Gunns: Hopes felled or growth ahead?

Once a leading industrial business, Gunns has fallen on tough times. Now a capital raising is on the cards

Scott Phillips (TMFGilla)

Scott Phillips is The Motley Fool’s Chief Investment Officer in Australia. He is Advisor of The Fool’s flagship investment service, Motley Fool Share Advisor and the Portfolio Manager of Motley Fool Everlasting Income and Premier Portfolio, as well as running our most premium service, Motley Fool Platinum. He is passionate about investing, having managed his own portfolio for over 15 years. A dyed-in-the-wool Fool (in the best way), he has been a member of The Motley Fool since 1999. Scott holds a Bachelor of Commerce (Management) and a Graduate Diploma of Accounting. Before joining The Fool, Scott worked in various Sales and Finance roles in industry, which has allowed him to see the good, bad and the ugly of corporate management close-up. Giving him a great understanding of the way businesses run – and what separates the business wheat from the chaff – Scott wholeheartedly agrees with Warren Buffett when he said he was a ‘better investor because I am a businessman and a better businessman because I am an investor’. Scott left a successful career to follow his passion – helping our members achieve the best possible investment returns, and helping Australians learn to better manage their money. It’s no surprise he ended up at The Motley Fool.

Published March 13, 2012 1:35 pm AEDT

Gunns Limited (ASX: GNS), once the in the vanguard of Tasmanian industry, and a lightning rod for that state's environmental policies and activism, has become a shadow of its former self.

From a 2004 high around $4.50, Gunns last traded at $0.16, before the company applied for a continuation of the suspension of its shares this morning.

That 96% fall has been precipitated by the changing fortunes of its Tasmanian mills, high levels of debt and the seemingly endless delays for the company's proposed Tamar Valley pulp mill, as a result of Gunns' inability to secure funding.

Hopes of a white knight riding to the rescue have been dashed, with plans for New Zealand-born billionaire Richard Chandler to take a 40% stake in the business having been felled.

The company is now reportedly in talks with its bankers, and has advised the ASX that it plans a capital raising that is 'material to the company's financial position and strategy'.

It seems unlikely that Gunns will be able to raise further capital without offering those shareholders a significant discount on the last sale price of the shares, but the deal is necessary to retire some debt and give the company breathing space to right the ship and establish whether Gunns' existing business model can be sustained, or if changes are required.

An investment in Gunns at this point is truly walking into territory where angels fear to tread – time will tell whether fortune favours the brave, or if Gunns glory days remain well and truly behind it.

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Scott Phillips is a Motley Fool investment analyst. You can follow him on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors.This article contains general investment advice only (under AFSL 400691).

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