Timbercorp has announced that sales of its forestry managed investment schemes will come to $41m for the year to 30 September (there will be no further forestry sales between now and September), a 5% increase over last year. This follows the 18 June announcement that, with $92m already in the bag, sales of non-forestry products are now expected to be $105m for the year to 30 September, 15% less than last year. A final dividend of 3 cents per share has also been announced (ex date not yet known).
The non-forestry sales result was disappointing (we were hoping it would match last year) and the accompanying profit downgrade came as a shock. Full-year profit is expected to be down $15m on the previous year, and that’s with a large ramp-up in annuity revenue from $175m to $230m. The downgrade apparently relates to unsold product expenses – Timbercorp had developed $139m of non-forestry products and now only expects to sell $105m this year.
We hope that’s the case, because they should have no trouble selling the product next year and we’re only budgeting on one more year of non-forestry sales. But we’ll be reading the annual report very closely to make sure that the growing annuity stream, on which we’re basing our investment case, is translating into growing profits.
The excellent news in the recent announcements is that we’ve underestimated how much that locked-in revenue stream is set to rise. Annuity revenue will grow to more than $300m in 2008 and there’s plenty more in the pipeline.
There’s value here even if the margins don’t hold up and, with the share price barely changed since 4 Jun 07 (Strong Buy – $2.09), our recommendation remains STRONG BUY to $2.15.
TIM Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
