LPC

[Marilyn Munroe]

Headline from the Christchurch Press;

"Lyttelton Port plans second inland site"

http://www.stuff.co.nz/the-press/bus...nd-inland-site

Boop boop de do.
Marilyn

[Snoopy]

You have to look long term Noodles, with what LPC are doing with the growth in log and container freight. Plus think about all those raw materials coming across the docks to assist the ChCh rebuild. I think the operational picture shows real improvement promise, but don't get too excited about the operational performance of the upcoming FY2014, even if those insurance payments cause headline profit to rocket.

The biggest insurance payment ever made to a New Zealand company of $450m seems to have slipped quietly under the radar. But it will make a big difference to LPC from the FY2015 year. The earthquake adjusted profit for FY2013 was around $15m. Interest expense was $7.7m. So what if there was no interest bill (there won't be in FY2015)? Underlying net profit would jump to:

$15m + 0.72($7.7m) = $20.5m. (A)

Now what happens if you have a large wad of insurance payout cash to invest, once the underlying company debt was repaid? From the half year balance sheet:

$382.7m - $39.4m = $343.4m

Say you got 4% on that money, and tax was 28%. The interest earned would amount to:

$343.4 x 0.04 x 0.72 = $9.9m (B)

Add up A and B and I get a baseline NPAT of $30.4m. Shares on issue amount to 102.2m. So prospective FY2015 eps is:

$30.4m/102.2m = 29.7cps.

At $3.20, which is the price shares are being offered at on the market now, the prospective FY2015 PE is:

$3.20/ 29.7 = 10.8.

If there is a cheaper quality share on the market today, I can't think of it.

SNOOPY

discl: hold LPC

PS Net asset backing is now:

$528.4m/102.2m = $5.17

That means for every $1 of assets in LPC, you only have to pay 60c on the market. How's that for a discount fellow value investors?

[Snoopy]

------

31 March 2014

NZX RELEASE
BOARD CHANGES

Lyttelton Port Company Limited is pleased to advise that Mr Jim Quinn has joined the Board with effect from 1 April 2014. Mr Quinn has had a career in senior leadership roles and brings to the Company a wealth of experience in transport and logistics from his time as Chief Executive of KiwiRail Limited from March 2009 until earlier this month. Previously he was Chief Executive of Express Couriers Limited, a joint venture between New Zealand Post and DHL.

As required by the NZX Listing Rules, the Board has determined that Mr Quinn is an “Independent Director” for the purposes of the Listing Rules.

Mr Quinn will replace Alan Grant who has given notice of his resignation as a Director of the Company with effect from 1 April 2014. Mr Grant was appointed by the Board to fill a casual vacancy following the resignation of Rodger Fisher at the Company’s 2013 Annual Meeting.

-----------

A good appointment I think, as someone with wide experience in logistics.

SNOOPY

[percy]

The biggest insurance payment ever made to a New Zealand company of $450m seems to have slipped quietly under the radar. But it will make a big difference to LPC from the FY2015 year. The earthquake adjusted profit for FY2013 was around $15m. Interest expense was $7.7m. So what if there was no interest bill (there won't be in FY2015)? Underlying net profit would jump to:

$15m + 0.72($7.7m) = $20.5m. (A)

Now what happens if you have a large wad of insurance payout cash to invest, once the underlying company debt was repaid? From the half year balance sheet:

$382.7m - $39.4m = $343.4m

Say you got 4% on that money, and tax was 28%. The interest earned would amount to:

$343.4 x 0.04 x 0.72 = $9.9m (B)

Add up A and B and I get a baseline NPAT of $30.4m. Shares on issue amount to 102.2m. So prospective FY2015 eps is:

$30.4m/102.2m = 29.7cps.

At $3.20, which is the price shares are being offered at on the market now, the prospective FY2015 PE is:

$3.20/ 29.7 = 10.8.

If there is a cheaper quality share on the market today, I can't think of it.

SNOOPY

discl: hold LPC

PS Net asset backing is now:

$528.4m/102.2m = $5.17

That means for every $1 of assets in LPC, you only have to pay 60c on the market. How's that for a discount fellow value investors?

Thank you for your post...
Dividends...??? Is there any reason LPC can not pay out their total earnings in dividends.??

[noodles]

At $3.20, which is the price shares are being offered at on the market now, the prospective FY2015 PE is:

$3.20/ 29.7 = 10.8.

If there is a cheaper quality share on the market today, I can't think of it.

SNOOPY

Great analysis Snoopy. I have a couple of factors that I think will lower your FY15 NPAT.

The FY13 interest expense was only $3.863mill. The 1h14 interest expense was only $1mill. Expect another $0.333 mill for the first 2 months of this year. The company has given guidance for FY14 of between $15-16 mill. Perhaps that should be the baseline. So A would be 15.5 +(1.33*.72) =$16.46mill

Additionally, they owe the tax dept $40mill. I would have thought they would have to pay that at some stage.
So B would be $(343.4 - 40) x 0.04 x 0.72 = $8.74m

Add up A and B and I get a FY15 NPAT of $25.2m.

[noodles]

Great analysis Snoopy. I have a couple of factors that I think will lower your FY15 NPAT.

The FY13 interest expense was only $3.863mill. The 1h14 interest expense was only $1mill. The company has given guidance for FY14 of between $15-16 mill. Perhaps that should be the baseline. So A would be 15.5 +(1*.72) =$16.22mill

Additionally, they owe the tax dept $40mill. I would have thought they would have to pay that at some stage.
So B would be $(343.4 - 40) x 0.04 x 0.72 = $8.74m

Add up A and B and I get a FY15 NPAT of $24.96m.

Obviously the interest received will be a medium term benefit as the cash pile gets spent on rebuild. One would hope that rebuilding benefits outweigh the interest received. Otherwise, why bother.

Depreciation will also jump as newly built infrastructure will have higher depreciation. This will depress NPAT a little as well.

[Snoopy]

Thank you for your post...
Dividends...??? Is there any reason LPC can not pay out their total earnings in dividends.??

LPC would claim that even with their full and final insurance payout, there will not be enough money to rebuild the port they want in the future. So I am sure that managment will make the argument that if they keep the capital and reinvest the interest this is an essential part of the process in building up the capital they need.

OTOH the Cristchurch City Council is desperately short of capital for the rest of the city rebuild they have committed to. Perhaps Chrischurch City Holdings might instruct their subsidiary to pay out a spedcial dividend to bring the pain at the port of Lyttelton up to that of the rest of the city? I am sure the second largest shareholder, the Dunedin City Council with their own stadium problems would welcome a cash handout too!

SNOOPY

[Snoopy]

Great analysis Snoopy. I have a couple of factors that I think will lower your FY15 NPAT.

The FY13 interest expense was only $3.863mill.

The $7.7m figure that I put into my calculation was a mistranscription. Net finance expenses look to be $3.578m for FY2013 (p49)

The 1h14 interest expense was only $1mill. Expect another $0.333 mill for the first 2 months of this year.

I was trying to leave any interim FY2014 information out of it, as with the big insurance payment coming part way through the year, the underlying interest payments will be harder to unpick.

The company has given guidance for FY14 of between $15-16 mill. Perhaps that should be the baseline. So A would be 15.5 +(1.33*.72) =$16.46mill

Would not the guidance for FY2014 already include the projected interest savings from the capital repayments?

Additionally, they owe the tax dept $40mill. I would have thought they would have to pay that at some stage.

If you look back to the FY2010 statements (pre earthquake), there was an income tax liability of the balance sheet of $15m. That $40m owing may be 'eartquake inflated' but I don't think you can say that from here on in the income tax liability on the LPC balance sheet will be zero.

SNOOPY

[Snoopy]

Net finance expenses look to be $3.578m for FY2013 (p49)

If you look back to the FY2010 statements (pre earthquake), there was an income tax liability of the balance sheet of $15m. That $40m owing may be 'eartquake inflated' but I don't think you can say that from here on in the income tax liability on the LPC balance sheet will be zero.

I will have another go at this incorporating the corrections by noodles combined with my own corrections.

Underlying net profit would jump to:

$15m + 0.72($3.6m) = $17.6m. (A)

Now what happens if you have a large wad of insurance payout cash to invest, once the underlying company debt was repaid together with th eunusually large balance owing to inland revenue?

From the half year balance sheet:

$382.7m - [$39.4m + ($40m -$15m)] = $318.3m

Say you got 4% on that money, and tax was 28%. The interest earned would amount to:

$318.3 x 0.04 x 0.72 = $9.2m (B)

Add up A and B and I get a baseline NPAT of $26.8m. Shares on issue amount to 102.2m. So prospective FY2015 eps is:

$26.8m/102.2m = 26.2cps.

At $3.20, which is the price shares are being offered at on the market now, the prospective FY2015 PE is:

$3.20/ 26.2 = 12.2.

Not as cheap as I indicated yesterday, but still darn cheap even so. Is that better Noodles?

SNOOPY

[Snow Leopard]

...Additionally, they owe the tax dept $40mill. I would have thought they would have to pay that at some stage....

Actually the answer is theoretically yes and practically maybe some of it.

...If you look back to the FY2010 statements (pre earthquake), there was an income tax liability of the balance sheet of $15m. That $40m owing may be 'eartquake inflated' but I don't think you can say that from here on in the income tax liability on the LPC balance sheet will be zero....

It is not earthquake related but IFRS related.

This all comes about for reasons I have forgotten so completely I do not even know what to type into Google to get the right sort of result, but I do remember a few moans about it when it came in and it was possibly related to buildings? or land? or both? (though it may not be!)

But basically something on the balance sheet has increased in value and if you were to sell it you would have to pay tax on the profit. So when you do the accounts you up the assets by the increase in value of whatever it is and up the liabilities by the amount of tax you would have to pay if you did actually sell it.

But as you are not selling all you can do is leave it sitting on the books.

Best Wishes
Paper Tiger