I don't keep that close a tabs on it, but I think the value of my own holding in Telecom is approaching twice that of my shareholding in Lyttelton Port. My long term theory is that I want to keep the valuation of each about equal, so I guess I'm relatively underweight in Lyttelton Port at the moment. Mind you I think there are some fundamental reasons for being a bit light on LPC at the moment.Quote:
quote:Originally posted by foodee
Snoopy
Appreciated your post-most helpful. TEL did come into consideration but its weight in our portfolio was a tad too high. All said our holding price in LPC is still below 1.70.
Lyttelton's great hope of the future is the coal trade. However, right at the moment they can't take advantage of it because the midland rail line has not yet been upgraded. I took a look at the Solid Energy Annual report when I was in the library last week.
Did you know that steel manufacturers and coke producers account for 75% of total coal exports? The steel market is on a high worldwide at the moment, but traditionally it has been quite volatile. I also noted that the two largest coal supply contracts to Nippon Steel and Mitsubishi Chemical only extend to 2006/2007. It is quite possible, if China comes off the boil for example, that these contacts may not be renewed.
The annual capacity of the the Lyttelton coal handling operation is 4 million tonnes and it is currently running at 2.1 million tonnes due to constrained rail capacity. However, here is a note from p9 of the FY2004 Solid Energy report.
"Growth in exports beyond 3.3 million tonnes will depend on where we can secure best value for West Coast Thermal Coals, in local markets for power generation or international markets for specialist coal uses."
That export volume also includes coal being directly barged to Australia. That means Solid Energy themselves are only projecting a 50% increase in business in the forseeable future, not the 100% that LPC has been publicly painting in. And if we get a new coal power station in the North Island even that volume increase might be overoptimistic (I presume they would simply barge the coal to the North Island rather than go through Lyttelton).
Meanwhile log exports through Lyttelton have collapsed. If farming comes off, we might be looking at a reduction in dry bulk goods as well.
On the plus side the increase in container terminal TEUs is encouraging. But Barney Sundstrum announced last week a further $18m in capital spending is required to support the development of the port. Let's say half that is Harbour Structures (depreciated over 50 years) and half container equipment (depreciated over 20 years). That adds up to an extra annual depreciation charge of:
9/50 +9/20 = $630,000.
All of this capital expansion is on borrowed money and the interest on $18m , at say 7.5% means additional interest expenses of $1.35m per year
Sundstrum announced a 10% wage bill increase over three years last week. If the workers are not 10% more productive, than means an annual increase in expenses of:
0.1 x 36,461,000 = $3,646,100
I would estimate over a million of that coming through into next years expenses.
Then if the domestic economy slows and some of those used car imports go down.....
In short, I don't think the medium term outlook for LPC, particularly FY2006, is very good. They are going to need a 25% increase in business in FY2006 just to maintain their profitability at current levels!
Furthermore I took a trip down to South Caterbury over Easter to inspect the Port Of Timaru. Land wise and equipment wise it seems more than the equal of anything that Lyttelton has. I think the threat of further competition from the Port of Timaru is very real.
SNOOPY
discl: A slightly grizzly bearish holder of LPC, who intends to keep it underweig