Analysts cautious on CHH rebound

By PAULA OLIVER

Forestry giant Carter Holt Harvey revealed a surge in first-quarter earnings yesterday, but analysts warned that a post-GST slump in Australia's timber market could halt further growth over the next six months.

Carter Holt lifted net earnings for the quarter ended June 30 to $90 million, a huge improvement on last year's corresponding result of $13 million.

Net sales were the highest ever, at $951 million, up from $733 million last year.

Chief executive Chris Liddell said the result was pleasing, but he still saw it very much as work in progress.

He pinned the improved result on higher pulp and log prices, a strong Australian construction market and solid Asian markets.

"Obviously it's tremendous to have this first quarter as high as it is, but we need to maintain that quarter after quarter before anyone gets too excited about it."

He poured cold water on questions of a special shareholder dividend payout, despite the fact that earnings per share for the quarter were 5.2c.

The company had successfully lifted its prices for particleboard, tissue and panel products in Australia, and adopted the same strategy for the Asian log market, Mr Liddell said.

He was prepared to sacrifice market share for greater returns on capital, and had been doing so.

Credit Suisse First Boston analyst Andrew Mortimer said the result was slightly better than expected, but erosion of the Australian building market could have a big effect.

"Pre-GST buying was strong in Australia and it amounted to this very good quarterly result, but that's unlikely to continue now.

"They're talking about putting up prices in Australia for tissue because higher pulp prices have put it under pressure, and that will be interesting, too."

Simon Gresham, of Merrill Lynch, said the figures should not be too closely compared with last year's, because 1999 was a deep dark hole.

"The result does look good, but the obvious downturn in housing in New Zealand and Australia has to have an effect.

"The outlook is mixed because on the other hand there is further room for improvement in log prices."

Carter Holt's Australian panel and sawmill acquisition showed good early results, Mr Liddell said, but he was reluctant to discuss figures.

A highlight of the result was the news that the Kinleith mill is running at full capacity.

Mr Liddell said he hoped the Government's controversial Employment Relations Bill did not have a big effect on the plant.

"There are a whole lot of factors contributing to the economy's downward spiral, and the ERB is clearly one of them," he said.

"We don't support the need for the bill but we're looking ahead and the real test now is how people will behave under it."

Mr Liddell would not discuss whether Carter Holt was interested in acquiring Southcorp packaging, which was put up for sale this week.