I started buying again this week having, not having bought any for over half a decade and not having held any for a few years either. Top 10 points:
(1) GTP was "extreme" value five years ago, during the recession and when Van Eyk was on nest feathering crusade. People were committing suicide and despite both sides of Parliament being firmly in favour of the 2020 Vision (tripling of the plantation estate), one wouldn't know it reading the media or this bulletin board. In July, 2001, the AFR featured the infamous "Death of a Sector" headline, which basically marked the bottom of the market (although it wasn't until Iraq, SARS and 911 were out of the way that the share price really started to move more freely). During this period, GTP achieved a PE of 2, a relatively liquid NTA (cash, real estate and timber), of three times its share price and paid out a fully franked dividend of $0.30 within a year of reaching a low in the mid-30's.
(2) GTP's value today is not as good as it was back then, but it's still very good value indeed compared to most of the market. http://web.iress.com.au/secinfo.asp?m=6&e=ASX&c=GTP shows an NTA of more than 10 % above the share price, with a PE of 4.45 and yield of 5.64 %. "Going forward" one can argue the toss on those stats, but the world and Australian economies are far more healthy now than a half decade ago and GTP has proven itself as a grower of trees and manager of funds. The company is worth over half a billion $, so is not a minnow any more and index followers have to have some. At one point it was the only stock in the ASX 200 without any debt to speak of.
(3) Five years ago, Alpha and I were the only consistent and constantly-posting-details supporters of GTP. We both got attacked to the point where I left HC for a year as I couldn't / didn't want to take it any more. These days there is far less all out rudeness and putting down for sport in this stock, so the opportunity is not as good in sentiment terms, but the economy is stronger and suffice to say that zwu remains on "ignore". Alpha and I may disagree this time around, but that's the market. :-)
(4) Most punters look on GTP and its ilk as little more than tax dodge harvesters. I don't for a number of reasons. GTP has a real business and a real product of value. There is the possibility of the business being bought out, like some other Australasian plantation managers have been by private U.S. etc super funds. There is also the possibility that GTP, with its strong fundamental position, could change tack. Some out of left field possibilities include "green" initiatives such as carbon trading, biofuels and even participation in some way in the Government's just announced, $200 million reafforestation program in Asia http://www.abc.net.au/news/newsitems/200703/s1885085.htm (how often do you see Indonesia warmly welcoming an Australian Government initiative?). There are any number of other business opportunities for a company in a position of financial strength, if the interest in their current one was to wane for some reason.
(5) The price of timber has kept ahead of the S & P 500 index in the U.S. for over two centuries and in trend terms, it isn't getting any cheaper. Throughout the recession and changing Yen and fuel prices, Japan has continued to buy Australia's timber with little let up and is increasingly interested in plantation timber. Recycled paper is in increasingly short supply as well. Quality timber continues to get increasingly scarce around the world as demand surges from countries such as India and China and moves increase to limit illegal logging. As time goes by, there are slow but sure moves to value add.
(6) A couple of years ago, at the top of the cycle in their share price and sector, GTP senior management got too greedy for my liking and strayed from their core program. The market and new rules have started bringing them back into line. They have survived the worst drought in a century, weathered a cyclone or two, seen off Van Eyk and co. and put TIM in its "not leading" place by most measures (the new rules favour GTP over TIM, BTW, never mind that TIM has been less than forthcoming about its water issues in the Green Triangle). GTP's often criticised business model of taking almost all income up front continues to put them in good stead.
(7) Overlooked by almost everyone that I can remember in the last half decade is coppicing. Round one of the tree growing cycle is the expensive and risky one. Land has to be bought / leased and set aside, investors and tax incentives are generally needed and growth is uncertain. It's a very different story second time around. If a company owns the land (or has secure leases) and has proven itself, it costs relatively little to coppice the stumps after the first harvest and with a good balance sheet, the need for investors is minimal. In general, healthy gums can be coppiced at least once. GTP is sitting pretty. As for all those complaints about the price of land going up, guess what happens to the value of companies which own it? With higher land prices and bigger banks, there is more scope for business opportunities too. A manager of McDonalds once told his class of new recruits in the U.S. that the company wasn't in the business of selling hamburgers, it was in the real estate, value adding game. There are similarities here.
(8) Tax time is approaching and as usual there will be a flood of investors looking for anything to throw their money into as long as they don't have to pay it to the Government. That psychology is costly, but it's a given when times are good at least, as they certainly are in GTP's home State. The more captive investors GTP has (one decade tree programs), the more scope it also has for developing other avenues. Witness how many willingly followed it into grapes, cattle and so forth. What is the database of well off investors worth to another party if they sell out? There are so many possibilities here.
(9) Bob Carr has predicted carbon trading between individuals http://www.abc.net.au/news/newsitems/200703/s1885028.htm. Whether one believes it is a good idea or not (I have my doubts), it if comes to fruition, having a land bank of ever growing trees with become increasingly valuable to both GTP and any investors. The quality opportunities for good tree plantation investments and plantings are limited in this country, as the companies who are accepting carbon offset contributions from the public are quickly finding.
(10) GTP has been falling for over two years in a strong bull market, while it's numbers have continued to improve. It's a quality company with a good product. For now, I'm back in.
GTP Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
