what the?, page-9

gurubob,

I'm actually disappointed that Hills has dropped. My retired parents own Hills and it was one of the first shares that I bought. I sold them a couple of years when I could see the issues they faced.

Hills main problem developed many years ago when they paid nearly all earnings as dividends. The only avenue to growth was through debt and this is now the achilles heal of the business. It's now blown out to $210.6m with a gearing level of 47.9%.

The report is sickly and I think more problems will develop. The banks will be on the phone to H.O. and they are in no mood for more bad news. Hills have stated that they are well within banking convenants, but I suspect they will be linked to the share price. The debt doesn't need to be rolled over until Nov 2010, but if this financial crisis rolls on, this could be a worry.

One way out is to sell assets to reduce gearing, but that won't be easy as we've seen with Fielders, the good businesses may fetch some good money ie. Healthcare but we all know this isn't the climate to be selling and what will be left? a shell of a once great company.

Do I see Hills share price lower? Well from a business perspective, they have challenges and the share price will follow their performance. If they can get a good response from the SPP and maintain a high divi-reinvestment %, they might be okay.

Would I be holding them at this price? my answer would be no, like many other shares on the market the business model is floored and has now caught up with them. The recovery time back to $4+ is many years away (if ever) and if you had to double your money I'd be moving it to a market leader within its industry (WOW or QBE).

Let's hope I'm wrong, we don't need my mum and dad back in the workforce.

Regards
P