Phaunos Timber Fund highlighted the setback to world timber
prices from a softening in Chinese prices but unveiled a potential fillip nonetheless
for its holders of its poorly-performing shares – the first rise in its net
asset value in three years
The London-listed group, whose forestry assets are spread
from Alaska to New Zealand, highlighted "downward pressure" on prices for logs
being shipped to China thanks to a back-up at ports of inventories encouraged
in by record high prices earlier in the year.
The market for China A-grade lots reached an all-time high
of NZ$160 per cubic metre during the first quarter of 2014.
The fund also noted that Chinese growth eased to 7.5% in the
first quarter of 2014, and that "growth in Chinese [timber] imports is expected
to slow this year".
The comments follow the People's Bank of China move last
week to urge banks to easing lending restrictions in a drive to support the
country's property market, in which price growth is decelerating.
A report over the weekend showed that year on year growth in
new home prices in 70 cities tracked by China's government slowed to 6.7% in
April, compared with a rate of 9.6% in January.
Nonetheless, Phaunos Timber Fund highlighted that China's
timber imports are still forecast by Hardwood Review to exceed last year's, and
that long-term dynamics are in favour of the housebuilding which is a major
"China's central government plans to relocate 250m people
from rural areas to cities by 2025, which will underpin ongoing strength in the
construction sector," the fund said.
It also highlighted stronger demand in some other countries,
including New Zealand and the US, as saw mills raise volumes of processed
timber for home construction.
Although US housebuilding was slowed early in 2014 by the
unusually cold winter, "a quick recovery is expected as the weather improves",
Phaunos said, quoting estimates from the National Association of Home Builders'
that housing starts will reach nearly 1.1m this year and top 1.5m in 2015.
Asset value recovery
However, if market signals are mixed, one factor which has
moved in favour of Phaunos Timber Fund is the dollar, whose weakness has lifted
the value in dollar terms of the fund's assets, many of which are priced in
currencies such as the New Zealand dollar and the Brazilian real.
The group said that the net asset value of the group had so
far in 2014 risen by $15.8m to $434.8m – which would represent the first
increase in since the first half of 2011, when it reached its peak of $621.6m.
A rise of $15.8m would raise the net asset value per share
by about 3 cents nearly to 81 cents, on Agrimoney.com calculations.
Nonetheless, Phaunos shares closed down 1 cent at $0.43, against the backdrop of the China property market concerns, and
with investors still awaiting the results of a strategic review by Stafford
This is being undertaken as part of the shake-up of the
group under the chairmanship of Sir Harry Studholme, which has also seen the
group take its investment management in house, saving on fees to FourWinds
At London-based VSA Capital, Edward Hugo retained a "buy"
rating on Phaunos shares, with a price target of $0.66 cents.
"With underlying improvement in many of Phaunos Timber Fund's
key markets and indications that key currencies may go the right way this year,
we remain buyers," he said.