Carter Holt Harvey numbers in flux

CHH's forests have risen $133 million in value since last September. Picture / Nicola Topping

Carter Holt Harvey investors expect the forestry giant's new majority owner Graeme Hart to post a swathe of writedowns and one-off items when the company discloses its annual earnings tomorrow.

Annual net profits before these actions should fall from $544 million to around $200 million in line with guidance issued in October. The prior year's result was boosted by the sale of its tissue business for almost $1 billion. Sales are expected to be flat at around $3.5 billion.

However, predicting the result is fraught with difficulty. At the end of October as it posted its third-quarter earnings, CHH indicated it had begun "significant restructuring of its forest, timber and packaging business, and information technology" as it worked to offset the effects of the high dollar and adverse commodity prices.

Forest revaluations could boost earnings. In the nine months to September, the forests' value rose $133 million.

The October forecast was the fourth profit warning in seven months and was at odds with the figures management had signed off just 18 days before the end of the September quarter. These were the figures independent directors used to justify their rejection of Hart's $3.3 billion, $2.50 a share takeover offer.

Analysts said the market remained tough but signs were emerging of an improvement.

Goldman Sachs JB said last week that an increase in pulp prices combined with expectations of a weakening dollar boded well for CHH.

"Spot pulp prices should find support from the growth angle. A substantial downward shift in the New Zealand dollar versus competing pulp currencies would improve the competitiveness of CHH production."

Analysts said that, in the short to medium term, CHH's prospects would be driven by Hart's actions.

He closed the offer last week, having bought just under 86 per cent of the stock, short of the 90 per cent threshold when he can compulsorily acquire the outstanding shares.

The shares closed last night unchanged at $2.58, reflecting hopes that Hart will shortly launch another offer to mop up the remainder. Most analysts believe Hart will wait some time to see if investors have the stomach for what is expected to be a bumpy economic ride. Goldman Sachs reckons the case for holding remains.

"All these [positive] factors, plus a ruthless and proprietorial approach to management of the business ... suggest to us that a significant recovery of earnings and value is likely over the coming two to three years," the bank said. "In addition, without full ownership of CHH and access to its balance sheet, we believe that financial considerations should ensure [Hart's] interests remain well aligned with those of minority shareholders."