03/12/2009 - 00:00

Lessons learned, Lester looks long-term

03/12/2009 - 00:00

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Dick Lester's changing strategy amid fallout from the GFC.

Dick Lester’s changing strategy amid fallout from the GFC.

DICK Lester learned a valuable lesson last year when he was looking into the abyss of financial disaster. The result is a total overhaul of the Lester Group, which will soon start to look a lot like two other Perth property businesses, Peet and Satterley.

There will be variations, but in a quiet chat with Bystander on the fringe of the food court in Allendale Square last week, the former Wesfarmers director provided a glimpse into his future.

The key, and this is a lesson for everyone, is to build a better balance sheet – preferably by using other people’s patient money; and one of the best ways to do that in property is via syndications.

“We’ll probably keep an interest of between 20 per cent and 40 per cent in the syndicates, but the syndication formula is a good one,” Mr Lester said.

“We will not list (on the stock exchange) but we’re sure that there’s plenty of demand because of WA’s fast population growth.”

Catching his share of WA growth has always been the driving force behind Mr Lester’s business motto. It goes back to his earliest forays into the public arena with Growth Equities Mutual, a split income and capital-growth fund that started life with a very modest portfolio, which included shops in Claremont and Karratha.

GEM, as the fund became known, was sold to Lend Lease in 1994 after hitting the magic $1 billion mark in funds under management, and Mr Lester sailed off for the life of a company director.

Unfortunately, in recent years his appetite for property got ahead of the market, with a vast rural land holding proving too much to bear when the world’s banks destroyed themselves with lousy lending practices, and Mr Lester found himself owning thousands of hectares of prime WA farmland, and a very large debt.

Having seen how all financial crises unfold, with property the last shoe to drop, he moved swiftly to unload about $25 million worth of rural land at Kojonup and elsewhere.

Today, he is breathing easier; looking relaxed, and no doubt tidier after his pre-Christmas haircut at the Allendale Square barber, and prepared to talk openly about the future of Lester Group, which brings together the old man himself and his three children.

Even a cheeky observation from Bystander that family businesses struggle when dad and the kids are forced to work together is deflected with a grin. “I’m aware of that,” he says.

So, what will Lester Group look like? The obvious assumption is that it will assemble parcels of land close to Perth, and other fast-growing WA population centres, and sell a stake to local rich people – of the sort Americans call “high net worth individuals”.

Investors will, like the syndicates run by Peet and Satterley, have to be patient. No quick in and out for a fast profit, but confident of a big pay day as rural property is converted to housing lots and rapid population growth courtesy of the ongoing resources boom provides an abundance of buyers.

Mr Lester doesn’t even blush when it is suggested that he is mimicking Peet and Satterley, but later that day a former managing director of Peet, Warwick Hemsley, manages a wry smile when the Lester revival is discussed with him.

There are two business morals in this story. Firstly, always maintain a strong balance sheet. Secondly, when you see a bright idea, and it works over time because it offers access to patient capital, then there’s no harm in being a copycat.

A quick motza

ALSO mimicking the success of others is Kerry Stokes. Best known as a media owner and Caterpillar tractor salesman, the fast money for Mr Stokes these days is iron ore, just as it is for the top two on WA’s rich list, Gina Rinehart and Andrew Forrest.

Last month, Bystander calculated that Mr Stokes had made a profit of around $23 million in just 10 days thanks to the sharp rise in the value of his 52 per cent stake in Iron Ore Holdings.

Soon, he might be able to multiple that windfall gain by 10, with his profit likely to hit $200 million over the next few months as the real value in IOH is recognised.

The game, which makes media and tractors look rather humdrum, is being driven by an iron ore deposit called Iron Valley. Last week, IOH said it had entered into an exclusive negotiating period with Rio Tinto over the 191.5 million tonnes of 59.1 per cent iron already known to be in the ground.

On the stock market, IOH has run from around 98 cents when Bystander first looked to recent trades at $1.66, and a high of $1.83.

But, as the man selling steak knives likes to say, there’s more to come, with the London stockbroking firm, Ocean Equities, telling clients that: “the current size of Iron Valley is not reflected in IOH’s market capitalisation of less than $200 million, and this does not even take into account for any further deposit increases”.

“In our view this implies that IOH’s market capitalisation should at least double again in the next 12 months,” the broker said.

For Mr Stokes, that turns a modest punt on a small explorer into a possible $200 million pay day, which is a somewhat faster way to make money than his other adventures.

Promoting a punt

CHRISTMAS nears and float madness is approaching its zenith as company promoters rush to stuff your stocking with share certificates of dubious value.

At the last count there were 26 hopefuls with their names in front of the listing committee at the Australian Securities Exchange, which, somewhat amusingly, is roughly the same number of starters in the Melbourne Cup.

Most are resource focused, and it might even be argued that the proposed listing of Skywest Airlines is a play on the WA mining and oil sector.

Bystander wishes them all well but reminds readers that most floats fail to deliver on their original promise. Punt at your peril.

Australia rates

A FINAL word on what low interest rates really mean. Bill Gross, managing director of the California-based Pimco investment house and one the world’s top money managers, discovered recently that he was getting 0.1 per cent on his cash management account at his local bank.

At that rate, he calculated, he would double his money in 6,932 years, providing a powerful reason why money is flowing out of low-interest U.S. portfolios into places like Australia.

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“All you need in life is ignorance and confidence and then success is sure.”

Mark Twain

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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