Ferret's Stock to Watch: AUSPINE LIMITED09:17, Monday, 13...

Ferret's Stock to Watch: AUSPINE LIMITED
09:17, Monday, 13 November 2006

A COMPANY THAT HAS NO SUITORS BUT MAY BE A CANDIDATE

Sydney - Monday - November 13: (RWE Aust Business News)
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OVERVIEW
********

South Australian-based timber group, Auspine Ltd (ASX:ANE)
attracted attention last Friday when directors issued a flat denial that,
to their knowledge, there were no predators lurking in the wings.

After a story in the Australian Financial Review that a takeover
might be in wind from Futuris, Auspine the same day shot back an
announcement to the ASX saying that directors are "not in any discussion
with any potential acquirer."

So that seems to be that.

But the lengthy tome ascribed to Futuris's thoughts as to why it
would want take out Auspine for about $5 a share (with the share
presently at $4.25) would have to alert the market about the company's
potential in the takeover stakes.

And it might well attract the new predator breed of private
equity groups.

Difficult industry periods also encourage opportunists to analyse
companies that may be appear more vulnerable than normal.

Auspine will be finding it tough in 2007.

The company itself says the outlook for housing is for a
continued decline in housing starts with a forecast reduction of
approximately 2 per cent to June 2007 on a national basis.

Of particular concern are the significantly higher reductions
forecast in Western Australia (-4pc), South Australia (-13pc) and
Victoria (-8pc).

It is anticipated that the alterations and additions market will
improve marginally.

During the year, Auspine continued to develop a presence in the
export market for sawn timber products.

Prices have improved in this market and may become even more
important given the forecast reduction in domestic demand.

Any increases in interest rates and fuel prices will continue to
put further pressure on margins and net operating cash flows.

Meanwhile Auspine reported a full-year profit before interest and
tax of $27.9 million, which is up 11.8pc on the $24.9 million reported in
the previous year.

This result is consistent with the directors' statement issued to
the market in March.

Profit after tax for the year was $14.3 million up from $12.8
million in the previous year.

Earnings per share was 26.4c (up 2.6c) on the same number of
issued shares as in the previous year.

The result represented a return of 5pc on significantly increased
shareholder funds following substantial market revaluations and on an
increased turnover of $239.5 million (up $18.3 million).

In a continuation of the trend reported last year, market
conditions were highly competitive and this placed further downward
pressure on gross margins.

Housing starts decreased in the order of 5pc on a national basis
for the year, in line with previous forecasts.

The company's sawn timber sales volume increased by 25pc and was
assisted by the acquisition of Frenchpine in October 2005.

Woodchip shipping schedules were maintained while prices
decreased marginally in the second half.

International demand for radiata pine woodchip remained strong
throughout the year.

Auspine's operating costs were affected severely by fuel price
increases.

Plantation land was revalued upwards by $57.8 million (before
tax) following regional increases in land values.

Standing timber valuation income was $15.2 million in before tax
earnings.

In a positive sign for the future, $6 million of this income was
realised, which was in addition to the realisation of $13.8 million of
gross income from plantations managed for external investors.

Operating cash flows increased from $4.5 million to $21.3
million.

The final dividend has been increased from 5.5c per share
unfranked to 10c per share unfranked.

As the market for structural timber became even more competitive
during the year, timber pricing came under further pressure in the second
half as housing activity declined and domestic producers maintained
production volumes.

The Sydney market continued to underperform and New South Wales
housing starts fell to a 30-year low during the period.

This scenario, combined with large volumes of uncommitted stock
on the eastern seaboard, continues to prompt sellers to operate in
southern markets.

The national oversupply of framing material will take some time
to be rebalanced with demand.

The prospect of further interest rate rises is likely to
exacerbate the present tight operating conditions.

A pleasing aspect of the year's performance was the increase in
sales of treated timber products.

The company more than doubled its sales from its range of "True
Blue T2" termite-resistant framing products.

During the year, the company made the decision to consolidate its
value-adding and treatment operations at Kalangadoo.

This will involve the relocation and upgrade of the Portland
timber engineering operations later in the year.

Although sales volumes increased in all markets, the Western
Australian market performed extremely well with a significant increase in
volumes - albeit on lower margins than last year.

The company's South Australian prefabrication operation improved
its sales volumes and was generally able to maintain its margins in
difficult conditions.

This operation continues to develop a broader service offering
including technical support and on-site installation.

These services are becoming increasingly important as the
regulatory and compliance regime for domestic construction increases.

This follows the South Australian coronial inquest into the
Riverside Golf Club roof collapse.

Auspine's largest market is Victoria and although the company's
sales volumes increased, margins in this state were extremely
disappointing.

The company is reluctant to operate in New South Wales and
Queensland owing to the negative impact of freight on its operating
margins.

SHARE PRICE MOVEMENTS
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Shares of Auspine rose 15c to $4.25 on Friday. Rolling high for
the year has been $4.37 and low $3.01. Dividend is 19c to yield 4.47 per
cent. Earnings per share is 26.4c while the p/e ratio is 16.1. The
company has 53.9 million shares on issue with a market cap of $229.2
million.

The acquisition of Frenchpine in 2005 has produced encouraging
results and the company is presently focused on the renewal of its log
supply arrangements on a long-term commercial basis.

It is anticipated that the security of supply in the future will
underpin further value-adding and investment opportunities for the
company's total Tasmanian operations.

The company is hopeful that this can be resolved by December.

During the year, the operations of a major purchaser of the
company's Tasmanian residual woodchips ceased following a fire at its
production facility.

Auspine is presently examining alternative options for the sale
of these woodchips.

The company's mainland manufacturing operations generally
performed steadily and maintained internal cost control objectives.

Auspine's Tarpeena mill in South Australia produced a sound
result overall following some short-term production hiccups earlier in
the year.

This site continues to operate in a stable industrial relations
environment.

During the year, the company executed a five-year woodchip
contract with its major customer, Daio Paper Corporation.

It is anticipated that this contract will continue to form a
sound basis for Auspine's strong involvement in the market for softwood
woodchips.

According to managing director Adrian de Bruin, the company is in
a strong position to maximise value throughout its supply chain.

As the company operates from the plantation to the customer's
yard, it can be flexible when required and is in a better position to
make the appropriate and timely operational responses to market
conditions than many of its competitors.

Auspine intends to sharpen its focus on value and develop
additional strategies to respond to market conditions in order to
maintain sustainable returns for the future.

BACKGROUND
**********

Auspine is a vertically integrated forestry company involved in
the growing and harvesting, manufacturing and sales of quality timber
products in both domestic and export markets.

Total sales currently exceed $210 million per annum and Auspine
directly employs 700 people.

Auspine has state-of-the-art manufacturing facilities in South
Australia, Tasmania and Victoria.

Auspine Timbersales has distribution centres in all states,
supplying customers with the following:

* Radiata pine products: framing, studs, microline beams, DAR
boards, flooring, linings;

* Treated pine products: Microline beams, treated framing, sawn,
fencing timbers, palings, pickets, rounds;

* Remanufactured products: Laminated beams, finger jointed studs,
finger jointed fascia;

* International timbers: merbau, meranti, damar minyak, western
red cedar, baltic pine and others, and

* Associated products: Australian hardwoods, cypress pine, MDF
mouldings.

ENDS

Copyright © 2006 RWE Australian Business News. All rights reserved.