Forum Archive Index - July 2001

["Joe Farr" <farr_joe@hotmail.com>]

Why its(CAH)share price still going up?


>From: "Peter" <pmaiden@xtra.co.nz>
>Reply-To: sharechat@sharechat.co.nz
>To: <sharechat@sharechat.co.nz>
>Subject: [sharechat] CAH perfromnace
>Date: Wed, 25 Jul 2001 10:20:22 +1200
>
>Carter  Holt  Harvey  are having their annual meeting this week and 'The 
>Herald' reports  there  could  be  some  searching  questions  asked about 
>the company's current performance.
>
>Shareholders  should  be  concerned  and disappointed as to how their 
>company is performing.
>
>Reported loss for the June 2001 quarter was $34M, Even taking out 
>'restructuring and non-recurring items' out their is a loss of $7M.
>
>As  an  aside  it  is  interesting  that  CAH  have  reverted to the 
>practice of emphasising operational earnings and not saying too much about 
>real earnings.
>
>Included  in the June quarter result was  '....all three recent 
>acquisitions made positive earnings contributions despite difficult trading 
>conditions. In the Pulp and Paper group the Kinleith, Penrose and Whakatane 
>mills all achieved record or near record production in the quarter.'.
>
>Also the continuation of   '..... has delivered profit improvement projects 
>of over $200 million in the last three years.'  has had a favourable 
>impact. However how long can a company save it's way to prosperity?
>
>Taking these factors into account his does not say much for the underlying 
>performance of CAH
>
>Rolling  four  quarter  earnings show that the last 12 months earnings have 
>been $113M.  That includes the $86M earnings in the September 2000 quarter. 
>According to CAH prospects do not look too good for the corresponding 
>period this year. If
>the  forthcoming September quarter is similar to the just concluded June 
>quarter than earnings on a annual basis to September 2001 are near enough 
>to zilch.
>
>This from a company with revenues of close on $4B, shareholders funds of 
>just on $5B  and  long  term debt of $1,7B. In addition CAH doesn't 
>currently have a tax expense.
>
>No wonder shareholders are disappointed and frustrated.
>
>
>Even  at  the  current share price of $1,75 the market is valuing the CAH 
>future cash  flows  at  a negative $3.6B. This is how much economic value 
>the market is expecting CAH to destroy in the future.
>
>How does one then justify the CAH share price of $1.75?
>
>
>If you use a earnings multiple the current price is about 27 times the past 
>12 months earnings. In a few months times it is likely there won't be any 
>earnings to make this calculation.
>
>
>Therefore justifying the current price has to be based on how CAH will 
>perform in the future or speculation about a takeover or whatever.
>
>But based on history (have a look at long term trends) what has changed to 
>make them consistently earn over $250M per annum to justify the current 
>price on earnings performance? Or when will CAH earn in excess of $700M to 
>cover it's cost of capital? There is a lot of hope shown in the future when 
>it comes to improved performance from CAH.
>
>
>Ok - maybe at the bottom of a cycle - if so CAH missed out on the tops of 
>the last cycle. Will they do it again?
>
>If shareholders do ask some sesarching questions at the meeting it will be 
>interesting what the CAH response is.
>
>I have no direct interest in Carter Holt but take an interest in them 
>because if large companies like Carter Holt are healthy
>then the whole country is (economically) healthier.
>
>Cheers
>
>Peter
>
>


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