Has anyone over here been following the debate on the yahoo AERL board regarding how net income is to be calculated for the issuance of management's "performance" shares for FY12 results?

I'd be curious to see how some of the long-time followers here view this situation. Thanks....

R59, I think you are absolutely spot on regarding the weakness in GV. There were a lot of momentum traders in it who are now dumping. Wasn't this highly thought of at GeoInvesting? I seem to recall them pumping it a bit a while back....as they did with FFEX. I'm guessing their subscribers are heavily populated with ST traders.

Once these momentum/growth plays are "broken" the selling can become extreme. FFEX was a disaster without much redeeming value. GV's earnings were great, but it was just owned by a crowd that didn't like the catalysts going forward and simply dumped it to move on. Another technical factor weighing on GV was the fact that it dropped through its 200 DMA. That is often a stop-loss trigger for many.

I've been a buyer this week of some of the high yielders that are trading below book value (SLRC, FDUS, NMFC). All of them are BDCs (business development corps) that lend money to middle market companies that have a hard time getting financing from traditional banks. All have had some insider buying at current levels, some as recent as this week.

I like MPW too because of its exposure to the hospital industry which will benefit from Obamacare regulations now covering a lot more inpatient visits that previously were written off because of lack of insurance coverage.

KIK is right to point out the reduction of after tax yields for some investors because of pending changes in tax codes. Clearly that is why the stocks are under a great deal of pressure this week. Can't ignore the economic risks either if we do go off the "cliff" as the more highly leveraged companies could experience cash flow difficulties that could hamper dividend payments.

However, many investors don't have to face the higher taxes because of a) incomes below the higher tax thresholds, b) high yield stocks are commonly held in tax-deferred retirement accounts or c) pension and hedge funds usually ignore their investors' after-tax concerns. In essence, we have a group of sellers who are motivated by issues that will be moot by year end and only impact a certain sub-group of shareholders. I think they'll come back once yields have risen post sell-off....IF they continue to stay this low.

I suspect that there will be a deal eventually made and that we will continue to muddle through the next year. The economy has been slowly building strength, but its shaky. As long as defaults don't skyrocket, these yield plays should look pretty good vs other more volatile investments esp in a low interest rate environment.

Some other ones that look interesting to me: STWD, SDRL, CLDT, INN.

I have nothing to add to the macro comments made today on ECPG, as I think the sell-off is misguided and way overdone. Analysts have lowered numbers for FY13, but the stock has corrected far in excess of that.

Still expected to growth eps at 13% y/y. Even a dirt cheap valuation of 8x would have the stock trading 15-16% higher.

Wade re ECPG. I don't see any reason why they can't be awarded a 9-10x forward eps multiple.

Estimates have come down a bit recently, no doubt on the back of the company's admission that pricing for buying new A/Rs is very tight right now and they are loathe to overspend. That might impact revenue growth going forward, but they had a huge quarter of purchases in Q2 in anticipation of a tighter market later in the year.

Even if you look at the low end of the analyst estimates, they still forecast 9% growth in FY13 eps to 3.40/share. The company has stated on its CCs that it is comfortable with LT growth rate of 15%.

I'm not sure I'd risk it with calls. I could see a number of things that could delay the closing until later in the year than Q1.

All part of the plan to successfully go private at the lowest price possible that doesn't trigger shareholder lawsuits.

I think the participation of ABAX Global is also a key. They have provided financing (or worked with other banks to put it together) on at least 2 other successful going private deals this year involving Chinese r/m's.

GM were actually up for YONG in Q3. Shipments were strong as well. New revenue recognition policy is ultra conservative. One of the topics on the call highlighted the fact that IR did as little as possible to provide a proforma comparison that might have shown what Q3 might have looked like had they booked it under the old policy. This was designed to push the stock down IMO making it easier for some to scoop up some cheap shares and provide a boost to the chances the deal goes through.

BTH lowered guidance yesterday by around 20% on the back of disappointing performance in Europe of its legacy businesses and the maturation of its Visalus shake business in the US, which is now subject to normal seasonal trends.

Link: http://finance.yahoo.com/news/blyth-inc-updates-2012-earnings-235500292.html

The stock is getting crushed again trading down to the low 17s, which puts it around 7x adjusted forward PE. Given the recent missteps management has made and the big declines in their legacy business, perhaps we are now at fair value. I've got to think that more than a few shorts will be thinking about covering their huge position today and into the end of the year....

The company has indicated that it has international expansion plans for Visalus, which could continue to fuel some growth. However, the uncertainty over this path of growth and how the final 229MM payment will be made to the Visalus founders leaves some doubt as to whether there will actually be eps growth beyond 2013.

ORBT had some bullish comments buried inside a PR today, announcing another new order:

PRESS RELEASE
Nov. 7, 2012, 8:45 a.m. EST
Orbit International's Power Group Receives New Order for a Power Supply Used in Oil and Gas Exploration Valued at Approximately $1,360,000


HAUPPAUGE, N.Y., Nov 07, 2012 (BUSINESS WIRE) -- Orbit International Corp. ORBT -0.94% today announced that its Power Group, through its Behlman Electronics, Inc. ("Behlman") subsidiary, received an order in its commercial division for a power supply used in oil and gas exploration valued at $1,359,800. Behlman has been supplying its customer with this unit since 1995 and to date Behlman has shipped over 1600 units. Deliveries under this contract are expected to begin in the first quarter of 2013 and continue through the first quarter of 2014.

Ron Storm, President of Behlman Electronics commented, "Behlman's ability to operate in niche markets explains our continued success during these challenging economic times. Our commitment to being a power solutions provider has allowed Behlman to uncover these types of long-term production programs, enabling us to build a strong base of repeat business which has been a key factor in our sales growth. As a result, we remain confident that our business will remain strong for the balance of this year and in 2013."

Mitchell Binder, President and CEO of Orbit International commented, "We are very encouraged by this order and the potential for future business in the oil and gas exploration market. 2012 has been a strong year of bookings for Behlman, mostly coming from its COTS division for follow-on orders on legacy programs. This order greatly improves our year-to-date commercial bookings, which bodes well for continued improvement in the operating performance for our Power Group. Most of Orbit's recent large orders have come from our Power Group; however, our Electronics Group has several outstanding proposals for equipment on legacy programs and we expect to book several significant orders before year-end or in the first quarter of 2013."

------------------------

How profitable will these new orders be? And how sustainable is the business beyond 2013?

The stock has been basing in the low 3s for months with one hedge fund buying up a lot of the supply. We'll see....

Well, now we know what the shorts were thinking when they loaded up betting against BTH. In an 8k filing this PM, BTH revealed that its Q3 sales from Visalus were 170MM, which is down sequentially from Q2 (when they reported 190MM in Visalus sales). Even though y/y numbers were very strong, the seq decrease in sales is a red flag for this fad product.

At its National Success Training event in St. Louis on November 2, 2012, ViSalus intends to announce that its sales for the third quarter ended September 30, 2012 were approximately $169.9 million, an increase of $96.7 million, or 132%, from $73.2 million in sales for the third quarter ended September 30, 2011.

The sequential growth story is over for now. No indication of when Q3 earnings will be released, although the company has a history of releasing quarterly results on the 4th or 5th of the month following the end of the quarter. No indication if seasonality might have played a role in the sequential drop. It hasn't been a factor in the past.

Now we'll see if we get any of the massive short position covering into this selling. Hat tip to the shorts....they played this correctly.

AERL announced RCT for October down 31% y/y but look at the win rate which is a huge positive for net income:


PRESS RELEASE
Nov. 2, 2012, 10:30 a.m. EDT
Asia Entertainment & Resources Ltd. Announces Rolling Chip Turnover of US$1.47 Billion for October 2012

HONG KONG, Nov 02, 2012 (BUSINESS WIRE) -- Asia Entertainment & Resources Ltd. ("AERL") AERL +0.71% , which operates through its subsidiaries and related promoter companies as a VIP room gaming promoter, today announced unaudited Rolling Chip Turnover (as defined below) for the month of October 2012 at the company's VIP rooms in Macau was US$1.47 billion, down 31% year-over-year, compared to US$2.11 billion for the month of October 2011. This compares with a year-over-year increase in overall gross gaming revenue for Macau of 3% for October 2012, while Macau VIP revenue growth for the month of October 2012 is believed to be negative versus the same period in 2011. Win rate for the month of October 2012 was 4.25%. At a normalized win rate between 2.85 and 3.00%, AERL's Rolling Chip Turnover for October 2012 could have been between US$2.19 billion and US$2.08 billion.

For the first ten months of 2012, AERL's Rolling Chip Turnover was US$15.57 billion (an average of $1.56 billion per month), down 5.5% year-over-year, compared to US$16.47 billion (an average of $1.65 billion per month) for the first ten months of 2011. Overall, Macau gross gaming revenue increased 13.5% for the first ten months of 2012.

The decline in Rolling Chip Turnover was attributable to the Company's self-directed tightening of credit to agents due to the slowing economy in China, partially offset by a higher-than-average win rate as all AERL VIP rooms are now on a revenue sharing model.

The Company's VIP rooms are primarily focused on high stakes baccarat. Baccarat accounts for approximately 88% of total Macau casino winnings according to the Macau Gaming Inspection and Coordination Bureau (DICJ). In Macau, two remuneration methods are used to compensate VIP room gaming promoters. On a fixed commission basis, VIP room gaming promoter revenues are based on an agreed percentage of Rolling Chip Turnover. On a win/loss split basis, the VIP room gaming promoter receives an agreed percentage of the "win" in the VIP gaming room (plus certain incentive allowances), and is required to also bear the same percentage of losses that might be incurred. Compared to the fixed commission basis, the win/loss split basis subjects the VIP room gaming promoter to the risk of losses from the gaming patron's activity and greater volatility.

As of September 1, 2012, all AERL VIP rooms are on a revenue sharing remuneration model.

sskillz, i agree with you on ECPG. I've added to my position here in the low 26s.

I think some of the selling seems technically driven. The LT growth outlook seems solid; the only minor issue that was raised on the call was the decline in A/R purchase activity in the Q. That could impact growth in future quarters, but the company indicated that there were some supply issues that should not recur, and they remain on track with their initial guidance for full year acquisitions of distressed debt.

Swick, great call on ACCO! How high can this bounce take the stock? Seems like the buying was mostly short covering as there weren't any bombshells in the quarter. With guidance reiterated and most of the worst news out, the valuation seemed a bit cheap given the expectation of growth in eps next year.

Short interest had gotten up to 12MM+ (10% of FDS). With volume drying up and the days to cover ratio climbing, I think this was what created a spark to cover.

If the stock can drive up above the 100 DMA (7.84) we might see some further covering.....but at nearly 8x eps I'm taking some off the table just below that mark.

Yes, AAPL is historically very conservative with forward guidance. For example, here is what they said about the current quarter three months ago:

“We’re continuing to invest in the growth of our business and are pleased to be declaring a dividend of $2.65 per share today,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the fourth fiscal quarter, we expect revenue of about $34 billion and diluted earnings per share of about $7.65.”

Actual Q4:

Rev: 36B (5.9% better than guidance)
EPS: 8.67 (13.3% better than guidance)

Having said that, the guidance for Q1 of FY13 still seems to be well under what they reported last year, even if you assume that they are sandbagging it a bit. The first question on the call dealt with that issue:

First question asks why the guidance implies the first December-quarter earnings drop in company's history. Oppenheimer notes an extra week in the comparable period, but also says the "prolific period of product launches" also compresses margins. Apple has never launched so many new form-factors in such a short period of time, Oppenheimer said, adding that the company "is at the height of the cost curve" on manufacturing them.

Regarding iPhone 5, Tim Cook says demand is "extremely robust" and the company is in a "significant state of backlog right now." But he adds that output has improved, calling this the "largest volume ramp in Apple’s history." He says he is feeling "very confident in our ability to supply quite a few iPhones." No specific timeline on bringing supply in line with demand.

The stock is already well off its 52 week highs, so some of this disappointment could already be priced in. If the issues are due to supply constraints/ST margin issues and sales are merely being pushed out into later quarters, then the stock should stabilize assuming the FY13 numbers aren't impacted too much.

Wow...BTH short interest has increased another 70% sequentially from the last report. Latest numbers show it to be nearly 4.2MM shares short. Thats 24% of the entire share count, and is 40% of the float (depending on whether you include institutional holdings or not).

Here are some numbers I stated earlier:


BTH is shaping up to be a classic showdown between shorts and management. BTH market cap is approx 432MM, with a fds share count of 17.3MM (before the buyback).

BTH float (fds - (management ownership + institutional ownership)) is pretty small, approx 2.04MM prior to these share repurchases. The Goergen family alone controls 40% of the shares, according to the last proxy statement. Institutions hold another 48% as of 6/30/2012. That leaves 12% of the FDS, or just over 2MM. That float just decreased to 1.76MM, assuming the institutional ownership is fairly tight.



We'll see what happens here....its kinda reminding me of the Chinese r/m stocks with heavy short interest that seems very confident of its thesis. That thesis is: BTH's legacy business is not growing, and Visalus weight loss products could be one-hit wonders that fade in time. Also, the final payment BTH makes for Visalus has been pushed out but could result in some dilution or higher interest expense that could hurt eps growth. I agree with the concerns in the long run, but think the time isn't quite right to push such a heavy short position.

The next earnings report will be very interesting.

Late edit: the stock is trading at 7.6x adjusted forward eps of 3.15. Management has been conservative in its previous forecasts and has consistently raised its guidance throughout FY13. The second half of the year is also seasonally strongest for the company in terms of sales, earnings and cash flow generation.

No, not if they took shares back in exchange for cancelling the loan. The cash from the loan stays in cage cap as an asset but comes off the liabilities side of the BS as the founders have been "paid" back.

Who says they are required to convert the loan to stock before they can list on the HK? Here are the HK listing rules:

http://www.hkex.com.hk/eng/listing/listreq_pro/listreq/equities.htm

This is where the issue of share ownership comes up:

(VII) Market Capitalisation of Public Float:
The expected market capitalisation at the time of listing of the securities of a new applicant which are held by the public must be at least,
Main Board GEM
HK$50 million
HK$30 million

(VIII) Public Float:
At least 25% of the issuer's total issued share capital must at all times be held by the public.Where the issuer has one class of securities or more, the total securities of the issuer held by the public at the time of listing must be at least 25% of the issuer's total issued share capital. However, the class of securities for which listing is sought must not be less that 15% of the issuer's total issued share capital, having an expected market capitalisation at the time of listing of not less than,
Main Board GEM
HK$50 million
HK$30 million
The Exchange may, at its discretion, accept a lower percentage of between 15% and 25% in the case of issuers with an expected market capitalisation at the time of listing of over HK$10 billion.
(IX) Spread of Shareholders:
Main Board GEM
The equity securities in the hands of the public should be held among at least 300 holders.
The equity securities in the hands of the public should be held among at least 100 persons.
Note: Not more than 50% of the securities in public hands at the time of listing can be beneficially owned by the three largest public shareholders.
=====================================================

AERL Management/Non-public ownership (Spring Fortune) is approximately 68% of the share count of the FDS total. This number is from the last 20-F. This is ok as HK allows for the public shares to be only 25% of the FDS count. However, they have to account for the loan conversion terms, which states that the founders can convert the $60MM loan into shares at $20/share until April 2014. That won't happen given the share price, so the company could pay them back in cash or extend the loan on similar terms into the future.

What is clear to me is that a chunk of the shares held by Spring Fortune will have to be sold in HK to create the necessary liquidity over there and comply with public float minimums.

The only non-dilutive way I know of to get the founder's loans off the books is to simply pay them off, raising the cash to do so through other loans or via cash currently held by AERL. Not much benefit to this from the US shareholder's perspective as it doesn't reduce interest expense, and it robs the company of needed capital.

Far better to just take the company private again. Offer $7.00/share, borrow approx 100MM to pay off the float holders (approx 32% of the FDS) and wait to go public on HK when the time is right....or just keep the extra cash flow/net profits after paying off the interest expense from this new debt. They probably have $10-12MM/yr in current GAAP expenses that would disappear if they went private; in this way they put approx 3-5MM/yr into their pockets each year even after paying the added interest expense. This is in addition to keeping all the annual cash profits for themselves.

Why bother with listing at all? Its not like the Macao casinos are rushing to give out new rooms to AERL anyway.....and credit lines can always be guaranteed personally by the AERL founders if the casinos are worried about not seeing a public accounting.

I think the larger question is why are HK volumes so low for MPEL? Some days over the past few months it has traded less than 5k shares, if the yahoo finance data is correct (a big if).

Avg daily trading volume on the Nasdaq for MPEL is 4.8 million shares per day. And the Nasdaq shares are ADRs that appear to represent 3 ordinary shares, so if anything, the HK trading activity should be higher than that on the Nasdaq.

I thought that HK investors "get" these stocks and are willing to embrace them far more than US invetors?? MPEL's situation doesn't reflect that conventional wisdom.

I don't have an answer for you on the relative difference in valuation between the two exchanges for MPEL. Here's a chart showing the relative performance of the two stocks:

http://finance.yahoo.com/echarts?s=6883.HK+Interactive#symbol=6883.hk;range=ytd;compare=mpel;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined;

It is tracking in a consistent fashion with MPEL on the Nasdaq, but there are wider swings separating the two than one would have expected. Volumes look exceptionally light on the HK exchange too. Avg daily volume for 6883.HK is somewhere around 15-25k, but there have been more than a few days where less than 5k shares traded. Seems pretty light to me, and not a good omen for AERL if you are hoping for high volume activity to drive price higher in HK and allow for speculators to arbitrage the two.

PBSV Any concern that the CEO might want to exercise and sell some of her millions of low priced warrants?

Seems to be roughly 2MM warrants @ 0.06 that would need to be exercised before Jan 2014. If she is stepping down from the company, she may wish to cash some of these in.

"San Juan Holdings represented Pharma-PR and Elizabeth Plaza in connection with the reverse acquisition. For such services, we issued 600,000 shares of common stock and warrants to purchase 2,500,000 shares of common stock, with an exercise price of $0.06 per share, to San Juan Holdings. In our private placement of series A preferred stock and warrants, San Juan Holdings purchased three units. The purchase price for the three units was $750,000. The broker, which is an affiliate of San Juan Holdings, waived the commission and the non-accountable expense allowance with respect to such sales, and as a result, San Juan Holdings purchased the three units for a net payment of $652,500. The three units were comprised of 75,000 shares of series A preferred stock and warrants to purchase 510,600 shares of common stock. The shares of series A preferred stock became converted into 1,021,200 shares of common stock. We also issued 919 shares of common stock to San Juan Holdings as a result of our failure to file the registration statement of which this prospectus is a part in a timely manner. We also paid an affiliate of San Juan Holdings a broker's commission and non-accountable expense allowance of $195,000 for sales made to other purchasers in the private placement, and we issued to the affiliate three-year warrants to purchase an aggregate of 275,724 shares of common stock at an exercise price of $0.7344 per share. On July 2008, San Juan Holdings exercised 669,009 of the warrants exercisable at $0.06."

- from the 2011 proxy statement.

I expect VIP roll to remain poor given the macro trends in China

That is the big head scratcher for me on AERL and its VIP clients. This was not what happened during the 2008-09 financial crisis, as AERL saw an expansion of its RCT even in the face of what were worse conditions then vs now. Perhaps they were in the midst of a room expansion then that led to those strong results vs Macau? Can't recall off the top of my head, but they clearly were not facing a -40% drop in RCT back in 2008-09.

Did they not pull back on credit in 2008? Are conditions in China much worse than we are led to believe? This would not be a shocker given the amount of accounting shenanigans we've encountered in this space.

Prior to this year, AERL had expressed confidence in the ability of its wealthy VIP players to withstand global economic shocks.....now how do they feel?

There were some one-time comp issues that impacted AERL's RCT in July. However the larger than average y/y declines in RCT would lead you to conclude that AERL's VIP gamblers are much more reliant on credit advancement than the avg VIP player. The higher hold % also played some factor here as well in reducing RCT.

I'm sure that management would point out that they still haven't reached a critical mass in terms of rooms and tables that could help lessen these volatile swings in RCT. The higher hold rates hurt RCT, but under the win-loss model this new comp scheme helps margins going forward, assuming they are higher than avg and remain that way. Over time, this hold factor should trend somewhere around 2.85 - 3.00%.

All in all, the RCT number doesn't play the same role it used to in figuring out net eps for AERL. RCT could be down substantially but net margins (and EPS and EBITDA) could be UP substantially which is what most traders would want to see.

ECPG was profiled in Barron's (positively) this weekend:

http://online.barrons.com/article/SB50001424053111903463204578044673705550026.html?ru=yahoo&mod=yahoobarrons

That is likely behind the decent showing today (+3%)

I like the stock too, and picked it in the PSL22 contest. I've been a buyer in the 27-28.50 range.

A very small step forward; Paul Gillis has an excellent analysis that shows this wasn't a substantial game-changer:

http://www.chinaaccountingblog.com/weblog/pcaob-deal-sec-next.html

According to the China Daily report, the PCAOB will be permitted to observe official auditor inspections in China, yet will not be permitted to observe detailed reviews of specific audits.

PCAOB inspections have two parts. First, the PCAOB reviews certain aspects of the firm’s quality control system. This is the part of the Chinese inspections that the PCAOB is being allowed to observe. The second, more substantive part, of the inspections includes reviews of certain aspects of selected audit work performed by the firm. Every audit is not reviewed; rather a sample of audits covering a range of partners and offices is selected. The review of individual audits is the most important part of a PCAOB review, and this is the portion that the PCAOB is not being permitted to observe in China.

....

Closely related to the PCAOB inspection issue is the current standoff between Deloitte and the SEC over access to the working papers for Longtop Financial Technologies. In July, the SEC asked for and was granted a six month stay in the action against Deloitte in U.S. Federal Court on the basis of ongoing negotiations with Chinese authorities that the SEC hoped would lead to access to the working papers. The judge ordered the SEC back to court in January to report on the negotiations. If the negotiations fail, I expect the SEC will be asking the judge to sanction Deloitte. These sanctions might include barring Deloitte China from auditing U.S. listed companies and may prompt the SEC and the PCAOB to ban all Chinese CPA firms from U.S. audits. That could lead to the mass delisting of U.S. listed Chinese companies.

-------------------------------

I would also like to see the Chinese authorities actually prosecute some of the financial scams that have taken place here....but I'm not holding my breath. Until there are better financial protections for US shareholders in place, I doubt you will see many in this country want to own these Chinese companies long term.

Latest short interest for BTH shows that it increased by just over 80% vs its prior report, rising to nearly 2.5MM shares:

http://www.nasdaq.com/symbol/bth/short-interest

That figure now exceeds the public float, and is at the highest level ever for the stock. Clearly a lot of the selling in the stock came from those who decided to short it after hearing the news of the Visalus IPO being cancelled.

The company has been aggressively buying back stock and is poised to report a strong quarter and 2nd half with its Visalus subsidiary leading the way. I'm looking for them to hit the top end of their adjusted FD eps of 3.15. Stock currently trades at 8x those forward earnings with a growth rate that will far exceed that for the next year. LT growth rate could be 10-12x.

I'm basically hoping that the worst news is out and that business at Visalus still remains strong enough to overcome any weakness in the other subsidiaries. That appeared to be what management was indicating in their last CC, and there have been some recent insider purchases (albeit small) in addition to company buybacks.

KIK, have you come across any analyst estimates for LXFR? Stock seems dirt cheap, but their business seems to be cyclical and heavily influenced by commodity input costs, along with some broad exposure to the EU. Could they be peaking in earnings this year?

From the company website:

Luxfer Group designs, manufactures and supplies high-performance materials, components and gas cylinders to customers in a broad range of growing end-markets.
Our aim is to develop close working collaborative relationships with customers to find new solutions to their needs for advanced materials.
Our focus is on demanding applications where our knowledge of material science and manufacturing expertise combine to deliver a superior product. Click here to learn more about our expertise.

Our business development is concentrated on the growing demand for environmental, healthcare and protection technologies.
Luxfer Group is the world leader in the manufacture of:
- magnesium alloys, magnesium powders and magnesium products;
- zirconium chemicals and oxides;
- superformed components in aluminium, magnesium and titanium;
- high pressure aluminium and carbon composite gas cylinders;
The Group is truly international employing approximately 1,630 people in over 25 countries. It operates 16 manufacturing plants in 6 countries, UK, USA, France, Czech Republic, Canada and China, plus joint ventures in Japan and India. Revenue in 2011 was £317.3 million.

Luxfer´s products are in use all around us in most countries of the world.
Applications for our products include:
- improving fuel economy by lightweighting aircraft, trucks, buses, trains and cars;
- controlling emissions from road vehicles, converting noxious gases into harmless ones;
- removing toxic metals from drinking water and industrial effluent;
- improving patient mobility and quality of life with lightweight, portable medical equipment; and
- protecting people and equipment in conflict and emergency situations.
Environmental, healthcare and protection applications are a key focus of our business development, with the aim of generating more new products alongside those produced for our more traditional specialist markets.

------------------------

The stock is on my watch list, but the recent IPO means lots of fast money that will be bailing on the first sign of trouble or a break below the IPO price of $10.

Thanks Cliff. I did miss that.

I think HA analysts had already trimmed estimates. Looking at the numbers in the PR, it appears that revenues are actually a bit HIGHER than what analysts were forecasting for Q3:

Operating Rev/ASM: 0.144 (Q3)
ASMs: 4052 (x1MM)

Projected Operating Rev (Q3): 583.5MM

Current analyst forecasted range for Q3 rev:
563MM - 577MM
http://finance.yahoo.com/q/ae?s=ha&ql=1

Forecasted expenses are actually better than previously expected....so I'm not sure that this is all negative. The guidance for revenue/paying customer previously provided by management was a bit aggressive. They had expected it to be down 3% y/y and now expect it be closer to 6% down y/y. Don't forget that the number of paying customers is still UP 25% in Q3, so overall revenues will still be up nicely.

Total costs are still unknown, but if they are now forecasting for a bigger drop in Cost per ASM (ex fuel costs) that should also be viewed positively.

I think the initial read on this report is wrong.

Pedro, we should take further discussions of AERL over to Ihub board dedicated to AERL:

http://investorshub.advfn.com/Asia-Entertainment-&-Resources-AERL-17070/


We're getting a bit too focused on just this one stock and I'm sure the other board readers are tiring of our back and forth discussion.

Low float concerns could be addressed if top management (Vong, Lam, et al) sold a chunk of their existing shares on the HK market (assuming they can get better prices than the Nasdaq). That would not increase the FDS count and it would increase the float available to be purchased on the open market. Insiders could even purchase more shares now at below book value in anticipation of needing to sell some of those shares in the future. Insider purchases would create better optics for a stock that desperately needs them.

I have to say, the daily trading volume issue is B.S. for an appropriately sized fund with a mandate that includes buying microcap stocks. The stock has consistently traded 100 - 150k shares+ per day for some time, which should be more than enough for funds managing <$100MM to build a 1% position size. Perhaps the institutions that Sterne Agee is talking to just aren't well matched for this stock.

In the end, as long as the stock continues to trade further and further below tangible book, management and the BOD will have to consider aggressively repurchasing shares or even going private if the market simply refuses to believe the value here. With TTM EV:EBITDA multiples in the 2.7x range, a high yield in place, and trading below tangible BV, there is more than enough to entice value hunters, assuming they trust management to do the right thing.

R59, I heartily agree with your comments and have raised these exact same concerns privately with Sskillz after the last PSL. I am all for trying to make these contests more realistic as they have become overly skewed toward nano-cap stocks. I also prefer a higher daily $trading volume "floor" in order to steer us more in that direction.

Not sure what you mean by "liquidity concerns"....please specify?

I'm hoping you are right about the sustainability of a 5 PE in HK. If that could hold, you would see AERL jump by a lot here as large traders take advantage of the arb opportunity. However, since that price increase doesn't exist in a vacuum, there might/would be pent up desire for selling stock on the Nasdaq as long-suffering US shareholders take the opportunity to sell into the first substantial price rise in well over a year.

Pedro, the HK listing was not supposed to be an opportunity to raise capital via a potentially dilutive offering of new shares. I had assumed that management was going to unload some of their own shares on the HK public in order to get the trading float going.

If what you say is accurate, then there is even more reason to buy up shares trading below tangible book value and then re-issuing them at higher multiples overseas.

I'm not asking for much, just that management fulfill their stated goal of repurchasing 2MM shares for a start. At current prices < 3, they would expend no more than $6MM. They have over $41MM in cash on their balance sheet as June 30, earning no interest. Their LOC with the casinos do not charge them interest, so they get no benefit from paying those off. Even at the current depressed earnings cycle, it is possible for them to earn 0.30 - 0.35/qtr going forward; assume a forward eps of 1.30. At current prices, that represents a forward PE of 2.2x, or a 45% return on investment/repurchase assuming no need for future capital inflows for cage capital. We can argue about whether there are longer-term benefits from making acquisitions, but in the short run there is no better use of cash IMHO.

One could also argue that paying a dividend (approx 7.5MM outflow YTD) doesn't make sense either if you are trying to build capital for entry into a new room. There are no returns to the company from this outlay, other than a desire to pay investors for having to wait for the company to turn around. For that matter, a lot of that dividend is going into the pockets of management, so they aren't hurting for cash. Besides company repurchases, another positive signal to send to the market is insider buying, which has not happened in well over a year. Lets face it, the business model will probably never be accepted here in the US, and traders will only play it if there are catalysts available to trade off of. In 2010-11, the stock was hurt by hugely dilutive stock issuances to management, causing negative growth in fd eps. In 2012, macro headwinds have blunted revenue growth, along with a lack of entry into new rooms. If VIP gambling simply matches the current level of RCT for AERL next year, then reducing the share count will be the only way for them to increase eps, other than an open invite into a new room.

I do agree with you that the slowdown in VIP is a big change from the last big slowdown in 2008. That could be a canary in a coalmine for bigger problems in China than we know at present. I would love it if a dual listing would put a charge under the US listed price as you hope to see, but I think you'd find supply overwhelming demand at prices double what they are now, quickly dropping the price again.

Might as well write off this year for AERL....but at least management won't get their dilutive "incentive" share bonus. Also, if having the stock in the toilet finally gets management to buy back shares while the price is under tangible book value then it sets up the potential for a rebound in eps for 2013.

Of course, they haven't said anything as to whether they are actually executing the buyback or not. If the macro is so bad in China and Macao for VIP gamblers, and if other privately owned gaming operators won't sell out at TTM PE < 2x, then the cash building up on AERL's balance sheet is better put to use via a buyback NOW, not into buying pricey rooms or investing in slumping cage capital returns.

They need to simply wait for another room to open up....that and the eventual stimulus will pump some life back into the stock. I doubt that a dual listing will do much more than provide a temporary lift.

Hey Mike, nice article! Just a couple of questions and comments:

1. You say you like companies that are profitable on a GAAP earnings basis. However, as we all know well here, sometimes GAAP can be a bit misleading, esp with things like one-time expenses or gains or artificially low tax rates. How do you adjust for these things in your earnings model and forward valuations?

2. Have you also considered using EV:EBITDA ratios in your mix? There are a lot of companies that may not look good on a GAAP earnings basis because of high non-cash charges from amort and deprec....but when looked at using the concept of enterprise value (market val + debt - cash) relative to cash flow appear much cheaper and more attractive (esp to an acquirer).

EV:EBITDA is getting a lot of press recently as THE value metric for the best LT results. What is your take on this?

Sskillz I also nibbled on some FFEX today in the low 1.90s. Even though the company has continued to send signals to investors that EBITDA forecasts for the second half may not be met, I think (hope) that they can do at least 5MM in EBITDA in Q3 and Q4 (10MM EBITDA total).

If so, by my math that could translate into approx 0.08/qtr in fd eps.

I don't think Moody's will do anything quickly. The LT concerns about the "core" business remain, but if management can sell some of the underperforming lines of this business, then it should help cash flow and earnings at BTH.

At least the intermediate liquidity concerns should be alleviated....which might warrant some type of small upgrade in the future.

At the end of June, BTH balance sheet shows cash and cash equivalents of 206MM, with debt of 99MM. Net cash is approx 107MM as of end of Q2, and this is after the weakest half of their fiscal year in terms of cash flow. They have to build inventories in the first half to support stronger sales demand in 2nd half of the year for their older "core" business selling candles and other home fragrances. NOTE: The increase in Visalus sales is changing this a bit as they are in the hockey stick part of their growth cycle right now.....so not much seasonality yet as they haven't started to plateau. For some other examples of competitors to Visalus, think Nutrisystem, Medifast, GNC, Herbalife, etc.

Free cash flow for FY12 was projected by the company to be around 65MM. Visalus alone might be able to do $1 Billion in sales next year (they are already at a 750MM run rate in Q2 2012).

I don't think its unreasonable to use 12-14x forward PE using adjusted eps to value the company based upon a likely LT growth rate of 12-15%.

Another salvo from BTH management today; they announced a change in the final payment of 270MM that had been so worrisome to some in the market over the past week amid the failed spin-off of Visalus. I think NOT spinning off Visalus is actually a better deal going forward for BTH shareholders anyway.....the stock is up to almost $31.00 after hours upon this PR:

Blyth, Inc. Announces Agreement In Principle With ViSalus Founders
Founders Reaffirm Long-Term Commitment and Defer Blyth Buyout Until 2014

GREENWICH, Conn., Oct. 1, 2012 /PRNewswire via COMTEX/ -- Blyth, Inc. BTH +15.39% , a direct to consumer company and leading designer and marketer of candles, accessories for the home, and health and wellness products, today announced that it and the founders of the ViSalus business, Ryan Blair, Blake Mallen and Nick Sarnicola, have reached an agreement in principle to defer the final closing of Blyth's purchase of the ViSalus business until April 2014, put in place new employment agreements with Mr. Blair and Mr. Mallen and implement an equity incentive program for members of the ViSalus management team.

Pursuant to this agreement in principle:

The purchase agreement between Blyth and ViSalus will be amended to defer the fourth closing until April 2014 and provide that the purchase price paid at the fourth closing will be determined based upon ViSalus' EBITDA for the fiscal year ending December 31, 2013.

Ryan Blair (ViSalus' Chief Executive Officer) and Blake Mallen (ViSalus' Chief Marketing Officer) will enter into new employment agreements with a five-year term.

Mr. Blair, Mr. Mallen and Mr. Nick Sarnicola (Global Ambassador of ViSalus) will be issued stock options and restricted stock units vesting over an eight-year term.

ViSalus will implement a management equity plan and issue stock options and restricted stock units to its senior management.

The agreement in principle described in this release is non-binding and its implementation is subject to preparation of definitive documentation, which will include customary closing conditions, and receipt of necessary consents and board approvals.

In addition, while the ViSalus Board of Directors will have discretion over the payment of dividends to its shareholders, the ViSalus Board has generally agreed to pay a cash dividend periodically.

Commenting on the new agreement, Robert B. Goergen, Chairman & CEO of Blyth said, "The strong and enduring relationship between Blyth and the ViSalus founders is once again evidenced by this understanding. This long-term partnership allows them to continue to participate in the growth and earnings potential of the company they founded while allowing Blyth to share in the cash flow generated by this rapidly growing and profitable business. We are pleased to have reached an understanding on these key terms and look forward to a long and mutually rewarding relationship with the ViSalus' Founders and the entire ViSalus management team."

Ryan Blair, CEO of ViSalus, commented, "The ViSalus/Blyth partnership has been of great value to the founders and to our company. Extending our arrangement and formalizing various agreements will extend this partnership for the benefit of all parties, including the world-class ViSalus management team that we have built in recent years. Together, we will continue to build ViSalus into a global household brand."

Blyth, Inc., headquartered in Greenwich, CT, USA, is a direct to consumer business focused on direct selling and direct marketing channels. We design and market home fragrance products and decorative accessories, as well as weight management products, nutritional supplements and energy drink mixes. These products are sold through Direct Selling from the home party plan method and network marketing. The Company also designs and markets household convenience items and personalized gifts through the catalog/internet channel, as well as tabletop lighting and chafing fuel for the foodservice trade. The Company manufactures most of its candles and chafing fuel and sources nearly all of its other products. Its products are sold direct to the consumer under the PartyLite®, Two Sisters Gourmet by PartyLite® and ViSalus Sciences® brands, to consumers in the catalog/Internet channel under the As We Change®, Miles Kimball®, Exposures®, Walter Drake® and Easy Comforts® brands, and to the Foodservice industry under the Sterno®, Ambria® and HandyFuel® brands. In Europe, Blyth's products are also sold under the PartyLite brand.

Blyth, Inc. may be found on the Internet at www.blyth.com .

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical facts. Actual results could differ materially due to various factors, including the slowing of the United States or European economies or retail environments, the risk that we will be unable to maintain our historic growth rate, our ability to respond appropriately to changes in product demand, the risk that we will be unable to integrate the businesses that we acquire into our existing operations, the risks (including foreign currency fluctuations, economic and political instability, transportation delays, difficulty in maintaining quality control, trade and foreign tax laws and others) associated with international sales and foreign sourced products, risks associated with our ability to recruit new independent sales consultants, our dependence on key corporate management personnel, risks associated with the sourcing of raw materials for our products, competition in terms of price and new product introductions, risks associated with our information technology systems (including, susceptibility to outages due to fire, floods, power loss, telecommunications failures, computer viruses, break-ins and similar events) and other factors described in this press release and in the Company's most recently filed Annual Report on Form 10-K.

SOURCE Blyth, Inc.

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The sharing of the future cash flows from Visalus to BTH is key. It will make it much easier to raise the funds needed to make the final payment (now in April 2014) and Visalus will not be spun out. I'm hoping that BTH will take the next logical step and look to sell off the money-losing parts of their other business in order to raise more cash and focus primarily on Visalus. In effect, this would create the IPO that the Visalus founders had wanted....and would create more shareholder value for BTH through higher growth in EPS.

Current adjusted FD eps for FY12: 3.00 - 3.15 (raised to this level back in August). I don't see any reason why this should not trade at 31.50 - 38.00. Given the new pressure on shorts to cover, it could hit the low 40s again by the end of the year.

BTH announces it has repurchased 283,300 shares in the past few trading days:

PRESS RELEASE
Oct. 1, 2012, 8:00 a.m. EDT
Blyth, Inc. Updates Activity In Its Share Repurchase Program

GREENWICH, Conn., Oct. 1, 2012 /PRNewswire via COMTEX/ -- Blyth, Inc. BTH +4.80% , a direct to consumer company and leading designer and marketer of candles, accessories for the home, and health and wellness products, indicated that it has repurchased shares in the open market under its share repurchase authorization. During the period September 26, 2012 to September 28, 2012, the Company repurchased 283,300 shares, the maximum amount that could be repurchased under SEC rules. The company has 2,011,496 shares remaining in its existing authorization. Chairman & CEO Robert B. Goergen noted that, "from time to time, the Company will repurchase shares when we believe it is in the best interest of our long-term shareholders based on our growth, profitability and cash flow outlook. We believe market conditions over the past few days offered such an opportunity, so the Company repurchased shares to the regulatory limit."

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BTH is shaping up to be a classic showdown between shorts and management. BTH market cap is approx 432MM, with a fds share count of 17.3MM (before the buyback).

BTH float (fds - (management ownership + institutional ownership)) is pretty small, approx 2.04MM prior to these share repurchases. The Goergen family alone controls 40% of the shares, according to the last proxy statement. Institutions hold another 48% as of 6/30/2012. That leaves 12% of the FDS, or just over 2MM. That float just decreased to 1.76MM, assuming the institutional ownership is fairly tight.

Latest short interest was 1.3MM:
http://www.nasdaq.com/symbol/bth/short-interest

I suspect that there will be some short covering prior to the next earnings report. I think BTH is worth at least 31.50, which would conveniently fill the trading gap in the stock chart set when the company pulled its spin off of Visalus. With another 2MM shares of repurchase authorization, the company is indicating that it is not worried about the concerns raised in the Moody's downgrade. It would be nice if they could reveal a more comprehensive plan for dealing with their future payments, as well as an update on the Visalus growth trajectory. My guess is that they have positive news to report on both fronts.