Point taken G33,On review of the selection of the cut and paste for the new contributors,John Lawerence(JL) is an accountant and former employee or consultant in the federal finance department in Canberra for about 8 years.
You can find his pedigree on the web,you will also find that JL is a major contributor to Tasmanian Times(TT) on the political financial machinations that have and are still going on in Forestry Tasmania and Gunns,you will also see his articles that will pop up in some other mainstream media outlets,just as Saul Eslakes(ANZ) comments on TT and other mainstream media outlets.
On the TT site,you will see a laypersons 17 point on how JL explains how to read a balance sheet,Iposted a major part on hotcopper,it must have got peoples attention as no one disagreed with it. thanks G33 for the heads up
Gunns has been blessed with a reasonably stable shareholding base with 70% to 80% of shares held by the major shareholders although not quite as concentrated as earlier years. They tip in extra equity when needed $334 million @ $1.50 per share in 2009, $145 million @ 90 cents in 2010 and $25 million @ 60 cents in 2011. But any future capital raising will need to be large and it will mean a significant dilution of the interests of current shareholders, many of whom have helped Gunns survive.
Most of the substantial shareholders (greater than 5%) do so as fund managers, often for many funds. Most of the funds they act for are small, even smaller now as a consequence of their misadventure. Major shareholders are unlikely to head for the exits in the near future, as that may upset the delicately balanced apple cart. It would be akin to shooting oneself in the foot. Most are waiting with crossed fingers, watching the asset sales.
The movement in the price of Gunns’ hybrids is more interesting. The securities are a hybrid between a share and a debenture. They have a face value of $100 and pay interest of about 10% on that face value. Currently a hybrid can be purchased for about $33 yet will pay $10 interest pa. In the past $7 approximately was paid as a franked dividend and $3 as a franking credit. But there are no franking credits left so Gunns has to pay ATO franking deficits tax in order to offset the tax credits given to hybrid holders each year. In other words Gunns has to find 10% to pay hybrid holders so it’s quite expensive money. Gunn has discretion as whether or not to pay quarterly interest, so there’s a risk involved. But I understand if interest payment cease then Gunns may find future capital raising restricted, hence interest payments while Gunns is a going concern are reasonably likely.
In the next twelve months the most likely events are:
• Gunns summons the undertakers and the hybrids become worthless.
• Gunns continues as a going concern whether or not with the pulp mill and the hybrids are redeemed for their face value of $100 in addition to the interest earned for the year.
The respective $ outcomes for an investor are from nil to $10 in the first instance and from $100 to $110 in the latter case. (There are other possible outcomes but these two are the most likely). With hybrids trading at say $33, this implies the rough chance of the former is about one in three and the latter two in three.
To Sportbet fans, Wipeout is a firm odds on favourite at about $1.45 with Longreach Flyer a $2.90 outsider.
It will be interesting to watch the betting on the hybrids leading up to Xmas.
JL <> TT
DYOR
GNS Price at posting:
14.0¢ Sentiment: Sell Disclosure: Held
