tag:blogger.com,1999:blog-4631423976894080706.post1129128656921443779..comments2023-10-17T06:55:06.255-04:00Comments on the red corner: Enterprise Group, Inc - Exitred.http://www.blogger.com/profile/04089263693762295793noreply@blogger.comBlogger62125tag:blogger.com,1999:blog-4631423976894080706.post-25184038425486427452015-08-25T23:01:43.927-04:002015-08-25T23:01:43.927-04:00Any particular reason for the Republic exit? More ...Any particular reason for the Republic exit? More FB cash? I'm still holding and praying for a quick resolution.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-10395411083794880112015-08-14T15:58:34.414-04:002015-08-14T15:58:34.414-04:00Dont own Hornbeck, and got a small position in Daw...Dont own Hornbeck, and got a small position in Dawson. <br />I started looking at the income statements of a lot of large oil frackers recently after reading the einhorn report, and even at 90$ oil they look ugly. So if going forward only 6-7m barrels are produced in the US (a sizable part offshore), how does that affect Dawson? Wasn't a large part of their earnings in the past decade due to the fracking boom? And isn't the seismic industry more cyclical then oil?<br /><br />Isn't this largely an indirect bet on oil fracking in the US?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-51017610540781216062015-08-14T13:22:29.685-04:002015-08-14T13:22:29.685-04:00You like Horbeck better. I heard you then and I he...You like Horbeck better. I heard you then and I hear you now. red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-81346382544585857432015-08-14T12:17:24.046-04:002015-08-14T12:17:24.046-04:00Regarding your Dawson bet, arent you afraid fracki...Regarding your Dawson bet, arent you afraid fracking is in somewhat of a bubble? A lot of these companies werent making their cost of capital at 90$ oil, let alone now. half the oil is from fracking in the US. If that is reduced, isn't that going to be bad for Dawson? Especially since that industry isn't exactly a dream business to be in.<br /><br />It seems like betting on oil recoveries in canada or deepwater oil is a better way of playing the oil recovery?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-8240296556956729912015-07-27T17:39:49.993-04:002015-07-27T17:39:49.993-04:00Flybe: there's more information in the latest ...Flybe: there's more information in the latest trading update that gives me greater confidence that things will work out according to my expectations.<br />RJET: there's a number that works for both the pilots and for the equity. Management needs to come to terms with thatand act accordingly. Whether it will come to terms with it or not is anyone's guess. In the meantime, the equity is now trading at cash. We'll see -- it's a (for me) small position and what mark-to-market damage there is to be done has now mostly be done. I'll turn my attention to it after my vacation. red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-44615108672366526092015-07-27T14:54:28.283-04:002015-07-27T14:54:28.283-04:00Hey Red,
I'm curious to know the rationale fo...Hey Red,<br /><br />I'm curious to know the rationale for adding to Flybe here? Is this more of a short term trading opportunity? Also if you have any opinion on the price action at RJET I would love to hear it. Seems the market thinks the business is broken on the back of lengthened labour negotiations.<br /><br />Thanks for taking the time to answer so many questions on this blog. Onwards to Texhong 1H results!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-6796983801878294762015-07-23T19:49:03.783-04:002015-07-23T19:49:03.783-04:00The march 2016 options might be worth a look as we...The march 2016 options might be worth a look as well, given the speculative nature of the stock. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-54447041748636405012015-07-23T16:45:04.543-04:002015-07-23T16:45:04.543-04:00Hi Ruby
re: Haichang
Property Division at 50% of ...Hi Ruby<br /><br />re: Haichang<br />Property Division at 50% of assets = HK$ 1850<br />Shangha NPVi at 1.1x cost to build = $3,500<br />(Net debt) = (1,700)<br />Subtotal = $3,650<br /><br />Market Cap less 3,650 = $2,400 = 5x trailing EBITDA of the parks business. That's too low. Every other such business, from SEAS to Straco trades at 9.5x+.<br /><br />So, first step: add (10-5)*475 = $0.60/share to the valuation ==> $2.10 or so That's simple MOS for the moment.<br /><br />Next, I think Parks EBITDA triples by 2018/9, The newer parks are operating well below capacity; in-park spending is too low; the tour/individual ticket mix is poor; the ticket prices are too low in absolute terms; and capacity itself is too low since there's room to open in the off-seasons and in the evenings. (Check the fall off in gross profits pre and post 2010 to get a sense of this). Plus the cities in which its parks are located have experiences sustained mid-teens growth in domestic tourism <br /><br />Virtually every dollar of incremental ticketing revenue is accretive to EBIT. This is a fixed cost business. So add $1.85 in value/share and that gets us to $3.95. That's ~30% annualized and seems highly probable to me. <br /><br />Now, the property division is obviously not sitting on its assets. It's selling them at market value. So to be realistic, I would value the real estate properties at 90% rather than the traditional 50%.(And the book value of the properites will grow with time and as they are developed, but we'll set that aside) That would add another $0.35/share. So, to me that looks like close to a 2.5x return from here over the next 3 years without great risk of something terrible happening in the interim. <br /><br />I think Haichang is large enough, uncomplicated enough, and visible enough that institutional funds will bid up the shares to $3 and beyond as soon as the operating leverage becomes visible (and as soon as the HK market stabilises). And if that is so then then based on the latest release on traffic that should happen when the next annual results are released (which is why I own it now rather than later even though I need the cash for other ideas).<br /><br />RR - I hadn't at all noticed the recent price action. Now I understand why it's all over my twitter feed. I'll revisit it. Thx for the prompt/pointer. <br /><br />If you like ZINC it's worth comapring the convertibles to the stock. <br /><br />Glad we've made some money on Flybe. I think there's a little bit more to come yet.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-1420768435723938292015-07-23T13:49:33.177-04:002015-07-23T13:49:33.177-04:00Hey Red,
Thanks again for portfolio construction ...Hey Red,<br /><br />Thanks again for portfolio construction info re Findel, and congratulations on your (and my by proxy) success in Flybe.<br /><br />Taking a quick peek at Haichang, I think I must be missing something as I can't seem to get to a valuation in excess of HKD 3 out a few years. I assume the discrepancy lies in converting land to income generating properties (50% NAV value to 10x EBITDA based on peers and typical RE HK valuations), and upside in the management business? Or do you perceive the risk profile of this investment to be low enough to be satisfied with a lower IRR?<br /><br />I am also curious if you have any thoughts on RR.L? Greenwood has some research out on it, and seems to think they can hit teens EBIT margins and a price target in the 20-30's (2018) through a combination of vertical integration/supply chain rationalization and aggressive buybacks. <br /><br />A final idea I am interested in is ZINC - it appears as though the current valuation implies the new plant will operate at 50% capacity perpetually. Mr. Pabrai has recently added to his position(implying he sees a 4x in it based on his portfolio rules), and comparable projects have ramped to expected capacity over reasonable time periods. It doesn't seem unreasonable to see utilization ramping through late 2016 and a valuation in the 20's before making any assumptions about Zinc prices. I expect you are aware of the situation, but just in case it slipped by I thought I should mention it. <br /><br />TIARubycapnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-61874205700533118472015-07-19T20:23:33.288-04:002015-07-19T20:23:33.288-04:00Red, what do you think about Bracell? It seems to ...Red, what do you think about Bracell? It seems to trade a 5.5x earnings yield (backing out those one time charges). They are a competitor of RYAM but dont seem to be so heavily in cigarettes. And they have much lower costs. It could become interesting as profits could be squeezed in the short term by too much supply. But it seems a very interesting industry with high barriers to entry. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-33293760188181082982015-07-15T09:57:20.460-04:002015-07-15T09:57:20.460-04:00Thoughts on Macmahon? it seems 40% of their market...Thoughts on Macmahon? it seems 40% of their market cap is net cash now. And a 2x multiple on FCF? It looks really cheap still after the mongolian sale?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-69892740764222005932015-07-09T16:28:40.551-04:002015-07-09T16:28:40.551-04:00Anon @ 3.42 AM
Hmm. Broad topic but, at bottom, ...Anon @ 3.42 AM<br /><br />Hmm. Broad topic but, at bottom, one is looking for a plausible business with long and uninterrupted history of uncomplicated and exemplary behavior selling at a valuation that you can't find in your home market.<br /><br />A plausible business means that that it earns the margins it should, turns its assets over as it should, and that pays out an appropriate share of its after-tax income to holders of the common equity. Just the sort of things one would look for in the AIM market for family-controlled companies but with heightened attention, esp to the cash flow statements and to comparable companies.<br /><br />if it sells X amount, for example, one can back out the implied market share and assess its likelihood. If gross margins are y% one can look at closest comparable companies and assess its reasonableness. One can look at the owner-manager's compensation package -- pay, rights offerings, minority interest stakes by related-party entities, etc -- and assess whether it is reasonable in relation to value created for the common.<br /><br />A fast growing company (>20% CAGR) should nevertheless pay out 20% to 30% of earnings in dividends and, the slower its growth, the higher the payout ratio should be until it reaches 100% at 3%-5% growth. <br /><br />Letting cash pile up forno specific reason is no good. A consumer goods business suddenly branchng out into real estate development/speculation is no good, A PRC company listing in Singapore is no good. Etc <br /><br />Generally speaking, names that local value investors (e.g. Value Partners) are involved in are interesting to look at. But it's not enough, in my experienc, to assume that they know what they're doing. The whole picture has to hang together & make sense to you, and should leave you with the impression that you have a reasonable basis for predicting what the business's fundamentals and the owner's behavior toward shareholders will look like over the next 3,5, and 10 years.<br /><br />One good place to start looking for a potential first investment in Asia would be the major conglomerates -- Hutchison Whampoa, Hopewell, Cheung Kong, Wharf, Wheelock, Swire, MTR, Jardine Matheson, Minor International, HPH Trust, etc etc. These are collections of high quality assets that are valued (by the market) in relation to book value. Not unusual to see them trading at 60% of book when they have compounded book (and likely will compound it in the futiure) at 10% to 15% rates. Also, they're involved in all kinds of activities and being involved with them gives one insights into how the Pacific economies work at the microeconomic and sectoral levels.<br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-41474368841349010662015-07-09T15:26:10.161-04:002015-07-09T15:26:10.161-04:00Barry --
I stumbled on LSIC (I think I was look...Barry -- <br /><br />I stumbled on LSIC (I think I was looking at comps for Clinigen and noticed it that way). <br /><br />Brief look ---><br />-- medical consumables, <br />-- niche, patented, big market share, outsized R&D spend<br /> --hasn't expanded int emergin markets yet<br />-- 65% gross margins, <br />-- SG&A = large as % of revenue so operating leverage with growth?<br />-- 3x the market cap in net operating loss carryforwards<br /><br />ROIC = 15% and under-levered so could do 30% ROE without a fuss<br /><br />BUT, US-domiciled biz listed in the UK. Why?<br /><br />The above would be a first cut and enough to prompt me to follow up by reading its annual reports and whatnot and I'd go back far enough to get comfortable that I've understood the story, the drivers, the risks etc.<br /><br />Normalizing is fine in some circumstances and, I think, inappropriate in others. If a biz will grow and has operating leverage the 10 years ahead will likely look much better than the decade prior. <br /><br />If, on the other hand, a business model is close to its expiry date then normalization is,more likely than not, going to kill you.<br /><br />Anyway, I'd thought it was still trading inthe 170s when I mentioned it above and the premise was that it was low risk as is (it's a perfect tuck in acquisition for larger medical device companies and they'd pay 10x EBITDA for it) and that, if/when emerging mkt growth and operating + financial leverage kick in. it would be worth more.<br /><br />Go out 3 years and say that it generates sales of 50MM at 63% gross margin. R&D is 3 and SG&A is 20. So EBIT is 7 and can support 1.5MM in interest payments and therefore 17MM in 6% debt. It won't pay taxes so owner earnings = 5.5MM and growing. Most people would be happy enough with an 8% yiield on a biz like this so 5.5/8% = >$68MM mkt cap. And medical device companies trade at earnings multiples of 15x+ so maybe multiples expand as it gets bigger and it goes to > $80MM market cap.<br /><br />So, an interesting opportunity at, say, sub-30MM mkt cap. If it were at 25MM I'd do a lot more research on it -- try to find industry journals/webside, look up trends in renal disease, look into the whys and wherefore of the UK listing. and generally tie up the details.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-55720479499554057942015-07-09T03:42:04.004-04:002015-07-09T03:42:04.004-04:00Thank you for the thorough responses to the many q...Thank you for the thorough responses to the many questions.<br /><br />Having only experience investing in "Western" companies, what are the things you are looking for when investing in China or Honk Kong listed companies?<br />What are the pitfalls try you avoid?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-86393301220257513032015-07-08T17:44:45.659-04:002015-07-08T17:44:45.659-04:00Red, thx for your continued sharing of your though...Red, thx for your continued sharing of your thought process & ideas. i think it's some of the best work out there, when are you going to run a fund!? Looking through your list of quick ideas above, take LSIC for example<br /><br />What jumped out at you about this / how didyou find it? Quick look at the numbers and I see a steadily growing business with a consumable element, but volatile returns and no FCF. ROICs are currently 10% or below. Even if i somwhat blindly assume that margins go back to the mid-teens, it's still trading at a 10% yield with FV around $2.20 using 10% WACC but still unclear on cash flow. I'm a big believer in normalizing margins/returns, but this is an example where just taking a simple average of margins/returns doesn't show it to be undervalued. curious to your brief thoughts? or if another example clarifies it, just picked LSIC as an example.<br /><br />Also, would definitely be interested in more posts about your process...<br /><br />- how many annual reports do you read per company (2 years, 10 years?). How long before you go from reading annual reports to excel modeling? <br />- do you find most ideas by reading competitors annual reports? how long do you spend on each competitor's report?<br />- do you keep a word doc with detailed notes on each company? what kind of things do you note / how lengthy do these become? how are they organized?<br /><br />have a million more, but would appreciate any insight as usual!!Barrynoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-45307291549801685502015-07-07T20:44:30.456-04:002015-07-07T20:44:30.456-04:00makes sense, thanks.makes sense, thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-13146161464067177482015-07-07T20:14:28.653-04:002015-07-07T20:14:28.653-04:00if you're lookingfor a LT and rapid compounder...if you're lookingfor a LT and rapid compounder with barriers to entry this isn't it :)<br /><br />but I'll say my piece about it anyway just in caseanyone else wants to look:<br /><br />I think what happened in calendar '09 was that a number of levered salons when bust and took their customers' prepayments to the grave. That affected trust and collapsed gross receipts and therefore revenues. Plus MB had too many stores servicing a suboptimal number of cutoners each so op leverage was particularly pronounced. . <br /><br />And then, in calendar 2012, this happened<br />http://webcache.googleusercontent.com/search?q=cache:b6nbOK_vqgAJ:www.scmp.com/news/hong-kong/article/1120095/beauty-industry-crisis-hong-kong&hl=en&gl=us&strip=1&vwsrc=0 <br /><br />and that caused an even bigger kerfuffle from which MB is just now emerging. So things like that could happen again and that's the risk. <br /><br />OTOH I think HK normalized, across a full cycle, earns 95 in Services EBIT and 28 in product EBIT. I think Sing/Malaysia earns 23 in service EBIT and 3 in product EBIT after partly adjusting for weak SGD/HKD. <br /><br />Important notes: (A) it appears that the 376K customers are ~100% HK residents rather than including PRC residents. So MB seems to have somewhat incredible market share (addressable pop = max 1.5MM).; (B) in HK service retail everything eventually comes down to rental rates so one has to be comfy about MB's pricing power. red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-11382049624131577712015-07-07T19:46:29.070-04:002015-07-07T19:46:29.070-04:00What do you think about the cyclicality of MB hold...What do you think about the cyclicality of MB holdings? They really crashed in 2009. It seems the market is scared for another crash in profits judging by the large drop in share price? I saw on your twitter that you thought they could do 130m$, but it seems they can also easily do close to zero? And you are not much protected by their assets. They largely depend on discretionary spending it seems. The type of names I would not be that happy to own. But maybe you are seeing something here that I don't. <br /><br />Anyway thanks for the treasure trove of idea's. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-15400315284646677452015-07-07T17:13:26.062-04:002015-07-07T17:13:26.062-04:00Thx for the question
Long answer and maybe more t...Thx for the question<br /><br />Long answer and maybe more than you wanted to know. It's a combination of factors. <br /><br />A) I own too many names-- as a matter of principle. If I were to start from scratch I'd own Texhong (20%), Keck (25%), Future Bright (20%), Flybe (10%), & Rain (10%) and that's it. That's in my mind probably enough to get an annualized 40% over the next 18 months and would leave cash on hand just in case a trade of a lifetime pops up (esp in light of the shenanigans in HK) Not suitable for everyone, obviously, but that's the kind of structure that would suit me fine<br /><br />Path dependence. Now that I'm in the position that I'm in <br /><br />B) Half my portfolio is engaged in the Macau trade. Short interest is high, the IVS restrictions have been lifted, YoY GGR declines should have ceased and MoM GGR growth of 10%-15% should be kicking in. So I'd like to keep that trade on until sentiment has reversed.<br /><br />B) the Texhong investment is at its half-life but I think it reports numbers in August that justify a near term $9 to $11 valuation before kicking on toward $18-$20 next year. I'd like to lighten up at $11. Ditto Rain Industries which looks to have turned the corner and is heading toward 9% EBITDA margins and Rs 100-120/share valuation (esp now that the Pabrai cloners may jump into this stock).<br /><br />C) Flybe and Macro's fortunes could turn in a day, on a single news item.<br /><br />D) I'd take back Dolphin & Lanesborough knowing now that the HK market has turned wobbly. But now is probably not the best time to sell them. <br /><br />E) That leaves bits and bobs that are, I think, similarly situated to Findel: HSP, NSP, KTCC, Artnet & RJET. They look like (and probably will turn out to be) hard work when compared to Findel and that's frankly probably a reflection of the mood I was in when I bought them -- playing the long game and being vain rather than plucking the low hanging fruit. If it weren't my own account I think I'd own something like Findel rather than somethiing like RJET or HSP.<br /><br />Of course, there are other stocks that are relatively uncomplicated and, I think, good value. Some names of the top (and my estimate of fair value): Information Services Group ($8.50), Northbridge (550p), Tourism Holdings ($3), Linedata (E50), CDW Holdings ($0.36), Lifeline Scientific (220p), FormPipe (DK16), Kalibrate (200p), Nirvana Asia ($3.50), XiabuXiabu ($6.50), STW Communications ($1.10), etc <br /><br />So long story short: it's not Findel (or Hogg Robinson, for that matter), it's me.<br /><br />Clear as mud, eh?red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-21871423840391425882015-07-07T15:54:50.023-04:002015-07-07T15:54:50.023-04:00Hey Red,
Do you mind sharing why Findel does not ...Hey Red,<br /><br />Do you mind sharing why Findel does not have a spot in your main portfolio? Is it a matter of liquidity, timing, or risk tolerance? There seem to be a lot of factors indicating potential M&A in the near future, and I see it is a top position in your UK based portfolios both here and on stockopedia. <br /><br /> Of course given the recent rout in HK equities I can see there being a great deal of competition for your already limited capital. <br /><br />Thanks in advance<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-68424349615830263262015-06-23T10:10:27.961-04:002015-06-23T10:10:27.961-04:00Is there going to be a catalyst for those options?...Is there going to be a catalyst for those options? I saw you did not cash them out when they were trading at 5$ a while back. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-91129882960253720042015-06-19T06:16:29.703-04:002015-06-19T06:16:29.703-04:00Thanks David. Virgin America is an overpriced stoc...Thanks David. Virgin America is an overpriced stock in a bad market. red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-57087581155770153252015-06-19T06:10:33.153-04:002015-06-19T06:10:33.153-04:00Red,
An article of Virgen America. Maybe you find...Red,<br /><br />An article of Virgen America. Maybe you find it interesting.<br /><br />http://www.fool.com/investing/general/2015/06/18/virgin-america-stock-suddenly-looks-more-enticing.aspx?source=iaasitlnk0000003Davidnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-46513258589273815912015-06-18T14:13:23.116-04:002015-06-18T14:13:23.116-04:00Hey Red,
What are your thoughts on Lanesborough a...Hey Red,<br /><br />What are your thoughts on Lanesborough at these stock and oil prices?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-67913656873586017462015-06-18T07:43:41.094-04:002015-06-18T07:43:41.094-04:00I suspect it fell because the Australian market as...I suspect it fell because the Australian market as a whole was also downred.https://www.blogger.com/profile/04089263693762295793noreply@blogger.com