Meet Forrester Kurts

This is our first look at this company and we like what we see. For subscribers looking for a good yield and some share price upside it's a STRONG BUY.

Recommendation
Meet Forrester Kurts
View company profile for AOG

Date 27 Jul 2001
Current Price $2.10

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Looking at the share price of Forrester Kurts over the past couple of years, it's not hard to see the trend - down. So why are we initiating coverage on this Brisbane-based property player with a strong buy recommendation?
Chasing the market up and down isn't the way to make money in stocks. So while the chart may look ugly what really matters is how well the company shapes up. And if it looks okay, as this company does, eventually enough people will start to notice and the chart should get a facelift.
Forrester Kurts has four main divisions; development, construction, retirement and investment. As one would expect, the development and construction divisions are closely linked to the strength of the Queensland property cycle but the retirement division contributes a nice, steady stream of cash. Why hasn't the market noticed it?
Forrester Kurts has had trouble offloading its $90m Mincom Central building in Brisbane. This showed up in the financials through higher debt levels and a huge drop in first half profit from $8m last year to $1.3m this year. That led to the first half dividend being slashed from 5 cents last year to 1 cent this year, none of which is too encouraging.
Good news
Now for the good news, of which there's quite a bit of it. The Mincom building has been sold, giving the company some breathing space. The balance sheet as at 30 June should be much healthier than it was six months ago and we think the final dividend should revert to historical levels of about 5 cents fully franked.
The next positive factor is that our northern spies tell us that the Brisbane property market is on the move. This hasn't been well publicised yet and is a very big positive for Forrester Kurts with the benefits for the development and construction divisions as exciting as they are obvious.
Aggressive growth
Also, the company is aggressively growing its retirement division. Here's how it works. The company builds a complex and sells it to retirees. Then the company's retirement division collects deferred management fees ranging from 5% to 30% of the selling price, collected when the units are resold, after the original purchaser takes the last train home.
The timing of income from any one unit is unpredictable because it depends on how long the owner lives after buying the unit but with a national portfolio of 2,000 units the cashflows are rock-steady. The population is also aging which should prove a boon too.
Another source of joy is the possibility of a takeover. With the shares trading at a steep discount to book value and an open share register, Forrester Kurts should be an attractive target. Any bid would have to be pitched much closer to the company's net tangible assets of $1.25 a share than at current prices.
We have included this stock in our income portfolio last issue because the prospective yield of 7.4% is most attractive and we can't see much downside, other than continued poor sentiment and there are already hints that that is changing too. For those that want a great yield and some share price upside, Forrester Kurts a STRONG BUY.

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