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CORRECT: Tenon forecasts first cash return in a decade

(corrects prior year EBITDA to US$5 million in 12th paragraph)

By Pattrick Smellie

Feb 20 (BusinessDesk) – Wood mouldings manufacturer Tenon expects to resume cash returns to shareholders in the second half of the current financial year after achieving a long-sought end to years of losses.

Tenon broke even on a net basis in the six months to Dec. 31 as the North American housing market starts to recover, the Taupo-based company said in a statement.

Whether cash will be returned by dividend or share buyback is undetermined as yet, but it will be the first cash return to shareholders in a decade, when Tenon returned $670 million to shareholders relating to sales of the former Fletcher Forests timber estate. The company has not paid a dividend since it was listed as Fletcher Forests.

A decision on the form of cash return “will depend on a number of factors, including our core goal of seeing our share price lift,” said chief executive Luke Moriarty.

The company also announced a “significant upgrade” in its forecast for earnings before interest, tax, depreciation and amortisation at the mid-point of an average United States housing market recovery, from US$35 million to US$45 million.

The forecast assumes 1.7 million US housing starts a year and a US-New Zealand dollar exchange rate of 70 US cents, compared with a rate this morning of 82.95 US cents and an internal hedging rate of 80 US cents at Tenon.

“Key indicators point to ongoing job recovery in the US economy, combined with rising home prices and pent-up housing demand,” Moriarty said. “This has already seen a recovery in new home construction levels, but only to levels equivalent to the bottom of previous cycles.

“In others, over the past 50-plus years, US housing starts have been above the current level for almost 90 percent of the time.”

However, there were now “headwinds” in the US market, including the impact of the US Federal Reserve’s tapering programme to reduce monetary stimulus and severe winter weather, which has affected activity.

For the six months under review, the company turned over US$197 million, up from US$174 million in the same period a year earlier, to produce ebitda at the six month mark of US$3 million.

In the prior period, Tenon recorded an ebitda loss of US$1 million.

The company confirmed its “objective” this year to double the US$5 million ebitda achieved in the last full financial year.

The current period’s break-even net result compares with a US$2 million loss in the first six months of the last financial year.

Elaborating on previously announced intentions to improve Tenon’s exposure to US investors, where 90 percent of the company’s revenue is derived, Moriarty said “while one obvious path we will be considering is a dual stock exchange listing … we will also be undertaking a much wider company review to see how the company can be best positioned to create value for shareholders as the current cyclical recovery progresses.”

He reiterated directors’ view that Tenon shares remain undervalued, based on an Edison International Research report prepared for the company last year that put a value range on the shares of between $2.05 and $2.55, assuming it can access tax losses built up over the last decade.

Tenon shares have traded as low as 50 cents apiece during the long recession in the US housing market, which began with the 2006 sub-prime mortgage market collapse and helped cause the 2008 global financial crisis.

Their low point in the last year was 86 cents, in May, but the shares have climbed 47 percent in the last 12 months to close yesterday at $1.47. The thinly traded shares, of which nearly 60 percent are held by investment vehicle Rubicon, did not move in early NZX trading today.


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