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Re: Re: [sharechat] FLP - FFS

From: "Mike Hudson" <>
Date: Wed, 31 May 2000 23:17:47 +1200

I am glad I started this, it has generated some robust debate.

Nick wrote

“Shame he didnt recommend you buying fletcher buildingwhen they were below
two dollars, but thats (broke)rs for you. On the other hand maybe something
is about to happen withbuilding. Strange their price has suddenly begun to
take off, especiallywith the sad housing market etc. He may be panicking
about forests too, oh well makes himmore commision i suppose.”

Nick I hope you are recovering from your op but from your tone  it sounds as
though you are not feeling yourself (don’t say it!). As it happens he did
recommend FLB (as  did others) at below $2 and I bought my last 5000 parcel
at  $1.98 and there has been an 8c div since. I don’t own any FFS, never
liked them and  sold those that I got in the FCL letter stock split August
1999 for 99c , and I  will not be buying any more FLB as I currently have
heaps. I was merely passing on some info which I thought might be useful to

Simon wrote

“Mike, I appreciate you sharing the information about FLP and FFS with us
but I don't go along with a blanket recommendation to reinvest the money in
FLB when the building industry is in the doldrums and because of interest
rate hikes (and more to come) which makes selling FLB a more difficult
proposition. I would suggest that investors, should they decide to get out
of FLP and FFS (which I would do as you can always get back in), look at
other stocks which are well-performing at the moment. Kind regards,Simon”

You could be right, however the downturn in the building industry is
probably already factored into the price. I must admit that as you will
realise from my other e-mail address I do have more than a passing
acquaintance with FLB and perhaps my judgement is coloured. However I do
know that the company is currently trading extremely well, there has been
heavy overseas selling which has driven down the price and has now ceased
and the p/e ratio is about 6.

You also need to remember that FLB has significant export business which
will be assisted by a weaker dollar and perhaps even more relevant the
threat of imports competing with the domestic operations has been reduced. A
good example of this is the price increase that Winstone Wallboards has been
able to push through  due to the reduction in plasterboard (gib) imports.

I agree that investors should look at better performing stocks but better
performing can equal overpriced. Perhaps you could share some of your
suggestions with us.

Chris wrote

“A number of brokers value FLB at over $3, ABN AMRO at about $3.20 from
memory(Mike can you confirm?). I think it is a very good defensive stock in
the current climate. “

Yes, most brokers value FLB at over $3 for what it is worth and yes you are
right FLB is a multi-faceted company.
Simon wrote

“Well the market has disagreed and sent FLB down to 2.16 - let's see
tomorrow whether the downward trend will continue.”

If you get hung up about daily 1% movements in this sort of share you should
be in something else. This is not an ITC or AQL type investment.

Warner wrote

“I am having trouble with the FFS debt issue. I hear their debt ratio is
35%..This doesnt seem high. Can someone enlighten us as to the true debt
situation of FFS  .Also I agree with the last post. If  Citic are so unhappy
with FFS management, wont they be delighted to have a new partner? Warner”

Most of us have problems with the debt issue. The debt is held by Fletcher
Challenge under negative pledge and is apportioned to the target shares.
This is what investors have balked about; theoretically one letter share
could trade well but be dragged down by borrowings attributed to another
share. One thing is sure about FFS; They paid way over the top for the
Central North Island forests and there are huge borrowings to service To do
this they have to push huge volumes of wood on to the market to produce cash
flow irrespective of world commodity prices. To me FFS is by far the least
appealing of the three remaining Fletcher stocks (assuming the sale of FLP
goes ahead)

GPT wrote
“Forestry companies need pulpers as much as pulpers need foresters. They are
basically each others profit margin. Someone has figured out a way to ramp
FLB today. The logical buyer for FFS is the Chinese.”

Chinese could be buyers but Yanks more likely. FFS has been actively for
sale for at least 18 months but no buyer yet which doesn’t suggest that
suitors are exactly falling over themselves. As far as ramping of FLB is
concerned a trading range for the day between $2.16 and $2.24  on 1.2m
shares is not too spectacular.

Warner wrote

“I suppose this matters a little to the FFS mistery.It was not the CEO
wholeft..I read in the notice it was the Chief Exec that left.The CEO
MichealAndrews is still there.So maybe not as critical.”

Paul Fowler was the CEO of FFS and Mike Andrews is the CEO of Fletcher
Challenge and  was therefore Paul’s boss. Obviously there has been some fall
out, apparently Paul wanted to float the company and Mike, and presumably
the FCL board, wants to sell it.

Well it has been an interesting day and a nice to see most of the
discussions relating to value stocks for a change.

And so to bed

Mike H

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