Can't find a thread on this so I will start one
TFC is a Managed Investment Schemes (MIS) company that grows Indian Sandalwood trees in Western Australia. TFC mostly grows trees for investors (called growers), and TFC also grows some trees for itself. Indian Sandalwood is an endangered species and highly priced for its oil, which is used in famous perfume brands such as channel and Christian Dior, incense, and woodworking. The number of natural grown sandalwood tree is diminishing fast due to illegal logging activities and the price of Sandalwood tree has been going up at an aggregated rate of more than 20% a year for 5 consecutive years. Currently Indian Sandalwood is worth more than $100,000 a ton.
TFC’s deal (simplified model)
Each unit of land (lot) is 1/6 ha. A one off fee of around $10,000 is paid by the grower for each lot. Then, growers pay around $1200 management/leasing fee to TFC annually. It takes 13 years for the tree to mature and be harvested. The expected return (in future dollars term using TFC’s own estimation is around $200,000 per lot). Using an interest rate of 8%, we get a NPV of over $50,000 for every lot you invested.
TFC reported a net profit of 12 cents EPS for 2007, EPS has been going up for 3 consecutive years. This places the company at a modest PER of just 8, before the recent issue of shares to acquire more land to grow trees. After the recent issues, the PER is just 9.1. Given the simple business model of TFC, it is clear that the limiting factor of earning potential is how much land they can lease out every year, because the one off fee is the bulk of the pie. This is not currently a problem at all as TFC just acquired Kingston Rest Property, which provided a dam and 2400 ha of land suitable for growing trees. In 2007 TFC closed its project oversubscribed at more than 525 hectares. So the new land acquisition will at least be able to supply land at the same rate for 4 additional years. TFC also pays 5 cents per share dividend, which is a little more than 5%.
Carbon Credits (which I think is not currently taken advantage of)
On one lot, being 1/6 of a hectare, which is around 1666sqm^2, you can fit roughly 40 x 40 trees in, assuming a gap of 1m in every direction between trees. That is around 1600 trees. A grown tree can absorb 48lb of carbon dioxide, 1600 trees can absorb around 34 tons of carbon dioxide. The lease agreement says the growers only own 50% of the carbon credits. Companies like COZ charge $16 dollars per ton of carbon dioxide per year. One unit of land would thus potentially generate $544 a year, of which $272 would go to TFC. This figure would go over a million for over 1000 hectares every year.
184M shares, of which directors own over 47M
SP = $0.960 (30th Oct 2007)
Market cap of 176M
2007FY net profit of 19M
Director recently spent over 170k buying shares at 99 cents
9 Million Cash
21 Million Debt
Owns lots of trees and land