareholders were increased by, as CIY claim?
I would guess, not many if the options were not placed by a broker.

Also the wording, "The 'proceeds' will be invested in the City Pacific Mortgage Trust" does not make clear whether they are refering to the total $59ml, or $55ml, or $4ml, or $945k?

The good news is, FUM seems to be ahead of forecasts which means all else being equal, profits will be ahead of forecast also. Also the major overhang of options has been removed, and hopefully ownership transfered to many individual entities rather than 3 or 4.

The announcement makes it quite clear though who the biggest financial beneficiaries of that sale were and it was not the company, not the ordinary shareholders who have not been told of who bore the costs of the sale, because the heading implies it was the ordinary shareholders, but simple maths show it may not have been, ie.$55ml/13.5= $4.07, but it all depends on exact figures or a proper disclosure from the company.

By the way, the dividend the company will have to pay out for those exercised options amounts to $3.1 ml, which means whoever the "lucky" new owners are, they will have very little to pay to exercise them and receive in return a significantly discounted shareholding in CIY.

[mark100]

Major,

In response to your post I note the following:

The new shareholders would be getting the dividend. But if the directors hadn't of sold the options, they would have surely exercised them for 30c and collected the dividend themselves. So no matter who owned the options, they would have got exercised before this month's dividend. So yes, even though ciy gets $4m coming in, 3.1 goes out, but this would have happened even if the directors had retained the options/shares.

You say that EPS will be diluted. Given the low exercise price of the options, all EPS forecasts that brokers etc have been making have assumed all options would be exercised anyway. $59m/113.7m shares = EPS of 52c, or in the case of my estimate, 58c. (excl S8)

The vendors would have had to pay the brokerage costs. They say the options were sold at prices from 4.10 to 4.20. Assuming 4.15, this would have resulted in gross sale proceeds of $56m. So they must have paid around $1m to the brokers.

The $55m that the vendors raised will be invested in the mortgage trust according to one of the papers I read, instantly boosting FUM by around 6%.

Based on the option sale price plus 30c the sale price was at a 10-12% current share price. Considering around 10% of an illiquid mid-cap comapny was sold, this is not an unreasonable discount.

I can't see why other option holders would want to be approached to have their options placed. The directors had 13.5m to dispose, most other holders only have several thousand, wouldn't they just convert them and sell on market rather than at a 10% discount?

Basically, this changes nothing for the company's prospects. There will be around 113.7m shares on issue soon, which is what everyone anticipated, profit forecast still intact (probably will increase), directors will own around 45% so even though there holding has reduced, it is still significant. Positives are liquidity will improve over time, the extra $55m umder management will increase NPAT by around $2.5m, good chance of inclusion in the ASX200 index.

cheers
mark

[major]

Hi Mark,
Thanks for your reply.

Personally I don't think the Directors have done us any favours, really. Those options would have been exercised in time no matter who owned them.

It was immediately obvious to me that the Directors had timed the sale of those options to perfection leading upto the dividend.
This was to make sure they could get the sale away at a good price.
They used the leverage of the dividend to gain a price they could never achieve on market or perhaps without the help of the dividend.

On just witnessing the opening today, it appears that some of those buyers have already exercised and are dumping stock for a quick gain.
The directors were more than likely aware that this would happen.
The dumping may even continue (or really get into stride)long after the dividend possibly putting a firm brake on the price for a long while.

Not good, as soulman described it.

I will comment a little later on your post if you don't mind where I think you have misunderstood some of my points.
Thanks.

[soulman]

Major and Mark

It seems that this option sale is a little less discounted than the Nov 2003. However, I like to think that the discount is already more than 10%, hence the holder should not be entitled to the dividends. If they are, then at the highest $4.20 + 30 cents = $4.50 - $0.23 DIV. = $4.27. Now thats a big discount to the stock price of $5.00. Just like the Nov 2003, I suppose.

I do agree that the new holder will get the DIV., but I rather they not.

Other point being is that the DIRS (mostly Phil Sullivan who owns nearly 12 million of these options) doesn't want to exercise the option and sell them on market because firstly, there's too many of them (13.5 million), and second, the selling on market will be seen as the directors getting out and therefore less confident about the coy prospects as well as putting the SP down.

Like Mark said, the directors still own 38 percent of the coy. Phil Sullivan still owns 43 million FPO after those sell down. Where did you get the information that the $55 the vendors get will be invested in the Mortgage Trust? That will be good if it were true.

[major]

Hi Mark,
Firstly can I say, I am not really concerned re. the options being sold, nor the price they were sold for, nor them being exercised, nor the dividend being paid, nor the dilution. As I stated in my post a larger shareholder base is an advantage to all shareholders. My concern is the statements in the announcement.

What does concern me is what was written in the announcement and also what was not. The fact CIY implies a gain of $4ml yet makes no mention that on execise, those options that raised that amount for the company, would be entitled to over $3.1 million in dividends.

Your comment that this would have happened anyway is not entirely correct or a forgone conclusion. Don't forget by holding those options through a rising shareprice, the profits may well outstrip the dividend by a long way.

May I say I am pretty certain the extra $3.1ml dividend was not taken into account in CIY's profit forecast but I am not sure if the brokers you refered to have included the dividends, although I am aware they included the extra shares. Maybe you are aware of this.

Re the dilution, what I meant was that for a $945,000 gain to the company, shareholders have suffered significant dilution and for CIY to claim there was a $4ml overall gain for the company is deceptive. I realise the dilution was inevitable. I also realise the benefits from that larger sharebase.

Re. brokerage costs, once again my comments were in response to the announcement where it clearly stated that City Pacific placed the shares. While it may be that City Pacific's directors were the owners of those options, it must be remembered that they owned them as totally separate entities to City Pacific the company.
The announcement blurrs that distinction and I feel the Directors themselves have blurred that distinction and the announcement does not state who bears the costs but rather, clearly states City Pacific as instigator of the transactions, and therefore possibly liable. I cannot positively presume either way.

Mark, I am also glad if the Directors will be depositing their receipts. Does that then raise the current FUM to $905ml because I took for granted (big no no) that the figure of $850ml quoted in the announ. did not include that, therefore putting them ahead of forecasts? If included, they are behind.

Re. the sale price or "unreasonable discount", I don't really mind what price the Directors received for the options because the receipts to the company will remain the same, ie. $0.30 per option. Considering the timing of the sale though, I have little doubt the lure of a good dividend was used to leverage a good price for the vendors. I find it hard to be naive and accept the timing as coincidence.

Re. the other option holders being offered an opportunity to sell once again I was refering to the announcement and the fact that "if" CIY did place the options as stated, then other option holders should have been offered that chance as well, regardless of price.

I agree totally with your sentiments in the last paragraph but would emphasise that my comments were in response to statements made or non disclosures, that originated from the announcement.
There is no legal consequence for what goes on in shareholder's minds but the consequences for what Directors or management put in writing can be severe, so whenever announcements are made I presume whatever is written, in any manner, or whatever was left out, was done for a reason and not because the author was forgetful.

Let's all hope that the new shareholders are not all preparing to stag a profit and that they are infact, long term holders.

Mark I hope you don't take offence to my style of analysis and none was meant on my part.
Also my post was not intended or aimed in any way as an attack on CIY's directors but I am yet to meet a Director who does not have an interest in his or her own prosperity (as witnessed in S8), so I am prone to be cautious in evaluating their dealings, but would be one of the first to acknowledge the great effort that CIY Directors hav

[mark100]

Soulman and major,

Soulman, when working out the discount if you say 4.20 + 30c - 23c = $4.27 you can't use $5 as the market price as this price is also cum a 23c div. You should use $4.77.

I have no doubt also that Phil Sullivan would have had enough cash to exercise all his options if they wern't sold as $4m is nothing compared to what he raised last Nov.

The Courier Mail (Brisbane paper) said the $55m would be invested in the mortgage trust.

Major, dividend's have no effect on reported profit so the $3.1m has no effect on ciy's profit forecast.

Obviously there is some serious stag profit selling today based on the amount of shares traded. I have to question the intelligence of the directors doing this placement at a time when they are making a scrip takeover bid. They need the sp to be as strong as possible. It also does not look good for S8 holders to see that directors are selling down at a time when they are getting pondering accepting ciy scrip.

I don't know if $850m is the current or future FUM. Of course, I am hoping that the $55m will get added to the 850.

Major, no offence with your posts, its just been a bad day for my portfolio!

cheers
mark

[major]

Hi Mark,
We all have bad days, it's what knowledge we have of the future that keeps us holding that portfolio.

Let's hope the Courier mail are correct and didn't simply quote from the announcement.

I take your point re dividends but I have to disagree with you on your statement that dividends have no effect on reported profit. It definitely does and is the reason why companies like News Corp and most other high growth companies pay a dismal dividend in order to retain funds to help drive profit growth and consequently shareprice.

As a matter of fact CIY themselves actually emphasise in their promotion that they are a somewhat rarity in being a high growth company "and" paying a good dividend yield.
Rupert Murdoch forgos a massively indecent dividend payout for he and his family members in order to drive net profit and capital growth. Other Directors think differently.
Obviously any cash held and not used to pay out in dividends is channeled into making greater profits (or paying down debts) so every dollar not paid out in dividends is a vital driver of future net profit and consequently profit forecasts.
That extra $3.1 ml is being paid out long before the end of the FY and has to come from somewhere, namely the $4ml raised, leaving a net gain of only $945,000 to be used to build on profits to be now shared amonst an extra 13.5 million shares.

Mark I think I gave my explanation as to why the Directors timed the placement now and is the reason I suggested that the Directors had not really done us any favours, (although maybe they have long term).
The CIY shareprice and SEL bid were possibly overshadowed in their desire to sell at the right time.

I am still confident this will be a blip when the good times return but in doing so they seem to be reinforcing my experience of ASX company directors.

[mark100]

major,
My mistake, thought you meant the $3m div would be deducted from the forecast profit ($59m - 3 = $56m).
Agree that earnings need to be retained to grow profits but the good thing about ciy is they need very litle capital to increase earnings, provided that FUM continue to grow. I would also add that a lot of these low div payout companies do not have a very good recored of making good use of this capital (News Corp).

Also on checking, it wasn't the Courier Mail but the AFR. The article stated "The four vendors are commited to pouring the sale proceeds back into the Company. The proceeds will be invested in the City Pacific Mortgage Trust, which will be used for its core business of lending to professional property developers and later to seed new product in our funds management business."

I don't think there would be many ASX directors out there who would reinvest $55m cash into one of their companies funds. This gives me more confidence than if they had just taken their money and run.

cheers
mark

[major]

Hi Mark,
After having CIY spinning around in my head all afternoon I, like yourself came to the same conclusion that if in fact the Directors have put their proceeds into the Mortgage Trust, then we really owe them a debt of gratitude.

Unfortunately though, reading your post and the quote from the AFR as you stated, except for the sentence re. the 4 vendors putting the proceeds back in, the rest of it is a word for word copy from the market announcement. So, not having read the rest of the article, the article does not really convince me that the authors information came directly from the 4 vendors but I would certainly like to think so and I would also say that was probably the message the original announcement intended to convey. Can't help being suspicious though.

All in all, I figure that if, as you state your portfolio was copping a hiding today, as was mine and nearly all CIY shareholders, then we should spare a thought to what our 4 intrepid Directors have copped on their portfolios. Even though they picked up $55ml from their options(gee is that all) they are down a few million on their CIY shareholding and I am hopeful they have plans to correct that.

I had some questions I was waiting to pose to you mainly about IPA and also what I feel is the real jewel in the CIY stable which is Budds Beach, a $61 ml purchase through CPK with a development value of $1000 ml over a 4 year period is superb and will eclipse Martha Cove probably.
I would expect profits from this for the partnership to be in the vicinity of $400million or more maybe. Any thoughts?

But the recent events have taken precedence and even though we have found it a little hard to fathom, we have no choice than to rely on their judgement and if they are doing well out of it too, so much the better.
Their timing from our point of view sucks though, while brilliant for them! I'd like to see some clarification from the company though to the market and CIY and S8 shareholders in particular.

[soulman]

Fellows......
Yeah Mark, you are right on than dividend calculation. I was there when the SP was $4.55 yesterday and I was thinking of getting more because it was only a 5 cents premium to the option sale.

I just hope this does not affect the franking account in the future. Do you think this option sale were inevitable anyway before the release of the full year result. Because it was really a suprised for a 23 cents div. than the 20 cents they flagged throughout the year.

For future forecast, if you look through the profit result from the financial services, it was 4 mil (2002), 12 mil (2003), 35 mil (2004), hence 2005 look like a 100 mil. That certainly won't happen but I got a feeling if everything went well and according to plan, the fin. services should achieve the $59 million net profit for the year assuming they have $950 FUM at the end of DEC 2004, and everything continues smoothly throughout the FY. The added CP1 and IPA or SEL should boost it even further.

[OutToLunch]

Hi Major and Mark,

Appreciate your informative posts on this thread. I too am a bit mystified as to why the directors would place their options at this point, esp with the SEL bid in progress. Either they're extremely confident that the bid will succeed regardless, or they're just being a bit blinded by their own windfall here. However if it's reinvested in the mortgage trust, as some have suggested, that would help. We're still not too clear on exactly *what* was invested though -- the entire proceeds, or just the net surplus to the company?

I have a question about City Pacific's spinoff, IPA -- I've been thinking about their options, keeping in mind their guidance for a $10m profit and the face that they have 35m shares on issue. Assuming a conservative P/E of 8 and a profit result on target next year, that presumably justifies a share price of $2.29 this time next year -- considerably more than the exercise price of $1.50. However I don't know too much more about IPA at this point -- but on the face of it, surely IPA are a 'must have' at current prices of $1.06/share or $0.20/option -- any thoughts?

(Disc: Hold CIY and SEL)

[major]

Hello Soulman and OTL,
I can help a bit with some of your questions, but Mark is definitely your man for IPA and I found them attractive too but thought CIY a much more secure investment.

The $4 ml from the option exercise will be invested into the Mortgage Trust as will be the majority of the Directors $55 ml proceeds from the sale. The exact figure is not available to me.
Also, the $850 ml FUM quoted in the announcement did not include the combined funds from the placement so current FUM will be over the $900 ml mark substantially boosting FUM.

As far as the timing OTL, I suspected they planned it to coincide with the dividend making sure the placement would be successful and a good price achieved, and on first thoughts this appears to be a case of the Directors looking after themselves first.

But as we now know the proceeds are being reinvested into CIY, which will advantage ALL shareholders, we can only accept their actions as being directed to getting the best price possible to gain the most funds for reinvestment (and themselves obviously, hehe).

I posted a little while ago that I thought these guys were some of the best operators around but I never expected this and can't think of any other directors that have acted in the best interests of all shareholders by using their own money.

Soulman, shouldn't effect the franking as long as they keep paying tax I think. It looks like they will easily achieve your target of $950 ml by Dec '04 and I would now expect probably just over the $1 Billion mark. '05 profits look likely (at this point anyway) to be ahead of forecasts probably while Mark may have a more accurate current eps forecast than me, although I suspect even Mark's previous forecast of $0.58 may be pipped.

Hard to say though re. profits because we can't really tell if the option sale and exercise, the dividends and reinvestment of the $4 ml and Directors receipts, increased FUM etc., was already factored into their forecasts or not.

As Mark stands by their conservatism, I expect then they may not have been and the "05 FUM will be ahead of forecasts as will the profits.

Let's hope, anyway.

[major]

Just a funny observation, that the buyers are lining up again and doing a great job in rebuilding the CIY price but I can't help thinking they are simply like lambs to the slaughter and as soon as there are enough of them someway will dump and clean them all up!

[OutToLunch]

Hi Major,

Obviously Phil S and co. have high confidence in CIY if they're supporting it to the extent you suggest -- I certainly hope that this is the case.

Interesting what you say about 'lambs to the slaughter' -- I too expect some large dumps to come, after all, there are probably still something like 12 million cheaply-acquired share (under the placement scheme) still untraded; presumably some of those holders will be looking for an opportunity to realise a quick gain. Will be interesting to see what happens when CIY go ex-dividend next week. Notice that sellers have just taken the top off the latest rise -- perhaps it's your 'lambs' theory in action.... ;)

[mark100]

Outtolunch,

IPA has 70m shares on issue, not 35m. Based on their forecast NPAT of $10m the forward PE is currently 7.5. So atm, I think the options are way overvalued as a NPAT of $10m at a PE of say 10 will get the shares to $1.40. At this level the options are still out of the money by 10c. This makes it hard to justify their current price of 21c. At one stage I was in the top 20 options holders but sold them all a while back at around 23c.
However there is the chance that ipa will make more than $10m. To be able to make this forecast back in May they must have been very confident. My current estimates indicate that the profit could be as high as $18m but this all depends in the timings of their developments etc.
So lets say ipa makes $15m. At a PE of 10 we get a sp of $2.14 and option intrinsic value of 64c. So the current value in the options depends on them beating their forecast and also the PE the market is prepared to pay. At this stage I don't have enough answers to be paying 21c for the options although I'm happy to hold the shares.

cheers
mark

[OutToLunch]

Thanks for this Mark,

I have obviously got my wires crossed with the number of shares on issue. I got the number from Direct Broking's site (having forgotten what I read in the prospectus a few months ago) and under 'Details' it gives 'Total Issue' as being 35.1 million shares. Presume this refers to the shares not being held by Indigo and CIY then?

Anyhow, thanks for putting me straight -- the apparent low valuation that I thought I was looking at makes much more sense now. :)

[major]

OTL,
What I wrote re. the reinvestment of Directors funds and actual FUM figures had been confirmed and certainly is the case now, giving us a little confidence boost to weather the current share storm!!!!
Credit to Mark who was pretty well spot on with all his thoughts on what was really happening!

Aside from that, I was intrigued by IPA myself (not the options though, because gees those expiry dates can come around fast if things aren't going to plan) but my only info was basically what IPA was forecasting and I didn't have much of a clue about the company. Forecasts were good and these guys have a habit of delivering though.

Also be aware that a lot of property associated stocks are now bearing low PE's of 4 or 5, so don't overvalue them unless you are certain of profit growth.

Mark I'd love to hear your thoughts on Budd's Beach if you feel inclined and have the time.

[soulman]

Fellows...
Now on Monday, they were 13 odd million CIYO options transferred through the ASX at $4.20. So does that mean that the top price will be paid on those options. Hence $4.50 for a FPO. Interesting to note that the SP drop to $4.55 that day.

It's hard for stag profit, don't you all think. Hopefully, the takers for those option sale are in it for the firm fundamental rather than quick profits. However, they can't sell below $4.50 prior cum div. because they will lose money.

Most placement are discounted anyway, aren't they? This is roughly a 10 percent discount to the $5.00 SP prior to the announcement on the upper $4.20 range.

Mark....isn't the IPA shares on issue 35 mil for now because the other 35 mil will have to be escrowed 1 to 2 years from now.
And the options cannot be excercise 2 years from the IPO? Just like the CIY.

[OutToLunch]

Hi Major,

Thanks for the confirmation of the directors reinvesting their proceeds into their own fund -- this is a great vote of confidence and should be very reassuring to shareholders. Where did you get this confirmation from? I am surprised that such a positive move by the directors was not more clearly spelled out in their announcement -- surely it's something you'd want to publicise as much as possible, given the otherwise negative sentiments often attached to any kind of sell-down by insiders.

Soulman, I too hope that the buyers of the options (converted to shares, presumably) are in for the long haul. The fact that we haven't seen even larger volumes traded so far compared to the number of options placed hopefully can be taken as a good sign, though we'll know for sure once these new option holders have had time to convert and receive the upcoming divi.

Overall I still feel very positive about CIY.

[soulman]

This sell-down all seems bad news and all but it cannot be done in any other way.

First of all, the dirs are trying to eliminate the outstanding listed options on issue (CIYO and CIYOA) to create a better free float and liquidity in trading in the stocks. This and a possible inclusion in the ASX 200.

If the vendors were to exercise the options, then the 13.5 million shares would be going to the insider (directors) and Phil Sullivan would have about 55 million FPO. Now that's nearly half of the issued capital for one person.

To everybody......Does CIY rely on the property market to achieve good result? I just thought that they managed the funds and collect fees for them. What's this about the default issues, what happens then? Any thoughts?

[major]

Well, while I bought into CIY a little higher than what it is now, not wanting to pass up, I am accumulating a few more at these levels and still very confident of a $6.50 - $7.00 price by end FY05.

Bearing in mind the SEL bid, CIY will more than likely be a different, slightly more diversified company by then than what it is now. Revenue will be substantially up if the bid is successful and CIY has informed that SEL will be "earnings accretive". We know that, but they fall short of stating e.p.s. accretive, as expected.

If CIY can improve earnings and reduce costs for SEL in it's first year then it may well be. The first is a given but I understand that SEL is a tightly run ship already but there may be room for improvement once under CIY administration.

The ASX 200 listing is also a given when requirements are fulfilled as there are a few dogs that will be replaced and CIY's management style, growth strategy and past performance should gain it a place.

Being highlighted by the 200 will bring insto interest and more benefits in shareprice for current shareholders.

The bad part of the deal is that the market may lump it in with all property stocks and choose to ignore to some degree their increase in earnings by not awarding it a higher P/E, or worse still, lowering it's current P/E.
Unlikely maybe because I think the earnings growth will remain strong for a number of years yet and this will be hard to ignore.

[mark100]

Hi major,
I've still got my ciy. Not buying more though as I have too many already. Just have to sit this out. They are on a FF yield of 9% and PE of around 8 so I'm certainly not selling. Ba
Meanwhile Indigo Pacific has risen from 1.00 to 1.33 over the last 2 weeks and what is positive for ipa is positive for ciy through its 25% holding and the fact thay ciy lends to ipa's projects.
I have been meaning to write a bit on the Budds Beach project and a few other things but am a bit short on time. Will post some calcs soon.

cheers
mark

[major]

Hi Mark,
I won't tell you how many I just bought then, it might freak you out.
Speaking of dividend am I correct in saying that it now has a value of nearly 150% of an original investment in the company? Phenomenal by any standards in only 3 years!

I have no doubt I will benefit by a significant increase in shareprice in 05, but as you say, sit it out. The Directors are taking a bath of about
$25 million from my reckoning and they would have been aware of that probability before the sale.

I was very interested to buy a few IPA but my only info came from management forecasts and now it has jumped a little I will be content with my CIY holding and the benefits as you state.

Mark I look forward to your comments on Budds Beach which I see as a real driver of earnings after Martha Cove tapers off. I think it will provide a better and bigger return to CPK and CIY than MC from my very rough calculations.

CIY's style of splitting the profits and finance/work etc. stuns me as being so simplified yet profitable for both partners with SDG ecstatic at the prospect, as would be CPK I expect.
The deals planned now that will lead to eventual profits are being booked years ahead, and eventually will gain more momentum guaranteeing future profits. Board and management of the CIY companies know exactly the right deals that the company should be involved in.

This is certainly one company that you really have to trust the board and management, and their track record so far has been excellent.

[major]

Sorry Mark I forgot to mention re. the P/E.
CIY has maintained a long term P/E of approx. 11 and with their track record of significant profit growth I have no doubt this P/E will be reached, maintained or even surpassed.

Based on your estimate of $0.58 cps (or better)for '05, which I am also confident will be achieved, we can expect a shareprice of $6.38 at some point, which is nearly a 45% increase on the current price ($4.46).
Not a bad pick up in any one's language I think.
A dividend yeild of approx. 7.5% on that price will be $0.48, also a 45% increase on '04.

So yes I will be holding CIY alongside yourself Mark.

[soulman]

Mark, OTL, Major and others,

CIY is no doing too good at the moment. A bit of volatility and a lot of selling pressure. I hope you didn't pay too much for your CIY Major.

These selling are obviously from those new shareholders. I hope the dirs are not selling anymore on the market. Phil Sulivan should still keep his 42 million odd shares after selling more than 1 million shares the other day. This should create a free float of about 80 million shares after the merger with S8. Also the S8 dirs would have significant holding as well as Perpetual with roughly 2 million shares.

I am sure the dirs are selling to create a better free float but it could signal otherwise for other investors. I hope there is a profit upgrade around the corner to support the SP.

So Major, you are forecasting a div of 48 cents for 05, which would have yielded more than 10% at current price. I am wishing/hoping that the 59 million net profit forecast for the 05 FY is all due to the fin. services area with another extra 20 million from the other 2 projects (CPK IPA). That's base on past result and guidance.

I am contemplating getting out. At the moment, I will keep an eagle eye on it. I can't believe this coy is 20 cents and the div of 53 cents thus far has more than top it by far in 3 years.

PS: I notice the provision for doubtful debt of nearly $1 million on the CIY annual report. Any comments on that? and is that significant/bad news? Thanks

[GladiatorNZ]

quote:Originally posted by soulman


These selling are obviously from those new shareholders. I hope the dirs are not selling anymore on the market. Phil Sulivan should still keep his 42 million odd shares after selling more than 1 million shares the other day. This should create a free float of about 80 million shares after the merger with S8. Also the S8 dirs would have significant holding as well as Perpetual with roughly 2 million shares.

I am sure the dirs are selling to create a better free float but it could signal otherwise for other investors. I hope there is a profit upgrade around the corner to support the SP.



CIY is starting to look interesting to me. I haven't yet researched it in detail but the numbers look attractive. Though, I might wait for the share price to stabilise/show an uptrend before buying.

To those who do follow it, will rising interest rates/falling property prices/lower house sales materially affect their business?

However, in my humble opinion selling by Directors is usually not a good sign. If they believed it was a better investment than they can make elsewhere, they would not sell. Any attempts to explain why are just excuses. As the saying goes, actions speak louder than words.

[mark100]

Ok a bit more on ciy:

Ciy manages 2 funds. A $800m plus mortgage trust and a $35m mezzanine fund. The mortgage trust lends to property development projects and takes a 1st mortgage over some property, usually the development project. The average LVR for the mortgage trust is 66%. In some cases the developer needs to borrow over the LVR limit so the mezzanine fund will provide a top up and charge 20-30% interest. The mezzanine fund takes a 2nd mortgage over the property. In order to reduce the risk ciy's mezzanine fund only takes a second mortgage behind its own mortgage trust, not behind any other financier.
The mortgage trust attracts funds from investors and pays them around 7.5% on call and 8.5% fixed for 12 months. Last year this was lent out at an average of 11.3%. Ciy collects the margin as a management fee, around 3.3% of FUM.
The mazzainine fund pays investors 12.5% and gets lent out at 20-30%, depending on the projects time and risk profile. The margin is collected as ciy's management fee.
In addition, ciy directly charges borrowers fees, such as establishment fees etc. I have been informed by a developer that ciy's establishment fee can be up to 2% of the amount been borrowed. In return for this high fee the borrower gets fast service etc from property development experts, not like a bank that can stuff you around for ages.
Ciy's revenue is split around 50/50 between interest margin (management fee) and general fees charged to borrowers. So up to half of ciy's revenue is received before a project begins.

Higher interest rates - Ciy has historically adjusted the rates it pays investors in line with RBA movements. If IR were to rise further, ciy would have to continue to raise its rates payable to keep attracting investor funds. Ciy would then of course try to pass this on to the borrowers. How high a rate is a property developer prepared to pay? I don't know, however I do know that due to the short term nature of the borrowings the IR is not as critical.
Of course higher IR could slow the property market to an extent that development activity stops and ciy has no projects to lend to. Currently this is not an issue. I understand that ciy currently only proceeds with 15% of loan applications due to 2 reasons, lack of funds to loan and projects not up to their criteria.
Most of their lending is in SE QLD. One arguement is the strong population growth in this area will keep development ticking over at an acceptable pace. The other arguement is we have a land/unit oversupply. I don't know who is right but the answer is probably somewhere in the middle.

Ciy is still only a small player in the industry so I doubt they will run out of projects to lend to. They also have a pipeline of their own projects from ipa and cpk.

Lower property prices - if a developer goes bust and ciy needs its money they need to sell the property. The mortgage trust or mezzanine fund may not get all its funds back. In this case there are 3 options as I see it -
1. Ciy wears the cost via a reduced management fee
2. Ciy takes its normal management fee and the investors cop a 'capital reduction' of a few percent (depends on the loss size). This would reduce the popularity of the fund and make it hard to increase/maintain FUM
3. Ciy have a property trust in the pipeline that has not got off the ground due to 'lack of suitably priced assets'. Remember ciy showed interest in purchasing the $300m Waterfront Place in Brisbane last year but baulked at the price. This would have launched their property trust. Last AGM I raised the point with Phil Sullivan that if a developer was in distress the Ciy 'Property Trust' could come in and purchase at a low price, but at a price high enough for the mortgage trust/mezzanine fund to get their money back. His reply was that ciy is very opportunistic! Remember that the $50m raised from the director sell down is for investment in the mortgage trust and as seed capital for future funds.

I would have preferred the directors not sell down. I don't care if ciy is in the index or not, as long as

[GladiatorNZ]

Thanks for the info. Much to think about.

[soulman]

Hello Mark, Gladiator,

The selling pressure from the new holder is imminent I suppose. They can sell as many as they want before the ex div and then as many as they want after the div. They only have an eye for a quick profits most likely in the 5% region. I just hope its not the dirs selling it down further because it would be silly. Don't you all think they would want the price to stabilise at $4.56 and above to secure the merger with S8.

CIY is currently selling at 8.6 times prospective earnings. Now, along with a yield of over 10%, that's got to be good value. You can't really compare CIY to Port Bouvard or Devine, because of the growth nature of CIY.

As for the inclusion in the ASX 200 or 300, I think you need to have certain amount of shareholders and liquidity in your SP. It's good that Mark you have access to broking houses researching on CIY. I never seen anything like it.

Update us on the AGM further. Thanks

[major]

Hi Mark and others,
Mark I very much appreciate your time and generosity in sharing your knowledge of CIY with us.
Your understanding of the company is a great asset to us all because their activities are not so easy to understand at first.

Re. the interest rates, with serious warnings from the IMF and our Treasury, the RBA is certain to approach lifting interest rates further very cautiously. Latest news on TV (???) indicates that residential property prices may have overshot by 20 % (as if that's news to anyone) and a rapid rise in interest rates of 1.5 - 2% would have a drastic effect on property prices. Undoubtedly IR are set to rise but it looks like very cautiously and now, possibly not till next year. Mark your point re short term loans/ IR is very valid.

Another aspect I think I am right in presuming is, most purchase contracts (by the final purchasers) for the property that CIY lends on (to developers) would be set up with some sort of taxation advantages for those final purchasers and therefore most of these properties would be aimed at customers who are reasonably astute (tax and business wise) and wealthy? In other words, they would be prepared to pay for the right property, regardless of interest rates or prices (within reason) and unlikely to panic, like poor old surburbia? Therefore sales will continue, for the right developers.
Prime properties will always attract affluent buyers in any market and moreso in depressed markets (at a lower price), and CIY and the developers they lend to, seem to aim with this in mind.

Mark I have seen some companies hit the ASX 200 with great fanfare and in a few years die a lingering death and then be dropped unceremoniously. They want growth companies in the index to drive it and CIY currently fits the bill in that respect. As far as benefits we will have to wait and see because while although funds may drive the price up when buying they also drive it down when selling.

Re. Profit. Please, these are my "possible" estimations (except where stated) and please feel free to correct me where I am wrong.

I am certain CIY will beat their forecasts. While I don't think the Directors are in fact putting in all their proceeds from the option sale, they are still headed for at least $1.2 BL FUM if they maintain the $30 ML per month inflow, with approx. $900 ML advised for end of September. $772 ML was the end FY'04 total.

Mark I believe the percentage of NPAT to FUM has improved over the years in direct relation to the reduction they have achieved in costs annually and the steady increase in FUM. CIY advise that they will maintain costs for this year at the same low percentage as last year while continuing the same steady increase in FUM. Not much has changed then. Therefore I feel, the percentage could be similar to last year, not allowing for S8.
How the S8 aquisition will effect this I don't know because their revenue to NPAT is at the other end of the scale to CIY and I haven't really checked their costs as yet (tsk tsk!) but understand it to be tightly held.

Using $1200 ML FUM by end FY05 and $986 ML as avg. FUM and 5.89% as the margin, that's $58 ML from Financial Services plus approx $16.8 ML from CPK plus $2.5 ML from IPA (could be $ better, based on Phil Sullivan's confident statements re strong contribution to CIY) plus S8 at approx. $10 ML (from a boost in unit numbers predicted, let alone CIY influence).

That's a "possible" $87.3 ML NPAT with 137 ML shares on issue, or $0.64 EPS. On a P/E of 11, a shareprice of $7.04. Regardless of the final EPS, I think $1.2 BL FUM should be achievable, based on Sept figures and expected monthly inflows.

Soulman:
With a multitude of ways to arrive at EPS figures I could safely say the broker figures of $0.50 - $0.52 would be the minimum expected and Mark's of $0.58 a lot closer, from my point of view.
Mark's point re not caring about much else (ASX200 etc.) as long as profits increase is exactly my view too but the fact a conservative (and "opportunistic") board forecast a 34 % increase in profit

[soulman]

Major

Too bad....I bought extra's after the option placement at the $4.70's mark and I am getting burned as well on that transaction. Shouldn't have done that. I missed out when it hit $4.55 and then the next day or two, bought it at $4.73. Certainly looking to sell if it heads south further.

I see Perpetual is buying more S8 to block the 90 percent bid. I mean with CIY at current price, S8 shareholders would not be handing in their acceptance form for the offer, would they. What bad timing for the option placement.

I don't really care about the S8 merger either. I reckon CIY would be price higher if they didn't bid for S8. Of course that option placement cause it more pain. I wonder if Perpetual Trustee took the option placement and sell down CIY shares further just to block other S8 shareholders accepting the offer and pissed off the CIY board. Now that's cunning. I wonder if CIY board know about this if that is the case.

Major, your $1.2 BIL FUM is a little optimistic. If you calculate 360 + 770, you will get 1132. I think 1.1 is just about right assuming 30 mil inflow per month. It would be good if that happen.

CIY is a top stock and it certainly has not moved much during the year. Now it has more volume and also more dangerous to volatility. I just hope the growth continues and a much needed profit upgrades around the corner.

[mark100]

All,
Perpetual obviously are looking to play games with the S8 bid. If they block it and want more money, I hope ciy walk away. The deal is already EPS dilutive for ciy and raising the bid will only make it worse. Soulman, you are right, if this bid hadn't been made ciy's sp would be looking much better.

cheers
mark

[major]

Hi Soulman,
I don't think I am being too optimistic and $1.2 BL was not a guess but based on information from the company.
As I posted, end of Sept. will see $900ML approx. plus the expected $270ML for the remainder is $1170 ML.

Another way to look at it is $850 ML was recent FUM quoted (early Sept. and pre-option proceeds), plus the proceeds from the option sale of $59 ML gives us $909ML, depending on the exact amount invested by Directors. The balance of the year at $30ML a month will result in $1179 ML plus the balance for Sept, approx. $20ML is $1199 ML.

Or another way is, $772 ML (end 04), plus forecast $360 ML, plus $9 ML ahead of forecast by end Aug, plus $59 ML from option proceeds is $1200 ML approx.

Bear in mind all these estimates do not include the prioritised new Income Fund which will contribute "new" investment inflow into FUM. Nor do they account for a possible further increase in monthly fund inflow for the remainder of the year, nor a decrease for that matter, if that may be the unfortunate outcome.
Phil Sullivan has stated they are expecting "over $1.1 Billion" and I expect $1.2 BL is achievable.

I am not too concerned about the price I paid (liar,liar!!!! my wrists have healed up quite well!) because my main focus was and still is their result for 2005 and with this in mind I think the current price should not be the highest priority and let's face it, it caught out nearly everyone. The Directors themselves are down over $25 ML now!

I really think focusing on the short term shareprice is futile unless you are simply a trader. I really feel that as I said in a previous post, this is one company where shareholders really have to put their trust in the Board and Management because they are the ONLY ones who know what they are currently doing, what they have planned and what the outcome will likely be.
For instance, take Phil Sullivan out of the company and would you still be invested then?
The Board and management actually made this company (and still do) and were not simply hired!

I subscribe to the notion that CIY are well aware of what they are doing and that S8 may well be a consistent and significant contributor to profit and profit growth and well worth the short term pain we are suffering now. I totally agree though that the shareprice was on the move upward prior to the option sale. I have not one doubt it will again.

Also don't forget S8 founder and boss (and privy to all relevant information to which we are not), wasted no time accepting CIY shares for his S8. Potential is there for it to grow and contribute strongly to CIY so the pain may be worth it.
A couple of years from now, we may see S8 contributing $15 - $20 ML NPAT on an annual basis.

I agree with what Mark says and I repeat what I said a while back that I too hope they walk away if they cannot aquire S8 at the best possible terms for CIY shareholders.

Once again we may have to put our trust in them and the outstanding thing that I see about the Directors owning so much of the company is, that it's a lot of their money at stake too!

[soulman]

Hello all.

I suppose CIY can also acquire 50.1% of SEL to gain control as stated in the document. I have confident in the management that build this coy and will continue to do so in the future.

I am sure Phil Sullivan want a 4th consecutive year of profit upgrade and hence, the $59 forecast was conservative and maybe prudent, where they can later top them. Therefore exactly like the last 3 years. They haven't give a guidance on the dividends as yet, where last year they were out with the 30 cents mark straight away. Obviously, they are waiting for the impending SEL deal and the option sale to pass along first.

The all share deal is an interesting one. Firstly, the deal was at a premium to SEL price. Now since CIY has dropped, shareholders of SEL would have second thought. I would like to see the chairman of CIY buying some shares at this level on the market, just to reaffirm the market that everything is going nicely and that the current price is undervalued.

[major]

Well, $127,000 looks like the brokerage costs for the option sale.
What I am not sure of is whether a broker(s) was even used and to who the money is going to?

As I mentioned previously, the announcement of 10/09/04 was headed that City Pacific placed the options. Later in the same announcement it stated the Directors placed them. This brings up many questions.

Now also as I said before, if the options were held personally by the Directors, then how did CIY come to place the Directors options and why is CIY issuing shares in lieu of payment for services connected to selling privately owned options of the Directors?

Secondly, if the Directors sold them while acting from a personal standpoint and not as a representative of the company, why is CIY issuing those shares as payment.

To who these extra shares were issued to is a pertinent question and could provide some of the answers?

Also, there are a few more options that were execised than simply the Director's options we were advised about, and in that case were they also sold (and/or exercised) at the same time (looks like it) and if so, with options being leveraged, it begs the question whether a priviledged few were warned of the impact, or the impending sale itself, and therefore either execised or sold their options to avoid greater loss than they would with shares?

Mark,from memory, were these extra sales related to the sale you recently mentioned, and if so were they then related to Phil Sullivan or his family as I recall from the announcement?

Please understand I have no real information regarding any of the above questions but surely many other shareholders would be contemplating these questions too. Also I do not mean to insinuate wrong doing on anyone's part, but without some further disclosure, these questions will obviously be raised.

Shareholders at the AGM may be a little on the inquisitive side then, what say chaps?

Surely can't be a coincidence when 3.5 million options get exercised at the same time as 13.5 million that were just sold.

[soulman]

Easy Major,

The extra options were exercised prior to the ex div. date to be entitled to the div. As you know options holder are not entitle to the div.

Those option holder did not know about the option sale coming and probably bought them at a highr price that $4.20 when CIY were above $5.00. But they stuck by them, as well as getting the 23 cents div. Remember these CIYO options can only be exercised after JUL 2nd 2004.

Regarding the option sale, I am sure Phil Sullivan is the founder/co-founder of CIY, and hence everything is under his name. Maybe that extra shares were issued out of his personal holdings, I am not sure. I am sure that the holding of CPK is under his name even though CIY owns the 55% stake. So we should get Mark on this.

I just hope that the shares get back up to $4.56 within the next week, the SEL offer price.

[major]

I think you are a little mistaken as to the share ownership structure in the two companies Soulman
but you're right, Mark's our man to sort this out.

By the way Mark, did you attend the S8 AGM as you were planning and if so what was the mood from the company in reference to the CIY bid?
I couldn't interpret much (ie.enthusiasm) from the Chairman's address.

Arghh jeees, my wrists have started bleeding again!!!!!

[soulman]

I just about have enough of these sellers looking to secure a quick 5-10% profit. You people make me sick. I hope CIY spread the option sale all over a lot of shareholders instead of a pitiful few.

When are these selling going to end? You predicted this Major. We are the chop liver waiting to happen after the ex div.

[OutToLunch]

Stress not, soulman, unless you were ever only going to hold CIY for a few weeks. Let the sellers bail out, everntually CIY's strong fundamentals will shine through again.

By the way, I have abandoned my attempt at snaring CIY relatively cheaply by buying SEL and waiting for the takeover. I bought SEL at 1.35 when CIY were up around 5.00, but now that the takeover seems less certain (thanks to Perpetual Trust building up a stake large enough to block the offer from reaching the 90% acceptance level), and the fact that CIY have fallen much more than SEL recently, I decided to sell SEL at 1.30 yesterday and grab the equivalent CIY on-market rather than sit through a potentially messy and not-so-certain takeover situation. I too am hoping that CIY will walk away from the SEL deal rather than play games with Perpetual.

[major]

Hi all,
I have very little knowledge of what PPT are up to in regards to SEL but the thought has crossed my mind a few times that could they be doing what OTL attempted by buying more SEL to pick up CIY cheaply?
Or are they just simply after a bigger premium than the 40% offered?

Afterall we have no idea what they paid for their recent buy of SEL (could be much cheaper than market) and they would have a difficult time maybe trying to buy a large quantity of CIY on market at the current price.

Maybe the current sellers of CIY are not that thick in number making the possibility of PPT buying 2 - 3 million or so at a discount, difficult? If that was a possibility the new owners may have been approached by PPT already.
Surely all 13.5 Million new CIY shares are not about to be or were ever intended to be, resold?

Im sure CIY would be approaching all large shareholders of SEL before the offer close date in order to shore up support for the bid, so PPT would be probably well informed as to the benefits envisaged by CIY for the SEL takeover.
There is little evidence to doubt that CIY shareprice will recover strongly after a positive SEL outcome so while CIY shareprice and bid may appear not so attractive presently, it may look a bargain for SEL shareholders in 12 months or so.

Well that's my fairytale version anyway!

[major]

Well we can scratch Breakfree off the shopping list and it looks like the competition for SEL is getting hotter.

With BRK shortly to be well cashed up, SEL shareholders will really need to consider the benefits of selling their shareholding to CIY or face stiffer competition from a cashed up BRK.

Mark, would love to hear your views on this development.

[major]

I also wonder if BRK's plans were "adopted" from CIY after CIY's first attempt at aquiring them?
Are they using CIY's proposed ideas or guarding off CIY? Seems very much in line with something CIY might have done had they been successful in their bid for BRK.

[k1w1]

This is Ground Control to Major *pauses*,

Can you hear me Major Major (apologies to Catch 22)

Having read your daily posts

I now have a far better insight into

how whistling in the dark helps keep spirits up




Disc: CIY holder

:)

[major]

At least my posts attempt to either offer some information or otherwise actively seeks it.
Was there any point to yours?

I tried winking at girls in the dark, but that didn't work too well either!

I write posts as a recent CIY shareholder and people upto now have been kind enough to share a lot of their time in supplying information that would otherwise have eluded me or at least, taken a great deal of time and effort to obtain and understand.

Surely, the more informed shareholders that exist, the more stable the shareholding in CIY, which benefits all CIY shareholders.
Even the company has been more than helpful in supplying me information as they also see the benefit.
But then we are not all blessed with good foresight.

It is a fairly simple matter to decipher who is knowledgeable re. CIY and others who are not at the same level as yet.
Having read my posts as you say, you will be aware that a number of times I have remarked that I am happy to be corrected and that I readily admit to not having much experience in CIY and it's activities and that I also welcome and am grateful, for well intentioned advice and information.

While I lack information from experience in CIY, I do not lack experience in investing and what appears to you as whistling in the dark, has been clearly misunderstood.
I am under no illusion as to what I expect from this company for a number of reasons, and as my posts have reflected, I am also not shaking in my boots, nor did I really have blood seeping from my wrists. That was a little humour that you may have missed.

Sorry if I offended you in some way but I would be saddened to see this forum degenerating to the level of Hot Copper where information is virtually non-existent for most shares, having been substituted by personal attacks or demeaning innuendos by many posters with too much time to spare and very little knowledge.

C'mon Kiwi, don't worry, CIY will come back up.
Be happy, join in and get on with life, live and let live is the best motto.

[major]

Kiwi, after having just posted I reread your post for about the fourth time, and feel that I may have completely misunderstood your message as being sarcastic and implying that I was commenting too favourably on CIY.

I sincerely apologise to you if I was mistaken.

I can now comprehend a different meaning in your post which I didn't see at first.

Mate, I am deeply regretful if I misunderstood your post and returned the offer of a hand of friendship with sustained machinegun fire from the bunker at CIY headquarters.
It's battle shock in it's extreme form.

Please put me out of my misery and explain which interpretation I should adopt?

Sorry!

[k1w1]

No worries Major, I read your posts everyday. Keeps the troops morale up :)

[soulman]

Fellows,

I wonder who took the options sale?

Who know how many institutions are on CIY. I only know one which is Queensland Investment Corp. None of the big one like Perpetual, Westpac, CBA are on there. Either they are too illiquid or they just don't like their model or exposure to the property industry.

[soulman]

Well, well, well

As expected. What volatile SP movement freaks S8 dirs. which you don't blame them. What kind of a crappy timing by CIY dirs for the option sale and at a big discount as well. If the coy is going good, why do they need such discount of 10%. Although they issue them at a 20% discount last year.

Now, how is this going to affect CIY SP the next day? Man, what a drag. I believe CIY do not need to nab S8. However, they might need to up the price to snare it or start buying some stock and push up the price.

CIY.....please update us on the profit and div. forecast base on 114 mil shares on issued.

[mark100]

Ciy followers,

Rang ciy this afternoon for their comment but it was a bit late and no one was available. Will try first up in the morning.

Not much time to write a long post but here are a few of my thoughts:

Hopefully ciy will forget about this bid and go back to what they do best. Without s8 their will be no more eps dilution. Forecast NPAT $59m gives EPS of 52c. Would expect div to be around 40c. Of course their may/should be scope for upgrades. Ciy please don't up the bid.

Ciy directors were dumb (maybe even too cocky) by selling their options during a scrip takeover bid. S8 are correct in saying the bid price is now to low but I disagree that ciy's capital structure has changes significantly. The extra shares are due to exercising 30c options that were issued on a 1 for 3 basis in the float. These options were always going to get exercised before the 23c div. I exercised all mine 2 weeks ago and so would have other holders so that is why some 16m were exercised, not just 13.5m as a previous post has queried. Ciy's capital structure has nothing to do with it. Basically ciy's price is too low now.

What will S8 do now? What is their expansion plan? If they continue to go it alone I bet S8 holders will be regretting their decision in 12 months when s8 has recorded measely 15% eps growth for the year and ciy sp is north of $6 (I hope!!)

The BRK / MFS alliance is great for brk. I think they will run over S8 now. MFS is an awesome private company. I would love to own shares in them but of course they are not listed. (Don't confuse MFS with the listed trusts they manage) MFS is similar to ciy in that they provide 1st and 2nd mortgage finance for development but they also manage significant amounts of property. I reckon MFS and BRK got working on this deal to counter the proposed ciy / s8 alliance.

What will ciy sp do now? Don't know but provided ciy does not up the bid I would expect some extra buying as their will be no EPS dilution etc. But of course their is still the overhang from the options sell down that will probably keep a lid on an rally in the short term.

cheers
mark

[soulman]

I suppose it will all be reveal in the CIY AGM a couple of weeks later. Look forward to the outcome.

I am not sure about the implication of IPA and CPK to CIY but according to the annual report of both IPA and CPK, it should be business as usual. Hence the profit for CPK will all depend on the settlement of funds. 90 to 100 mil in the next 3 to 4 years for the Martha Cove project. Not sure about IPA.

[mark100]

Great response from ciy. They are extremely confident of reaching their forecast (bring on the upgrades!). No increase in bid.
Soulman, not getting S8 will have no effect at all on ipa or cpk.

cheers
mark

[major]

Hi all,
Looks like the final outcome could be that CIY might be in the MLR business of their own accord.

A much better outcome for all concerned.
The profits are there for the taking by CIY and while SEL was an easy way into the market, albeit expensive, a start from scratch
**** OR AN IPO****
may be on the cards hopefully? Martha Cove, Budds Beach and the Clarion alone would provide a great platform to start and would be virtually guaranteed.

I can't really agree that CIY offer is not reasonable or the CIY shareprice too low for the bid to go ahead, considering CIY are paying over 16 times SEL's net profit at current prices. SEL have conveniently forgotten to mention that approx. $2.5 ML was a one off from the sale of BRK shares making their 04 result only slightly better than 03. Bearing that in mind, their 05 forecast may be a little optimistic.

I see S8 directors as trying to force a higher bid from CIY and I am ecstatic to witness CIY Directors showing real determination in refusing to up the bid. S8 will probably face real competition from BRK now and possibly, by CIY themselves.

CIY were paid the compliment that they could be a viable force in their own right in the MLR business and I expect this is the way they may be considering and was probably always their alternative.
One way was quick but expensive, the other, hugely cheaper but taking longer to reach a mature stage.

I am also not convinced of the thought that CIY Directors failed to foresee a selldown and a consequent plunge in shareprice resulting from the option sale. They would have been aware of this happening and maybe scuttled the S8 bid. Afterall they only had to wait a few weeks longer to place the options. Share would be ex div by then but shareprice possibly still around $5.00.

These guys are pretty smart operators and maybe this is the prefered outcome they wanted after a rethink post bid?

In light of the target statement, I am now happy with the eventual outcome and much prefer to see CIY go it alone if they couldn't buy S8 under the best possible terms for CIY shareholders.

I agree, S8 shareholders will soon regret a decision to follow the advice of their Directors. Undoubtedly.

[soulman]

Mark
I was refering CPK and IPA regarding their profits contribution to CIY. CIY is saying $18-20 mil net profit is achievable from both subsidiary. I just hope they are right because, isn't IPA very similar to CIY in term of the lending business. It is because last year CIY said they will be earning $7 mil from CPK and failed to achieve any at all, I feel sceptical. I know it will all be due to the timing of settlement of funds.

If CPK earns $25 mil profit this FY (on the neutral side), then their div will be near $1.00 (based on 19 mil shares), if their div. policy is similar to CIY. Hence, they are yielding at 30% F/F at the moment. The problem with CPK is their illiquid share. And IPA is a new venture that are forecasting $10 mil NP. I was looking to buy the IPA options when they floated but now at the high 20's feel they are too much to pay. Should have got them at 16 cents about 3 months ago but that was a long time ago.

Mark, did you get your CIYO or CIYOA cheap? I got into CIY through the option as well because they were cheaper to get access to compare to the market and once exercise, be entitled to the div.

I know Phil S will come through. Based on that announcement, they are forecasting a div. of 40 cent as well. The word "extremely comfortable" is nice and very reassuring. Very good to hear they are not upping the bid as the offer is still at a 30% + premium to the SEL SP instead of 40%.

[soulman]

Still a lot of sellers for CIY. Those bloody extremely quick profit taker. Based on a very conservative PE of 10, CIY should be at $5.30 and yielding at 7.5% F/F.

[k1w1]

Gentleman,

Finally I can add some value to this thread in relation to BRK (oh those hallowed initials!) and MFS.

I agree that this is a great alliance. Earlier in this thread I have asked Dimebag for his views on MFS v CIY. No reply to date as he must be busy with assignments . Mark100 I would value your take on them.

Firstly I am a holder of MFS and its sidekick MPY. Both have options. And Mark you can buy shares in them. The confusion about the trust comes from it having recently become a stapled security whereby each share became a share together with a unit in a trust. You have to own both. MFS pay really good dividends, and have grown quickly with a presence in NZ and Australia. Run by some commercial lawyers who decided they were more interested in commerce than law. Clever guys in the right place at the right time is my view.

MFS is the established finance company with good dividends and growth. MPY is the buy at the moment i my opinion as its time has not come.

You can get it and the options really cheap. The directors bought at 109 c approx each for the shares. A small no are for sale now in the 80-88c range. Thats right !!!

Look at the NTA of this tiny trust. It is already above the share price. This is prior to the sale of one of its five hotels at 25% greater than its book value.

Two years ago it was on a PE of just above two.

MFS have got it, turned it into a stapled security and are going to run leisure assets through it. Ski fields, hotels,and posh holiday apartments as Aussies more and more chose to lifestyle or holiday at home.

Its a work in progress but it wasnt too ugly to start with. Like Mark I rate MFS as good operators. MPY options are cheap too but like the shares hard to get hold of. I hold both.

I would really value some feedback as its been lonely holding these shares. I was tipped off to them when I saw MFS being held by an experienced shareholder whom I trust - thats how I found them.

I have posted on them on ST but so far no one has been willing to dialogue about them.Look forward to your views.

[mark100]

kiwi,
MFS, being MFS Leveraged Investments and Securities Trust and its new sister company (which have being stapled) are not the MFS refered to as buying a stake in brk as far as I am aware. The MFS buying into brk is McLaughlins Financial Services. McLaughlins Financial Services is the responsible entity of all the listed MFS trusts. So when the listed MFS's pay management fees and performance fees to the responsible entity, they are paying these to McLaughlins Financial Services which is a private company.
In any case I have always been amazed at how cheap the ASX listed MFS (Leveraged Investment Trust) is. Huge dividend but as it has been a trust up until now, there has not been a lot of scope for big profit increases (as trusts must pay out all earnings as dividends). This may change now with the stapled structure. I am aware of the options and have followed this operation closely over the past 18 months or so.
I have never looked ast MPY but will check it out. Thanks.

soulman,
I did get my ciyo and ciyoa cheap. I got my ciyo free in the float and ciyoa free in the bonus issue a few months later. I have been a buyer ever since! IPA is more like cpk than ciy. IPA is investing $22m equity in the Kelvin Grove Urban Village development in Brisbane and $14m (I think) equity in a resort redevelopment in Palm Cove. These investments are equity positions. The debt funding will actually be provided by ciy. IPA's only lending activity is a $2.8m meazzinine loan.
I think cpk has been overlooked by everyone. Ciy is forecasting $24m before tax from associates this year. $3.6 of this would be from IPA based on IPA's forecast of $10m NPAT. This leaves $20.4m before tax coming from CPK. As ciy owns 55% of cpk, cpk must be going to earn around $26m NPAT. This gives basic EPS of $1.44 and fully diluted EPS of 93c. So cpk's PE may be around 2.3 - 3.7 atm. Depending on number of options exercised yield may be 20 - 30%! And cpk's profit is not just a one off. They are developing a steady stream of projects. In the annual report they also say that profits will escalate again in 2006 and 2007....

cheers
mark

[k1w1]

Mark100,
I had always thought that MFS, the Responsible Entity, had the management contract to run the funds, aka Infratil, Hunter Hall, RJI in old days which is a pretty standard form for investment companies and trusts. It allows the trusts and companies to run with few or no employees eg MPY which actually has no employees.

MPY, if I think about it, should be on peoples watch screens more than on their buy screens. There is still quite a bit of speculation by me and hinting by them as to future intentions for it. They have said that they see lifestyle and leisure as the developing field for property investment in Queensland. They reference that Aussie comedy whose name I have forgotten about Aussies moving from the city to smaller coastal places for lifestyle and recreational reasons. In their newsletters, but not elsewhere, they have talked about the ski resorts they have acquired - it seems to me that the Breakfree properties they acquire may fit into MPY which will loan the money from MFS to fund this.

That creates a vertical integration. Breakfree or a resort type property sells the property to MPY. MPY funds the purchase with a loan from MFS - which has raised it from the public. Breakfree gets the management contract which is its area of expertise and has capital to buy another resort which again it sells to MPY while keeping the management contract. MPY again borrows from MFS.This creates a pipeline of opportunites for all.

MFS owns 18% of Breakfree, so gets 2 seats on board and input into decisions before they are made as well as a financial return on Breakfree profits. It gets to make loans from its retail funds to MPY which it runs and gets interest and dividends from, and which its directors control and are substantial shareholders in.

MPY will get priority treatment from MFS for investments and can make a margin between what it pays MFS in interest and what it charges Breakfree under the operating lease.

Breakfree gets to operate the property and make a margin between its charges and what it pays MPY, without tying up capital, or having to be too involved in property financing. It will also get MFS assistance to set up and run a trust like MPY which can directly hold some or part of its investments.

So its the classic win win for all involved. MFS, and its sidekicks, can run deals between these three arms in any way that suits them.

The sum in this case is greater than the value of the parts. If you have entities that are in property development with associated property financing all you need is a property management company and you have total integration of your whole process.Its also a pipeline for future development opportunities.

In my view it shows why these niche finance companies are good investments. They are flexible in ways that banks just arent. When they see a good concept they just put it together. Sure its riskier, but provided they build high quality items the public wants, this configuration actually reduces that risk- as you control all the inputs that make a property investment successful.

MFS/MPY/Breakfree are now up and running in Australia.MFS paid cash at above market price for a minority holding in Breakfree.CIY went for 100% takeover with an all scrip offering, then sold options that reduced its SP, causing S8 to balk.

So CIY/IPA/CPK are still trying to put such a structure together. To say that S8 is not in itself worth buying, misses out on the big picture that these guys have glimpsed and then gone after.

CIY need to execute their game plan because MFS have shown it can be done. There is a risk that if this deal falls over and s8's SP drops that Breakfree could use its newly found funds source to take control of s8. CIY should not let their competitor get the jump on them.

Disc. Hold CIY, S8, MFS,MPY, MPYO

[mark100]

Kiwi,
Couldn't agree more with your post.
Maybe ciy will go it alone in the lettting industry? This is what the courier mail (Brisbane paper) speculated.

I am seriously looking at gettting some brk shares. If MFS is going to give brk all these benefits I'm sure they will want to up their stake. Maybe a full takeover? But the MFS that has the stake in brk is the private management company, I think. They wouldn't want to delist brk. Maybe brk will become a backdoor listing for the MFS management group in the longterm? Maybe my imagination is running too far!

cheers
mark

[soulman]

Wow, Mark you got your CIY cheap. Hence you are building quite a large portfolio on CIY unless you have sold down. The current price of CIY is quite close to mine at the moment, hence you can see why I was mocking on those new CIY holders selling it down. It's not a large holding either. I suppose you being in Queensland got the tip and got in early. Good investing there.

The SEL and BRK story would not be possible. I read once that the SEL and BRK management don't see eye to eye and hate each other guts. Both MD are multi mil. and hence would not give each other an inch. That's the reason why the takeover for BRK never eventuate for SEL.

The acquisition for SEL is neutral. Looking forward for CIY to head back to the $5.00 mark and $6.00 if there is a profit upgrade around the corner. I reckon 45 cents div. is not out of the question for this FY, unless the enlarge share base on the acquisition of SEL would lower it a little. Let's hope the rally starts after the coming AGM.

[skinny]

Apologies in advance to CIY holders, this is in response to kiwi’s 1st post on MPY.

I took a look at MPY's annual report and re-stated the income statement for the sale of the Rockhampton property, the one off costs of setting up MPY as a stapled security, and depreciation. The profit on the asset sale (i.e the difference between book value and the sale price) + the other adjustments swings the full year eps from (49.55) to around 9cps, implying the current adjusted historical p/e is 9. Not too bad.

On the balance sheet the impact on NTA is more dramatic - I took the companies word that they would use proceeds to retire debt and came up with an NTA of around $1.30, some 60% above the current share price. So I have no qualms with your feeling that this company is sig. undervalued - but am still hesitant in taking a stake for a couple of reasons I was hoping you could fill me in on:

1) Their debt is entirely on short term rates and is up for re-negotiation with MFS next year on 18 May. The rate MFS charges currently (10.5%) looks reasonable but what is to stop them jacking it up next year to capture for themselves any improvement in MPY's cash flow?

2) With the sale of the rockhampton property they have a very small portfolio of assets: 2 properties in Mt. Isa and 1 in Alice Springs. This seems pretty risky to me - what if mining activity in Mt. Isa or tourist flows to Alice Springs slow going forward? The assets book value (which I used in the NTA calcn) is 10% lower than the recent market valuation seen in Note 8 to the annual report but is this enough of a cushion should national property prices fall? And do you know what property prices have done in Mt. Isa and Alice over the past few years in particular?

Finally, your last post on strategy lost me a bit - can you elaborate (perhaps in an MPY thread)?

Cheers kiwi!

[k1w1]

I am happy to start an MFS/MPY thread altho its my view that:
a) CIY and MFS are comparable companies- only other one in this field is Bridgecorp which is unlisted.
b) CIY has to be seen in its context of CIY/CPK/IPA and
c) MFS has to be seen in its context of MFS/MPY/BRK.

So it is useful for both CIY and MFS to be compared and contrasted as insight into the model of one gives insight into the other.But I want to know whether other posters on this thread share that view or would prefer I start another thread.

[Dimebag]

Hi CIY followers.

Thanks for the very interesting and informative discussion.

I too was impressed with CIY's response to the S8 directors' response to the proposed offer. Their comments where precisely those one would want to see from their managers - evincing a concern to enhance value for existing shareholders and appreciating that their stock is undervalued.

So often, (and Warren Buffett has talked a lot about this issue also), acquirers using scrip to acquire pay particular attention to the value of the company they are acquiring, but scant regard to whether the scrip they plan to issue is under or overvalued.

As Buffett says, in such a situation, A is not really "taking over B", so much as "A is selling part of A to buy B". Buying a company at undervalue using scrip only makes sense if the scrip you are issuing is not undervalued by the same level. The amount of intrinsic value relinguished is equally important to the amount of intrinsic value acquired. It is good to see CIY's managers are cognisant of this factor.

Kiwi

I remember you mentioning MFS. I gave it a quick look some time ago and came to the same conclusion as Mark100. They are simply a listed trust. MFS is the responsible entity. I think Mark100 is right here, and the listed trust they operate should not be confused with the company who is administering the trust.

The trust looked a little dull. It can't grow because all earnings must statutorily be paid out. Someone mentioned the yield was quite attractive but I can't recall its amount. Anyway, I'm more inclined to invest in growth companies like CIY.

CIY are on a forward yield of 9% FF. This is free cash-flow for holders. Grossed up that's about 12.8%pa for Australian residents.

That is surely a steal. The earnings underpinning them are sustainable and should grow nicely in time. Holders would do well.

Income of $100,000pa can be purchased for a mere $780,000. You could retire off that. $780,000 to purchase a fairly comfortable retirement (many work 60hr weeks to secure that kind of salary), and that flow should grow nicely over time.

Very attractive indeed.

Regards
Dimebag

[major]

Hi Kiwi
I'm personally happy for you guys to continue your discussion on here and we may all benefit, while mindful in maintaining CIY as the main topic overall. I tend to agree with Dimebag though, and don't see the same attraction to those companies that I saw with CIY and it's board and management.

Can I just point out that a large driver of my interest in CIY was their potential future earnings, especially 2007 and 2008 whereas we seem to have been concentrating on the recent option sale and it's effect on the shareprice of late. As the market realises CIY's future potential, CIY's PE will be due for a rerating.

Just going by curently available figures, 2007 should see around $2 Billion in FUM.
That is, end FY05 at $1,200 ML +$360 ML '06, + $360 ML '07 = $1,920 ML (on current info).
Applying Marks avg. return to NPAT of 5.89% from the avg. FUM for 07 of $1740 ML, we may have a contribution to CIY's '07 NPAT, of $102 ML from Financial Services alone.

In addition we should consider the strong likelyhood of inflow increasing to over the $30 ML per month estimate, as well as the inflow to the soon to be established C.P. Income Fund, which by 07, would be significant. Don't forget, CIY states that an increase to FUM, exponentially benefits earnings, (and possibly therefore assuring or bettering the 5.89% used) so the actual outcome could be better than $102 ML, and based on 117 million shares on issue, could be approaching $1.00 EPS from financial services alone. Allowing for slight growth, $2 Billion FUM is comfortably within reach for end FY07 based on current information.

Add to that, contributions to CPK (/CIY ) from both Martha Cove and Budds Beach coinciding for the first time along with possibly smaller contributions from the other Victorian developments, if they go ahead, such as the extra land at Martha Cove and the residential and industrial land developments we have discussed.
Also add, contributions from IPA, decribed by Phil Sullivan as expected to be "strong" (going by his comments and shareholding, I would have to go along with him, haha) and the Property Trust which may be up and running as well as "maybe" a MLR business, in some form or another.

We have not allowed for any further aquisitions, developments, initiatives, growth etc. by CPK, IPA, TER, CIY, the FUM, possible MLR biz. etc. but we can easily see well over $1.00 EPS, if they were allowed for.

Seriously bear in mind, CIY has recently been at the same shareprice it reached after it's 2003 result even though their earnings for 2004 were 250% greater than in '03. We were recently given an opportunity to buy that boost in earnings without paying a premium to the '03 result price.
2007 isn't that far away and shareholders dividends at around 70% of NPAT could be around $0.80 to $0.90 per share.

Ofcourse the above is all open to any number of events that could accelerate the results or conversely, seriously impede the growth expected to enable those results.
Do your own figures, and by all means post them and your thoughts please.

2007 and 2008 will be good years for CIY and it's shareholders and I believe the growth left in this company and it's shareprice is still well beyond the market average.

[k1w1]

Hi all.Here is my latest look at this.

First. I am clear that MFS listed is not MFS Ltd the responsible entity. But the boards of both and of MPY are all the same.

At present MFS.AX pays fees to MFS which arranges loans for it to finance. At a share price of 1.50 and Distributions of 20 c per year that puts it on a PE of 7.5 and a rate of return of 13% per annum. So the present is not bad especially for Kiwis who cant use franking credits.

As to the future. I don't see this as just an investment trust because stapled to each unit in the trust is one share in a company MFS.AX. This will allow horizontal integration.ie MFS.AX has been intentionally changed by its directors so that now it can equity invest in development projects and developments a la CIY and its offsiders.

So there is now room for growth for MFS.AX as a company. Disadvantage, the MFS Group FUM are not part of the co like CIY. There are options around in both issued free with the share in the stapling exercise, exercisable at 1.50.

The issue is whether CIY is a better investment (4.50 SP) or MFS (1.50 SP). The dividends per share at 20 c per annum, paid in July and Jan are attractive to margin traders and people who need income from their investments.

They also mean that if you hold for 7 years you would have a comple refund of your investment price plus an income stream and capital value of the shares. So for me they were a buy and hold. Great income and now also growth prospects (see below).

I want to have this critiqued as I am contemplating a further investment in either CIY or MFS/mpy.

Skinny, MPY is a work in progress. It was an investment trust holding hotels in Queensland and Northern Territory. It has been given the stapling treatment which is phase one of the fix up. It is now a stapled security with one share and one free option for every unit. Its NTA well exceeds its current SP. MFS wont stitch up MPY on the short term loans as the directors of both are the same people. I think what they have done is repaid external loans, and reloaned them funds so that MFS gets the interest payments on some well secured MPY assets. Will MFS screw them over on the loans when they expire ? Why kill the golden goose ? Who benefits especially as all the directors are MPY shareholders ?

But it is phase 2 of MPY that is interesting. MPY has been renamed the "MFS Living and Leisure Trust.". Will come back to this later.

In May 2004 MFS purchased Victoria's Mount Hotham and Falls Creek ski resorts for 75 million by purchasing holding company Australian Alpine Enterprises.

MFS chief executive Phil Adams stated that " the assets would be parked within the MFS group but were intended for the tiny listed MFS Living and Leisure Trust.( Recently Australian Alpine Enterprises has jointly purchased a ski field in Hokkaido Japan to allow for all year round skiing for Aussies)

MFS announced it intended the Trust to house development,redevelopment and value added projects. The other part of the stapled security is to house the existing hotel trust structure. MFS intended to deliver double digit total returns by actively managing both vehicles within the group.It receives .5 % of total gross assets as management fee, plus 1% introduction fee for assets introduced to the trust plus 3% of all distributions as commissions. SO that is MPY. Phase one over, phase two on the drawig boards clearly but not yet publically announced.

That brings us to the third player- Breakfree Limited ( really the 2nd as MPY is just a listed structure that MFS manages) Breakfree Limited now has an MFS co(,not MFS.AX ) as a 19% shareholder of Breakfree. Another 19% is held by management. 42% by institutions and 20% by small investors.

Breakfree has announced that under the new strategic alliace with MFS it will establish a trust to house ownership of its MLR's and other leisure assets. It will lease back operaton of its resorts. This will get assets off its balance sheet, reduce its debt by $35 million, increase NPAT and EPS by 17.5% and give it ready capital

[k1w1]

I didnt realise that my post was so dense that it has suffocated discussion on this thread [:I]

[skinny]

I get the same feeling sometimes k1w1!
It was a very good post I thought, laying out nicely the development strategy and possible business relationships.

Stepping back a bit, living in Europe has given me a real appreciation of just how undeveloped the managed leisure market is back in Australia and NZ. With the price of land seemingly on an inexorable climb in top spots (i.e. at the beach, lake, or on a snow covered hill!) the middle classes are increasingly be priced out of their own single unit dwellings. Couple this with cheaper transport costs and voila - increasing demand for multi-unit developments and resort complexes that offer the flexibility of either long term leases or shorter term stays.

As for the company - MPY still looks a bit risky to me - there is a lot of water to bridge yet and it is an extremely thinly traded stock. If you wanted a safer bet would you agree MFS looks like the better option?

[k1w1]

Of the two MFS is the safer option, Skinny. I think that both MFS and MPY involve risk as they depend on things that are still in the pipeline whereas CIY is a happening thing. In additon CIY has the Funds Management business wheras as Mark100 correctly points out this is not part of the MFS listed on the ASX.

The main advantage that MFS/MPY have is that they have created an alliance with Breakfree focused on the identified next big thing - leisure and resort projects.

When the property cycle is past its peak and there is less buyer demand for property the MFS alliance allows one party to fund and develop then sell to another party who has someone who can manage it. Its a sort of create your own buyer for your project before you commission it arrangement. If you do the deals in the family you are insulated from falls in the property market.

Leisure and lifestyle projects are the next happening thing because Breakfree estimates that 70% of Australians vacation between Noosa and Burleigh Heads each year. The sea change is that Australians are holidaying in Australia. Skinny is right that the infrastructure for this is not highly developed.

To work in the field you do need a BRK or S8 if you want to retain the developments as they require specialist management.There are economies of scale with marketing, internet,and reservations.It is an advantage to offer a greater variety of accommodation choices to customers uder one umbrella.If you can't provide this you may have to sell them when built to someone who can or build your own infrastructure from scratch. If you have to sell then you are exposed to the property cycle again.

The companies that I view as currently rather than future attractive are CIY, CPK and Breakfree. I have sold my S8 shares and increased my weight in CIY at $4.47 which seemed a good price. MFSO and MPYO options may attract those who want some exposure without too much money invested. In my view all the companies should be monitored to understand the overall field in which they operate.

[mark100]

kiwi, enjoying your posts. Will respond when I have something useful to add!

cheers
mark

[soulman]

Now CIY SP has responded as it should to a reasonable level. Still trading at below prospective PE of 9. I wonder when would S8 directors recommend their s'holder to accept the offer and reverse their previous recommendation.

It was an excellent short term trading opportunities for CIY when they responded in that statement. Up from $4.40 to $4.60 in less than a week. Unfortunately, I wasn't there for that sweet action.

Looking forward to the S8 announcement and the CIY AGM.

[k1w1]

Okay Skinny - Notice filed today that all 5 MPY directors have purchased shares on market in the last week. Must be atime envelope in which they can trade before restrictions apply.

I think that something is coming down the tubes.

[k1w1]

Und next ve see the MPY share price increase as ze vatchers se ze director hav bought und take zer positions ach just so ze next stage has begun mine liebschkins !!!!

[skinny]

Ich bin ein (halter?) jetzt auch :D

[OutToLunch]

Pretty upbeat comments released today by Phil, confidently reiterating their predictions for 05 which I would take as meaning that they're on track to exceed their own forecasts, again. I've topped up at 4.55, probably for the last time as I'm now way overweight in CIY. However I'm still optimistic of CIY reaching $6 within the next half year. Interesting to see they're now entering the retirement sector -- hopefully not at the expense of their historic rate of return. Also interesting to see they're confident of holding their costs at 12.5% of revenue (compared with 12.4% for the last FY) -- this is impressive, esp considering FUM growth. Great stuff!

[soulman]

The S8 fiasco is over but as always in the last 3 weeks, the selling pressure is still there due to those option sale. Those holder obviously aren't long term holder. The reason why the SP is lethargic is because when they are starting to move north, someone always comes in with a chunk to sell down. These will end some day and when the times comes, it should head north to $5.00 and on it's way to $6 in MAR when there will hopefully be a profit upgrade.

OTL, it's good to hear you are overweight on CIY. Everybody should be because they are a bargain growth and yield stock that are hard to find these day. Record Investment is in the same mould of CIY except their earning are very diversified and hence have greater acceptance from the market than CIY, where they deal in the property industry all round. I am thinking of adding more myself.

[mark100]

I was at the AGM today - as expected very positive comments.
I'm not selling and I'm extremely overweight ciy. Those dividend cheques just keep getting fatter!

cheers
mark

[soulman]

Hi Mark,

A 15 cents half year div., did they sound prudent at all. That probably equates to $22 to $23 mil half year profit on the 75% payout. I thought they might top out at $27 mil for the half year even without contributions from CPK and IPA.

Yep, those divie are nice and growing exponentially.

[major]

Hi all,
A lot has happened lately and CIY not going ahead with the S8 deal is no small matter when you take a look at the debacle ensuing between WOW, CML, and ALH.
Thank heaven CIY have the constitution to stand by their initial offer and not pay more than their estimated forecasts warrant. Looks like what we predicted is coming into play.

Just on the dividend, 15c for this half year and a forecast 40c for the full year, I don't think so. ie, 15c + 25c.

15c for the half year, yes - a 50% increase on last year, but 40c full year leaves room for only a 2c increase on the 04 final dividend, no not likely - a 9% increase only on the 04 final dividend in the first year of large contributions from both CPK and IPA.

I'd say profits from financial services as well as their associates will be weighted towards the final half, so an upgrade in the final dividend from their forecast 25c is most definitely on the cards.

CIY currently pays a $dividend roughly equivalent to a lot of companies with a shareprice and PE double that of CIY, which could indicate that there is a lot of room for an increase in shareprice without a significantly detrimental effect to the dividend yield or the PE.

Significant shareprice growth is just a matter of time, if they keep producing the results (profit growth) and secondly, if the market begins to understand and accept more readily the actual business practice of CIY.

The first part is quite likely for the next 5 years at least, and CIY have assured us, that this year they are embarking on a strategy to remedy the second.

I found CIY a difficult business to understand at first but thanks to Mark and others on here I am more wise as to their business activities and likely future, so surely the company must benefit from their intended market awareness campaign.

[mark100]

At these prices I think I may add to my already overweight position

[soulman]

Fund managers make SP moves both ways. It seems that CIY need attention of fund managers yet they are quite illiquid with 60 odd mil shares traded freely. I see a lot of large line up of sellers in the $4.60's, most notably from those option placement.

But at these prices, I am looking to add more later if they stay the same. I mean CIY and maybe a few others are the only thing looking good to buy at the moment. Others, as they said look fully valued. So overweight on CIY looks prudent.

[thereslifeafter87]

A few questions for the CIY buffs.

What effect will rising interest rates have on CIY?

How much will their management fees suffer if they do get some defaults? - I assume that as well as establishment fees from property coy's they also cream a percentage between what the mortgage trust borrows from depositors at and the rate at which it lends to developers.

So therefore, if a couple of developers go bust, CIY will take a large hit to earnings as their management fees will be way down to make up for the lost capital. Am I right?

Has anyone read the mortgage trust prospectus? Know how the management fees are structured? Know what percentage of fees relates to the margin made by the trust as opposed to establishment fees charged to developers, fund management fees etc?

I would appreciate your input.

[thereslifeafter87]

In the process of checking out CIY's mortgage offer prospectus I notice they have on-call options for investment. What happens if a large number of on call investors decide to withdraw funds all at once?

[Halebop]

Lending long and borrowing short only ever has one result: High short term profits and a point on the horizon that represents a liquidity and credit squeeze. In robust environments these matters are overlooked but in recessionary or uncertain ones they eat business for dinner - both from an operating perspective and investment performance one.

Well done for reading the fine print TL87!

Disclosure: No great knowledge of CIY.

[mark100]

TLA87,
I have read the fine print on many occasions and will try to answer your questions:

Higher interest rates: CIY adjusts the interest it pays in line with RBA variations. Obviously they then try to pass these on to the borrowers which to date they have been successful at doing. One point I have made previously is the interest rate is not as important for short term borrowings for development, it is usually the ability to give a timely service. At the AGM ciy said they could easily double their FUM and still lend out all their funds. Of course high interest rates could kill the property market and stop demand from developers. The bulk of ciy's loans are in QLD which is currently the most robust property market in oz supported by interstate migration and lower property taxes.

Management Fees are the margin between interest paid to investors and interest received from borrowers. Management Fees make up about 40% of financial services revenue. If a developer went broke ciy would need to liquidate the security. The average LVR for the mortgage trust is 67% which is reasonanably conservative. Another point I have noted is that ciy are waiting for good value properties to launch their property trust with. If they could pick up a 'distressed development' on the cheap it would be slotted into their property trust. This was confirmed to me at last years AGM.
Also the 2 largest loans are to ASX listed Sunland (around $70m) for their Circle on Cavill project (in a consortium with CBA, NAB, Wetpac and ANZ, confirmed at AGM) and to CP1/Fish Developments for the Martha Cove project. This loan is about $70m and note that stage 1 sold out in 3 days last year and will raise $60m alone on settlement.
If a loan could not be fully recovered the mortgage trust would need to make a capital reduction so all investors would lose some money, depending on the size of the shortfall and this would probably impact on ciy's management fee. But remember, the mortgage trust is now up to $900m so the effect of one loan is reduced compared to say 2 years ago. Also it is extremely unlikely that zero funds would be recovered from a loan given a 67% LVR.
Also note that 40% of revenue is from management fees. The other 60% is from extablishment fees etc that are charged up front, before a loan is even funded.

Regarding liquidity. Ciy has been keeping low cash balances in the mortgage trust as it has been receiving cash inflows of $30m a month. Of course is the fund stopped growing they would need to be more conservative. At the AGM they announced that CBA had offered them a $35m debt facility to support the mortgage trust's liquidity which imo is a vote of confidence from CBA in the mortgage trust.
Also the fine print in the mortgage trust prospectus does not guarantee you can withdraw all your funds that are on-call in the event of liquidity problems.

Halebop, yes short term lending has its risks. If interest rates went up 2% in 6 months and property prices fell 25% in 6 months ciy would have some big problems. But I currently do not think this will happen. Another favorite of this forum AFC (which I also hold) is also a short term lender although in an entirely different sector, however it could be said that interest rates would effect afc in the same way as ciy. Short term lenders can make money in all markets if they play their cards right. I don't know if ciy will play its cards right, we'll have to wait and see!

Also, IPA and CPK (companies with projects that CIY lends to) are touching record highs so there must be some confidence in the success of these companies and their developments.

I will sell all my ciy one day, but I reckon they have a bit to go yet. There is still the letting rights business to come which will be partially spun off in 2005/06.

Hope I answered your queries.

cheers
mark

[soulman]

Hello Mark,

Did anyone mentioned the provision for DD in the AGM?

[mark100]

soulman,
yes this was mentioned and was answered by ciy's auditor. The auditor said they did not require the provision to be made however due to ciy's growth in receivables (due to the growth in the business) ciy now thought it would be prudent to make a general provision on non-mortgage trust and private fund receivables.

cheers
mark

[k1w1]

Hi Mark100,

What do you think they will do about letting rights ?

[thereslifeafter87]

Thanks for the reply Mark.

One question; the LVR ratio... is that based on the value of the property pre or post development completion?

[k1w1]

TLA87 Did you know that Leonard Cohen wrote a song about that ratio.It went :

"And LVR,LVR,LVR, come back to me..."

PS> Why has Breakfree gone up 4.7% in one day with no news released?

[mark100]

kiwi,
Either the Courier Mail (Brisbane newspaper) or AFR, not sure which one, reported after the AGM that ciy could have as many rooms under management in a year as S8 does now due to its contacts in the industry and relationship with Sunland. The Letting rights business is also supposed to be a joint venture with another ASX listed company (speculated to be sunland). After the business was established the newspaper said the plan was for the business to be listed on the ASX in its own right, with the founders retaining a controlling stake.

TLA87,
The valuation is based on the as completed valuation except in the case where separate security has been provided. So normally if a development fails, the 'as completed' value has not yet been reached. However, not all loan funds are drawn at once, they are drawn progressively as the development progress. One advantage that ciy has over say the large banks in this area is if they 'inherit' a half finished development, they should have the expertise to finish it off.

Don't know why brk is moving, was thinking of buying at $3 but missed out.

cheers
mark

[thereslifeafter87]

Thanks Mark,
You've been very informative & helpful.

BRK taking a lot of S8 management contracts as they are offering far better deal for owners of properties

[k1w1]

Enigma, could you tell us a bit more about that please.

[major]

Hi all,
Don't forget that CIY insists on specific prelending criteria being met such as a specific percentage of presales (off the plan), specific type and locality of development, specific developers, etc. and with only 15% of loan applications being approved, and also that the Public Trustee of QLD oversees the funding by way of staging and by which CIY will receive their loan funds well before the developer can gain access to the profits, certainly helps reduce the chances of a major default happening or being taken as a big hit.

With 85 out of every 100 loan applications refused or left unserviced, very little sleep is lost pondering CIY's ability in being unable to avoid defaults.
Don't forget these refusals also apply to known developers who have other projects already accepted by CIY. So credit history is not their main or only priority as it is with most other lenders.

Further to what Mark said re the Property Trust, and also I would add their subsidiaries, I would expect and envisage CIY would jump at the chance of picking up a partly developed project (considering CIY's stringent lending criteria assuring a quality project) at a firesale price and their varied options for dealing with the said property are numerous and certainly not an insurmountable problem by any means.

In fact it may prove much more profitable as any troubled project would have already have contributed establishment fees etc. at start up, which can amount to approx. 50 % of total revenue from projects. CIY also have a line of developers that would be willing to purchase or maybe continue the said project.
Also contractors involved in the failed project may be willing to renogotiate terms in an attempt to avoid losing $millions and therefore providing another window of opportunity for the new owners.

Once the company's practises are understood a little better, you begin to appreciate the unlikely chances of a default creating a significant problem for the company.

K1W1 A university professor I work for has a fancy Gold Coast apartment that was managed by S8 on contract he was very disatisfied with S8 management performance especially when apartment got trashed and they had got very little bond and no address other than a mobile phone number from tennant. So about 3 months before contract expired he recieved a letter from break free asking was he satisfied with present managers and suggesting he called them as they thought they could do better. They offered a fixed sum perweek For I believe he said a 2 year contract and multiplying by 52 he said it was far above what S8 had obtained for him so far from their management. Or was likely to get him in the 6 weeks the contract had to run. It was quoted to him that they were getting about 80% acceptances from people they had approached to change managers. K1W1 Hope this helps.

[k1w1]

Thanks Enigma.

[major]

Well no-one could really complain that CIY doesn't give them some value in excitement.

EPS positive is a good start but I am undecided as to the ramifications of including a more bank oriented structure to the business.

Interesting to see the outcome bearing in mind CIY's strategy to educate the market in it's activities and whether this is an attempt to make CIY appear a little less risk averse.

Since TER will be delisted, and their activities absorbed into CIY, could the shell then reappear as the basis for the MLR business?

Looks like a few in the know were buying a few TER prior to the announcement.

I'd better go and lie down for a while.

I've been buying a few CPK in the mid $3 mark and I bought more CIY in the low to mid $4's but never gave TER even a second thought!

[major]

Having re-read the announcement, the implications for CIY's Funds Under Management by a successful bid is very positive for CIY and TER shareholders.

Mated with a good advertising campaign, plus the extra 40-60 offices or outlets TER will bring, FUM will receive a massive boost in it's first year, let alone any improved profits from TER biz itself.

Although a little risky TER is offering a slightly cheaper entry into CIY currently.

[major]

By the way did anyone else notice in the recent release of the CEO's speech, Phil Sullivan stated that the company's shareprice was trading on a PE of 7.5 times current earnings.

The shareprice around the time was about $4.50 and this implies earnings of 60 cents per share which is above their previous crack of 53 cents.

Soulman, that just might have been the first upgrade you were waiting for.

Mark, did anyone quiz him on that at the AGM?

[soulman]

Hello Maj

I think a profit upgrade is inevitable because I think that the FS can take the $59 NP by itself, leaving the earnings contribution from CPK and IPA a further boost. Like you say, a div of 17 cents this half is not out of the question.

But now with the TER issues and extra shares, that's more likely to be 15 cents. I am not sure why the CIY board are so keen on an acquisition. Of course there is diversification and synergies, one other important one is more shares on issue and hence, more liquid and hence, more likely to get the nod for ASX 200 as the aim of the board stated time and time again.

[major]

Hi soulman,
I'm happy with the forecast of 15 cents for the interim divi, it's the final forecast divi of 25 cents that I think will be improved upon.
I don't think Phil Sullivan made a slip in his calculations (or comment) either and based on his comments we should see a divi of 30 cents at least for the final.

As far as TER, as well as the reasons you mentioned, I see a real benefit to FUM directly arising from the 60 extra branches TER will bring in. It will establish a bank like face for CIY and enable potential investors to discuss, gain information and an understanding of the CIY products through face to face contact with branch staff, which is a bit difficult for all but the few who currently have easy access to the handful of CIY branches in capital cities. The ability of branch staff to also cross sell the product to existing clients or enquirers of TER's current offerings is a positive aspect too.

The positive effect on FUM will be fairly rapid I would expect if you consider the positive inflow of $30 ml per month currently from a very limited access to the product. We all know what larger FUM means for shareholders.

Personally, as I currently understand it, I see this as a much better move than the S8 aquisition. TER branches will become CIY branches selling TER's current products and now CIY's products, and the MLR business may slip into the TER shell when it is ready to be hived off as a separate listed entity under a new name.

TER aquisition will be EPS positive straight off plus CIY will gain a substantial and continual boost to FUM in a short period of time, and CIY will have saved $100 ml worth of CIY shares from the S8 bid but will still have a significant portion of the MLR market at much less expense.

If anyone has a negative (or positive) view on this move please comment.

[mark100]

Recently topped up my ciy holding at 4.55.
I am confident they will exceed their forecast for the year and maybe even my own estimate. Last year their financial services earned them NPAT of 5.88% of average FUM. Assuming this margin is about 5.5% this year, financial services NPAT may be $52m. Cp1 to earn $100m over 3 years from Martha Cove. Asssuming Cp1 makes $30m this year, this is another $16.5m to ciy and then Indigo Pacific will contribute $2.5m, giving a total NPAT of $71m. Potential EPS of 62c and div of 46c.

I attended the cpk/ipa AGM's on friday and picked up a few points:

Ciy plan to use Terrains outlets as distribution points for the mortgage trust. In time they will be able to offer home loans, mortgage trust, property trust etc through these outlets.

I raised the point with Steve Mackay that a scrip acquisition can't be EPS positive when the target company trades at a higher PE than ciy. He said that ter's head office in Melbourne was expensive to run and this would all be transferred to their Gold Coast office, adding around 50% to ter's NPAT. Also said that ter's underlying business had improved significantly and ciy were very very keen for this takeover to suceed. Also noted that ter's largest shareholder is pro ciy (atm)

Ian Donaldson (chairman) said that a lot of Macquaire's clients took up the director's options and are continually selling into the market for a stag 20c profit. He seemed confident that ciy's sp would perform very well when this selling was done

cpk is cheap! cpk will pay out 75% of earnings as divs. Until now this payout ratio had not been advised. Assuming ciy's forecast in their last presentation to the market, ciy will earn $24m before tax from cpk and ipa this year. This correlates to a cpk NPAT of $26m, of which $19.5m will be paid out in dividends. There are 18m shares on issue and 10m options. Even if all the options are exercised the DPS this fin year may be 70c, a yield of 14% on cpk's current price.
Of course I own a bundle of cpko!

cheers
mark

This company running a big advertising campaign on Brisbane TV chasing deposits at 9.04%.

[soulman]

Mark

I knew about those selling of CIY. Now the trick is to know when that will end. A question on IPA and CPK, they did mention that no div will be paid on the DEC 04 half?

Obviously the admin. cost for CIY will be higher this half due to the takeover booklet and printing cost, postage etc.

Enigma, I was also suprised by those advert. I saw it for the first time in AFR the other day. They said that they were attracting funds without much advert before. Maybe this is to get more inflow of funds.

Four Big TV adds in an hour cost A lot of money and interest rate is very high for Australia.

[major]

Good to hear of their advertising.

An appropriate advertising campaign will be a boost to FUM and the Financial Services side of the business, which is the real driver of CIY's earnings.
Any costs from the increased advertising will be easily recouped by the increase to FUM and costs will be more than acceptable and easily absorbed when you consider their extremely low expenses currently.

As I stated previously, the bid for TER and their offices/shopfronts accompanied by a substantial advertising campaign will provide a rapid boost to FUM and we all know what that means for shareholders.
It is relatively easy for CIY to drive the business harder, all that's needed is more fund inflow, the demand from the borrowers side is already there.

With the launch of the new Income Fund soon, this may provide an appropriate kick start or advertising platform for this product along with the other products.

The advertising effort could also indicate an increased demand from borrowers/developers and an effort by CIY to increase funds in order to satisfy this demand, although this last point is purely speculation on my part.

I also suggested previously that CIY had gotten along upto this point with only a handful of outlets, internet and some advertising, and it is easy to forecast that a successful TER bid, assuring a network with face to face contact for customers through their various oulets, along with an appropriate and sustained advertising campaign, will lift CIY earnings to another level for years to come I believe.

[thereslifeafter87]

How about the other side of the coin Major?

It could be that CIY is stuggling to meet the $30mill per month growth target, so has had to up the advertising to drive inflow...

[major]

Hi 87,
I agree with that too, but only thought about that after I posted, but yes a definite possibility.

They need $70 ML fund inflow (in 2 months) by Dec 31 which should be manageable though and if I have summed up the CIY Board and management properly, I think they will take a hand around and chip in to bring it up to that level anyway. Haha

There was $772 ML at 30 June and at their oft quoted $30 ML per month, to end of Oct should be approx. $892 ML and the actual was $930 ML.
The difference of $38 ML ahead of estimates, is a direct result of the option sale and investment by Directors in an effort to reach that target.

I have little doubt they will be close to the money by Dec 31. They would obviously dislike the thought of being on the wrong side of a forecast for the first time.

In any case the advertising is a common sense approach to attracting more funds and probably the most cost effective.

[major]

I find I am in good company and not alone in saying CIY is not an easy company at first to understand, or, to come to grips with it's subsidiaries and their relationship to CIY.

I have noticed CIY Board and mangement themselves are finding it a bit of a struggle, as follows -

*IPA shareholders at their AGM are refered to in their AGM results as CP1 shareholders.

*In CIY's bidder's statement to TER, under "Public announcements by City Pacific", I nearly fell out of my chair when I read an announcement dated 15 July 2004 regarding a "City Pacific bid for Terrain Ltd".
I kicked myself for not previously noticing CIY had notified the market of it's intentions regarding a bid for TER way back in July. A little suspicious, I checked the company announcement only to confirm it was connected to S8 and not Terrain at all.

* On reading the Bidder's statement announcements further, I found numerous announcements supposedly made in July 04 regarding CIY takeover of TER and BKR. 5 references to announcements of a TER takeover.

* We all know the bidder's statement also contained significant errors concerning CIY's shareholding in TER that have now been corrected.

* In the recent speeches and results for CIY, CPK, IPA and TER were a couple more mistakes and one in particular, the Chairman's speech for IPA, that kept refering to financial forecasts as being for 2004 instead of 2005.

I don't feel so bad anymore, it could happen to anyone!

[soulman]

Someone is selling 100k CIY at $4.60. I tell ya, the selling pressure on CIY is still imminent even though they are yielding at 8.5% FF at the very worse at current price and a growth stock to boot.

It's been a while since TER respond to the CIY bid. I wonder why the long wait.

[mark100]

I notice they have recently updated the info on the mortgage trust on their web page. The mortgage trust grew from $970m as at 30 Sept to $910m as at 31 Oct, growth of $40m for the month. Maybe the extra advertising is giving a boost. Add the $30m or so mezzanine fund and they currently have $940m under management with 2 months to go to year end so $1b is in reach.
Interesting that ciy's 25% owned sub, IPA is pushing recored highs each day atm and its 55% owned sub is also sitting near record highs. A major client of ciy, Sunland is also pushing new highs. Whats good for these stocks is also good for ciy since they are all major borrowers from ciy and of course the flow from development profits that cpk and ipa make.
IPA's 04/05 PE based on the forecast profit is now up to 11 while ciy's prospective PE is around 8.7 yet ciy is a much more diversified company than IPA.
It would be good to get some info come out on the management rights business. We need a good bit of news to clear the remaining option buyers.
A broker report published by Baillieu back in August has also been added to their web page to add to the one written by Tollhurst and Noll. Baillieu's valuation was around $6.30 cum dividend and T&N's was around $5.50.

cheers
mark

[major]

I still believe the timing of the option sale was no accident, nor silly mistake, and I can't imagine any shareholder not being more in favour of the new plan B for the MLR business, rather than the S8 bid.

Accepting the fact that as shareholders we will benefit more in the long run from the new initiative for the MLR biz rather than parting with $100 ML in shares (and dilution) for S8 and now with the planned venture into the retirement market as well (details still unknown), the continual reselling of shares from the option sale, is a little pain worth bearing.

Add to this the TER move (which I think is one of CIY's best strategies to boost their core business) and we will have a significantly different and larger company to the one that previously existed.

A little more patience and realisation that CIY at this price is a bargain, should reward us all. I grasped the opportunity and am satisfied that the market in general is aware of the possibilities for CIY going forward and has been steadily buying up all the shares (options) being offered with good volume for CIY.
Had the buying been weak, we would be facing a shareprice at low $4's or worse if the sellers became desparate.

So hang in there and a little more patience will pay off, with some good news to come out of CIY if the TER bid is successful.

On the other side of the coin (for 87, hehe) if the TER bid fails, I don't think the market will look kindly on CIY's efforts at takeovers and some may join the party with the option sellers.
Pressure we can do without.

[thereslifeafter87]

I hope so,

That would mean a much lower SP for me to jump in at when I get some cash.

[mark100]

Indigo Pacific was up 12% today, making a 30% gain in the last week or so. Don't really know what the driver is, they seem overvalued based on fundamentals.

cheers
mark

[major]

Hi Mark,
It will be nice when we can say the same for City Pacific as you just did for Indigo Pacific.
The shareprice would be well north of $8 within about 8-10 months if we are to be lucky enough to get a chance to say it.

I procrastinated too long about buying some IPA at $0.98 and am paying the penalty, but I am more sure of my return from CPK and CIY than I was from IPA at the time.

[major]

It is quite likely, based on information at this point of time, that '05 earnings will come in at least, about $0.60 p.s. Based on the company forecast of $0.53, this represents a 15% improvement on CIY's forecast of a few months ago.

With approx. 12 months between their forecast and the actual '05 annual result and based on prior experience of the company usually reviewing profit forecasts upwards, a 15 % improvement on forecasts is more than possible. Phil Sullivan's comments from the AGM also support this figure.

Allowing for the definite possibility of some contributions to earnings from one or more of either a successful TER bid and their 40-60 shopfronts, the MLR business, the retirement market business, the Property Trust, the Income Fund, the improved advertising campaign, etc. this year, the likelihood of achieving better than $0.60 eps can be viewed as favourable.

Therefore, the current forward PE of approx. 8.5, (based on forecast $0.53eps and $4.55 shareprice currently) applied to earnings of $0.60 p.s. results in a possible shareprice of $5.10.

The current low PE is directly attributable to the aftermath of the option sale and on the subsidance of that selling, we should return to a PE of at least 10 - 11 which will realise a shareprice of between $6.00 and $6.60.

Those shareprices represent a gain of between 32% and 45% based on the current price of $4.55 as I write. Added to that percentage gain will be a dividend for the year of at least $0.40, which, inclusive will result in gains of 41% - 54%.

Those gains are achievable within 10 months at most because don't forget, August '05 will likely see forecasts announced for the '06 year and new shareprice targets established again.

Before anyone thinks I'm nuts, the e.p.s. of $0.60 is achievable in '05, just as is the PE of 10 or 11 along with the dividend of $0.40, so at some point, the shareprice will be a reflection of those figures and the percentage gains, the result.

As I said in an earlier post, I think CIY is currently cheap, because the figures I used above are probably actually on the conservative side when all current information is considered and taken into account.

[soulman]

Major, you didn't take into the extra shares on issue if the TER bid is successful and the extra 3 mil options yet to be exercised. However, your forecast sounds about right.

I too missed out on IPA. Eyeing the options at 20 cents a while back and decide to wait. Never got any.

The only the reason the SP is going no where is because there is no one snapping up those keen sellers. I bet no fund manager buyer is in this, mainly because they are scared of CIY liquidity and the property industry.

Though fundamentally sound, CIY need buyers and plenty of them to push up the lackluster SP north back to at least $5.00 as they were before the option sale. Like Mark said, the selling has to end. Time is the key.

[major]

Hi soulman,
The TER bid will be eps positive in the first year so should not have a negative effect on any previous forecasts (if CIY can achieve what they plan). Shares on issue will rise to approx. 118 ML if the bid succeeds. Furthermore the improved flow into FUM from TER takeover will begin to contribute fairly quickly I expect, although the next full year will be the real beneficiary from increased fund inflow.

I tend to think the opposite to you regarding the buying and feel if the buyers were not picking up the shares the shareprice would be suffering a lot worse. Also not all shares will be sold, or sold on market, and that any new shareholders now have a much higher entry price (unlike the original or early buyers of CIY) which will tend to offer some support to this price level in the future. Volume has been up since the option selling and the price recovering so I really think there has been some buying support. Investors who sit down and work out the future potential of CIY will be attracted, especially from the recent $4.30 level.
A serious problem is that the company is generally not well known or understood.

Regarding the fund managers CIY have made comments that some funds are on the books now and I suppose what you just said in that regard, is the reason for the option sale in the first place in that CIY are chasing the greater free float and higher market cap in order to get an ASX 200 listing in order to attract attention from the fund managers. Funds can be cruel to a shareprice too though.

We know what's happening, it all comes down to our patience.

[major]

Hi Soulman,
As a very rough guide by way of estimating CIY's increased volume since the announcement of the option sale, I would be willing to guess a little more than half of the 13.5 options (shares) have exchanged hands, taking into account that some of the selling would have been done by other than the option holders.

Keeping in mind that probably not all the options were destined for the market immediately, we must be approaching the downhill side as far as the selling is concerned.

Not exactly sure when the actual placement and commencement of selling took place so I have gone by the announcement date which is around the time when the selling seems to have started in earnest although volume had picked up from the time of the profit results (which is also normal considering the results).
The announcement was not specific as to dates or further details as you would know, being but a humble shareholder, as I.

[OutToLunch]

Looks like Terrain are playing hard to get. It will be interesting to see what CIY have to say, given their 'our first offer is our best offer' approach with SEL recently. Meanwhile, CIY's price continues to drift and is going cheaply with respect to their ongoing operations, never mind any acquisitions. If I had the cash I'd get some more.

[swirlyworld]

Greetings CIY experts. I bought some of these for $4.43 6 weeks ago. In that time I have seen the SEL bid fall over seemingly largely because the SEL folk didn't value CIY as highly as CIY management (and you dear people)did. Now, with the scrip offer to TER, the CIY shares are based on a price of $4.57 if I recall correctly. And now CIY price is sliding again which will devalue the bid for TER.

The question now for me is: how far will CIY go to secure the deal? Clearly TER would be negligent if they don't push for the maximum value for their owners. I wouldn't want CIY mgmt to overvalue TER just to be "successful" I can see a win-win scenario if:

TER accept the bid and CIY price will stabilise and start to head North again. Or TER turn the offer down, CIY dips painfully. The brave buy some more CIY and then enjoy the recovery.

[mark100]

It wouldn't suprise me if ciy upped the offer a little. Steve Mackay indicated to me at the AGM that they were very keen for this bid to succeed. A successful bid would get them a ready made branch system, branding opprotunities etc that would be of benefit to the existing operations. Apparently ter's largest shareholder is for ciy's bid. I suppose most of ter's board would be against the bid as it seems like most of them will lose their jobs. I doubt however that ciy will make a cash bid. All of their cash is invested in the Mortgage trust and Private fund and I don't think ciy would want to pull this money out.

It wouldn't supprise me if ciy wanted the sel bid to fall over. The Chairman, Ian Donaldson, was saying at the AGM that several ciy shareholders who also had units being managed by sel rang up ciy to let them know they were considering droping sel for brk because sel's performance had been so poor. Combining this with ciy's access to its own supply of stock was probably a reason not to overpay for sel.

cheers
mark

I

[soulman]

Not sure why CIY is being sold down the last few days. This make the TER bid hard to get through. The rest of CIY sub's is enjoying record highs and CIY is dropping each day. Whay would the admin cost of CIY be now with all the printing cost and services.

I thought CIY would rally after the AGM and instead it has gone the opposite after an initial rally. I can't believe a growth stock with a 9% FF div. yield is struggling in a uplifting market. It's got to be the property sector they are in and the lack of buyer. Even their sub's holder aren't insto. but normal people.

It would be nice to see the Chairman or someone buying some shares. Not much but enough to stamp their confidence in the coy.

[k1w1]

Mark100, if SEL is not as good as BRK then its a feather in the hat of MFS for firstly selecting the right partner and secondly getting the deal done. In addition they have just announced that the listed MFS has more than doubled its profits for the last quarter.

Disc: Hold MFS, MPY, MPYO , CIY, RRTO, RRT, RCD, RRTR, AHU

[bullebak]

I am a newcomer here, and noted MFS being mentioned under this topic.

They too appear to be weighted by exercised options selling.

Haven't had the time to read their account very carefully, but I tend to be a bit wary with young companies paying a high dividend so as to attract more capital and next time pay nothing.

Would be nice if the current yield can be maintained...

[mark100]

kiwi,
Yes credit to MFS Group for getting the deal done with brk. I suppose they went the easier option of only buying 20% but enough to effectively get control.
Also a good result from MFS Trust. While the equity base has expanded, it looks like there will be an improvement in the DPU.
I like the companies you hold. All run by smart people. I have been watching AHU but have never bought. Now it is $10. Never bought as I have no idea what profit they will make. Can you provide more info?

bullebak,
MFS, up until a few months ago was a pure trust which meant all profits had to be paid out. This means to grow the business more equity is required. Hence the high divs and increases in equity. MFS has now adopted a stapled structure which in time will change this a bit.
While CIY has had equity increases this has not stopped the EPS and DPS growing. Over the last 3 years, CIY has paid 5.1c, 15c and 33c in fully franked dividends. This year 40c is forecast. So the increases in equity via options being exercised has not impacted on DPS or EPS.
So in summary I would think that both MFS and CIY will be able to maintain there dividend rather than pay nothing....

[major]

I don't think the MLR biz will ever be as important to CIY as is boosting the financial services side and I think CIY saw the error of their ways in proposing $100ML for a biz with normal earnings around $6-8ML, hence the "best offer" line. The TER bid will eventually provide a better return and fit into CIY strategy and to me is of far greater importance than S8 ever was to CIY's future.
CIY can go the MLR biz on their own or with a suitable partner for very little startup, spin off part of it, and reap the benefits while still retaining the $100ML shares of CIY.

Having said that, I am very much in favour of the idea behind the TER bid but also wonder why CIY is willing to pay $38ML, (of which $22ML is goodwill alone for a company that showed a $12.5ML loss only a year ago), to buy TER alongwith $12 ML of TER debt as well. Aside from that, no-one in their right mind would consider mortgage broking a growth industry over the next few years at least, so the main target of CIY's bid for TER, is the public face opportunity of TER's shopfronts.

Accepting that reason, one possible less costly alternative to the TER bid could be that CIY could rent the 60 shopfronts and hire staff or, franchise the business to be able to sell products, including CIY's of course, themselves. Ex financial service staff, or unhappy ones, would not be hard to find in the banking sector. The mortgage broking and financing side is a dime a dozen with some very big players involved so I am sure CIY is not aiming at this side of the business as the mainstay. '05 may see TER return a good percentage increase on the '04 year but the actual dollar value may not be so impressive in the current economy.

Another much cheaper alternative and probably returning the same speed of implementation which I suspect is the real outcome CIY is chasing from the TER bid, would be to to pay commission to the hundreds of existing mortgage and finance brokers etc. that already exist, to pedal CIY products. This would be another line of income for those companies and they would jump on the opportunity, and CIY would not face much expense without having gained investment funds first.
CIY comments display their view that commissions and fees paid on funds received, are best avoided though. Branding opportunity would also be lost.

Surely, on the surface at least, CIY could gain nearly everything worthwhile that the TER bid offers except maybe for speed and a side of the mortgage broking business, which to me as the TER business now stands, for the expense of $38ML, offers a low return and poor medium term outlook. This bid is all about potential.

In my opinion, CIY's overiding priorities appear to be, rapid boost to profits, chasing speed of implementation, an increase in shares on issue, diversification, and maintenance of their rapid growth profile, and they are willing to pay to do it.
I am in favour of the idea behind the TER bid but do not believe that a higher offer nor cash should be forthcoming.
Boosting profits quickly may be good for CIY's profile as a growth company but whether it delivers those profits at the best value for shareholders is becoming debatable.
CIY management and board have an excellent track record and we have to rely on that once again. They were right in their actions on the S8 bid and I hope they maintain their stance with this bid also.

[k1w1]

Hi all CIY holders,

Mark100 I will reply about AHU on the RRTO thread as Major and the others are already accomodating MFS comments here.

Major, I understand why MLR's are important to Queensland property developers like CIY. If you are involved in leisure and recreation there are so many short term lettings that you need specialist management. Its not like commercial property where you have long term tenants. If CIY has a mlr specialist in its team then it can hold rather than sell such projects. Of course it could just lease them out to an MLR but that is not as desirable. I hope CIY do get some type of MLR outfit going.

I am still trying to understand what TER brings to CIY. Yes it brings a retail face, but as you say why not just build one. Most people go to a broker to get a loan not to make one. So is CIY going to start loaning at retail level as well as to property developers ?

[major]

Mark, happy to see you may view the S8 outcome as I did. I think as shareholders we all benefitted by the final outcome.

On TER initial reply-
CIY already hold 9.2% of TER.
Largest shareholder Belgravia Financial Services, owns 18.1% as well as 12 ML options, which could come in handy.
If what Mark said re the largest shareholder being friendly, then CIY may have 27.3% already plus the option of the options being optioned (??) .
Don't hold me to it but I seem to recall Belgravia as being Geoff Lord's company too, which is then very interesting (good news). Geoff Lord is a smart operator and he has a golden touch with his companies.
As the top 20 shareholders hold nearly 77% of the vote (plus options), and CIY may have over 27% already, 3 or 4 more top 20 on their side may see CIY gain a majority, which may be enough to get back on the TER board and implement their strategy.

A CIY director having served on the TER board means this bid may have been on the boil for a long time and the board of TER may already have known about the proposed bid. TER turnaround may be due in some part to that director's presence on the board in preparation.

TER have already showed their hand (silly) and indicated they are happy with the value of the offer, hence the preference for a cash bid at that value. Fat chance, interest bill alone on CIY borrowings will add up to nearly double last years TER net profit and I agree that FUM will stay invested.

Independant expert's report may be only as valuable as the paper it is written on and their finding will probably be as TER, as the paying customer, prefers, as is usually the case. I doubt their finding will have much (any) influence in the final outcome and these steps by TER are pretty normal in the course of proceedings.
As far as another offer, we wait to see, but I doubt it will be as good for what I see as a controlling entity for a group of various companies operating individually of each other.

[major]

Hi Kiwi,
I understand somewhat the benefits a MLR biz brings to CIY in terms of diversification and revenue from opportunity, but I couldn't see the benefit to CIY shareholders in the long term by them paying $100 ML for a business that returned from memory, $6.5 ML in normal earnings (pre abnormals) when I felt they could do it themselves considering their main objective was to retain these rights on their own subsidiary's developments.
Their strategy to go it in partnership is far better and cheaper for shareholders and they would hold the rights over quality developments only and possibly developing a superior reputation in the market.

I agree with you regarding them getting the MLR off the ground and CIY's comments in this respect are very reassuring as to the outcome and I view it as most likely and fairly soon, in order to secure Martha Cove.
If we look at what was offered for SEL, we can forecast that the actual company CIY sets up will be of great value to CIY and their partner in a few years, more so than the annual profit derived from it. Much better way to go.

In answer to your TER query, to me the first sentence in my last paragraph of a previous post sums up the TER bid-

< In my opinion, CIY's overiding priorities appear to be, rapid boost to profits, chasing speed of implementation, an increase in shares on issue, diversification, and maintenance of their rapid growth profile, and they are willing to pay to do it. >

CIY are chasing rapid profit growth and the quickest and least expensive way is through increasing FUM.
Therefore, the benefit expected from the flow of funds to FUM from a successful TER bid must be expected to be very rapid, otherwise CIY would build their own network of City shopfronts I'm sure.

I think the outlets will be almost building society (or bank) like in offering at call and term investments etc, mortgage broking, financing etc., and presenting a huge opportunity to get the City Pacific brand out there immediately almost with 60 or so shopfronts displaying the premises as "CITY PACIFIC" and backed up by advertising.
Building the spread of outlets will not give them the speed of implementation nor the rapid boost to FUM.
Based on previous CIY strategy and comments, I doubt they will offer residential home loans or low interest long term loans etc.
Rather than offering loans, I think they will concentrate mainly on the investment side into City's funds and the broking side, secondary.

[k1w1]

If this is an all scrip offer, without a cash alternative, wont TER shareholders just unload their CIY shares to get cash, and therefore put more selling strain on the SP.

[mark100]

kiwi,
this could possibly happen. All depends on weather ter's shareholders see any benefit in being part of ciy. I would have thought some of ter's larger holders, if supportive of ciy's bid, would continue to hold ciy scrip.

cheers
mark

[OutToLunch]

I see CIY have already got nearly 30% of TER now with quite some time left to go. Given that TER have hinted that they're happy with the actual value of the offer, I'd say this one looks like it will go through.

k1w1, you're right there could be some selling by those seeking the cash; however given that TER is seeking a cash equivalent offer, those who have already accepted the bid are presumably doing so with the intention of holding.

Anyway, never mind the option selling and possible TER-related selling -- what really matters is the underlying value of CIY which will eventually prevail. It's just a buying opportunity!

[soulman]

TER shareholder can sell them now on market for 22 cents, which is about the CIY SP of $4.40.

No one is buying CIY, that's the problem. We need large investor to get CIY moving forward. TER could create more problem by selling large amount. You got to understand that anything more than 10,000 shares is huge for a company like CIY. Also no insto. in TER subs shareholders.

There need to be more QIC and JP Morgan on the CIY list.

I have no doubt if CIY just went about normal business without the SEL and TER acqui. that their SP would be higher than the current situation.

[OutToLunch]

Here we go then... another carrot to encourage TER holders to accept CIY shares: it looks like CIY are going it alone in the MLR business after all. Never a dull moment with these guys!

[k1w1]

They had to do the MLR deal, well done Major and the others for predicting it. CIY will hold 19% but they dont have the cash to set up the IT and other requirements so a float to the public and debt for the company ( hopefully a lend by CIY to get the interest rate)will do it.

This float will provide yet more competition for the dollar of the CIY supporter. Will it effect the SP as people put money into the MLR co rather than buying more CIY shares ?

[mark100]

Not quite going it alone. Sunland will retain 19% as well. Ciy will probably collect an underwriting fee of around $2m as well.
I like the sound of this new JV. Once again ciy gets a 'free' stake in a new company, further diversifying and the new business sounds like it will be a pretty good investment in its own right. Sounds like they will be using some debt to get the ROE up.

cheers
mark

[major]

At first glance --

* Fantastic deal for Sunland who gets a 19% share and vendor sells $85 ML into the new float of a $105 ML company. As well, Q1 joint venture partner of Sunland also gets to sell it's 50% share of Q1 Obsevation Deck into the float for $20 ML. Public are basically buying into a share of what a major shareholder and associated joint venture partner are selling into the float. Market values are unknown to the public at this point and Sunland retains 19% shareholding.

* City Pacific; gets 19% share, an underwriting fee and benefits through interest and fees gained from a $45 ML loan to the new company as well as possible future loans. Also benefits from CP1's future involvement with the new company.

* CP1 and Sunland; get opportunity to sell MLR's from Budd's Beach for lots and lotsa' $Millions in future years.

* Brisan Projects P/L; gets 2% shareholding because it was involved in negotiations associated with the Q1 joint venture????????? Not sure about their involvement and reason for shareholding in new float so can only go by what was released??

* New public shareholder; straight off gets share of $105 ML in assets, paying $60 ML for 60% share of company, $45 ML in debt and foots their share of the bill for a SEVEN member board. Will also be funding their share of purchasing MLR's to Budd's Beach and any other aquisitions, through company borrowings and I would almost venture to guess, future capital raisings.

* Future prospects; will almost certainly involve other MLR's properties outside of the above, probably resulting in further borrowings than the original $45 ML and possibly capital raisings, especially for anything near the size of Budd's Beach. Martha Cove not mentioned but I would imagine a likely prospect, including the marina berths.
Expected $12 ML in revenue for each of first two years on 100 ML shares. Borrowing and operating expenses could be around $6 - $7 ML as a quick estimate. Tax and dividend payout %, I strongly expect to be similar to the companies involved and will eat into balance, leaving little in retained capital, hence my view as to future borrowing.

Early conclusion --
As I said only a day ago, the company could be worth a lot more to CIY than the actual profits.

These are only my thoughts based on the very limited information supplied to the public at this point of time. Future announcements may disclose more specific information that would cause me to gladly correct my comments and observations.

[major]

Sorry, $45 ML in loans to be staggered over 2 years or so and not in one installment as I allowed for. Thereby, I gladly invite readers to please correct my borrowing and operating expenses and consequent profits as they see fit.
Also bear in mind, because of that, no revenue will be generated by some of these same MLR's that the debt facility is set up for until completion of the properties and purchase of the MLR's.

Phew, sorry!

[mark100]

Hi Major,
Yes there are a lot of answered questions that I suppose the prospectus will address. I'm not really sure about this $12m revenue figure. If that was the expected revenue for the company I couldn't see the float getting off the ground.
From my limited knowledge of the MLR business, these rights usually sell on a EBIT multiple of around 4?
If so, $100m of MLR gets you an annual EBIT of $25m less say $5m interest and corporate overheads of $1 to give NPAT of $19m, EPS of 19c (PE of 5) and DPS of 14c (based on 75% payout). Of course this is pure speculation.
But you are right, this is a good deal for ciy (and sdg)

cheers
mark

[mark100]

I made a few major mistakes in my last post.
Say EBITDA of $25m less Interest of $5m and Ammortisation of $5m and corporate overheads of $1m less tax gives a potential NPAT of $10m. EPS of 10c and cash EPS of 15c. This gives a potential PE of around 10 and a yield of say 10% if they pay out 66% of cash earnings.

Also latest news, the listed MFS is set to merge with its responsible entity, MFS Group. This will be a good company for me to park some funds in.

cheers
mark

[major]

Hi Mark,
I found the announcements a little vague too but I think where you have allowed for $100 ML in MLR rights is incorrect.
The SDG selldown of 50% in Q1 Observation Deck and the other 50% from their partners in the venture, totalling $40 ML, is for the actual property and not the MLR rights hence the revenue from the property they mention (rent), plus the MLR's.

Actual MLR's are included in the $65 ML selldown into the company (which includes properties nowhere near finished) which I understand is not all for MLR's but includes the back ofice for running the MLR biz. The actual MLR value is a mystery at this stage and very hard to calculate any figures because of that.

Sorry I have had a few drinks by now and hopefully you can follow what I mean.

Mark I think it's a brilliant deal for SDG, CIY and CPK (Budd's etc.) and I think we may be better served in those companies than their new one although I am sure the float will succeed nevertheless.

Mark I just read through the announcements again and I now think the $12 ML revenue is solely in reference to the Q1 Observation Deck (rent). The MLR revenue from Q1 (included in the $65 ML selldown) and the other properties would be in addition to that and as yet we have no idea how much. So total revenue would be much higher than $12 ML.
If you have an approx. $ revenue per room we can work it out.

So far it sounds like something ridiculous, gaining 1838 rooms for approx. $65 ML. That's payment of $35,000 for each friggin' key, back room aside. What sort of commission must they make on rentals to get that back??????? And in how long? Either OTL, 87 or Kiwi mentioned their boss and his experience and maybe they can advise?

Their announcements really suck as far as clarity!
Nevertheless, they would not retain 40% of the company if they thought it would not perform for them.

[mark100]

Major,
you may be right about the $35,000 for MLR per room. Lets say each room is rented at $200/night at 50% occupacy. This gives revenue to the unit owner of $36,500 per annum. I have a unit where the current managers are proposing to convert the building over from residential to short term. I think from memory the management fee for this would increase from the current 8% to 15%. So say the new company gets 15% management fee, annual revenue from each room would be $5,500. Added to the revenue from the observation deck, total revenue may be $22m. Less $3.2m ammortisation (65/20 years), $4.5m interest, $5m other costs say less tax gives NPAT of $6.5m. Not much....
I'm sure the prospectus will clarify things. Knowing ciy they will want it to be a good performing float and in order to do that it will have to be attractively priced.

cheers
mark

[major]

Hi Mark,
we have to forget about '05 and any good returns from the MLR's as there is no way they will have good revenue from only 495 keys ($680k) and rent ($3 ML) for 3 months .
Even though Phil Sullivan refered to the first 2 years, and the floats in April '05, I think in his defence, he meant '06 and '07 and he only really refered to the revenue from the Q1 OD.

'06 will add another 526 keys, total now 1021. Still short by a long way as to what they are implying the company is starting with ie. "the new entity will kick off with 1838 keys" - Phil Sullivan. Revenue could be $17.6 ML.

'07 will add another 324 keys approx. from half the Circle on Cavill and 170 keys from Avalon, total now 1515. $20.3 ML revenue.

'08 will see 323 keys added from the Circle to finally reach our "kick off" of 1838 keys! That's a long time to "kick off"!
Revenue could be $22 ML

The only real calculations we can count on are from 3 months Q1 OD revenue and 3 months MLR's from 495 keys for '05, or $12 ML and 1021 keys in '06.

All the above is really speculative at this stage and based on Mark's calcs of $5,500 per key and no increases in Q1 rent or revenues from MLR's, aquisitions, etc.etc.
At least we have some ballpark figures now and based on a combination of Mark's and my figures '06 results could be around $0.06 per share, or a little less on Marks' calcs. Based on the $1.00 float price we may just be closer than we think because to me, the float does not appear cheap at this stage.

In regard to these being high quality apartments as we are told, changing room rent to $250 per night with a 65% occupancy and retaining the 15% management fee, would see "06 revenue at approx. $21 ML and eps of $0.08.
No offence as to the quality of your unit Mark.

Of course I could be totally wrong in my calculations and apologise if so and regardless, these are only simple attempts.

[major]

So far the market seems to like the idea of the float going by CIY and SDG yesterday and this morning.
There was mention recently about selling pressure for CIY from ex-TER holders post bid and I agree this is a good possibility as these large shareholders would be sitting on large profits having not paid anywhere near 22.5c per share and possibly giving them a bargain entry price into CIY.
Added to this pressure could also be some from CIY shareholders selling early next year to maybe pay for shares in the new float as well.

Oh well!

[k1w1]

With the merger between MFS and its listed ASX entity, MFS and CIY are now directly comparable entities. Knowledge of one assists in understanding the other.

There are opportunities for diversification as well. MFS holders have just seen their SP rise by 33% on news of the merger and special distribution announcement.:D

[k1w1]

quote:Originally posted by k1w1


quote:Originally posted by thereslifeafter87

Check out various other financial service companies, and their PE's are much higher, with much lower growth expected.



I've followed this thread and hold CIY and SEL. But I've still got a question. Why are they better than MFS (ASX)currently on a PE of 5.2 and a div yield of 14.7% which I've punted a fair bit of the K1W1 Aeronautical Super Fund on. Feeling very lonely about it. Have I missed something ?



quote:Originally posted by Dimebag

Hi CIY followers.

Kiwi

I remember you mentioning MFS. I gave it a quick look some time ago and came to the same conclusion as Mark100. They are simply a listed trust. MFS is the responsible entity. I think Mark100 is right here, and the listed trust they operate should not be confused with the company who is administering the trust.

The trust looked a little dull. It can't grow because all earnings must statutorily be paid out. Someone mentioned the yield was quite attractive but I can't recall its amount. Anyway, I'm more inclined to invest in growth companies like CIY.

Regards
Dimebag


Who's yo daddy, Dimebag ? [8D]

[bullebak]

MFS rose to $2.25 this morning but crashed about as fast (on thin volume).

I entered this stock a few weeks ago and was about to sell my holding, but the volume wouldn't carry it.

Wonder if it will slip back to $1.60 or so.

[major]

Hi Kiwi,
I wrote a while back that CIY is setting an example for others to follow only that I thought CIY management and board were among the best operators I had seen.

Don't know much about MFS in comparison to CIY except that I haven't changed my mind on the CIY board and management, but rather, they keep reinforcing my original thoughts further.

Mate good luck to you, I'm rapt if you made a good quid. There is so much money floating around in the market and it's upto us to take advantage of that!
Do you think your super fund could invest in some good wine that we could drink without the tax office knowing?

[bullebak]

Wine is plentyful around here... :-) It's grown all around us.

Guess when the majority of those holders of newly exercised options get to learn about the MFS rise later today, they will start selling them tomorrow... ??

[k1w1]

bak, why did you buy in at that particular time, and what makes you think it is a sell not a buy ?

major, I think there is a lot of information about the field CIY is in by comparing it with its competitor MFS whose business is clearly set out in the Explanatory Memorandum it has lodged.

[bullebak]

Kiwi,

A while ago I bought debenture stock in MFS for 100K based on their return and then thought equity might return more.

Why a sell? Well, hard to let 60K profit slip past over just 2 weeks... anyway I still have them [B)]. Will think about it now.

[major]

Hi Mark,
Going by what was written in the Courier Mail, it may have been me that was mistaken and not yourself. I presumed the $40 ML for the Q1 Observation Deck was to purchase it and not solely for Management Rights and therefore the $40 ML should not be counted in the MLR estimates, whereas you thought it was for MLR and consequently included it as $100 ML total MLR .
Scott Murdoch from the Courier Mail has implied that the $40 ML is for the MLR, as follows, --

"The company has estimated that once the Q1 apartments are under management it will generate $12 million revenue in the first year.That amount has been underwritten by Sunland."

If that's the case, then the following would apply --

$40 ML for Q1 MLR / 526 keys = $76,045 MLR per key.
$12 ML revenue p.a / 526 keys = $22,813 revenue per key.
$22,813 rev per key @ 15% management fee = $152,091 rent per annum, per key.
$152,091 rent p.a / 365 nights = $417 rent per night per key @ 100% occupancy, or $834 per night rent @ 50% occupancy.
$152,091 rent x 526 keys = $79,999,866 rent per annum from Q1 total.

After looking at those figures Mark, I think I might be right again and Scott Murdoch is wrong.
Like to hear your opinion on which way you see it.
If that rent figure proved true, there would not be room for one building anywhere on the Gold Cost that wasn't a high quality, high rise!

I think without rent from Q1, they would not have a hope in hell of getting this thing off the ground with the number of keys that are to be available for MLR at the time of float.

Kiwi, thanks I will have a read

[major]

While far from expert at MLR, I noticed a number of points in recent announcements from CIY & SDG that were not exactly as the announcements implied.
Well worth a little time to read are the recent two announcements from SEL (concerning new apartments added to their stock), that clearly point out a marked difference in the terminology that CIY/SDG are using and that of SEL's. Considering all stock going into the new float is regarded by CIY as high quality, I would imagine then the majority would be 2 and 3 bedroom and so the SEL comments are valid.

Also rather than pointing a finger at CIY, S8 made reference to the newspaper articles covering the new float, although it is obvious the info for the articles came mainly from CIY. And it also appears that if they are losing market share through poor service etc. as recently commented on here, then S8 are actually replacing it with more new stock. Surely word gets around. Very interesting and I wonder if the original source of these comments regarding S8 offering poor service and losing market share have any real basis? What I mean is, are they rumours passed on and then eventually printed here, in politician style? Any comments?

I await to be impressed by the new float but, like anything associated with CIY, it will probably go like a house on fire!

[MPC]

Except for the current shareprice Major. Not on fire at all over the last few weeks.
I am being patient though

[soulman]

Yep,

Patient is the key. There is no way CIY is going to break $4.60 anytime soon. It probably even won't break it by JAN/FEB when the half yearly report is due. I hope I am wrong about this but no one can clear large volume of shares unless an institutions decide to give it a bash for the yield. Sellers are lining up to get rid of CIY and moving into other more volatile and movable investment that are more liquid than CIY, which I might add are getting hard to find.

It seems when the market in general is moving upwards, CIY will drop.

I am betting on a profit upgrade in FEB/MAR and that might be the catalyst for the SP to head north as well as the MLR float.

I am not sure whether 13.5 million shares has been traded since the option placement at $4.50 cum div but it seems that all those sellers has no long term view on CIY while CIY subs are at an all time high.

[major]

Hi MPC,
I have worked out my estimates of CIY shareprice going forward over next 3 years. I feel comfortable in holding no matter current shareprice behaviour.

MLR business and TER takeover are in addition to my estimates as are higher interest rates and a slowdown in property over next 2 years or so on the negative side.
Still confident, and in the meantime will gladly accept their dividends.

TER bid is strategically big for CIY as far as rapid growth going forward and should overcome any negative effects from rates or property slowdown. SDG Chairman says they are preparing for a slowdown over next 12- 18 months. CIY claim they will power on regardless. CPK contribution will also be a big driver of CIY profits over next 5-6 years.

Been buying CIY and CPK and am nearly ready to choke. All about patience. The impatient, transfering wealth, to the patient, etc. etc.

[major]

No matter the news, publicity or importance attributed to the new MLR float, I still view it as far lesser importance than that of the TER bid.

Check out this quote from the Australian on the 22.11.04 in reference to Bankwest offering 6% interest on deposits. The most relevant part is the number of ING accounts opened each day. What impact would even a fraction of this have to CIY FUM?
While not offering the same product or security maybe, CIY at call % of 7.5 is 2.25% better than ING. Worthy of consideration to investors.

******** ING Direct, which has been the price leader in the bank deposit market, says it has no plans to match the six per cent interest on deposits being offered by BankWest as part of its entry strategy for the Australian east coast market. ING Direct chief executive, Vaughn Richtor, said the company was opening around 1000 accounts a day on its offer of 5.25 per cent interest. Some bankers say the BankWest offer is not sustainable. ********

CIY upto now are managing to build FUM through a handful of offices and advertising and have so far been very successful. They are averaging $ millions per office now so I can't help but think the legitamacy of another 60 outlets for the CIY products is going to lift their fund inflow to another level.

If 60 outlets can "average" $500,000 positive inflow per month, annual FUM inflow would double from $360 ML per year to $720 ML. $2 Billion FUM could be reached by end of CY '06. An average of 5 - 6 new accounts (or further investments) per office per day at the minimum investment of $5000 will enable it while allowing enough for withdrawals. It's possible to reach that with the combination of high interest on offer, 60 extra shopfronts offering face to face contact (very important) and backed by a solid advertising campaign. I feel strongly that this bid is vital in maintaining CIY's rapid growth.

I feel certain if TER bid fails (doubtful) CIY will definitely go it alone in opening offices (or make another play) and offering their products as well as new ventures. For instance a new mortgage broking side for City Pacific would cover the costs of the shopfront and staff while creating and enabling fund inflow to the trusts at virtually no cost! It's a win win merge for CIY and TER shareholders.

[soulman]

OK....approximately 9 million shares traded since the option placement including the 1.5 million volume on that day of the announcement. The hurdles is the $4.58 - $4.60 mark. Once you get over that, then it's all smooth sailing from there. The selling must end soon, I guess. I wonder if the float of the MLR business would incur a one-off gain for CIY just like the IPA deal. Anyone?

[mark100]

soulman,
yes the MLR float should deliver ciy another one off gain. As ciy will have a 19% stake, this stake will be equity accounted. After float expenses, the new MLR business will have net assets of around $58m which will give a one off gain to ciy of around $11m.
Even before this potential one off, I believe ciy will post a NPAT in the order of $70m. ($80m if there is a one off gain). This estimate is made up of:
$52m funds management/lending
$14.5m from cpk
$2.5m fro ipa
$1.5m underwriting fee for the MLR business

cheers
mark

[major]

Hi Mark,
plus the gain from TER >39% shareholding and takeover. Comments indicate TER earnings, pre-takeover, are in line to increase on last year. If we allow $1.5 ML on last year that's $4 ML TER profit pre takeover. If the takeover succeeds, there will be 5 months of CIY's 40-60 new shopfronts boosting CIY FUM through new investment. In addition to that there is expected to be a rapid decline in TER costs from board, management and duplication expenses, relocation of the TER head office from VIC to the CIY head office in QLD, operational and asset reviews plus any profit gained on the disposal of the insurance business and other assets.
Impossible to really know as I am starting to count chickens a bit early as far as actual % of ownership, extra costs in advertising, shopfitting, the actual takeover, management golden handshakes etc. and speed of implementation are all unknown.

Expected increase in TER '05 profit, plus post takeover cost savings, asset sales and FUM inflow will add to CIY NPAT. '06 contribution from TER will be much greater in comparison although we would expect the mortgage broking side would have to work harder.

Independant expert report has left holes big enough for CP1 to build an underground carpark in. I am sure it will encourage a response from CIY.
It's opinion is what I and probably everyone else expected. Weighted heavily towards trying to help squeeze something extra from CIY. Chance of another outside offer is very slim as I said previously.
Check out their means of working out a shareprice valuation by price history against your charts and you will see how unfair (and maybe deceiving) their method is. Premium for control is their only way to encourage a higher price as CIY offer is now proven (by them) as more than fair and reasonable being at the top end of their valuation.

[mark100]

The independent report was a joke. It said ciy 'might' make $59m profit this year even though management have said they are extremely confident and are ahead of budget. The report also said that there were significant risks in the Martha Cove development was were not reflected in the ciy share price. They forgot that stage 1 sold out in 3 days, they also forgot that ciy's stake in cp1 only cost $250,000 and that the project has a debt to the mortgage trust and private fund of around $80m compared with forecast land sales of $650m and profit of $250m. Fools!
I am tempted to call the 'independent expert' and let them know.

cheers
mark

[major]

Good on you Mark,
why not, but they were employed for one reason and one reason only. They would be well aware of many facts that would not be in their clients best interest if they were to include them in the report.
Actually, I think they struggled to make a case to support the opinion that the bid was not fair and reasonable. The IE started the report quite honestly and fairly but then in the end degenerated into almost schoolboy like behaviour, pointing the finger of blame while distorting the story a little.

Love the fact they made it a specific risk that CIY shareprice could come under pressure and decline if TER shareholders decided to sell their new CIY shares while no mention was made as to what would happen to the TER shareprice if the bid failed "AND" CIY decided to selldown their 39% shareholding. Hmmm, mention was made to TER shareprice but not in the same light or circumstance.
They also used a 90 day average for TER shareprice to boost it's avg.price yet with CIY they specifically used a 30 day timespan so as to exclude the rise to well over $5.00 and only include the price after the option sale. Maybe dishonest and deceitful but exactly what I expected.

Overall though the report clearly indicates that CIY offered a fair and reasonable price but that their client would like a little more! A further premium for control is ludicrous in my opinion, doesn't the IE realise this is business! Paying a premium now may see the TER shareholders who accept and hold suffer, as CIY has to make up for that higher price paid, not to mention it's effect to all other CIY shareholders. The offer was very much towards the high range of the IE's valuation and that is premium enough in my opinion.

[major]

Also what was not mentioned in the IE's report was what CIY's actions might be if the bid failed. Aside from a selldown, a situation as with the S8 bid is quite likely and TER may face further competition from anything CIY may do in the future if the bid fails.

As far as the IE querying the delisting, well they should know better otherwise they should have spoken to CIY!!!!!!!!

Highly unlikely this bid will fail because on reaching the 50.1% mark, the IE has given the shareholders advice to accept and then views the bid as fair and reasonable. A few more top 20 will seal it.

[soulman]

Mark
Can you elaborate on the CPK profit contribution to CIY.

On their AGM, Phil S said that the Marina Cove would contribute $80 million revenue for this fiscal year. Is that for CPK or for the joint venture in which CPK has a 50 percent interest? Otherwise it would only be $40 million revenue for CPK. I suppose their cost of goods sold would be low due to the project of land selling and not housing sales. But that is still significant and I wonder what CPK revenue would be after the loan settlement in APR 2005. Also at the AGM, IPA and CPK forecast no dividend payment for their half year report this coming FEB. Is that true? I believe you were there at the AGM.

I believe there will be another one-off profit from the MLR business and your forecast is spot on, except for the CPK, which is the topic I am discussing today.

Another thing, is CIY entitled to the 55% profit contribution from CPK as a whole or just the dividend payout from CPK which is 75% of profits. That is a contradiction.

Major, there will be no sell down by CIY of TER shares because this is a scrip for scrip offer. Hence, if the bid failed, the shares would be refunded and not sold off.

[mark100]

Soulman,
I'm not sure where you are getting the $80m revenue figure from. I just checked that AGM address but they did mention that the market value of their investments was $80m.

Getting on to the cpk profit:

The Martha Cove Project was intially forecast to return a NPAT of $250m. Cpk had a 40% interest which gave a profit to cpk of $100m. In turn, this would give a NPAT to ciy of $55m.
Last year cpk increased its stake to 50% as an individual shareholder who held a 10% stake converted their equity into debt.
At the time I thought this would increase cpk's return to $125m and ciy's subsequent return to $68m however the forecast was not changed. In fact they now say $90 - $100m. At the AGM I asked Steve Mackay whether they had lowered their expectations for the project and he said they were just being conservative. (although imo it is feasible that their sale prices may have had to be lowered a bit).

The $100m profit will show up in ciy's Profit and Loss statement over the next 3 years although $45m of that will be deducted as 'outside equity interests' reflecting the share of cpk that the public own. It will be similar with the cash flow, all of cpk's cash flow gets consolidated into ciy's cash flow statement with the outside equity interests deducted. In reality though, the only cash from cpk that ciy gets it hands on is that paid through dividends.
So in summary ciy is forecast to earn $55m over 3 years from cpk.

How much of that $55m will be earned this financial year? Possibly a third, but it is more likely that the greatest profits will be in the later stages.

Regarding cpk and ipa dividends, they will not be paying an interim dividend, only a final dividend. In both cases, actual cash settlements on the development properties won't be received until later in the finanial year.
For cpk, stage 1 settlement is in April which may see a final dividend in say September. At the IPA meeting they said a dividend would be paid in october 2005.

cheers
mark

[major]

Hi Soulman,
the shares gained by CIY will not be reversed if the bid fails. There is no clause in this bid to enable it as far as what I understand of it. CIY are now the registered holders of those shares. There was no minimum acceptance set so therefore anyone accepting CIY shares remains the holder of CIY and consequently CIY remains the holder of whatever final percentage of TER they gain. Therefore (not saying it will happen) if CIY decided to later sell, let's say a 45% holding of TER, it will definitely have an effect on the TER shareprice for a long time, more so than is the case with CIY and those pesky options.
TER would not be an easy stock to get rid of 80 ML shares without causing some serious damage to the shareprice unless another interested party turned up with intentions to buy CIY's share of TER. Maybe you were thinking it is the same as the S8 bid.

CIY may choose to sell their holding if they opt for another avenue to achieve their network goal, having failed to gain control of TER.
In any case, I can't really see them failing to achieve 50.1 % and at that point, the TER directors would have to recommend to shareholders to accept the offer to ensure the bid's success (best outcome), otherwise they would be in contradiction with their own independant experts advice, as well as being seen as not acting in the best interests of their shareholders, which would raise serious questions as to their actions.
If CIY gains 50.1 % and the Board fail to recommend to the remaining shareholders to accept the offer, they would be seriously jeopardizing the value of their shareholding if CIY delists TER, as is their intention.

CIY directors are very competent, knowing the 50.1 % is achievable and therfore the remaining shareholders will have little choice but to accept or face the prospect of holding shares in a company that cannot be traded on the ASX and which no-one in their right mind would want to buy, except for CIY.

[major]

Mark,
Revenue guidance of $80 ML for "stage one" was given in CPK CEO's speech along with the forecast you mentioned of $90 - $100 ML profit for CP1's share of Martha Cove. Importantly, they spelled it out even more by reporting "This number is in line with previous forecasts of $5.40 per share based on 18 ML issued shares." I think your previous estimate of a 20/40/40 split sounds about right going by their comments refering to income from MC ramping up in future years.

Since the decision has been made to halt further land only sales at MC I am unsure as to how much this could impact profit forecasts but expect it could only be, on the positive side.

[soulman]

Hi Mark and Major

The CPK AGM said $80 million revenue for the MC project for this fiscal year. Now if that is the case CPK will share 50% of that revenue ($40 mil), am I correct. I am sure the corresponding year would be a ripper year for CPK as stage two ramp up.

MC remind me of Port Bouvard, which is located in WA. I am sure Rex Hunt would get a land in MC due to the access to Port Phillip Bay. Rex Hunt has been promoting Port Bouvard PBD land sales for a number of years now and their div yield stands at 13% FF.

If CIY SP suffered due to the option placement, I wonder when TER has their hands on CIY shares, it might also suffer. If TER shareholder don't want any part in CIY, I suggest they sell their TER shares now on market even though CIY is a fantastic yield play. The word must get out to the public and analyst has not been covering CIY at all.

[mark100]

I see the latest issue of money magazine named '20 stocks to own in a bull market'. ciy was one of them. Reasons were cheap based on forecast earnings, good yield and high ROE. Not that its helping the sp. I don't know about ciy being just a bull market share. ciy performed best for me from 2001 - 2003 while the broader market went sideways (and down). I think in market conditions like we have now all the money goes into the specs and the value stocks get forgotten about.

cheers
mark

[soulman]

Mark

Which monthly edition of the Money Mag? Because I never seen any investor mag covering CIY before.

I would think CIY is the best to hold in a bear market. Reason for that is easy. Property is in hot demand in a bear market and consequently more fundings required. People would look to get out of equity market and invest in cash or property/mortgage trust for safe returns. Hence CIY would suffer the most in a bull market and people rather have their money on stocks that moves than just sit there idle or even drop. Even the attractive yield is not enough to lure investors in.