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Andrew,
Exactly right.
People post as if Solomon can walk into a bank, and walk out with $15M, no questions asked; and then the shares will be $5, simple as that.
Others say the shares are already worth $34 a share, for the simple reason that earnings growth can be projected at very high levels.
I'm as bullish as anyone with a clear head, but the catalysts, the milestones that need to be met to raise the share price are "ifs," not "whens." They have to get the bond deal to tick that one off; it is not certain. Likewise, pretty much all the milestones.
You can't just assume Leonie's will have 50 restaurants in 2013, or that PF2 will deliver 28 billion flies. These are targets. FN listing is an ambition; also cattle sales; the abattoir has to be built; WSPS sales have to actually happen. Retail hasn't even started, etc., etc.
The company will not meet all their goals, and certainly not on time. But the history is that they've met almost all, and even some that weren't pre-announced.
It's obvious that announced targets -- a dual listed, cash flow positive company with cash in the bank earning $1.50+ a share in 2014, planning Asian exchange listed spin outs will be worth a lot.
But it's also obvious that there are lots of exigencies in business, on the financing, regulatory, and operational sides. Clearly, the marketplace knows less than we do about the targets, and would believe them far less if they knew. That's why they actually have to happen, and to establish a longer history available to a larger, more important audience.
Not new, but I find this interesting, for a perspective related to Viking's poll, among other things:
2011 2010
Price/Sales 0.75 2.01
Price/EBITDA 1.86 3.86
Price/Pretax Income 1.85 6.41
P/E Ratio 2.48 9.58
Revenue 51.9 40.6 21.7 16.2 16.2
Operating Income 20.9 21.1 11.2 6.74
Also, this:
Net Income 15.7 8.50 6.81 3.69
And this:
Common Equity 125 87.5 63.0 56.0
Thing is, 2012 will even accelerate these positive trends.
And never in the history of the world, nor on any planet, has a warrant been written with an exercise price 5x + the price at the time of the deal.
Look up the Black Scholes model to determine what such a warrant would be worth as a kicker in a bond deal. Hint: it rounds off to zero.
Viking,
Not sure what you mean by $5 in relation to warrants, but the warrant holders essentially have an option to buy at a price set when the deal is put together, based on the share price at the time; maybe $1.00 give or take.
They will exercise the warrant with the share price anywhere over $1.00, but SIAF will get $1.00.
Agree they should wait on the bond for the FN catalyst first, if they can.
Not confident that they have that kind of flexibility, but maybe.
In any case, FN listing by early 2013 isn't going to get the shares to 5. Love to be wrong, of course.
I said a deal was off the table.
Just like for me a deal to sell my principal residence is off the table. But if some numbskull offered me more than the market value for the 4 houses I owned in exchange for just the one, well, I'd sell it, especially if it were worth way less than each of the other subsidiaries/divisions; er, houses.
You did say $75M for HU, but it might have been after too many trips to the coffee houses.
But I'll accept that you don't think it's worth that now. What do you actually think they could get for it?
Well Dutch, why don't you arbitrage the HU deal?
Virtually certain Solomon would take $37.5M from you and the group your self-professed thinking man genius puts together, and you can quickly flip it for the $75M you say it's worth.
Don't think we'll need any shares in 2014. If you're referring to the warrants issued as the bond kicker, two thoughts:
1) They won't be anywhere near $5; they'll have to be near market price at the time the deal is struck
2) Good news is that the warrants' dollar value will equal perhaps 1/4 the bond value. So, if $15M bond, than $3.75M worth of warrants, vs. $15M of stock in a straight equity transation.
The bond deal is about 100 times better than equity, imo. After thousands of posts decrying the overhang and dilution, I'd think the company floating a viable alternative, would be embraced wholeheartedly. It won't be easy. What would you want to fork over $15M to a company with no cash and cash flow negative?
But this kind of deal almost eliminates the overhang problem. First, there will be far fewer warrants than there would be shares issued, maybe 1/4. Secondly, they can be restricted and can be at above market prices. And if done after a FN listing or other catalysts, perhaps at a much higher price than current.
Net, net, the company might owe 10% +/- interest on 10% of its 2013 cap ex budget + eventually add 3M shares, maybe less. Equity with the same assumptions would add 12.5M shares, and sooner. But issuing equity in and of itself would be likely to mean getting a lower price. Getting a bond deal in and of itself would also likely improve share price and prospects.
So the ratio of new shares between the two alternatives is more likely 5-1 or 6-1.
Selling HU is off the table, I'm sure.
I don't see any reason Solomon would oppose a FN listing. Even if he wanted to oppose, best to listen to the people who own half your company.
So I expect it will get done. Don't think it's a simple process though. Best to hear from the Swedes about the process, how long it might take, whether it will attract institutions, and what boost in p/e might be expected.
I was encouraged to see the quick response to the slanderous comments about Nisse and the Jordan Fund.
The best news I took away from the investor tour was that SIAF has Nisse and JF solidly and forthrightly behind the company. It is clear that they own a lot of shares; that they are long term investors; that they continue to believe in and promote the company to new investors.
More importantly, they are in a position to help the company. We would not be talking about First North and a bond deal without them, and without the participation on the tour of Penser Bank, which was presumably at Nisse's behest.
And it is the job of Board members to advise and help the company; with considerably more credibility and effectiveness when owning 5%-10% and 50%+ of the company.
I feel comfortable with Solomon running operations, and with outside help for corporate financing and recognition.
I certainly hope not.
If the shares go to $6 -- which is wildly optimistic in early or mid 2013 imo -- they are not going to all of a sudden triple their capex plans. Obviously, they cannot count on the shares being there.
Rather, the main hope for a bond raising or share issuance at a higher price is that the % of cap ex from equity goes down, even if the absolute dollar value of cap ex goes up.
I'd guess that $125M - $150M is a reasonable expectation for 2013. I imagine they sill publish this figure when they guide for 2013. Will be very interesting.
Viking,
In what case?
How do you get to $6/share in early 2013 with a p/e of 4? I'd be almost ecstatic if the shares traded at $2.00.
Even after May 15, 2013, ttm earnings will be perhaps $.80, so even then a p/e of 4 would be $3.20.
At some price in that range.and above -- most certainly 6 -- I'm in favor of their issuing shares, lots of them. Just do in a more traditional secondary manner.
TF
If there were a p/e of 4 in early 2013 due to a First North listing, even with no bond offering, why would there be another 20M shares issued?
More likely something like 5M - 7M, imo.
Sly,
What sheep?
Or is this a jester being sly?
Viking
Thanks for the rationale.
One quibble: how can 2013 weighted avg shares be less than the total outstanding at the end of 2012?
The 2013 guidance will be interesting, to say the least.
Petrejus,
I hope you are right.
But I'd add a few cautionary notes to Mr. Tan's comments:
1) Perhaps they were an off-handed, verbal and a very general guess. I would take the comments lightly if it were a company I was not familiar with. But the prospect is not out of line for this company, which itself is fairly amazing. However,
2) He probably meant revenues, which would include this year's 150% growth; therefore, the next two might be 75%, and still average 100%
3) If he meant revenues (or even income), he meant it in absolute dollar terms, almost certainly. So 100% increase in revenues might mean something like 85% increase in revenues per share, this year.
4) Net margins will definitely go down as time goes by, so 100% growth in revenue (85% in revenue per share) will not equal 100% growth in income (nor 85% in earnings per share).
All of SIAF's projections have proven optimistic. Ironically, I think they do include a margin for error, or a % of capacity, but they are from a fundamentally optimistic base, failing to discount for various exigencies like poor weather for HU, higher than expected disease in one or another fish or cattle farm, etc.
I agree that Solomon wants to beat expectations, but I think he has set them too high to do so, without exceptional overall circumstances.
Thing is, they absolutely don't have to double eps to triple the share price, each of the next two years, with room to go in a third, if everything else falls into place.
Further to:
You can justify almost any price at almost any time period, depending on what SIAF gets done, and by when.
We all know what positive catalysts are out there:
1) Sweden listing at First North could raise the p/e multiple from 1.5x to 10x, who really knows?
2) More senior US and Sweden listing, same as above
3) Bond offering that eliminates further equity offerings, and removes share overhang and dumping (plus 50% to ??%)
4) 2013 earnings of $1.00 = 50% increase, so same p/e multiple = +50%; higher earnings, more
5) Spin outs : very, very good
IMO, these all will track like the Form-10 process and past operational and financial history: very good, but not 100% to guidance, with many branches ramping slower than hoped. But again, still very good.
And we never discuss threats, ranging from droughts, lost contracts, franchise failure, fewer new contracts (FF and CF) than projected, global slow down, etc.
Probably not the answer you were looking for. But let's just watch. As these milestones materialize, long term loyal investors figure to be very happy, indeed.
$2 target is still very important. Hope to see a bond offering and First North listing before more equity has to be issued. That would go a long way to justify lofty expectations.
Actually Petrejus said "EPS for 2013 should be around $1.40."
Viking did include Q1 2014 for ttm eps, adding that with a bond offering, 2013 eps could "easily exceed $1.20."
There are many possibilities and timing for a bond offering, ranging from they can't get one together to a hybrid bond/equity deal, to one with an unknown number and terms for warrants, to one that does not take effect until say March 2013 (after some equity financing is done). Or it could be done late this year, but Solomon issues 15M shares anyway later in 2013 for any price between $.80 and $6.
Personally, I would favor an issuance on top of a bond deal, if in the upper half of that range.
An additional catalyst in May 2014 will be the preferred share payout, and likely replacing that dividend policy with a quarterly cash payout, perhaps targeting the same 12% of income.
And we will know a lot more about any possible spin outs which could be worth $.85 by itself, half in cash to shareholders. This is perhaps the biggest determinant of p/e multiple at that time.
Petrejus,
You and Viking both mention $1.40 eps in 2013. Would either or both of you mind elaborating a bit on how you get there?
Those earnings are between $120M and $140M, for a company whose revenues project almost exactly to that amount in 2012. I just don't see any possibility. And the company does not need that kind of performance or expectation to do very, very, very well.
The company is clicking on many cylinders, and will add retail for 2013 revenues. But WSPS, restaurants, and retail will all have lower margins than the tax free wholesale businesses.
And fish and prawn sales are not ramping nearly as fast as at least I had hoped; nor certainly as the initial PF2 press release, or other presentations targeted.
Course, I'd love to be wrong. Give me your best arguments!
Viking,
Do you really think they will earn $.40 more in Q1 '14 than Q1 '13?
They might not even earn $.40 period -- traditionally the lightest quarter of the year, a year that $2.00 would be ultra fantastic.
Viking.
This is a good question, tough to answer. My whole point about PEG is not that it isn't a number, a single valuation metric. Of course it is, but it doesn't apply to SIAF now for a variety of reasons, not the least of which is risk. SIAF is not a $34 stock.
The corollary is that free cash flow analysis is another equally valid valuation method which would peg (forgive the pun) SIAF at 0. This is equally inapplicable.
But SIAF is on a trajectory to have value recognized, as it executes. PEG can become a much more relevant measure with several years of meaningful growth above $100M revenues, and many more projected, and once the company is listed on a proper exchange with institutional interest.
It won't be there in May of 2014, imo, but will be on it's way. I agree with RD that the spin outs lend a huge boost to recognition of value. My complete guess is that PEG becomes more relevant in 2016 or so, but that the projected 3 - 5 year growth rate then will be in the 20% - 25% range. If it's still projected to grow 50% - 100% in the 2017 - 2021 years, watch out.
So, where on the trajectory will they be in May, 2014? Assuming the a dual listing, $1.00+ earnings, I would also go with "B."
Could easily be "C" if they've done the bond deal; graduated to a more senior Sweden exchange; attracted institutional and analyst interest; and pulled off the first spin out, putting $37.5M in the hands of both the corporate cash coffers and the shareholders.
Like to keep in mind that if the answer turns out to be A; say p/e of 3, that's still a 400% gain.
That's a sobering reminder that there's a lot of work and very major milestones to accomplish. They won't get them all done on time. But if history is a guide, they will get them done, with financials mostly on track.
It's also a reminder that there's very little risk in this company IF they execute even remotely to plan, and are on the up and up. The visit helps shore up the last thought. So, too, will be cash flowing.
But you cannot name one BB company that it applies to, nor one cash flow negative company, let alone both. Yes, it's a metric, but just one of a hundred.
It is a metric: so is most anything. You could apply the second derivative PEG if you wanted. That's the rate of growth times the growth times the earnings so that SIAF is now worth 200 or 300.
But it's worthless.
Saying that SIAF is a $34 stock is the same as saying you're a multi-millionaire because you own 60,000 shares (coincidence that 60,000 x $34 = $2M??)
But you're not. You have $40,000 worth of SIAF shares.
Try spending your $2M.
We probably agree that SIAF deserves multiple expansion, and is emminently more likely to be recognized WHEN and as it meets its objectives -- all of which are now regarded somewhat righfully as conjectural -- including dual listing, high growth, cash flow positive, "cash rich," and spin outs.
Because there aren't any examples.
Show me where it says you can't take a rocket ship from Amsterdam to Rotterdam. But would you say you can get there in 45 seconds?
SJ
The PEG distinction is usually applied to growth vs value. Growth vs. price is more a value metric.
But PEG is a valuation metric not just for growth companies, but also for ones that fit many other qualifying criteria. Don't you agree? If not, perhaps you can give a cash flow negative BB example. Perhaps we agree that one day SIAF will meet these criteria. But most clearly, today they do not. It is ludicrous to say this is a $34 stock. To say that it may become a $34 stock if it meets not only growth targets, but also maturity characteristics is quite another thing.
To say that PEG applies as a valuation metric to SIAF now is Quixotic, imho.
Of course, as I have been schooled by my learned friend RD that investing is about the future, in a couple years (less??), hopefully, PEG multiple will be right on.
Maybe missed it, or there was an earlier filing, but how much did they increase their stake over what time period?
Just think what the Swedish ownership would be with a Swedish listing.
Doesn't that same logic also mean there's a huge demand in the same range?
What's huge?
Have any more friends?
Looks good. I'd keep the valuation graph.
Thanks.
Slightly mitigating, imo.
It's his decision where he publishes one of his email addresses.
SJ
C'mon, you want your private email posted publicly?
Even if yes, you're not Nisse.
(not a rival; but a strong disagreement)
I suggest that the moderator remove both of the last two posts.
If those posters have permission to post someone else's email, fine. Failing that, what right to subject anyone to unsolicited email?
Viking,
I can receive private messages, but cannot reply privately. If you want to post another email address, happy to give you my thoughts.
OK, my misunderstanding.
Get it: by 02, you meant $.02 as a dividend.
No problem; just disagree. They are scheduled to announce and pay the dividend any week now; a bond offering, only if arranged, any month.
Didn't mean to be "invasive." Just don't agree again, because I think a listing in Sweden would raise the pps; therefore, any further issuance would be:
1) less shares, very probably far fewer shares for the same amount of financing
2) two continents of thought about one final financing of growth
3) likely into stronger hands
No idea what your post means.
And the one before continues to indicate you prefer getting equity financing out at a lower price per share before a Sweden listing (if there is one without a bond offering) than after at a higher price.
Right?
I agree with you. In fact, that is my view.
Still, it's not inconsistent with Solomon issuing shares opportunistically, the best he can given the considerable constraints he has, as you've articulated. The flip side of the first half being more cash flow constrained is that the second half of 2012 is less so, as is the second half of 2013. So even in the worst case, the second half of 2013 will see very few new shares issued, if any.
All depends on the timing of either a bond offering and/or a stepping stone listing in Sweden, both of which can be announced before they are actually executed, and both of which figure to help pps (logically, so hopefully actually).