An Investment Analysis of Honduran Teak Plantations
. Matthew Haertzen, a timber portfolio manager for Cogent Partners, the fund manager for Cambium Global Timberland (a UK listed timber investment fund), was tasked with the analysis of a managed teak plantation in Honduras for potential cumulative investment in the amount of $21-25 million. Matt was evaluating an opportunity from Beyond Forestry, a Honduran Company that employed a unique accelerated teak growth model. This accelerated growth model allowed for harvesting of teak wood in as few as 7-12 years, as compared to 20-30 years for traditional commercial plantations. The demand for teak was growing and the supply was dwindling due to significant restrictions regarding the harvest of native teak forests, which traditionally have a very long growth cycle of 70-80 years. The current supply/demand conditions led to a shortage of teak and created an opportunity for investment in companies who could grow teak in an ongoing, sustainable basis with manageable harvest rotations. Mr. Haertzen needed to perform a capital budgeting analysis, including deriving an appropriate risk-adjusted cost of capital, to use in his investment analysis. He obtained data from Beyond Forestry in Honduras including growth rates of managed teak plantations, teak pricing, and operational expenses necessary to estimate cash flows associated with the managed teak plantations. Of equal importance was an assessment of the many risks associated with the teak plantation investment, given the political and economic environment in a developing market such as Honduras.