Gunns Market Update of yesterday’s date (HERE) is a last ditch attempt to prove that the Company has direction and is solvent. Over the last few days when the share price reached 30c an implosion was imminent; as a result Gunns have come out fighting in a bold effort to stem the tide.
The Market Update states that earnings, before interest and tax for this financial year will still be in the range of $40- 50 million emphasised with, “We are pleased to confirm that there is no change to this guidance”. With one month to go in this Financial Year their accountants (KPMG) must have provided the Directors with a written guarantee of this fact to enable the Directors to sign off on the Market Update.
If they later amend this figure as sure as night follows day another Class Action will eventuate as the shares have now risen nearly 30% on the announcement and over 30 million shares have been traded.
How can this be when they qualify trading in this Market Update in all their main areas of income as follows:
• “Hardwood chip export volumes are below expected levels due to reduced demand from Japan following the catastrophic earthquake that occurred in March this year. We do not expect Japanese demand to increase in the near to medium term”.
Result: This is not an improvement in trade and must reduce annual income.
• “Hardwood and softwood chip margins continue to be adversely affected by the strength of the Australian dollar relative to other countries exporting woodchips to Asia”.
Result: This causes their profit to be reduced.
• “Our sales of hardwood and softwood timber products into the Australian building and construction industry are below expected levels as a result of lower then expected housing commencements”.
Result: This must reduce their cash flow and profit.
So where will this $40-50 million come from; all that remains is an end of year upwards Asset Revaluation or a Labor Government gift for not logging Native Forests?
They make a clear statement of intent that they are going to put in place a financial strategy to enable “us to proceed alone” to build a Pulp Mill. This is a company that owes its bank $650 million dollars, is under attack from a Class Action by its shareholders and has sold none of its Forestry Assets despite considerable efforts to reduce it debts (see John Lawrence on Tasmanian Times ‘Gunns the Next Chapter’ 25/10/10: HERE).
They aim to sell:
• The Green Triangle Softwood Estate in South East Australia
• The remaining hardwood sawmilling activities
• The softwood saw milling and timber operations and the partial sale of all its hardwood plantation assets
In other words, to finance the pulp mill Gunns will have to sell most of its timber assets including most importantly those required to feed a Pulp Mill.
It would seem that the market speculators have not read the detail in Gunns Market Update and have concluded that these assets have been sold at a profit to book value thereby enabling a profit for the year to be confirmed or has the Federal Labor Government given the Directors of Gunns the nod that they will be in receipt of a large sum of Government money for exiting the People of Tasmania’s Native Forests?
Indeed a dangerous game. How have the dice fallen? Only time will tell.
Satire: Karl Stevens, Dave Groves HERE