accumulate

Huntleys says accumulate up to 390!
Patience being tested!

Recommendation: Buy
Share Price: 3.650

FYE Jun 2005A 2006A 2007E 2008E
Reported Npat $m 12.80 14.30 14.00 14.50
EPS c 23.80 26.40 26.00 26.90
P/E x 15.80 13.70 14.00 13.60
EPS Growth % -21.20 10.90 -1.50 3.50
DPS c 15.00 0.00 12.00 15.00
Yield % 4.00 0.00 3.30 4.10
Franking % 63.3 0.0 0.0 0.0
Event
The operating result for the six months to December 31, 2006 reflected the continued weakness in the housing market, particularly in NSW. While ANE does not supply the NSW market, surplus timber finds its way into the Victorian and South Australian markets putting pressure on prices. Total sales revenue increased by 6.7% to $116.6m while Australian revenue was 4.1% higher at $108m. Framing volumes increased up 19% - reflecting a full six month contribution from Frenchpine compared with two months in 1H06 - and treated products rose by 15%. Significant discounting resulted in an 8.4% fall in average framing prices in the half - down almost 15% before recovering in November - with treated timber prices down 1.6%. Increased transport and labour costs resulted in gross margin contracting from 23.7% to 18.5%. Dividend was reduced from nine to five cents unfranked.

Impact
The combination of price increases in both framing timber and woodchip are positive although the Tasmanian situation is negative for 2H. We downgrade FY07 NPAT from $15.8m to $14.0m and FY08 from $17.5m to $14.5m. Our Buy price trigger is set at a 25% discount to NTA of $4.93 - ignoring deferred tax liabilities - and the Accumulate at a 20% discount. Deferred tax liability arises on revaluation of land and standing timber under AIFRS despite the fact the land and plantations will not be sold.