By David Symons
After a few shaky months, news from the timber giant Gunns has been brighter of late. Aggressive buying from Phil Mathews' hedge fund has help lift the share price out of the cellar, and the company's 2010 financial statements hint that construction of the long-delayed $1.4 billion Bell Bay pulp mill could start this year.
But, despite the positive headlines, it seems Gunns insiders are increasingly nervous about the company's future. When it comes to their own hard-earned, they are not keen to be unsecured creditors of the company they work for.
This is showing through in dwindling balances in an unsecured note scheme that allows Gunns executives to deposit cash with the company, presumably with an interest rate a little better than a bank deposit. The unsecured notes rank behind more than $500 million of bank debt.
Gunns's annual financial statements break out the unsecured note balances, with the last three annual reports telling the story of a product whose popularity has faded with Gunns's declining fortunes.
In June 2008, when Gunns's health was relatively robust, the scheme held $7.8 million. Since then it's been one-way traffic. By June 2009 a number of depositors had headed for the exits and the scheme held $4.8 million.
Despite Gunns's success in freeing up $70 million through the sale of wine, hardware and surplus land assets this year, and with the company remaining on good terms with its lender at the ANZ Bank, Gunns's board and management are increasingly sceptical.
By June 2010 the scheme balance was less than $3 million.
It is Gunns's top brass that are leading the charge. By June 2010 the directors had just $135,191 on deposit, down from $1.75 million a year earlier.
The company's senior executives are also fleeing the unsecured note scheme - their holdings were down about 60 per cent for the year.
Notably, Gunns's chief executive, Greg L'Estrange, whose base pay is set to double to $1 million in 2011, keeps his cash somewhere other than the unsecured notes.
PRICED TO SELL
Activity in equity capital markets is still tracking at a seven-year low, but that is not holding back fund managers with a taste for smaller companies. They are preparing for the float of MACA. A prospectus was lodged last Friday, and it is scheduled to start trading early next month.
The team from Hartleys in Perth is managing a $60 million raising for the contract mining and crushing business that is focused on Western Australia. In a market that is still sceptical about new offerings, this one is priced to sell.
The raising, which includes $35 million of new equity and a $25 million sell-down by MACA's founders, is pitched on attractive valuations - a 2011 price earnings multiple of 6.5 times, or just 4.5 times earnings before interest and tax.
After the float, management and founders will be retaining about 60 per cent of the company.
NRW Holdings is regarded as the closest listed comparable for MACA, and it is trading on 6.8 times earnings before interest and tax. Like NRW, MACA services a range of second-tier customers, including Atlas Iron, Regis Resources and Western Areas. The company's current client base is 42 per cent iron ore, and 38 per cent gold.
It seems there is no shortage of work, with more than 70 projects in the tender pipeline and a $540 million order book.
This provides some comfort that margins of about 15 per cent could be sustainable over the medium term.
BIGGER ROCK
After spending $5 million building a new banking IT system from the ground up, it seems the team at The Rock building society in Rockhamption needs a bigger business to justify the magnificent new system that cost one year's profits and came in $3 million over budget.
Management hinted at corporate activity in a recent results briefing, but while some investors are hoping that might provide an opportunity to exit at a premium, there is unlikely to be much joy.
The Rock has previously been within the sights of the Bank of Queensland, but a merger with a small mutual appears more likely to be on the agenda this time round.
Another possible deal would be a tie-up with the Bundaberg-based building society Wide Bay, a 44-branch lender that is struggling for growth since the reductions to the first home-owners grant.
HIGHER RATINGStill in Queensland: Suncorp-Metway's progress in de-risking its banking operation has been rewarded with an elephant stamp from Standard & Poor's.
Suncorp's bank was upgraded yesterday from A to A+ as the ratings agency recognised that the business is once again a ''core'' member of the Suncorp group and a critical part of its strategic direction.
This had been in doubt since late 2008, when previous Suncorp management indicated that it would be prepared to sell the bank. However, the bank's funding position has subsequently been stabilised, and a relative shift away from property development and large commercial loans has improved the risk profile.