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Maybe I misunderstood what you meant, but that is because I read what you said. I get what you meant as explained; it was ambiguous before.
Regardless, you don't want to see a listing in Sweden unless there's a coincident bond offering, even though you think the shares could fall back to double or triple where they are now?
That would cut in half or a third the final number of shares to finance expansion, if needed.
Solomon is not going to turn down a bond offering. If there is none forthcoming, but a listing in Sweden is available, of course, he'll go forward with that. As he should.
Share issuance of a dual listed company on the verge of being cash flow positive and at upwards of $2 per share is entirely different than what has transpired in the past. For one thing, it does not necessarily have to be sold into weak hands. For another, the ROI on the limited extra shares will surely increase eps, perhaps dramatically; quite obviously, 5x better deal than Ironridge.
Different deals are available to companies at different maturity levels. Guess we'll see how SIAF is maturing in the coming months, and what developments ensue to fund growth.
No matter what, the future financings will be better than the past, if for no other reason than earnings are better, NTA is better, and the cash needed is declining/ending.
Are you assuming that Penser themselves would be the investor?
They would underwrite the deal, not be the sole investor. At least that's my understanding.
As per their web site, they do put together structured products for investors and institutions. So, I'm sure they've put together $15M deals.
To my knowledge, he has not revealed 2013 cap ex plans. The 10% guideline is out there. So, your numbers are good, give or take.
That's why the bond offering is so important. Of course, if the First North or any other dual listing progress advances share price -- while ttm earnings approach $.80 after 2013 Q1 -- then hopefully, if needed, share issuance will be limited because the share price is substantially higher.
Why would you say this?
If the shares rose to $5, obviously the millions of financing shares you're referring to would be about 3. The company is on record saying 2013 is the last year of financing, and that it is limited to about 10% of cap ex. So, the shares going to 5 -- aside from the obvious advantages to all -- would cap the cap ex equity contribution at about 3M shares.
At $5/share, personally, I'd prefer that he issue a full blown secondary, selling double that or more.
Not sure why you call the past issuance innocence. What options did he have one or two years ago? Suppose you can argue that he's grown too fast. But then you'd have to give up the bullish operational argument that he's grown so fast.
It wasn't innocence; nor was it simple. Plans were made to grow an exponentially larger company, one with strategic barriers based on first mover advantage. The plan has always been public. So anyone who relentlessly complains about any issuance can mostly blame themselves, because it was always known. Admittedly, the circumstances have dictated more shares be issued than anticipated, and it has been a problem. It may or may no it be in the future (which I have on good RD authority is what investing is all about).
Now that the Sweden connection has been established, and the company has reached most of its 5 year plan goals, a bond offering appears possible. Chances of this without the Sweden connection are about zero at this stage in the company's development. Anyone think a US bank would underwrite a $15M bond?
So, they are pursuing the bond offering, a great thing for shareholders. They are also pursuing the First North listing, another big positive, with or without the bond offering -- better with, obviously.
Okay.
Import Export, distribution, and any retail will also be very telling. These have really large revenue potential, but don't figure to really take hold until Q4, to the tune of plus $10M, sequentially, imo. Will be a good Q3 cc call, as that will take place in the middle of Q4.
Viking,
Surprised to hear you think the Q3 and Q4 revenues are easy to project. I know they reissued guidance, and that Q4 will be more than Q3. Therefore, somewhat easy.
But the difference and whether they actually make guidance are still open issues, as is how the revenues break out by division. This will go a long way to showing 2013 likely progress.
I'm guessing $37.5M to $42.5 for Q3 with an overall $5 - $10M revenue miss for 2012, but hitting earnings on the nose. The construction contracts, even how many are ongoing now and through 2012 are pretty hard to foresee,imo.
Curious if you want to share your projections and break out, which have been very good in the past.
I think First North listing would be very positive.
I think a bond offering with some equity would be very positive.
I think a bond offering with no equity would be very, hugely positive.
And I think a First North listing coupled with a bond offering would be even better.
If there's a bond deal, great. By the way, there might be some sort of hybrid bond/equity deal, and neither fully rule out other deals. But in any case, a bond deal would be hugely helpful.
If there is no deal,
I would assume that he will issue all the shares available, capped at authorized. I'd further assume that he will not retire many personal shares this time, as there are limits.
Further, I'd assume that Solomon will be as opportunistic as he can be given unknown time frame for events (say a First North listing) and known time constraints of debt due, be it to suppliers, whomever.
How does the equity financing surprise anyone? Solomon has been forthright for a whole long time about how much equity financing there would be, and when it would stop. Now, we have the bond offering possibility that can only help that situation.
Yet, every time the pps goes down there are endless posts about dumping, and in one case about personal savagery.
We know that equity financing is a fact of life for SIAF shares. We know that overhang is diminishing, and that further issuance will end; maybe already has, if a bond deal comes through.
It does not take a genius to multiply some fish and beef numbers, and then apply a ridiculous p/e multiple that is suitable only for a mature cash flow positive, cash rich company listed on a major exchange, and then to call the architect derogatory names because the pps isn't there. Of course it isn't. And more pertinently, perhaps the pps would be higher without the financing, but the revenue and eps numbers would not be either.
It's quite another thing to envision diverse and vertically integrated operations, and manage them through the pitfalls of all businesses (disease, construction delays, inflation, weather, etc., etc.) to meet gaudy financial numbers and meet dual listing criteria.
Any reasonable p/e multiple, PEG being completely out of the question, will take continued realization of the plan, including cash flow positive and dual listing. That's why the valuation metric scores so well now.
There's still plenty of work to be done, and the shares do not yet command an audience that believes the work will be done.
If you are long a core position with a long term view, presumably it is because you believe the CEO will execute on the plan he's let you know about? And he is.
Andrew,
Curious what you see as the impact of further financing shares in 2013, under various scenarios.
First, rather than researching beyond my recollection, do you know how many shares were issued in each of the last two years?
How many do you think will be issued in 2013, given:
1) Total authorized
2) Do not believe that Solomon has more personal shares to retire after 2012 (not sure)
3) Possible bond offering of, let's say, $15M, with 1/4 dollar value warrants issued, trading separately for all of 2013.
What OTCBB company has ever pulled off a bond deal, let alone $50M?
Any reasonable calculation of a valuation score would not be "basically p/e." It would include cash flow and cash balances seriously. I can assure that a bank will take these into consideration.
The odds of a $50M bond deal are as good as PF2 ever doing $500M revenues.
If they pull off $15M, it will be a major, major coup.
I wasn't quibbling with your estimate, just an estimate anyway of the issued shares outstanding, but with that it is the same number as when you made the estimate.
Since August 24th 7M shares have been traded, so why would the outstanding number of issued shares not drop? There are 5 posts a day most everyday about issued shares being dumped. Why wouldn't you assume, for instance, that 20% of shares sold are from that pool, so your 4m-6m estimate becomes 2.6m - 4.6m, and we don't know how many of your original 4m -6 m will be not be sold this year.
And I hope you are right about no more shares to be issued in 2012, but we do not have definitive proof of this.
We do know that in the probable worst case, shares issued in 2101 reduce the maximum issuable in 2013, assuming authorized is not raised.
We also know that new issuance will decrease, and that absorption is improved.
Finally, and most importantly we have the specter of a bond offering.
$.60 is the Q4 $.40 of Q2/Q3?
Curious why you say nothing has changed about the financing shares left outstanding, when everyday we have high volume, and almost everyday we have multiple posters saying that dumping MMs are dumping?
I don't believe the company has ever said that there will be no more shares issued in 2012. Would be minor though. I believe that the IR rep indicating EOY count was a static representation. I could be wrong, happy to be.
In any case, absorption is clearly improved, and any bond deal would all but eliminate new equity shares.
Q3 due November 15th.
PF2 will be way closer to $42M than $250M, in the very best scenario 2 - 3 years from now. JMHO
Hopefully, we can agree that $50M is a whole lot of money.
Yes, investors can feel pathetic. Posts that call people pathetic should be deleted, imo.
For instance, saying that PF2 will sell $1B yearly in prawn flies, or even $250M doesn't make RD as stupid as the notion.
We know that there are shares for sale overhanging trading. But a lot can happen, and maybe has already started to happen, that can change the downside dynamic that has prevailed for a long while.
There are now more catalysts than ever before that might bring overwhelming demand; particularly, the bond offering. There are more catalysts that may bring new buying audiences; particularly, a First North listing.
Further, the issued shares are abating, while volume is rising. MBAY has been selling the last two weeks, while the price is going up. So issued shares are being absorbed recently, the last hour not withstanding. There are only so many financing out there, presumably less and less the remainder of the year.
You guys are going crazy nuts.
Maybe put together your best assumptions and ask Chad for some clarification.
Did you see HB's and Chad's pictures of the flies? It ain't no multi-billion dollar business (per farm), or anywhere remotely close.
The flies in the ointment, so to speak, in your analysis are at what stage of development did they project 2.8B sold, versus where they are, and how long will it take to get there, and with how many construction stages. They are currently selling 50M per month, so that's a pace of a little more than 1/5 of 2.8B per year. 2012 sales look to be little more than $1M, imo.
So, huge ramping to go, over an unspecified time frame. Also, no one ever said they would sell all high value prawn flies. There are some seasonal issues, maybe also supply constraints; more likely 1/3 - 1/2 hi value green prawns.
You can still dream with these numbers, but not outrageously, like your numbers, imo.
I would guess very roughly more like a 5.6B capacity in 2-3 years with average price of $75 per 10,000. Therefore, at capacity well down the line: $42M revenue generating $21M gross profit, if they get an exceptionally generous 50% gross margin.
Certainly the restaurants do not/will not receive live cattle.
I'm not sure what went into the 46,000 figure, but slaughtering and deboning certainly make sense.
In projecting revenues, the Xining cattle farm used 22,000 RMB per head of cattle sold wholesale, but 46,000 RMB per head sold to restaurants.
Perhaps the same idea applies to WSPS?
I'm not sure how the US-China auditing story means much of anything, other than a general cross country improvement in business relations. The article just indicates some new cooperation allowing US auditors to look at books previously audited only by the Chinese. But SIAF is already audited by an accredited US auditor.
As you know, there have been frauds audited by big Eight accounting firms, anyway.
But I do agree that the shares are looking positively primed for significant advance upon any or multiple possible catalysts. A bond offering -- and to a somewhat lesser but still significant extent, a listing to First North would be huge imo. Both would demonstrate a further distancing of SIAF from the stain on US listed Chinese microcap companies. Neither can happen without a new, additional, non-Chinese, non-US level of due diligence. And both open new audiences for the shares.
On top, the bond offering would eliminate or greatly mitigate the second biggest drag on the shares: future equity issuance.
Should either happen, it will be against a backdrop of confirmed 100%+ growth in revenues every quarter for the next 6 at least, and averaging 100%+ growth in earnings for the next 6 at least.
On top, the technicals finally look good, having moved up on good volume since the investor tour, clearly countering any MBAY possible financing shares.
And what a difference in outlook $.20 makes. Seems everyone's happy now, and Solomon is a genius. On the genius topic, his five year plan is roughly 70% realized and includes a bunch of "never been done befores" in China:
1) biggest indoor aquaculture fishery operations in China
2) first ever prawn farm
3) totally vertically integrated along all steps of the food chain
a) can sell one fish 4 times: open dam to FF1; FF1 to WSPS; WSPS to retail or restaurant: retail or restaurant to consumer
4) novel 10,000 sm - 15,000 sm retail marketplace concept of old/new customer/competitors, and separate smaller SIAF owned or franchised smaller shops, selling company branded and other products
5) uniquely symbiotic company/provincial government/local farmer relations for cattle farms
a) organic beef grown from proprietary food; slaughtered and deboned in-house, and sold to company owned and franchised restaurants
WSPS + import-export is the mid step in the overall strategy, and is ahead of schedule. Would love to hear of a second sometime in 2013. The rest should be fun to watch, as cash flow positive becomes a major milestone.
From the latest 10-Q:
"The Company is now applying for a permit to import the high-value brood-stock prawns and to sell their flies to local growers. The application is a rather lengthy process expected to be finalized by end of the first quarter of 2013.If granted, the Company will be one of the few receiving this authority, providing the Company with a strong competitive edge in the industry."
and
"Mexican White species is one of the lowest priced prawn flies sold to the local market due to its availability. On the other hand, the Company anticipates generating five (5) times the revenue of Mexican White flies through sales of its High-Value prawn flies, once approval is granted by the relevant authorities."
On a separate note, I have it on good authority that the wife of one of this board's posters has the family psychiatrist on speed dial.
If they pull off the bond offering, there may not be need for any new shares (though there would be a far lesser number of warrants).
For instance, a $15M bond deal would equal 10% of $150 cap ex for 2013, if Solomon sticks to the 2012 model.
Fantastic job, HB!
Have you sent this to Solomon or Chad? It should go on their website and Facebook page; edited or supplemented, if they like.
Don't know, but don't think so.
The only name that rang a bell is First North. This option was seen as accessible in time, compliance effort and cost, and doesn't have the minimum price criteria.
If the same is true of NGM Equity, doubt there would be any objection.
Yes, a new buying group and higher pps go hand in hand.
And no Sweden listed Chinese company has ever been a swindle. The company will continue to get vetted through the uplisting, dual listing process. And it will continue to attract new classes of buyers through the process, institutions included. Been told some smaller ones are already sniffing.
Recall also that the SEC approved the Form-10 application after many of those swindles.
In Sweden, SIAF will be swimming in a pool of 10x p/e company/ies.
Yep, hoping the supply demand dynamic for shares has made a major, permanent change, as the issued shares are and will be much fewer, while the daily volume is going up and there are positive new fundamental and circumstantial catalysts on the short, intermediate, and long term horizons.
They need(ed) a special permit for the "high value" prawn flies. I believe they have gotten that permission recently, or will imminently.
Did not learn on the trip if the next farm is FF or PF (or forgot), but I think it's FF based on my recollection of Solomon saying on the cc that the PF "revolution" expansion might start after financial sale metrics are proven; i.e. very fast investment payback.
Andrew and Viking,
Do you interpret the move from $.47 the day before the investor tour ended to $.59 now on strong volume as a confirmation that shares on the ask you've (Andrew) said are financing shares (at least MMs) are being absorbed.
And because financing shares will diminish if not cease almost altogether with a bond offering, that the demand for shares now meets or exceeds the supply?
If so, do you see this situation continuing from here throughout 2013, as dual listing, bond offering, revenue and earnings catalysts are realized?
Alternatively, do you see recent price and volume tailing off after 9/28, when people no longer get an additional $.034 payable mid 2014 for their purchase.
Nice move and pr today. Wouldn't be surprised to see a Board of Director press release timed to the 9/28 date, give or take.
Absolutely part company with you on this, when you say it is THE determining factor. Correlation is not cause and effect. The correlation is not very conclusive anyway, as
a) no one has run a regression analysis; we don't even know the correlation coefficient in the first place, and certainly not over the long term
b) there are too few data points
c) there are likely many other correlations, such as share overhang
Nonetheless, I'm not saying that food inflation doesn't help, and it should much more over time, as it truly impacts revenues. Too bad the HU crop has been low the last two years, especially this year when inflation would have had a direct impact on profits, and consequently, maybe share issuance.
Yes, this and your previous post about financing 10% of cap ex through equity hit the point, I think.
This is a small, fast growing company building value on a well articulated time table, with stated means and goals. They've executed the means and met the goals. The share price will take care of itself in the longer run.
I do not believe that the share price has too much to do with commodity prices just because there is some correlation. Much more likely because it is direct, and to a much greater degree, imo, share dumping has hurt the pps. Mostly, this is because Solomon committed to a very aggressive expansion plan not knowing the pps would be so low.
Most relevantly, no matter how you slice it, the effect of share issuance going forward will be less, probably dramatically less than in the past. The bond offering may eliminate it entirely.
It is possible that since the tour, we are seeing remaining financing shares being absorbed while the pps is steady or up.
btw, Solomon's courtesy and long hours were in full evidence the whole trip. It was a Sunday morning after he fielded questions from all that he walked a few back to the hotel, a couple blocks from the office.
Viking,
This is helpful. You're saying that there were two sustained periods of dumping, much of it presumably Ironridge shares, issued at a very low price. Fair enough.
I'm suggesting that for the last 7 days, we are getting just as high volume with the price basically up. So, if there is any dumping, it's being absorbed. Admittedly, this is only 7 days.
If there is a bond offering, the dumping may be almost over. Even if it isn't -- and even if in the worst case that there are 15M shares issued in the next 15 months, I'm suggesting that it can be absorbed, because it will comprise only 13% of sales, if evenly distributed.
But it seems that on this board, every day that there's a downturn -- even intraday trading that is reversed -- it is attributed to dumping. I'm hoping that that phase is over (less a concentrated, but isolated event or two) either because a bond offering will replace new share issuance entirely, or because the number of shares potentially issued through 2013 will be a (much) smaller percentage of volume against a continued and more positive environment that demonstrates the ability to absorb:
1) alternatives to share issuance (bond)
2) higher pps (Sweden listing); so less shares needed and flexibility to time any debt repayment
3) much lower ttm p/e
I'm curious how you guys estimate what volume of financing shares have been chugged through. For instance, since the investor tour ended, the total volume has been 2.7M shares in 7 trading days, or almost 400k per day.
Any idea of how many came from those shares, reducing the overhang? How do you figure this?
At 400k shares per day, we'll trade 132M shares through the end of 2013. Even if there is no bond deal, conventional wisdom calls for perhaps 16m to 18M through 2013, including shares guessed remaining from outstanding issuance. That's max 13.6% of trading. Any way to estimate what that overhang means, considering not all shares will be sold?
And measured against not only the operational and financial success of the company -- projecting a current p/e of about .5 on 2013 earnings -- what impact would that level of selling pressure be expected to exert? Let's also be mindful that there is a good likelihood of both a First North listing and a bond offering before any possible significant new issuance to more than compensate, I'd think.
In the next 8 months, three new quarters will be reported, and that's before the last 7 1/2 months of any 2013 share issuance (if there is any).
Ironridge was one thing; current equity financing prospects another altogether.
On a separate note, I'd expect that Nisse must report personal shares owned when he becomes a Board member.
Yes.
It was explained as a bond with warrants. I don't think that there are known terms. The number of warrants, and exercise price and time periods -- even the interest rate and length for the bond -- are all negotiable.
Just noticed that I said the wrong thing.
The remaining $10M from the dairy sale is NOT all cash; probably, limited cash. Cash flow remains very important with the company in hyper growth mode, and is the underlying reason a bond offering would be huge for the company.
My understanding is that there will be something like 84m to 86M shares outstanding EOY 2012, leaving 14M to 16M available for issuance.
Any bond deal would obviously mitigate the need, though not necessarily eliminate the desire, with the right opportunity; especially if it can be timed for later 2013, with a higher share price, after uplisting/dual listing and higher ttm earnings.
Currently raising $15M through equity would cost about 30% dilution, whereas a bond offering at 10% would cost $.017 earnings in interest, plus later perhaps 5% dilution from exercised warrants.
Pretty confident that $15M would generate an additional $.07 eps starting in year two, probably sooner depending where the money was invested.
Reasonably sure that this $10M+ figure still due from the dairy sale is all cash. .
The bond offering has to include a warrant sweetener; we're not talking about a AAA rated multi-billion dollar company. But it is obviously massively preferable to the equity only financing:
1) the warrants will be limited to a percentage (25%?) of the bond amount
2) even the percentage will be at a price higher than market price
3) they will not be exercisable for some amount of time, so will not represent an overhang on the share price; at least not until after any projected uplisting
4) the debt portion provides cash for debts or to invest immediately. And the company has demonstrated multiple ways to return 40%.
I'm not sure that any bond offering eliminates further share issuance. A minor amount is probably still in the offing. But with a bond, and issuance up to authorized shares can be done in a much more flexible manner, later in 2013, if at all (therefore, at higher prices).
In any case, a bond offering underwritten by a Swedish bank would be a huge endorsement, indicating institutional confidence and enhancing dual listing and uplisting.
A listing to First North may happen first, which would presumably force higher warrant exercise prices.