Agree with your logic that market weakness will shift the smaller/ weaker players out to the LT benefit of stronger ones and supply/ demand imbalance will correct.
Looking through CWT's tennants you would imagine that they all fall into the 'stronger' category and will survive.
Also, given CWT long Weighted Average Lease periods these tennants will divest other parts of their portfolios instead of their contracted CWT leases (e.g. Fosters, Australian Vintage, Delegats, etc) during this shake out. The wine market should well recover long before most of CWT leases come up for renewal.
Re the NTA; By my clac's this has reduced by the following for the half year:
Reduction in asset values = -$33 mill Improvement in interest swap = +$13.7 mill Revaluation of water rights = ?
Total reduction in NTA = -$19.3 mill
Depending on what line of NTA you are using (ignoring water rights, taking water rights at historical cost, or water rights at market value) this leaves NTA per share at either:
Ignore water rights: 48.66c per share Include water rights at cost: 59.2c per share Include water rights at market: 63.2c per share
It would thus appear that there is a reasonable buffer here. IMO, however, the improvement in interest rate swaps is more likely to reverse in the ST (negative for NTA) than it is for asset values to improve... thus there is more likelihood of additional downside risk to NTA than there is upside.
Given that no debt matures until 2011, the high rate of tennancy, the sale of untennanted assets, and the long weighted average lease to 'strong' tennants, it would appear that CWT is viable and sustainable.
If CWT remain within banking covenants (will be interesting to see the new headroom with FY09 accounts), and can continue to pay 50% of earnings as distributions, and progressively reduce debt then it will help with the SP.
I've decided to hold and based on distribution yeild being maintained (17.7% at current SP) then will try to slowly pick up more.
Looking at the index charts it appears that the REIT sector (XPJ) will be a good place to hide if things go pear-shaped again, due to them collectively being so cheap relative to NTA.
Cheers John
CWT Price at posting:
28.0¢ Sentiment: Hold Disclosure: Held
