jp morgan says risky

Analyst warns of risk NICK CLARK | August 27, 2011 12.01am


GUNNS' move to let a $20 million contract for earthworks before Bell Bay pulp mill project finance had been achieved was a "risk too far", a leading analyst said yesterday.

JP Morgan issued a damning analysis in the wake of Gunns' $355 million annual loss announced on Thursday.

The report is certain to put more pressure on Gunns' share price, which remains suspended at an all-time low of 20.5 cents.

"We cannot recommend investors hold a position in Gunns," the report said.

The analyst had concerns about the sustainability of the business.

"We consider the risks around repayment of bank debt, the future demand for its exports, the execution of the pulp mill project and the uncertainties around the Intergovernmental Agreement on the Tasmanian forestry industry to be too much to justify a play on the company's asset backing," J P Morgan said.

Gunns has $628 million of debt, of which $593 million is classified as current payable in the next 12 months.

JP Morgan said Gunns had moved to start bulk earthworks to beat the deadline on permits at the end of August.

"As a result Gunns has announced it will start bulk earthworks and has let a contract accordingly," it said. "Without securing project finance we believe this is a risk too far."

It said it remained to be seen if Gunns' aspiration to attain project finance by next March 31 was realistic.