Citigroup say sell high risk Gunns, others agree

Posted: 26 March 2008 in Australia, Gunns,


Press release from Wilderness Society (1 March 2008):

Leading international investment firm recommends investors sells Gunns shares, others such as JP Morgan agree

A major investment group has labeled Gunns as high risk and recommended investors sell Gunns shares due to blowouts in cost and timing for the pulp mill project and the rising Australian dollar. Considering the Citigroup report, The Wilderness Society is calling on Gunns banker the ANZ to reconsider its position on the project and refuse involvement before investors, shareholders and customers savings are damaged by financing the highly risky pulp mill.

“First there were huge blowouts in the cost and timing of the pulp mill, now one of the biggest investment groups in the world is advising investors to ‘sell’ their shares in Gunns. The ANZ bank and the Federal Government need to reconsider their support for Gunns’ destruction of Tasmania’s native forests and immediately walk away from the pulp mill,” said Paul Oosting pulp mill campaigner for The Wilderness Society.

The Citigroup report, obtained by The Wilderness Society says:

“Diminishing pulp mill value – The timeframe for Gunns’ proposed pulp mill has been pushed back yet again (now another 4-6 months), financing has yet to be finalised, and capex is now estimated by Gunns at $2.0bn (up from previous guidance of $1.7bn and $1.2bn two years ago). Our target price is lowered by $0.25 to $3.20 and we downgrade our recommendation to Sell / High Risk (previously Hold).”

Today, another investment firm JP Morgan released a research paper that is damning of Gunns. Like Citigroup, JP Morgan have increased the risk profile associated with Gunns due to the pulp mill. In the research note they stated:

“With the prospect of a A$2 billion mill to fund (which will occur, according to GNS, primarily through project finance debt,) this causes the risk profile of the stock to rise a little beyond our comfort levels.”[1]

“ANZ customers and shareholders should be extremely worried by their banks consideration of funding this project as it is being shown to be high risk and unprofitable,” said Mr Oosting. “JP Morgan appear to be one of the first of other analysts to follow the analysis of Citigroup and recognise the huge risk that Gunns’ pulp mill poses to the company.”

“The Citigroup and JP Morgan reports highlight just how risky and unprofitable Gunns’ proposed pulp mill is. This is not only a risk to Gunns, it is a high risk to the Tasmanian economy and the ANZ bank should walk away from the project,” concluded Mr Oosting.

For further information contact: Paul Oosting 0409 963 734

[1] “Aussie shares down 2 pct; NZ inches up at close“, Reuters, 29 February, 2008.

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