FEA - Forest Enterprises Australia Ltd

[shasta]

About FEA...

Business Description
Forest Enterprises Australia Ltd (FEA) is Australia's leading integrated forestry and forest products company. Companies within the FEA group operate plantation hardwood and softwood sawn timber and export wood fibre mills in Tasmania, NSW and Queensland.

Company Strategy and Prospects
FEA's strategy is focused on becoming a premier, vertically integrated forestry and forest products company. The company is involved in all aspects of forestry, from MIS plantations which include establishment, management, harvesting and finance, to timber milling and wood chipping. A purpose built, log sawmill based on Finnish HewSaw technology in Tasmania, is one important factor expected to provide long term benefits for the company. It creates a stable base for expansion and an opportunity for organic growth on the industrial side of the business. Development of this sawmill is still ongoing and although on track, unexpected delays are anticipated. Due to suitable land being the primary resource underpinning woodlot sales and performance, FEA remains focused on acquiring and leasing high quality land for these project types. Going into the future FEA will be funding innovative and cutting edge processes and products. A laboratory has been established that is dedicated to the further expansion of knowledge in the potential of fast grown eucalypts.

http://www.fealtd.com/index.php FEA's Homepage

Now the fundy stuff :D

Research Reports:


http://www.fealtd.com/downloads/CCZ%20Equities%20Reseacrg%2003%20July%2008.pdf

http://www.fealtd.com/downloads/Tolhurst%20Reserach%202%20July%2008.pdf

Substantial Shareholders are: (Total Shares on issue ~420m)

Futuris Corporation (FCL) ~31%
Perpetual Trustees (PPT) ~15
A W Seymour & Associates ~8%

Top 20 S/Holders own ~ 78.0%!

FY09 & FY10 Forecasts (@ 18c)

EPS: 3.5c, & 3.7c
P/E: 5.3, & 5.0
DPS: 2.0c, & 2.5c
Yield: 10.8%, & 13.5%
Debt Gearing: 42.8% (Interest times covered 16.5 times)

Here are the well qualified Board/Executive team to make FEA grow

http://www.fealtd.com/page.php?id=67

Recent Anns:

http://www.stocknessmonster.com/news-item?S=FEA&E=ASX&N=317507

Half year results:

http://www.stocknessmonster.com/news-item?S=FEA&E=ASX&N=314513

NB, NTA @ 31 Dec of $0.73, now thats a nice margin of safety!

Oh & now for the candlestick chart :D

A little bit of volume & looks heading the right way :confused:

http://www.directbroking.co.nz/cgi-bin/sparkle.dll/superchart?template=dblsuperchart&session=0&instrument=FEA&exchange=ASX&period=6M&adj=yes&vs=LINE&ct=CANDLE&compi=&ma1=30&ma2=90&bb=Y&ind=MACD&ra=2


Anyways, i'm in at an average of 18.5c :cool:

[JBmurc]

Great work -Shasta looks very good
couple Q's
do they sell their timber etc to the local market at forward fixed prices
I see US lumber prices have been falling of late 220-150 t
guess having a booming local building market will help alot too,just as long as it's not more steel homes

[Corporate]

Nice post Shasta. For someone who has absolutely know idea about the industry...in simple terms what does FEA actually do?

What is MIS?


Cheers

[shasta]

Nice post Shasta. For someone who has absolutely know idea about the industry...in simple terms what does FEA actually do?

What is MIS?


Cheers

MIS - Managed Investment Schemes, they raise money & plant trees, then harvest them at maturity & sell them, ie long term investments!

But FEA are a whole lot more, check out there website for the different business divisions. (especially there innovative technology)

Plus when the Carbon trading scheme, ETS or whatever form it does take, FEA will be well placed to benefit.

This of this as an alternative energy investment. :)

BTW, Timber ain't sexy like CSG, but my Carter Holt Harvey shares were taken by compulsory acquistion by Graeme Hart (Richest man in Australia/NZ).

He wanted them when the FX exchange, timber prices & eveything was low & against him, guess what happened?

[AMR]

Given the track record of wealth destruction by trees in New Zealand I would be a bit wary.

Based on that chart it appears to have stopped falling, a buy signal would be a close above 21c by the looks of it?

[Huang Chung]

Howdy Shasta

Is there anything different between their MIS operations and what Timbercorp was doing before going to the great woodlot in the sky?

In other words, how are you protected from FEA 'doing a Timbercorp?'

[shasta]

Howdy Shasta

Is there anything different between their MIS operations and what Timbercorp was doing before going to the great woodlot in the sky?

In other words, how are you protected from FEA 'doing a Timbercorp?'

In a word "research" :D

[Corporate]

What is the story with the current portion of debt...$59m? I am just going through a whole bunch of annoucements and that is the first thing that stood out.

[shasta]

What is the story with the current portion of debt...$59m? I am just going through a whole bunch of annoucements and that is the first thing that stood out.

There interest bill is 16.5 times covered & Debt gearing is a managable 42%.

They have a lot of headroom with there financiers, so no worries about not getting refinancing etc.

I beleive the next 6 months will surprise the market & FEA will be re-rated closer to fair value.

Whether that's 30c, 40c, 50+ who knows...

Read the research reports & the bullish forward looking statements.

FEA is in much better shape than it's peers

[Corporate]

There interest bill is 16.5 times covered & Debt gearing is a managable 42%.

They have a lot of headroom with there financiers, so no worries about not getting refinancing etc.



I will look into it this weekend Shasta - a very good distraction from PAS study....arh!

So has the current protion been refinanced recently?

[Stranger_Danger]

You didn't answer the Timbercorp question properly Shasta.

I own TFC which I prefer over FEA, but trust me I'm watching it closely of late.

Who are the customers of FEA? Are they the same demographic as Timbercorp? What is their interest in MIS this year given their Timebercorp experience? Do MIS investors even have profits to offset with MIS this year? Are the Government having a good look post Timbercorp? How is FEA going getting paid? (I haven't checked)

These are all questions I'm pondering - at the very least, you should too!

[Stranger_Danger]

KW - I realise that Timbercorp/TFS are quite different beasts in several ways. That is part of the reason I'm cautious - the TFS story *looks* very good. On fundamentals - on what I'm able to *know* - I rate them a screaming buy.

However, my concern is whether there is anything I don't know - I've found the sandalwood price difficult to track, they tend to underpromise/overdeliver and not provide frequent upgrades so you wouldn't know early if it was turning to s*** etc.

Of course, the counter argument is that TFS/FEA etc will actually benefit from the loss of a competitor.

I guess time will tell. I like TFS and hold a fair few, but I'm making damn sure I don't fall in love with it.

[JBmurc]

whens the divie ex.date 2c be a nice we payout..

[shasta]

whens the divie ex.date 2c be a nice we payout..

Today's ann is a must read & explains alot of the questions asked so far.

If not i'll answer them during the weekend :D

http://www.stocknessmonster.com/news-item?S=FEA&E=ASX&N=317692

JBM - FEA last paid a 2.5c dividend in Oct 08 (ex date was Sept)

Plenty of time to enjoy the juicy yield

[shasta]

Looks like Great Southern may also be in big trouble. In a trading halt with an announcement due regarding its MIS sales and working capital position

I'm really not fussed with other companies down fall.

FEA is well managed so i picked up a few more today.

Will be accummulating more FEA, on the story the market forgot

[Lego_Man]

Technicals look good.

Clearly the concern is the failure of these 2 other big players in the MIS business, and whether their struggles reflect on the viability of the model at this time. Good management wont always overcome external forces...

However, that is coming from a position of no real knowledge of the reasons behind Timbercorp and Great Southern Plantations' collapse.

[shasta]

Technicals look good.

Clearly the concern is the failure of these 2 other big players in the MIS business, and whether their struggles reflect on the viability of the model at this time. Good management wont always overcome external forces...

However, that is coming from a position of no real knowledge of the reasons behind Timbercorp and Great Southern Plantations' collapse.


Read the ann from yesterday, it spells it out, FEA is NOT just MIS.

The ATO looks favourable towards the MIS industry, & FEA should benefit from any eventual emission trading/carbon credit schemes.

Don't get so hung up on the other MIS companies, FEA is a different kettle of fish, well run & vastly undervalued IMO.

I'd be happy with even half of what the research reports suggest FEA is worth...:D

I used to own shares in Carter Holt Harvey, & guess who stepped up & bought that, when everyone else thought things were gloomy!

I'm no Graeme Hart (yet anyway), but i hope you get my point.

I'm accummulating regardless

[Corporate]

Going big on this one Shasta?

Can you quantify what you expect FEA's non-MIS income to be annually?

[Stranger_Danger]

Shasta - I think it is dangerous to completely ignore the troubles of other players in this space.

They say a rising tide lifts all boats. What does the opposite do?

I agree that just because Timbercorp went bust, it doesn't mean FEA will too.

However, for the best part of 3 years - and especially now - there have been 2 things at the very front of my mind.

(a) Leverage.
(b) Potential demand destruction.

Any business that relies on others investing - and borrowing to invest - is a tough place to be. What will the demand be for what FEA is selling? Are you sure?

I'm not saying you're wrong and I still (for now) hold my TFC. Just don't do another Uran with this stock ey.

[Lego_Man]

Shasta makes some compelling points, and it's good to have people putting across the opposing view/playing devil's advocate.

I will be keeping an eye on this one...

[JBmurc]

been keeping an eye on FEA myself if they pay a 2.5 divie again later this year their yeild will be very nice, you can't argue their not undervalued to NTA as it's many mutiables above sp...but will it recover in the short term??
- still not 100% sure if FEA is me......at this point in the market
ended up buying CFE for 30.5c aways a big fan of high cash to cap..

The depth on FEA didn't exactly give me too much confidence at the time with very little buying interest in the bids.

[Huang Chung]

I guess if the FEA MIS business model looks anything like Timbercorp's, run for the hills.

http://www.businessspectator.com.au/bs.nsf/Article/The-trouble-with-fee-huggers-pd20090506-RRSRP?OpenDocument

Shasta...might be an opportunity to outline the differences in the FEA MIS model to the Timbercorp one detailed above.

[shasta]

Going big on this one Shasta?

Can you quantify what you expect FEA's non-MIS income to be annually?

Nope & Nope.

I'm looking at expanding beyond FEA & NZO, up to 5 stocks.

The research reports will outline the future earnings.

[shasta]

Shasta - I think it is dangerous to completely ignore the troubles of other players in this space.

They say a rising tide lifts all boats. What does the opposite do?

I agree that just because Timbercorp went bust, it doesn't mean FEA will too.

However, for the best part of 3 years - and especially now - there have been 2 things at the very front of my mind.

(a) Leverage.
(b) Potential demand destruction.

Any business that relies on others investing - and borrowing to invest - is a tough place to be. What will the demand be for what FEA is selling? Are you sure?

I'm not saying you're wrong and I still (for now) hold my TFC. Just don't do another Uran with this stock ey.

My mistakes with URA will never be repeated!

FEA's MIS products recently won an industry award in Australia, which suggests there model is pretty good, note the support for the 2009 MIS release!

[Stranger_Danger]

Shasta - I *know* I'm an awful devils advocate so apologies! But, that industry award - do you actually know whether it was voted on by industry participants or not? And if so, who were they are? And do FEA pay larger commissions than those paid by the others?

I'm not sure I'd rate industry awards very highly - as a laugh, I keep an eye on people/companies that win "entrepreneur of the year", "company of the year" etc. Many go broke within a few years - i'll never forget one that went sensationally bust mere weeks after an entrepreneur of the year award was handed out.

To put it another way, if I send you a "good investor medal" in the mail, and you send me one back in return, we both have promoteable awards, but it doesn't in any way change what either of us knows or doesn't know.

[shasta]

Shasta - I *know* I'm an awful devils advocate so apologies! But, that industry award - do you actually know whether it was voted on by industry participants or not? And if so, who were they are? And do FEA pay larger commissions than those paid by the others?

I'm not sure I'd rate industry awards very highly - as a laugh, I keep an eye on people/companies that win "entrepreneur of the year", "company of the year" etc. Many go broke within a few years - i'll never forget one that went sensationally bust mere weeks after an entrepreneur of the year award was handed out.

To put it another way, if I send you a "good investor medal" in the mail, and you send me one back in return, we both have promoteable awards, but it doesn't in any way change what either of us knows or doesn't know.

I hear you, those that promote such accolades are usually short on substance & spend more time "trying to get face time in the media" than just getting down to business.

Hey, i may have FEA all wrong, i see a margin of safety in it & plenty of upside, doesnt mean there isn't any downside.

I've changed my system again, as its a new tax year i'm going to trade rather than buy & hold.

FEA could be added to, held for a while, or sold off, at any time.

With little liquidity it will take a bit of time to get the kind of stake i'd want, so i may trade the spikes.

I see alot of fundamental upside, but urge anyone contemplating buying in to DYOR.

[JBmurc]

I hear you, those that promote such accolades are usually short on substance & spend more time "trying to get face time in the media" than just getting down to business.

Hey, i may have FEA all wrong, i see a margin of safety in it & plenty of upside, doesnt mean there isn't any downside.

I've changed my system again, as its a new tax year i'm going to trade rather than buy & hold.

FEA could be added to, held for a while, or sold off, at any time.

With little liquidity it will take a bit of time to get the kind of stake i'd want, so i may trade the spikes.

I see alot of fundamental upside, but urge anyone contemplating buying in to DYOR.

Great to see another joining the Trader ranks just make sure to keep away from the -CFD's,warrants,futures has been where 90% of my losses have come from last couple yrs buying selling head shares far better safer profits ,once you go trader you won't go back still doesn't mean you have to trade all the time just gives you freedom too an safety via tax-losses an right-offs reducing tax bill if you make a $$$
My share trading company may even make a profit this year:)

[Huang Chung]

I've changed my system again, as its a new tax year i'm going to trade rather than buy & hold.



Shasta...if you are going to become a trader rather than an investor, why stick to your deep research/ 5 stocks maximum approach? - you can trade a dog with fleas if the market decides to back it for whatever obscure reason.

Seems to me that a trader needs to research the charts/volumes/sectors that are running, rather than the fundamentals of a particular stock, which your modus operandi.

[shasta]

Shasta...if you are going to become a trader rather than an investor, why stick to your deep research/ 5 stocks maximum approach? - you can trade a dog with fleas if the market decides to back it for whatever obscure reason.

Seems to me that a trader needs to research the charts/volumes/sectors that are running, rather than the fundamentals of a particular stock, which your modus operandi.

Still want to be selective,& i'm still developing what timeframes suit me

I'm not a day trader & have limited access to the markets during the working day

I might put all funds into a trade, or only hold 1 or 2 stocks!

I do the research as i have multiple sector watchlists & follow the charts of them by using weekly candlesticks. FA & TA are good friends ;)

During 2008, i did vastly better trading than i did investing.

[shasta]

Still want to be selective,& i'm still developing what timeframes suit me

I'm not a day trader & have limited access to the markets during the working day

I might put all funds into a trade, or only hold 1 or 2 stocks!

I do the research as i have multiple sector watchlists & follow the charts of them by using weekly candlesticks. FA & TA are good friends ;)

During 2008, i did vastly better trading than i did investing.

FEA up 5% to 21c on a down day, happy to hold :D

http://www.directbroking.co.nz/cgi-bin/sparkle.dll/superchart?template=dblsuperchart&session=0&instrument=FEA&exchange=ASX&period=3M&adj=yes&vs=LINE&ct=CANDLE&compi=&ma1=10&ma2=30&bb=&ind=MACD&ra=2

[Lego_Man]

Piss-all volume though (13K)

For all we know its just your spruiking that has convinced someone here to pick up a stake!

:D

But yeah, these guys are on my watchlist. Dont think there's any hurry though...

[shasta]

Lego man

Being a Disciple of someone else will make you weak

Learn all you can from them and then move forward thinking for yourself.

Don't follow anyone, lead to improve.

I thought the chart says more about FEA, than i do :D

[Lego_Man]

Lego man

Being a Disciple of someone else will make you weak

Learn all you can from them and then move forward thinking for yourself.

Don't follow anyone, lead to improve.


That was more of a tongue in cheek thing that i put in there when i was fiddling with my profile...

:D

So dont worry, i dont blindly follow the advice of others.

[Lego_Man]

Indeed...and i dont have a system yet. At the moment it's a scattergun approach mainly driven by a macro view and valuations. And more recently a bit of TA chucked in there.

I have been thinking about how to structure it a bit better but that can wait.

I've found listening to the ideas and philosophies of a hell of a lot of guys here pretty insightful. In the end there's no substitute for experience so it's good to absorb a bit of what the older heads have to say.

[Lego_Man]

Anyway, back to the fundy stuff.

I presume you have looked at their half year report Shasta. They made a $4m loss in 1H08 (1 July-31 December 08). How have trading conditions improved/are improving for them in the last few months to reverse this decline?

[shasta]

Anyway, back to the fundy stuff.

I presume you have looked at their half year report Shasta. They made a $4m loss in 1H08 (1 July-31 December 08). How have trading conditions improved/are improving for them in the last few months to reverse this decline?

Yup im an accountant & fully understand the financials ;)

Rule #1 - forget the past it teaches you nothing, look forward always...

FEA has a point of difference because its not purely a MIS play, even then it's the best amongst its peers hands down.

It's the next 6 - 12 months that i'm interested in, & its vastly undervalued & the market has simply overlooked it.

I specialise in finding undervalued companies, & the next reporting period (2H results) will show the turn around.

The fact FEA flys under the radar suits me fine, you should buy when others aren't, & sell when everyone else is buying.

I do my research thoroughly, & am known for my FA analysis.

Whether or not you wish to buy in or not is up to you, i'm not ramping FEA

Just sharing my thoughts & where i'm looking to invest in

[Damo79]

Yup im an accountant & fully understand the financials ;)

Rule #1 - forget the past it teaches you nothing, look forward always...



Hmmm... do we have any historians on ST to offer an opposing view point ;)

[shasta]

Hmmm... do we have any historians on ST to offer an opposing view point ;)

Im always keen for an opposing view Damo...;)

If the past was to condemn the future performance, then NZO, VPE among others would be dead ducks, based on inept managment at the time...

Things change, fundamentals change & so does the market...

Disc: Holding FEA @ av 18.5c

[gambier33]

Shasta,

Be very careful with FEA, no matter what you read into their ASX released information. Run, run, run. Like Timbercorp (dead), and Great Southern (dying), believe me, it relies on the Ponzi scheme cash of June MIS sales to get revenue in so they can roll debt over.

My reasons for caution:

1. In the recent boom days they out-bid Auspine for the pine logs from State land in Tasmania (= they paid a mighty lot for that wood - hindsight suggests too much). Note: the wood hasn't been grown by FEA for FEA - it's logs owned by an unrelated party that they buy in at a very high price.
2. The demand for sawn pine timber, and consequently prices, has slid with a vengeance. Aussie pine doesn't compete very well internationally with NZ pine so the Aussie market is domestic.
3. With debt, FEA have now built a very expensive plant to mill these very expensive logs. I hear that they have a lot of logs (= inventory = working capital) sitting in the mill’s wood yard. However, this is the financial climate in which inventory should be run down.
4. FEA has ventured from their home in Tasmania (growing hardwood plantations has been happening there for 50 years) into the Northern NSW area, with MIS hardwood plantations. A lot is experimental (new species being matched to different sites with no good basis for choices being made). Complete failures of forestry blocks due to pests, mismatch etc, are known within the industry. A day of reckoning will come. You cannot morally run experiments like that with investor money!
5. MIS is about raising money from woodlot investors to make money on the difference between what it costs to plant and maintain a plantation versus what the investor pays, less the enormous cost of sales associated with MIS. FEA doesn't own that wood. At harvest time it could be sold to another processor by the wood owners. It will go to the best price offered.
6. Apart from a very small number, most MIS companies have had very little freehold land to start with and have had to buy land at ever increasing prices (as they compete with each other for the same blocks of land). They have bought a lot of land at more than the price they get for the woodlots they put on it! This is where much of their debt lies. It cannot last forever. Land lease prices have also reached unsustainable levels (lease term x annual lease rate = revenue from selling woodlot: does not compute!).
7. The MIS Ponzi will fall apart this year. MIS relies on freely available credit for both woodlot investors to buy woodlots and for FEA to buy land. Possible woodlot investors know the inherent problems now from the Timbercorp and Great Southern story. There will be very little money going into MIS this June. Unfortunately for forestry MIS companies, they have to spend an aweful lot of money IN ANTICIPATION OF THEIR 30 JUNE SALES (land preparation, plants grown in nurseries etc). If they don't get the sales they get financially distressed very quickly. Australian Plantation Timbers (APT) failed in the late 1990s due to that when the MIS rules were changed.
8. That lack of MIS money, on top of a struggling saw mill will strain FEA to, in my humble opinion, breaking point. They need that annual cash inflow to, role over debt and keep the model running. Low MIS revenue will also most likely trigger bank debt covenants and make the current declared maturity dates for debt immaterial. I’d imagine that even now the banks will be screwing down on their working capital lending to FEA. That makes current short term cash flow even harder to manage.
9. To cap it off and make it even more problematic, FEA sell export hardwood chips from Tasmania. All chip shipments have fallen significantly in 2009. The major Tasmanian exporter Gunns reported a 15% reduction in sales many months ago. The spot price of chips is very low at the moment; that's if you can get a sale. That will be whacking FEA’s current cash flows very very hard. Also remember, FEA haven’t been an owner grower of that wood. It’s been grown for an investor. At best FEA can only make a processor’s margin on that wood. Low export chip prices erode that margin. And they don’t get the growers margin.

The only thing going for FEA is that Elders (was Futuris until recently) holds over 30% if my memory serves me well. They also have a large holding in ITC, another forestry MIS company. Elders cannot afford to have both ITC and FEA go belly up. ITC must be up there with TC and Great Southern in Ponzi terms. Will Elders inject cash into one or both to keep them afloat. Elders doesn't look all that healthy themselves for that matter.

Finally, the low turn over of FEA has always worried me. It consistently will trade 10-30K or so on the many low volume days it has. It very rarely has a "zero" volume day. In contrast, other stocks with that level of low volume seem to have many more zero volume trading days. I have wondered if it gets "price support" from "friends" to stop the price really sliding (that could trigger debt covenants maybe, if they are linked to market cap).

Your call Shasta, but I don't think it's a good look. FEA is very high risk - higher than a wildcat oiler IMO. If they survive to 30 June, their 2009 annual report will tell a sad tale, especially for the last half of FY.

[winner69]

Jeez gambier ... on this looks a basket case

Well thought out post ... thanks

[Phaedrus]

Two weeks ago, FEA broke above its confirmed trendline giving a BUY signal at point (1). This might sound good - until you look at the volume involved. The rise that triggered this "buy signal" was on a total daily turnover of less than $20,000. Miniscule.

Two weeks later, FEA broke above previous resistance that had held for 3 months, giving another BUY signal at point (2). Confirmation of buy signal (1) perhaps? Nah. The rise that triggered this "buy signal" was on a total daily turnover of less than $14,000. Meaningless.

Volume was NOT confirming these signals and so they should be ignored. See how over the course of the 3 month trading range, there have been plenty of "high" volume Down days (red bars) - but not a single "high" volume Up day (green bars). This stock is still being distributed. The on-going OBV downtrend reflects this.

I'm beginning to think that OBV might be my favourite indicator!

http://h1.ripway.com/78963/FEA516.gif

[winner69]

So shasta on fundamentals says YES ... I take it gambier on what he knows would fundamentally say NO ..... and Phaedrus's chart says MAYBE if only there was some strong buying. (interesting that gambier said I have wondered if it gets "price support" from "friends" to stop the price really sliding

Shasta made the comment 'The fact FEA flys under the radar suits me fine and its vastly undervalued & the market has simply overlooked it. which echos of Dimebags love affaiir with ION a few years ago

Market sentiment always prevails no matter what the fundamentals say and why OBV is becoming one of Phaedrus's favourite indicators is simply until more and more punters what to buy a stock the share price won't go up .... not even if the market is wrong with its valuation

So FEA really needs one of those climaxes that happens ... but then like airlines over time listed forestry and wood processing companies have a pretty poor market .... even if they have another string to their bow in a MIS thing

[shasta]

Shasta,

Be very careful with FEA, no matter what you read into their ASX released information. Run, run, run. Like Timbercorp (dead), and Great Southern (dying), believe me, it relies on the Ponzi scheme cash of June MIS sales to get revenue in so they can roll debt over.

My reasons for caution:

1. In the recent boom days they out-bid Auspine for the pine logs from State land in Tasmania (= they paid a mighty lot for that wood - hindsight suggests too much). Note: the wood hasn't been grown by FEA for FEA - it's logs owned by an unrelated party that they buy in at a very high price.
2. The demand for sawn pine timber, and consequently prices, has slid with a vengeance. Aussie pine doesn't compete very well internationally with NZ pine so the Aussie market is domestic.
3. With debt, FEA have now built a very expensive plant to mill these very expensive logs. I hear that they have a lot of logs (= inventory = working capital) sitting in the mill’s wood yard. However, this is the financial climate in which inventory should be run down.
4. FEA has ventured from their home in Tasmania (growing hardwood plantations has been happening there for 50 years) into the Northern NSW area, with MIS hardwood plantations. A lot is experimental (new species being matched to different sites with no good basis for choices being made). Complete failures of forestry blocks due to pests, mismatch etc, are known within the industry. A day of reckoning will come. You cannot morally run experiments like that with investor money!
5. MIS is about raising money from woodlot investors to make money on the difference between what it costs to plant and maintain a plantation versus what the investor pays, less the enormous cost of sales associated with MIS. FEA doesn't own that wood. At harvest time it could be sold to another processor by the wood owners. It will go to the best price offered.
6. Apart from a very small number, most MIS companies have had very little freehold land to start with and have had to buy land at ever increasing prices (as they compete with each other for the same blocks of land). They have bought a lot of land at more than the price they get for the woodlots they put on it! This is where much of their debt lies. It cannot last forever. Land lease prices have also reached unsustainable levels (lease term x annual lease rate = revenue from selling woodlot: does not compute!).
7. The MIS Ponzi will fall apart this year. MIS relies on freely available credit for both woodlot investors to buy woodlots and for FEA to buy land. Possible woodlot investors know the inherent problems now from the Timbercorp and Great Southern story. There will be very little money going into MIS this June. Unfortunately for forestry MIS companies, they have to spend an aweful lot of money IN ANTICIPATION OF THEIR 30 JUNE SALES (land preparation, plants grown in nurseries etc). If they don't get the sales they get financially distressed very quickly. Australian Plantation Timbers (APT) failed in the late 1990s due to that when the MIS rules were changed.
8. That lack of MIS money, on top of a struggling saw mill will strain FEA to, in my humble opinion, breaking point. They need that annual cash inflow to, role over debt and keep the model running. Low MIS revenue will also most likely trigger bank debt covenants and make the current declared maturity dates for debt immaterial. I’d imagine that even now the banks will be screwing down on their working capital lending to FEA. That makes current short term cash flow even harder to manage.
9. To cap it off and make it even more problematic, FEA sell export hardwood chips from Tasmania. All chip shipments have fallen significantly in 2009. The major Tasmanian exporter Gunns reported a 15% reduction in sales many months ago. The spot price of chips is very low at the moment; that's if you can get a sale. That will be whacking FEA’s current cash flows very very hard. Also remember, FEA haven’t been an owner grower of that wood. It’s been grown for an investor. At best FEA can only make a processor’s margin on that wood. Low export chip prices erode that margin. And they don’t get the growers margin.

The only thing going for FEA is that Elders (was Futuris until recently) holds over 30% if my memory serves me well. They also have a large holding in ITC, another forestry MIS company. Elders cannot afford to have both ITC and FEA go belly up. ITC must be up there with TC and Great Southern in Ponzi terms. Will Elders inject cash into one or both to keep them afloat. Elders doesn't look all that healthy themselves for that matter.

Finally, the low turn over of FEA has always worried me. It consistently will trade 10-30K or so on the many low volume days it has. It very rarely has a "zero" volume day. In contrast, other stocks with that level of low volume seem to have many more zero volume trading days. I have wondered if it gets "price support" from "friends" to stop the price really sliding (that could trigger debt covenants maybe, if they are linked to market cap).

Your call Shasta, but I don't think it's a good look. FEA is very high risk - higher than a wildcat oiler IMO. If they survive to 30 June, their 2009 annual report will tell a sad tale, especially for the last half of FY.

Well there was the opposing view that Damo suggested.

Your points are duly noted, & well said too. :)

You have given me some food for thought, & you clearly seem to know your stuff.

Appreciate the post

[gambier33]

Hi SHasta, sorry to be so pessimistic on this one. I'm with you all the way on NZO though. It's great when an explorer gets to the production stage.

[shasta]

Hi SHasta, sorry to be so pessimistic on this one. I'm with you all the way on NZO though. It's great when an explorer gets to the production stage.

Hey you have raised some relevant & pertinent points, & im not above learning from others!

Have looked at a whole range of charts this weekend, & the same pattern keeps forming...

Those that have enjoyed a nice run largely didnt have enough steam/support to breach resistance & the MACD on most, like the volume is falling & so is the SP...

I feel a correction is due, & thus the entire portfolio is always up for sale at the right price...

NZO has Kupe coming onboard shortly, so i intend buying back in, should i do sell out

[shasta]

Hi SHasta, sorry to be so pessimistic on this one. I'm with you all the way on NZO though. It's great when an explorer gets to the production stage.

I changed my mind on FEA over the weekend & sold out today...

Small profit for my troubles, to offset the ROC loss

[gambier33]

Taking no pleasure from it, today I see that Great Southern moved into voluntary administration, joining Timbercorp. GS was the big daddy of the Aus MIS businesses.

June 30 is a critical date for all MIS. Investors pay most of the money in around May and particularly June. FEA advised in its last half year report that its revenue is skewed to the second HY. That's the reason. The remaining companies in the MIS game must now be fearful about how their woodlot sales (and hence revenues) will pan out by 30 June. On the one hand, GS is now out of the equation and not competing for MIS sales. On the other hand, will the punters now be game enough to invest in a woodlot on the news of the failure of Timbercorp and close on its heels, Great Southern? Sales must plummet: indivual investors will be hearing all this bad news - its plastered over the media today; their financial planners will now be more fearful of personal responsibility for advising clients into the failed companys' managed schemes and cautious now of those still standing; and the regulatory authorities will have no choice but to look seriously at the whole business model, including the 10% plus commission the FPs take.

FEA closed down 10% today, clearly on the GS news (Hope you exited early in the trading day Shasta). Another company which uses MIS to fund plantation development, Gunns (GNS), was down about 3% today, in an Australain market that, by close, had only declined 1% overall. cheers

[POSSUM THE CAT]

Gambier These Tax Driven Investment schemes have been a collapse waiting to happen for the at least 5 years. Basically A Ponzi scheme with a tax deduction

[Stranger_Danger]

You can have some of mine...

[macduffy]

Not FEA but if their fee structure is anything like this, caution is suggested.

http://www.theaustralian.news.com.au/business/story/0,28124,25509343-643,00.html

;)

[shasta]

Not FEA but if their fee structure is anything like this, caution is suggested.

http://www.theaustralian.news.com.au/business/story/0,28124,25509343-643,00.html

;)

Timing is everything huh...

I got out at a small profit & it seems to lack any real support now

[soulman]

Timing is the key to life and sharemarket is no different.

Buy and hold is dead and the key to investing lies in OBV and TA. FA are just a backup to the buy and sell decision to hopefully profit. I have much to learn OBV and TA from experts here Phaedrus and AA.

FEA looks a dead duck and the apparent drop in Elders SP has more to do with another profit downgrade than the MIS demise.

[Lego_Man]

TFC is an interesting one, i'm picking them to slide though in the next couple of months as the markets turn down once more coupled with lack of confidence in the industry. Perhaps an entry point closer to 85c will be on offer.

[Stranger_Danger]

KW - or it could come down to the word "tree" being dirty for at least a year, and TFC - who are nearly debt free, have a better model etc etc - being dragged down with it, to some extent anyway.

Will they go broke? I'd be shocked. Will TFC shares be the place to have your money over the next year? I say no.

Holding the "best bank" wasn't the right strategy to cope with a credit crunch. Holding the "best finance company" is a shallow victory when they all fall over.

I'm not sure the "best MIS player" (and yes yes, I know TFC are more than that) will be the place to be either.

Time will tell, and I could be wrong. 60% out of TFC now though.

P.S Question - does anyone here know someone that is going to invest new money in a MIS scheme this year? Or know someone that knows someone?

[gambier33]

I see that Elders (ex Futuris), who own 30% of FEA and 100% of Integrated Tree Croppers (ITC), fell 10.7% this week. Re-branding with the old brand hasn't worked so far. I don't think any of the Aus MIS woodlot sellers are going to look very healthy by the end of June. I also reckon the Sandalwood growers will be in as much strife as the rest.

[shasta]

I see that Elders (ex Futuris), who own 30% of FEA and 100% of Integrated Tree Croppers (ITC), fell 10.7% this week. Re-branding with the old brand hasn't worked so far. I don't think any of the Aus MIS woodlot sellers are going to look very healthy by the end of June. I also reckon the Sandalwood growers will be in as much strife as the rest.

Gambier

You hit the nail on the head with FEA!

http://www.stocknessmonster.com/news-item?S=FEA&E=ASX&N=319769

Glad you posted your thoughts, it saved me plenty ;)

Cheers

[Stranger_Danger]

I'm intrigued to learn what the word "significantly" means in FEA's release.

If it means 20% lower, thats one thing. But it could mean 80%!

I guess we won't know until we know, but I'm keen to see how TFC have done in comparison. I suspect better, but not good enough.

Disc : None

[gambier33]

FEA's 26 June announcement, particular the last half, reads more like a last minute spruik of their MIS products than anything else. At the same time last year they were announcing an early close of their projects because they were fully subscribed!

The statement about "revenues from ... plantation establishment are expected to exceed .. those from FY 2008" should puzzle most readers. Why is plantation establishment a revenue creator rather than an expensive cash burn?

I believe there is a smoke and mirror, double-dip going on that makes the numbers look better than they are. It also highlights the Ponziness of the model. The amount of MIS money raised in 2008 was quickly reported in FEA's 1 July 2008 announcement. However, that cash sits in the project accounts, rather than on the balance sheet of the listed company. Once work is completed over the following 12 months, including a heap of work currently, to establish the planations, the money can then be moved to FEA Ltd, who treat it as revenue. No doubt FEA will report a few $10s of millions raised this MIS season but it won't be until this time next year that it will have all become revenue to the parent in the 09/10 FY. If MIS sales are poor now, I believe we will see the revenue hole 12 months from now.

So, be careful not to mentally add the money FEA raise from MIS sales with the revenue they show from plantation establishment - it's the same money with a 12 month phasing difference.

The CEO also flags increased revenue from timber sales. That's a patronising statement. FEA have just spent $80 million on a new sawmill to cut timber from pine plantations owned by other parties. It used to be milled by another company (Auspine I think), so it's new timber for FEA. Shareholders therefore have every right to expect more revenue from timber sales. However, on the other side of the equation FEA are also expending a heap of dollars on log purchases. Those logs are expensive: that's how FEA won the business from the previous miller.

What I think is more important is whether that $80 million spent on the sawmill is now providing any ROI. For the reasons outlined in earlier posts, I think not a lot.

[gambier33]

On 1 July 2009 FEA reported sales of $23M for their MIS. Exactly twelve months earlier they had reported sales of $116M. It has been an 80% fall! It must be close to fatal

In their Letter to Shareholders, released to the market on 7 May 2009, they advised that their "corporate finance facilities do not mature until 2011".

In my comment on FEA of 216 May 2009 I thought:

8. "That lack of MIS money, on top of a struggling saw mill will strain FEA to, in my humble opinion, breaking point. They need that annual cash inflow to, role over debt and keep the model running. Low MIS revenue will also most likely trigger bank debt covenants and make the current declared maturity dates for debt immaterial."

Now, in the 1 July 2009 announcement that reported the slump in sales, FEA advises indirectly that the bank covenants had been triggered:

"Given the challenging environment, the Company has sought and received an agreement from its banking syndicate to waive relevant covenants for the June 2009 reporting period."

I'd guess that their banking syndicate is running a ruler over them right now. It won't look nice. Their only hope is drastic surgery. Staff cuts, land disposal (not a sellers market), and other asset disposals. Predict share price sometime in August of 5 cents (Aus).

[shasta]

On 1 July 2009 FEA reported sales of $23M for their MIS. Exactly twelve months earlier they had reported sales of $116M. It has been an 80% fall! It must be close to fatal

In their Letter to Shareholders, released to the market on 7 May 2009, they advised that their "corporate finance facilities do not mature until 2011".

In my comment on FEA of 216 May 2009 I thought:

8. "That lack of MIS money, on top of a struggling saw mill will strain FEA to, in my humble opinion, breaking point. They need that annual cash inflow to, role over debt and keep the model running. Low MIS revenue will also most likely trigger bank debt covenants and make the current declared maturity dates for debt immaterial."

Now, in the 1 July 2009 announcement that reported the slump in sales, FEA advises indirectly that the bank covenants had been triggered:

"Given the challenging environment, the Company has sought and received an agreement from its banking syndicate to waive relevant covenants for the June 2009 reporting period."

I'd guess that their banking syndicate is running a ruler over them right now. It won't look nice. Their only hope is drastic surgery. Staff cuts, land disposal (not a sellers market), and other asset disposals. Predict share price sometime in August of 5 cents (Aus).

Current SP is 12.5c

Once again thank you for your informed posts, you saved me a few quid!

[gambier33]

Hi Shasta

A funny twist to the FEA story happened yesterday. Has FEA just become a speculative “Buy”?

Gunns Ltd (GNS) announced on Friday that they had purchased 17.9% of FEA for the equivalent of 10 cents per share. Most of the consideration for the purchase was paid in Gunns shares. It appeared to be an overseas party(s) that was quitting their holding (showed as a cross-trade from overseas on the Friday’s trades). From the Largest 20 Shareholders as well as the Substantial Shareholder list in the 2008 Annual Report, it's not clear who sold out to Gunns. Whoever it was, it appears they felt more comfortable holding Gunns shares than FEA's, as they clearly haven't departed the forestry sector.

Is it just a strategic investment by Gunns because of an unsolicited approached for them to buy these shares and not much should be read into it? Gunns ASX announcement however has an interesting final statement: "The investment by Gunns recognises the strategic importance to the forest industry of further consolidation". You don't "consolidate" by buying 20% of each of the other players - you have to pick them off one by one, like Gunns did with Auspine a year or two ago. Are we about to see a re-run of the Auspine takeover?

Gunns now has 17.9% of FEA. Why would they have bothered? Or is this just Act 1?

So here's some speculation:

Elders (ex Futuris) hold 30.75% of FEA. ELD have further exposure to the plantation MIS sector through their 100% holding in Integrated Tree Cropping (ITC). As for FEA, ELD's bankers have also recently waived lending covenants, so ELD desparately needs to tidy the balance sheet by cleaning up debt. Asset sales have to be on the agenda.

On Friday Gunns picked up the 17.9% because it neatly fits with other negotiations they have been having with Elders who want and need to offload. Gunns will soon announce a full takeover of FEA, announcing at the time they have secured an agreement from Elders to accept the offer. That leaves Gunns within a whisker of control.

Why would Gunns want control of FEA when it’s not all that healthy? GNS has a large pulp mill project planned for Tasmania. The Greens are fighting it because, amongst other things, it will use some native forest wood for the first 5 years until Gunns own plantation resource is large enough to enable it to allow it to be 100% plantation supplied. GNS have been working on State and Federal approvals for the mill for 2 or 3 years now and still have more to get. In the meantime, the global financial crisis has made it difficult for GNS to fully finance the project in their own right. They have recently announced they are close to closure in negotiations with a potential equity JV partner. If Gunns secures FEA’s plantations by company acquisition, the mill would have to be close to 100% plantation wood from day one. That shuts down one of the avenues of Greenie complaint and improves the overall palatability or social license of the project to the general public.

Gunns may not be financially strong enough at the moment to take out FEA 100% and cover the financial shortfalls. However, its potential mill partner is likely to be from Europe and much larger and financially stronger. The other scenario then is that, as part of the pulp mill equity deal, the partner also supplies some of the plantation wood. How? By becoming the actual party that takes over FEA, and acquiring Gunns’ 17.9% in the process.

Whatever the actual scenario, I have a feeling that FEA is suddenly coming into play. Will I buy any FEA myself? No. It’s outside my personal risk profile!

[shasta]

Hi Shasta

A funny twist to the FEA story happened yesterday. Has FEA just become a speculative “Buy”?

Gunns Ltd (GNS) announced on Friday that they had purchased 17.9% of FEA for the equivalent of 10 cents per share. Most of the consideration for the purchase was paid in Gunns shares. It appeared to be an overseas party(s) that was quitting their holding (showed as a cross-trade from overseas on the Friday’s trades). From the Largest 20 Shareholders as well as the Substantial Shareholder list in the 2008 Annual Report, it's not clear who sold out to Gunns. Whoever it was, it appears they felt more comfortable holding Gunns shares than FEA's, as they clearly haven't departed the forestry sector.

Is it just a strategic investment by Gunns because of an unsolicited approached for them to buy these shares and not much should be read into it? Gunns ASX announcement however has an interesting final statement: "The investment by Gunns recognises the strategic importance to the forest industry of further consolidation". You don't "consolidate" by buying 20% of each of the other players - you have to pick them off one by one, like Gunns did with Auspine a year or two ago. Are we about to see a re-run of the Auspine takeover?

Gunns now has 17.9% of FEA. Why would they have bothered? Or is this just Act 1?

So here's some speculation:

Elders (ex Futuris) hold 30.75% of FEA. ELD have further exposure to the plantation MIS sector through their 100% holding in Integrated Tree Cropping (ITC). As for FEA, ELD's bankers have also recently waived lending covenants, so ELD desparately needs to tidy the balance sheet by cleaning up debt. Asset sales have to be on the agenda.

On Friday Gunns picked up the 17.9% because it neatly fits with other negotiations they have been having with Elders who want and need to offload. Gunns will soon announce a full takeover of Gunns, announcing at the time they have secured an agreement from Elders to accept the offer. That leaves Gunns within a whisker of control.

Why would Gunns want control of FEA when it’s not all that healthy? GNS has a large pulp mill project planned for Tasmania. The Greens are fighting it because, amongst other things, it will use some native forest wood for the first 5 years until Gunns own plantation resource is large enough to enable it to allow it to be 100% plantation supplied. GNS have been working on State and Federal approvals for the mill for 2 or 3 years now and still have more to get. In the meantime, the global financial crisis has made it difficult for GNS to fully finance the project in their own right. They have recently announced they are close to closure in negotiations with a potential equity JV partner. If Gunns secures FEA’s plantations by company acquisition, the mill would have to be close to 100% plantation wood from day one. That shuts down one of the avenues of Greenie complaint and improves the overall palatability or social license of the project to the general public.

Gunns may not be financially strong enough at the moment to take out FEA 100% and cover the financial shortfalls. However, its potential mill partner is likely to be from Europe and much larger and financially stronger. The other scenario then is that, as part of the pulp mill equity deal, the partner also supplies some of the plantation wood. How? By becoming the actual party that takes over FEA, and acquiring Gunns’ 17.9% in the process.

Whatever the actual scenario, I have a feeling that FEA is suddenly coming into play. Will I buy any FEA myself? No. It’s outside my personal risk profile!

I would have thought this ann would put everyone off MIS companies!

ASIC Investigation :eek:

http://www.stocknessmonster.com/news-item?S=FEA&E=ASX&N=320181

My brief forray into this area, tells me i got it wrong, got lucky* & got out at the right time.

* Just over break even, but i shan't complain :o

[gambier33]

To be fair to FEA that announcement gives more concern about the practices of some Australian financial planners than MIS per se. The FP industry has more shonks than you can poke a stick at.

[macduffy]

Old news, but doesn't seem to have been reported here.



ASIC raids over tombstone tax schemes
Elizabeth Knight
July 1, 2009

THE Australian Securities and Investments Commission is believed to have raided the homes and offices of at least two financial planners over sales of managed investment scheme (MIS) products.

The action appears to be an escalation of ASIC's investigation of the financially troubled tax minimisation industry.

During the raids — in Sydney yesterday at 7.20am at a former licensed adviser's house and in Melbourne at the offices of another financial planning group — ASIC seized hard-copy files and computer hard drives concerning client records of investments in MIS group Forest Enterprises Australia.

One party subject to the raid told BusinessDay that he believed ASIC had responded to a complaint by Forest Enterprises that the financial planners fabricated investors to purchase investments in Forest Enterprises schemes — known in the industry as tombstoning.

The planner said that these investors, who contributed up to $2 million, were real and that they were financed into the investment by Forest Enterprises.

Chief executive of Forest Enterprises Andrew White did not return calls yesterday.

Last Friday Forest Enterprises issued a sales downgrade to the market, saying it would achieve significantly less than the $60 million made in 2006 and 2007 and stating that "these lower than expected sales for FEA Plantation Project 2009 are attributable to external factors beyond the control of the company".

The ASIC raids are part of the new scrutiny being applied to the MIS industry as the public relations and financial fallout increasingly hits the industry's participants.

On Monday, creditors of one of the larger MIS companies, Timbercorp, voted to wind up the 41 corporate entities and put them into liquidation, leaving shares worthless and investors in individual schemes unlikely to recover their investments.

[gambier33]

MacD, Shasta beat you to the tomb-stoning story (comment #67 - follow the Stocknessmonster link). FEA have been quick to distance themselves from the raids. It seems that it is rogue financial planners (is that a tautology?) that ASIC have in their sights.

I think the big story is Gunns (GNS) recent acquisition of 18% of FEA. On its own, it makes no sense. There has to be a bigger play that will unfold in due course.

[macduffy]

Yes, thanks, Gambier.

The MIS debacle - Timbercorp, Great Southern, FEA - is one I missed by a whisker. Came very close to TIM in particular.

I have a strong suspicion that GNS will come out of this smelling of roses but don't think I'll take the plunge. Will be watching with interest, however.

;)

[gambier33]

Both the Fin Review and The Australian today carry stories about Elders (ELD) recent announcement of an expected increased loss for 08/09. They blamed the bigger than expected earnings downgrade by its 31% affiliate, Forest Enterprises Australia (FEA). In their 17 July 2009 ASX release, FEA advised the net loss will be due to poor MIS sales and "higher short term operating costs and lower than expected production throughput during plant commissioning of the new Bell Bay sawmill"

I still think FEA by the end of this quarter will either be in the insolvent company of Timbercorp and Great Southern, or it will be in a merger or acquisition play.

Now for some pure Speculation!:
If there is M&A activity about to happen, ELD will be bailing out of their 30.75% of FEA, probable with a swap of their FEA shares for Gunns shares. They should leave forestry to the foresters. Gunns shares have upside (e.g. pulp mill project) and are much more liquid than FEA's, with much higher daily volumes. Later ELD could, if they wanted to, depart the GNS register on-market. However, they can only get out of FEA through an off-market deal.

When you add ELD's 30.75% FEA stake to GNS recently acquired 18.0% holding in FEA you have GNS with 48.75% and virtual control of FEA before any other shareholder has even scratched their nose.

I'm getting surer, therefore, that FEA and GNS may be a current buy. Which would I favour? GNS has less risk and they seem to be tight-fisted. They wouldn't be putting a big premium on the current FEA share price to get ELD's slice. Actually, it's more likely to be a discount! Look at the 10 cents per share they paid for their recent 18% stake. Therefore, I favour GNS.

But has my confidence in that scenario broken through my natural risk aversion? Not sure! What other scenarios are out there? I'll mull on it (knowing that's how I've missed opportunities in the past!!).

[gambier33]

New FEA announcement on Friday (24/7) about the finalisation of the CEO's new contract. It contains a mild poisonous takeover pill!

The FEA announcement gives CEO Andrew White 2 years of base salary if control of FEA changes and his responsibilities diminish (of course they would!). That took up around a quarter of the announcement so Andrew White must have thought it was important! The company and its CEO clearly see a takeover coming to have put that much energy into the employment contract. White used to be employed by GNS and I doubt they would take him back - the first gain from corporate takeovers is a quick reduction in net corporate overheads with two head offices becoming one.

Given the recent true value of FEA shares of 10 cents set when GNS purchased their recent 18% stake, two years of base salary represents a reasonable amount of FEA's value and adds a few dollars to the takeover cost.

Personally, I don't think FEA are acting in shareholders' interests when they do a thing like that at a time like this (eg when they are short of cash and only hanging on to their existence by their finger tips). Takeover may eventually be the only hope for both White and the company.

White should then be taking blame for the situation FEA was in, not walking away with 2 years pay! FEA have a greedy CEO.

[gambier33]

Further developments on Friday with Gunns (GNS) going into a trading halt pending an acquisition announcement. Todays media seem to have their money on GNS picking up Timbercorp or Great Southern forestry assets, but I still think Elder's 30.75% of Forest Enterprises Australia is the key. That FEA stake is held by the ELD's 100% subsidary Integrated Tree Cropping (ITC).

My money is on GNS picking up from ELD either the ITC stake in FEA, or maybe even ITC itself (which gives GNS the 30.75% of FEA as well anyway). ITC doesn't appear a good fit to ELD's other businesses.

Picking up ITC gives GNS access to resource in the Green Triangle and WA as well as an entre into port facilities in WA. The proposed Bell Bay pulp mill (Tasmania) will then be 100% plantation based from day 1. That will make it more politically palatable.

With their existing 18% of FEA and adding to it ITC's 30.75%, GNS will have 48.75% of FEA and can either creep to a majority ownership of FEA or launch a takeover to pick up 100% of it. It will then also then be directing the wood FEA had under their control to the Bell Bay Mill.

I believe FEA is now a speculative buy. Without a white knight (i.e. GNS) they are well and truly stuffed. However, with a GNS play, they may pick up 20 to 50%. They certainly jumped Thursday and Friday last week.

[gambier33]

Gunns made their announcement to the market this morning. Once again I didn't quite get it right! Yes, the Gunns acqusition was connected to ITC rather than Timbercorp or Great Southern as weekend media speculation had it. But not all of ITC and not the plantation part (including, of course, FEA).

Gunns have picked up ITC Timber (the hardwood sawmilling and timber sales division of ITC). As well as 4 large sawmilling operations, the deal gives them 50% of Smart Fibre with FEA holding the other 50%.

As Gunns have been talking to Elders to do the ITC deal, it would be hard to believe that FEA didn't come up in their conversations. Elders also went into a trading halt today.

And of course, Timbercorp and Great Southern assets are still looking for a home.

I don't think it's all over just yet!

[crooky]

G'Day gambier,
I haven't had the balls to post about FEA , did take up a position @ 20 last week, so far ahead. It's been quite negative in the past and with just cause.
I tend to agree with your posts that Gunns have them in their line of sight.

[gambier33]

FEA appears to be on its last fatal journey to the knacker's yard.

It has moved from a trading halt to a five day suspension. FEA had been in breach of at least 2 of its lending covenants for the last half. It has now failed to convince its bankers that its current restructure plan will work. It appears that FEA will need to come up with a viable restructure plan or call in the administrator. Doesn't look like either Elders, Gunns or the new Wan Chai (Hong Kong) investor are about to be the white knight, but time will tell. The land base must of interest to Gunns, who are also not adverse to taking on the Responsible Entity role vacated by others (e.g. Great Southern).

[Jaa]

Its not the land bank but the mill where the value is. If they can hang in there the mill will be profitable as it really is state of the art. I saw a video of the sawmill operators sitting on chairs with a joystick in each hand and 4 flatscreens to monitor how each log should be sliced!

Latest on the saga is that the state government is considering helping out, all FEA need I believe is a gurantee as they should be able to pay the interest bill out of cashflow and the loans are not due for a 18 months or so. Its election time in Tasmanian and FEA directly employ 2000 or so staff and contractors so this could be an election issue.

Move to rescue FEA
http://www.themercury.com.au/article/2010/03/02/131001_tasmania-news.html

To me the land assets and legacy MIS earnings stream (~12m/yr without any further sales) nets of the debt (latest published figure is $190m during the recent capital raising not the $240m that is being thrown around in the media) leaving the mill which is worth ~$72m and 50% of SmartFibre which has remained profitable, comfortably more than the market cap.

Only problem is no one is currently buying forestry land but time will solve this as forestry is a very cyclical business. That is IF they survive!

[crooky]

Last couple of words sums it up , That is IF they survive !
appreciate the link.

[Jaa]

No worries, here's another from the ABC suggesting there might be a broad political consensus to save FEA:


The State Government is continuing negotiations with the company over possible assistance but the looming election means it also has to consider the conventions of caretaker government.

The Premier David Bartlett said that convention does not require Greens involvement.

"There is only one official opposition party in Tasmania," he said.

The Greens Leader Nick McKim said the party has been consulted by the government on other matters.

"We're absolutely open minded about government assistance here," he said.

http://www.abc.net.au/news/stories/2010/03/01/2833581.htm

[Jaa]

Now the pressure is going on the banks (2 of the big 4 Aussie banks)

FEA `victim of bank boycott'
http://www.examiner.com.au/news/local/news/economy-business-it-finance/fea-victim-of-bank-boycott39/1765601.aspx

[crooky]

Cheers Jaa,
Just a case of wait and see

[gambier33]

FEA announced today they had appointed a voluntary administrator following their bankers calling in the loans

[Huang Chung]

You were onto this from way back Gambier. Well done.

[shasta]

You were onto this from way back Gambier. Well done.

Certainly added another perspective on FEA that i didnt know about when i first bought in, & gave me a chance to bail (even at a small profit!).

Wonder how Dr Who is feeling about ELD now?

[Dr_Who]

Certainly added another perspective on FEA that i didnt know about when i first bought in, & gave me a chance to bail (even at a small profit!).

Wonder how Dr Who is feeling about ELD now?

This one was pretty much expected. In fact ELD have written down most of FEA to only $5.6m and now down to zero. Wont impact their earnings guidance. ELD has nearly completed cleaning out their dirty laundry. In fact, I am buying more ELD shares at 1.285 as we speak.

[shasta]

This one was pretty much expected. In fact ELD have written down most of FEA to only $5.6m and now down to zero. Wont impact their earnings guidance. ELD has nearly completed cleaning out their dirty laundry. In fact, I am buying more ELD shares at 1.285 as we speak.

I actually dont mind companies writting down the value of there assets, usually the market over reacts to this & provides more investment opportunities, what i don't like is when the write downs are unexpected & have virtually been "hidden".

Surely every company by now has reviewed, revalued, & taken a hit on all pre - GFC asset values

There shouldn't be any more "unknown" write downs, & ELD's write down of FEA is not material

I'm going to have another look at ELD, as im not sure Balance was "balanced" with his assessment.

[macduffy]

Surely every company by now has reviewed, revalued, & taken a hit on all pre - GFC asset values



One would like to think so but I'm sure we'll see more writedowns as reporting dates loom.

In ELD's case here, they had no further to go than zero but I reckon there's a lot of managements who put off the evil day as long as possible!

[gambier33]

I don't follow Elders so my opinion isn't very relevant.

Having said that, I'd suggest ELD followers not get too happy their company has already written down a significant amount of its FEA holding. You need to remember ELD also owns another MIS forestry operator outright, namely ITC (Intergrated Tree Cropping). I would imagine that as a business, and without ELD to prop it up with cash, it's would be as distressed as the others, dead and alive.

I saw a large lick of ITC's Esperance, WA, Blue Gum plantations a few years ago and they were appallingly bad. Low and unreliable rainfall, sandy soils etc had lead to a sorry sight. When GNS bought ITC sawmilling business last year, the ITC forestry business was excluded from the sale. I found that interesting as ELD would have been wanting out of that as much as, if not more than, the sawmilling.

I assume GNS knocked it back. Why? Who knows? Price not right or skeletons? ELDS have specifically mentioned their forestry assets are part of the current review.

[Dr_Who]

Surely the Chinese would be keeping a very close eye on these forestry asset with a view of taking them out. The Chinese cant get enough of our logs over here in NZ. The Chinese are buying up as much log as NZ can cut them down pushing up the prices.

[shasta]

Surely the Chinese would be keeping a very close eye on these forestry asset with a view of taking them out. The Chinese cant get enough of our logs over here in NZ. The Chinese are buying up as much log as NZ can cut them down pushing up the prices.

Just remember Graeme Hart took out Carter Holt at the bottom of the cycle & reaped the rewards (he got mine by compulsory acquistion!)

Dr Who's right the Chinese will be eyeing up NZ forestry's to obtain carbon credits among other benefits

[Huang Chung]

Gambier,

Have you ever had a look at TFS Corporation? Indian Sandlewood.

Tim Morris from Wise-owl.com (and one of the better panalists on Sky's Your Money, Your Call) has been a fan of TFS for quite a while, but maintains its a long term story.

Would be interested in your views.

[gambier33]

Gambier,

Have you ever had a look at TFS Corporation? Indian Sandlewood.
....

Would be interested in your views.

Hi Huang, I've had TFS on my watchlist for yonks but never done a lot of research on it or the business of growing it in plantations (versus collecting it from the native vegetation). Even though a "tree" is involved, it's more like a horticultural crop than being forestry per se. It's taken me a lot of work to get some forestry knowledge without including an esoteric crop like sandlewood in the equation.

Having said that, 30 years ago I once knew a sandlewood collector in WA and it seemed like a licence to print money - and it's still a (more) valuable and sought after commodity.

I suppose what always worries me is the MIS link: there is a distance between the MIS investor (or "grower" as they become so as to access the deductability) and the actual growing. it gets filled with middle men - REs, financial planners on commission, margins for proponent etc. MIS is an expensive way of doing anything.

Look at forestry. If you and I went out and purchased land we could establish a hectare of blue gum plantation on an ex-pasture block for $2,000 per hectare. There are other costs of course - maintenance of the crop and the like, but they are small compared to establishment costs (preparing land, herbicide spraying, plants and planting, fertilizing, etc). Land rental costs are taken at harvest time by the responsible entity (RE). Great Southern sold a hectare for $9,000 plus. Gunns is around $6,500 per hectare. The MIS system is expensive - there are snouts in troughs all the way through.

I know TFS say they are moving away from MIS - well, with the MIS carnage in Aus at the moment you cannot say much else if you want to stay in business. Unfortunately, any company that has used inefficient MIS to fund its work in the past must have skeletons in the closet.

I guess it's a long winded way of saying it all comes down to your risk profile. I'm an investor rather than a trader, so you can probably work out that it's not my cup of tea. If I wanted to get into sandlewood I'd buy a block of land with friends and do it myself in the weekends! :-). I'd be a real grower then, not a micky mouse MIS one!!

regards

[Dr_Who]

Hey Gambier. Whats your take on the Chinese buying up all the logs in NZ and pushing up the price for logs?

[Huang Chung]

Thanks Gambier...damn MIS.

[gambier33]

Hey Gambier. Whats your take on the Chinese buying up all the logs in NZ and pushing up the price for logs?

Sorry Doc, missed the question until now.

Looks like good news for the NZ radiata plantation owners - at long last. It's been pretty tough for a few years. My contacts tell me demand is starting to flow through to Australian radiata log sales as well. Once again, good news for Aus.

I believe the price hike is related to the Russians putting a restriction on unprocessed logs from Siberia going into China. The beautiful supply-demand equation at work and Antipodean logs are now filling the supply side shortage.

Unfortunately high log prices paid by China will probably make the situation worse for domestic softwood saw mills (e.g Gunns Auspine mills and FEA's Bell Bay mill - currently being run by the administrator but up for sale).