Why Lang is looking up

The stock price has rocketed from a low of $1.15 in January 1998 to levels now ten times that amount. We, too, have been along for the ride with a series of 'accumulate' and 'hold' calls for the past two years, with our last recommendation being in issue 84 (Hold for the Upside - $11.15). The question is, can it go further?

Yes, although as always, there are risks. We'll go into those shortly but for now let's look at Lang's current businesses. The company's main money-spinner is Patrick Stevedores, famous for its uncompromising negotiating tactics in the 1997 wharf disputes with the MUA. It's one half of the cosy, not to mention increasingly profitable, duopolies on Australia's waterfront.

Holyman acquisition

Transportation company Holyman was acquired in January 2000 after a protracted bidding war with Adsteam Marine.

Lang was interested in Holyman's shipping and logistics assets which fitted nicely with Corrigan's grand vision for developing Lang into an integrated logistics provider.

Along similar lines, a bid for TDG Logistics was launched in July at a price of $0.96 per share. What makes this interesting is that TDG was spun off from Lang in 1997 at $1.00 per share.

Lang initially retained 20% of TDG but sold that to institutions in February 1999 when the price was more than $1.40. The company bought back in last year at substantially lower prices.

This opportunistic corporate card trick will pay off handsomely for Lang if the bid is successful but it has a way to go yet. Aside from unloading a nice chunk of debt into the original float, Corrigan will have stripped institutional shareholders of a few million dollars in the process. TDG is pretty small beer in the grand scheme of things but is a great example of a classic Corrigan corporate play. His eye is on something far bigger.

Lang has no net debt and a large war chest of cash following a share placement and rights issue earlier this year. What will it be used for?

Smart money

The smart money is on a tilt at soon-to-be-privatised rail assets - Lang is already the third largest private rail operator in the country.

One thing is for sure, Corrigan won't overpay. He knows there are several roads leading to his ultimate destination of running a fully integrated logistics operation. To that end, Lang bought Mayne Nickless' port services business in November last year for $47m, a handy discount to net assets. The deal included container parks, warehouses and transport operations.

Productivity improvements continue on the docks and should provide a growing stream of cash to fund future plays. The market has already priced in a degree of optimism regarding Corrigan's ability to complete strategic acquisitions and make them work.

The stock price's future comes down to that. We, like many others, think he can do it. The risk is if something goes wrong - the market can be savage in such situations.

Share price risk

Considering those hazards our share price risk rating is three and a half stars, although, given the company's diverse asset base and strong management credentials, the fundamental risk rating is two stars.

We think there is enough potential upside to justify a LONG TERM BUY recommendation but pray that a bus doesn't hit the top man.