APL 0.00% $1.17 antipodes global investment company ltd

timber stocks - a couple of roughies

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    OK guys, I’ve decided to have a go and put up a bit of my research on – and may I stress this – LONG SHOT SPECULATIVE STOCKS – in the Managed Investment Scheme area. Focusing again on Blue Gums of course.

    The two stocks in question are AGW (Australian Growth) and APL (Australian Plantations Ltd).

    Both have interesting stories but right up front I must point out that of the two my favourite is APL. I think they are both interesting stocks for entirely different reasons because they are (or have been) operators in a highly profitable and now fully legislatively supported tax minimisation sector and the sector is well on its way to regaining full flight (El Nino aside). Neither was really able as listed entities to participate in last years first cut back from the ATO inspired brink, AGW because it wasn’t listed until and APL because it was in Commonwealth Bank inspired administration. Hardly an inspiring start one might think.

    I will quickly run through AGW.

    Australian Growth Limited (AGW) is a company providing a range of tailored forestry investments for investors. AGW acquires land suitable for forestry then plants and manages the trees for Growers who lease the land from the company.

    The company provides smaller investors access to the forestry industry through a range of timber prospectuses. Larger investors can tailor make private forestry investments through the company's bespoke forestry services.

    Top 20 shareholders hold 62% of the stock with not an institution to be seen. So why the interest.

    The company seems to have a NTA of approx 34.4cps based on 42.166 million shares on issue with Net Assets growing by nearly 40% last year (a similar story with most of these sector companies.)

    AGW sold approximately 1,500 woodlots for the year ended 30 June 2002. Whilst this result was below the sales target (prospectus forecast) of 2,000 woodlots, it represented a 177% increase over the previous years sales level of 541 woodlots.

    Earnings after tax for the year to 30 June 2002 was expected to be approximately $5.1 million as a result of the above sales.

    Clearly this represented a significant turnaround for AGW and bodes well for the coming year for the company to return to a sustainable level of sales which appears to require to be slightly higher than this.

    Further, AGW represents one of a small handful of potential acquistions that might be of interest to the cashed up and apparently acquisitive GTP. Top of the head reasons would be immediate synergies from back office costs, further diversification in planting areas re Kangaroo Island and a prospectus offering not hugely dissimiliar to their own.

    The AGW share price has suffered in recent months from being both very thinly traded and being in a combination of sector off-season and drought psychology (?).

    The November 2002 newsletter which is available in PDF format on their website continues to suggest that whilst rainfall is less than desirable recent plantings are traveling relatively well.

    Having last traded at 11c things are looking a little off-putting but chances are that rain and a decent tax season ahead could turn things around quite quickly here for a decent return.

    As always do you own DD as this is a LONNNNGGG shot.


    Australian Plantations Ltd(APL)

    APL has only recently relisted, a reincarnation of the not particularly well run (obviously as it was placed into administration by its bankers the CBA) Australian Plantation Timber (APT).

    In a complex takeover / merger involving the unlisted Integrated Tree Cropping Ltd (ITC), Futuris (FCL) and the merchant banking operation Zurich Capital Markets, ITC have emerged with 50% of the relisted APL whilst FCL and subsidiaries with options over 50% of ITC have effectively ended up with 65% of APL.

    As part of the scheme of arrangement with creditors involved the issue of scrip another 15% of the company is tied up in a Creditors Trust and a further 7.57% is held by the ANZ bank.

    ITC received its shareholding in return for contributing its Managed Investment business, $6.9 million in capital and a further $10 million guarentee. Under the restructure, APT's land and loan book was transferred to ZCM, in return ZCM contributed $82 million of value to the APT Group. This allowed the CBA to have their $50 million loan repaid in full.

    Yesterdays news from ZCM of the ongoing shakeout there, with Zurich Financial Services buying out Packer and Murdoch and looking to sell the rest of the business via Goldman Sachs does place a question mark over who will now end up holding the securitasation of APL’s loan book but this will no doubt be suitably resolved one way or the other.

    I alluded that this company most likely should never have been placed in administration. The appointment was made at the absolute depths of despair in the industry brought about by a Tax Office crackdown on tax effective agricultural schemes which unfortunately ended up crippling not just the shonks but the legitimate businesses as well. CBA, clearly not liking the way the wind was blowing decided to pull the rug out from under APT despite its having been the largest of the Australian List plantation managers and having apparently had adequate assets to cover the existing debts easily.

    A look at the financials of APL reveals that clearly this is a company that cannot afford to hang around doing nothing for another year and needs to urgently fire up its MIS marketing. This is where it should come into its own for as far as I can see this is the object of why it has been structured in the way it has.

    APL appears to now be a dedicated MIS marketing business combining its own and ITC’s marketing divisions to sell tax effective bluegum plantation woodlots.

    It appears that ITC is then retained to perform the hands on planting and day to day management of the trees.

    Profitability for APL will naturally depend on the nature of the transfer pricing between APL and ITC (ie how much ITC charges APL to plant and manage the woodlots ) together with the profitability of the securitisation arrangement that is in place from time to time with either ZCM or whom-ever-else.

    Although a lot of shares were issued to the various parties in the restructure effectively diluting existing stakeholders to next to nothing, the capital was then restructured post the issue via a 5 to 1 consolidation reducing total issued scrip to around 79.5 million shares.

    Since relisting these shares have traded a range from 34c to 10.5c closing yesterday at 11.5c and effectively valuing the entire company at $9.14 million.

    Nearly all of APL’s Net Assets are in the form of cash and are largely comprised of the so called MEX funds which are required to ensure the ongoing maintenance of existing investors woodlots. So, as I said earlier, it is incumbent on the new management to fire up the marketing arm very fast in order to drive revenue flow from day one.

    As I said before this has been a very successful operation at selling this product and is now combined with the incoming MIS distribution network of ITC via the acquired marketing division. Thus what you have in APL is a potentials sales operation with relatively low overheads excepting those addition costs generated relative to sales of MIS units.

    At these prices it could well be worth a small investment if for no other reason than that Futuris does not lightly make investments of this type and Alan Newman is a master at picking grossly undervalued and unrecognised assets.

    As always do your own DD.

    And as always I would welcome any feedback or thoughts.


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Currently unlisted public company.

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