GREAT SOUTHERN PLANTATIONS LIMITEDSHARE PRICE AND FINANCIAL...

GREAT SOUTHERN PLANTATIONS LIMITED

SHARE PRICE AND FINANCIAL POSITION


The share price of Great Southern Plantations Limited (“GSP”) has seen much volatility in recent weeks. This has led to some confusion and uncertainty. This paper has been prepared to explain the share price movements and to re-iterate the financial strengths of the company so as to overcome the confusion and to provide further confidence regarding the company, its financial position and its prospects for further growth.

Share Price

The current share price of the company cannot be considered in isolation. The current share price is factoring in the fact that new shares are to be issued under the DRP. However, these shares have not yet been issued, but they will in June and the share price and issued capital must be reviewed together. Consider the following:

Prior to the announcements regarding the strategic review of franking credits and the reactivation of the DRP, which culminated in the announcement of the special dividend, the share price of the company was approximately $1.00. With 135 million shares on issue, the company was valued at $135 million. Following the issue of new shares under the DRP, we estimate there will be approximately 200 million shares on issue. If the share price is then 67 cents, the value of the company is still $135 million. In other words, notwithstanding a large reduction in the share price, the company is still valued the same by the market (this is similar to a share split where a company can issue 100% of its issued capital as new capital and its share price therefore halves - this doesn’t mean the company is worth any less).

We are currently in the pricing period of the DRP, which is the period (running from 26 April until 6 June 2002) in which the price at which the shares to be issued under the DRP is determined. This period creates an artificial and volatile period for our share price, during which trading decisions may be based on seeking DRP benefits and taking advantage of volumes rather than being based on more normal fundamental criteria. One needs to wait until the pricing period is complete, to assess where the share price truly lies.

On fundamentals, our shares would certainly seem to be undervalued. Based on June 2001 numbers, our NTA per share is approximately $1.27 per share, nearly twice the current share price. Moreover, the current share price reflects a price earnings ratio of around 3, which is extremely low as compared to other financial service companies. A more reasonable industry average PE would be around 10 -12, in which case our share price would currently be up to around $2.00 per share (before the effect of the impending new share issue is taken into account.)

A company’s share price is not always indicative of its relative financial position. Share prices can be determined as much on factors such as sentiment or particular circumstances. The company is in a stronger financial position now than when our share price was $4.80.(see further below).

A number of brokers are preparing updated research reports given the current price, with strong buy recommendations. The common feedback is they believe the stock should have now bottomed out and represents an extremely good buying opportunity. We shall forward copies of research reports as they become available.

Financial Position

The company is in an extremely strong financial position, with net assets in excess of $165 million, no debt and cash reserves.

We believe we are probably the only ASX 200 company with no debt. This provides enormous financial security and great flexibility. Other prospectus based companies have gearing ratios of greater than 50% and some, including Gunns Limited, have gearing ratios in excess of 100%!.

The company raised $33 million on the initial float and subsequently raised approximately $48 million through a rights issue in March 2000 (totaling $81 million). Since floating, we will have paid $61.5 million out in dividends - a clear reflection of the strong financial performance of the group over the last three years.

The company’s liquid asset ratio at December was 2.6 times, providing a great level of comfort in respect of the company’s liquidity. By way of comparison, the liquid asset ratio of Gunns and Timbercorp was only 0.6.

The company’s financial position is expected to improve further, given a successful sales result in the current financial year.

Prospects

The level of sales to 1 March 2002 was some 83% higher than for the similar period last year. If this trend continues, the level of sales and resultant profits for the full year will boost even further the strong financial position of the company.

The outlook for sales in the current financial year appears strong, with renewed confidence, increased government support and reduced level of competition providing a conducive sales environment.

The company has $60 million of franking credits even after the special dividend and further credits will accrue on the payment of the current year’s tax.

It must be remembered that our share price hit a low of 35 cents less than a year ago. We have already doubled our share price in less than 12 months and paid a 30% yield to our shareholders at the same time. With further upside potential in the share price, particularly with a strong sales result, the upside is even greater and our position should be viewed very positively.

I hope the above serves to allay any concerns or issues that may arise. Please be assured that the directors of the company have great belief in the strength of the company and are positive that the short term effect of a lower share price will be far outweighed by the long term results the company is confident in achieving.

Thank you for you on-going support.

Should you have any queries in relation to the above, or would like to discuss any matter further, please do not hesitate to contact either me or John.

Kind regards



Cameron Rhodes
General Manager