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My recollection here is that he was talking about Yuan exchange; that it would be favorable for the next couple years.
I think he intends to reinvest profits in growth for this period; then, start accumulating significantly higher corporate cash. This is just an interpretation.
If he was issuing shareholder advice, which would be a little odd, I'd guess he was linking shareholder cash vs. equity holdings to his intent for the company as a whole.
Can't really help you here, as I don't remember Solomon saying anything about increased land value. Maybe someone else has a better understanding. Or, better yet, email Chad, and post.
That said, even if land values were recognized at a higher value, there would be no cash difference, so I don't see how there would be any distribution.
Perhaps, he was saying that the current stock valuation is $100M less than the net tangible asset value he foresees eoy 2011, after grants and retained or invested earnings. plus cap gain on the dairy. Not sure.
Also, I don't recall his saying that 25% of the parent company would change exchanges; just subsidiary spin outs.
Snow,
I am saying that there are very good reasons to believe that BOTH the earnings and the p/e multiple will triple by mid 2013. Therefore, the share value would by 9x !!
Earnings tripling is the company's stated guidance. As per last post, multiple tripling (or more) is based on:
1) extremely low now
2) Asian exchange
3) demonstrated growth
4) much higher asset base
5) much bigger company, higher revenues (>$200M); therefore,analyst coverage and eligible for institutional ownership
These are actually conservative. Believe the average p/e in Hong Kong or lesser China exchanges are 15+, and these are for companies with nowhere near the growth.
As I understand it, SIAF will spin off one or more subsidiary. I assume they will start with the fish business. They will create a separate company, call it Fishco, and essentially do an IPO for that company on an Asian exchange.
The company will have its own established financials at the time; let's guess $100M in revenues and $20M - $25M in net profits. SIAF, will issue 25% of the shares for sale to the public on the Asian exchange Trading on the Asian exchange will create the value per share.
If the Asian Exchange values Fishco at 10x earnings, it will be worth $200M -- in my example -- or about $3 per SIAF share to SIAF shareholders.
Either SIAF or Fishco will retain 75% ownership; but either way, the total value of Fishco to SIAF shareholders would be $3, either in the new company alone, or in the new company + embedded new value to SIAF.
Other explanations?
Snow,
The multiple will triple or more -- if SIAF even approaches the two and three year growth they've forecast -- because:
1) they are currently valued with the stain of all U.S. listed China microcaps, some of which have had accounting issues or worse,
2) SIAF trades at a 2011 GAAP p/e of 2 and 2012 operating income p/e of 1; this is absurd, as long as the company is real; if you owned 100% of the company, that is like getting a dividend of 50% to 100%,
3) An Asian exchange would not maintain that absurd valuation now. And in 2013, the fraudulent companies will be filtered out
4) On top of ridiculously deep value, SIAF is growing at 100% per year, and in 2013 will have for three years,
5) If they approach targets, SIAF will no longer be a micro cap company:
a) it will have a NASDAQ listing
b) it will continue to have strong Swedish ownership, if not a dual parent company listing,
c) revenues will exceed $200M in 2013, and will be eligible for mutual fund and other institutional ownership
6) tripling the p/e multiple would still be a VERY LOW multiple for any company, let alone one growing so fast
Again, they have to do what they've said they'll do. So watch for milestones being set and met; particularly, any new fish farm contracts; quarterly revenue and profit targets hit; and instituting the marketing, distribution, and retail franchising profit center in 2012.
The main benefits to shareholders of any spin outs are:
1) substantially higher p/e valuation on an Asian exchange
2) parent company retaining shares of spun out subs; therefore, dramatically increased NTA/ valuation
3) revenues will by $200M +
4) won't occur until the e part of p/e is triple + where it is now
5) so earnings triple + multiple triples = 9x price
If they pull off a NASDAQ listing in 2012, especially without a reverse split, that would surely help.
If they can add a dual listing in Sweden, that would surely help, again.
If they spin out sub(s) as is their announced intention in 2013, the whole ball game changes. There will be a whole lot of SIAF millionaires and multi-millionaires if/when that happens, and urges to sell are not too strong.
I'm not much of a technician, but I think that the share price may be starting to form the same cup and handle it did on the last dramatic price rise. This is totally related to fundamentals, and proof that the dairy sale improved the company.
Pre-dairy sale, the share price was $1.20 to $1.60. Post sale, with some panic dips in the $.80s, it's been mostly right around $1.00.
I believe that as financial performance and other catalysts reveal in the next few months, they will validate the strategy of trading the dairy for dramatic profit center expansion.
If we can get back to the $1.20 to $1.60 based on Form-10 approval and Q2 results, that would be optimal. A handle might form thereafter as all buyers would be made whole and a little profit taking would ensue.
The real jump will happen when the triple digit growth of the fish, cattle and new businesses is fully established. 2011 results will be about the same as if the dairy would not have been sold, but growth in the remaining businesses will be MUCH, MUCH better. And MUCH, MUCH better 2012 prospects will have been proven.
This will start to be in evidence with release of SIAF's Q3 results, if they execute. And if they reiterate meet or beat guidance and talk about 2012, future will look rosy, and not require any new confidence or faith in business performance and trajectory.
That's when I'm hoping the cup and handle forms the basis for a take off to new highs, toward the later part of 2011. Then a double + in 2012.
Hard to imagine that won't happen, if they do what they've said they'll do.
Continued press releases trumpeting milestones being met along the way would smooth the path and foster investor confidence.
Yes, the scrutiny distinguishes SIAF. Also, the dividend -- and then raising the dividend -- separates SIAF.
The final coup to have value recognized will be spinning out subs to an Asian exchange. There's a lot of execution between here and there, then and now. But the public statement of intent is another distinction for SIAF.
Marking milestones along a timetable will continue to add credibility. The last presentation gives the financial targets, and they show stunning growth, really. Operation sign posts will help. Today's announcement is one.
In the next conference call, perhaps someone can directly ask, "What are the major milestones you need to achieve for each business to meet or beat financial projections?" "What major announcements and target dates should we look for to validate that your profit centers are on or ahead of plan?"
We know some targets, such as 4 new fish farms in 2011. I believe this means the capacity to produce 2,000 tonnes per year (possibly just 1,000 -- anyone know?), regardless of the number of physical locations. We know that fish sales are scheduled to start in July. Hopefully, new JV partner prospects are looking at sales as the final proof of concept. Announcement of any new fish farm contract(s) would be hugely validating.
We also know that the HU business is targeting a harvest capacity of 100 million pieces with ideal weather, and that 2011 earnings projected from this business assume considerably less.
The sheep and asparagus profit centers are commencing in 2011. We see sheep starting with today's announcement.
We should see continued news items the rest of the year, starting with Form-10 approval, then fish sales, than Q2 results. Hopefully, presumably, guidance will be reiterated -- recall that it was raised with the last presentation -- because it is really in Q3 that we will see the revenues really ramp.
Start of the distribution and retail franchising in 2012 will also be a truly major milestone.
Yes.
Let's be fair to the company.
First, small growth companies don't pay dividends, because they use cash to fund growth. So, that SIAF has a dividend at all shows that it is serious about aligning interests with its shareholders. And as Emilez says, "dividends don't lie." So, in terms of credibility and attention to shareholder interests, SIAF was way ahead of the game to start.
Also, dividends are almost always a set amount per share. Raising a dividend is a big deal. Yet SIAF's dividend will be raised substantially, with no change in policy, every year, because it is linked to income, which is growing fast. Again, ahead of the game.
On top of this, SIAF just raised the rate of the dividend 50%! They did this to further reinforce their interest in their shareholders, and to further bolster their credibility to a market place valuing companies in their space with skepticism. Way, way ahead of the game.
It's hard to be skeptical about committing to return to shareholders 12% of income.
And to do this while in the midst of extraordinary capital development generating triple digit revenue growth for 2012 and 2013 is truly remarkable, imo. Using the convertible note really further aligns the company and its shareholders, as the company commits to a VERY strong pay out, with 8% interest on the deferred portion, and the shareholder, in essence, agrees that the company can conserve 1/2 of the dividend as cash to fund the development.
If the company earns $1.00 in 2012 and $2.00 in 2013 as projected, the note policy will have allowed the company to use $11M to fund the expansion that is driving the earnings engine. Meanwhile, it still would have paid out $11M.
Really, this was a very well thought out and positive development.
It's clear that the market is in a "show me" state of mind. This was a really nice move to show. As they further publicize their story, get uplisted, tick off and publish milestones toward business goals, and meet guidance, normal financial valuation metrics surely should return.
Well, where we do agree is that I'd have preferred a larger target for an all cash dividend too.
Question is whether 6% of income in cash PLUS 6% of income in a note paying 8% in 30 months is better than 8% of income cash only.
Suppose it's debatable, but let's just compare the two.
For simplicity's sake, let's assume $1.00 income in 2011, 2012, and 2013, and 100,000 shares owned.
8% cash gets you $8,000 yearly for a total of $24,000.
The hybrid plan gets you $6,000 yearly, PLUS a $6,000 note yearly paying 8%, so the total will be $36,000 + $8,640 interest, so $44,640.
Shareholders are sacrificing receiving $2,000 for each of three years in order to receive $20,640 more.
Better, right?
It is perhaps unnecessarily complicate, and might be interpreted poorly in this skeptical environment, but it was really a clever way for the company to further incent shareholders to capitalize on the company's future, while retaining full capital development flexibility now.
But either way, any dividend is a shareholder friendly move, and very unusual for small, high growth companies, especially in this space.
How many small growth companies do you know that pay a dividend at all, let alone a pink sheet, Chinese small cap?
The company is doubling its dividend every year.
Not sure how you can call the notes a loan from shareholders, when it's the company's money/shares being spent.
I'm guessing they didn't expect to hear any complaints.
They're doing the best they can to disassociate from the bad apples that are depressing the entire space. The Form-10 scrutiny is one way. The dividend is another strong message, aligning the company with shareholders.
I was disappointed that we didn't see posts here of more meaningful Q & A in Sweden. Many questions were brought up here in the hopes they'd be asked there.
What kinds of sign posts we can expect to see along the way to validate gaudy growth, and will there be timely press releases?
I don't think that we can say now that if we don't hear something by a certain date that they are behind. But we may get an idea in the future if more information flow is forthcoming, as Solomon indicated would be much less constrained after the Form-10.
The presentation is a MAJOR step, as it defines the direction, and attaches financial goals to each profit center three years out. This was really pretty gutsy, imo. You just don't see companies sharing that much about their plans for new businesses.
The big dog is the fish business. It's the largest share of revenues and gross profit, and it's the best candidate to be spun out, unlocking a whole lot of value. We are asked to believe/extrapolate well over $100M in 2013 revenues from a 2010 base of $4M. Daunting and ambitious yes; but pretty credible if $32M+ is reached in 2011.And I simply don't believe they would put that number out there without a very good idea where it's coming from.
Again, would have hoped someone in Sweden inquired along these lines.
The business model does allow for this kind of growth.
What we need to see are new contracts, like the one announced end of Q4. Would also like to see the projected yearly APMs and revenues from construction for each year for each contract. Likewise, we need to see revenues and gross profits from fish sales. Once one is up, running, and reporting, it will be pretty easy to extrapolate if there are 5, or 13, or 21 farms of 500 tonne capacity.
From the presentation, asparagus will be much larger than I thought, 5/6 of HU revenues in 2011, and double HU in 2012 and 2013.
More importantly, the fish sub, scheduled to be spun out in 2013, presumably at a reasonably p/e multiple will gross $32m in 2011, $72.6M in 2012, and $182M in 2013. If percent of gross profit equals percent of net income, fish earnings will be $17.4M in 2011, $35.3M in 2012, and $89M in 2013.
An Asian public market multiple of 8 on 2013 earnings equals just about $10 per share.
The business model has growth built in; that's why the numbers ramp so very well. Yet, of course, they still have to get the contracts; build the farms; and sell the fish. As that happens, the progression is more and more credible, more and more likely.
This is why initial progress -- contracts and making guidance are so very important: they are sign posts to a plausible 10 bagger from fish alone in two years.
Chad will stay involved.
Why wouldn't more IR/PR support result in more IR/PR, especially after Form-10 complete?
There should be positive catalysts on a monthly basis going forward;
June Form-10 approved
July Fish sales
August Q2 results; guidance reiterated(?)
Sept JF visit to China
Oct. HU harvest known
Nov. Q3 results; guidance reiterated(?)
Whenever New Fish Farm contracts; asparagus planted; cattle expansion progress; grants come through, etc.
Happy to see so many weigh in, appreciating Strindberg's posts.
Wondering what people thought of the presentation. Personally, I thought it was pretty fantastic.
Company clearly has a strategic vision. They raised 2011 guidance. They provided financial targets for every profit center for 3 years. The numbers are staggeringly good, better than ever stated.
They are on record, and will have to execute. If they can provide major milestones toward anything approaching their 2012 numbers, stock price will surely follow.
With Form-10 process completing, and bringing on new IR support, I expect we'll get more frequent press releases. Solomon seemed genuine and anxious to get shareholders more forward looking information.
Consider that if revenues in 2011 meet or beat $58M, the likelihood of meeting 2012 target of $171M is intuitively more believsble than when they had the dairy, because without it, revenues from the concentrated three business segments will have grown 6 fold 2011 over 2010. So they would actually cut the growth rate in half to triple the business.
Assume you're fine with opposing views and open debate.
Agree with you about the quasi-slander innuendo. But that was a singular isolated incident, as far as I recall. And that poster's views were pretty well debunked and allegation dismissed.
So why deprive the rest of us your contributions?
Your choice, of course.
Since we've emailed personally, hope you'll continue that with your JF updates and more informative most posts/insights.
Strindberg,
Why not post here, at least occasionally? Your posts will be missed.
Thanks for posting the audio.
And thanks to Drexion for the readable presentation.
"Is it not fair to expect updates prior to the next quarter report about new fish farms, etc? That is, if we dont hear anything by July 10th, they are lagging?"
Don't really think not hearing would mean that they are lagging. Also, not sure where you got the July 10th date, fish sales begin? Q2 ends June 30, so results probably available around August 10th.
They just proffered a whole lot of information; really, more than most any company provides. And I can assure you, they went through a lot of thought and haggling with legal to get that out.
What I do think bodes very well for further press releases are;
1) Final Form-10 approval (someone posted in June),
2) Chad's principal responsibility has been to guide SIAF through the registration process cost effectively, which he appears to be doing successfully. Now, they are reasonably close to bringing in an established IR firm; presumably to coincide with Form-10 approval
So, they will be less constrained, both legally and practically to provide updates.
Yes, I agree that no one saw the dairy sale coming. I certainly didn't. The company did not prepare us. And, on the face of it, selling 3/4 of revenues is a more than daunting prospect, looked at in isolation. But, now I believe that SIAF has taken two opportunities to explain it pretty well, and the share price is just about where it was.
I was hopeful that someone would post Q&A to understand even better.
What I meant by "no reason to believe they intend to sell any assets," was that just because they did it once, doesn't mean they will again. They justified the sale, imo, by their perception of dairy vs. the other businesses, and by the revenue projections, which all will certainly monitor. It was a MAJOR change in direction.
But there's no reason to believe something like that will happen again. The large businesses are fish and cattle. For each, they are projecting strong growth through 2013, and have flat out said they intend to ipo on an Asian exchange.
But again, I invite anyone who attended the presentation to post news from the Q&A where these questions should have been asked. If not, we'll have to wait for JF's visit to China or a Q2 conference call.
But if they did the same with other assets, and increased revenues and profits again, that would be justified as well.
We don't even know that anything was really undersold or overpaid. We only know that they project great numbers, and have come through in the past. Yet, I'm sure we agree they must continue to come through, basically like this:
Q1: $ 3M
Q2: $ 9M
Q3: $18M
Q4: $27M
That is basically what they said, give or take, as long as the $58M total is being nicely progressed. HU revenues come in Q3 and Q4, plus dramatic increases for fish and cattle.
I just don't see any reason to believe that they intend to sell any assets, though I understand your skepticism.
In fact, what they've said is that they will spin out the subs to the Asian public markets, where they will surely get a higher valuation.
I agree with you that the land purchases should be explained. As many, including me have posted, it would behoove all if questions about land purchase prices were asked at the presentations.
Are you a JF member, or were you at the presentation?
Bottom line, though, even if they undersold the dairy and overpaid for the land, doesn't a first year 50% increase in revenues help the company, and justify the trade, particularly now that improved 2012 numbers are on the table?
So, as always, we have to see if they come through.
Yes, hard to read. Presume that a more readable version will be forthcoming.
However, I see 73M eoy 2013.
This number is verified in the middle of the page, where it also says that shareholder equity is projected at $368M !!
Graham's valuation -- which is based on value investing -- gets you $16 per share. But if they spin out subs to an Asian exchange, and if growth valuation metrics are apply -- given 100%+ multiple year growth -- the share price could be MUCH higher.
Whereas foreseeing a $25+ price on a $1 stock is normally a fool's view, let's just mark the milestones toward such clearly articulated plans, and measure progress.
Q2 will show 3x revenues over Q1; and Q3 another sequential double. At that point, let's see how many fish farms are contracted; how initial fish sales are going; what the HU harvest is and new plantings; cattle growth; asparagus and sheep progress, etc. Because those metrics will validate 2012 numbers beforehand.
The company effectively made two major announcements that are, and ought to continue to provide an immediate pop in share price:
1) They raised guidance for 2011 and beyond
2) They raised the target dividend from 8% to 12% of income, and did so very cleverly
How many companies do that?
More importantly, they revealed a quantified road map why $2 per share EOY 2011 is really conservative.
There are now a new set of fundamentals that are better than any before. 2012 guidance is 25% better than ever before, clearly as a result of the dairy/land/capital development trade. I'll have more to add about why the future looks brighter than before this presentation.
But for now:
From memory, the share price is now about where it was when the dairy sale was announced. At the time, it was very difficult to understand -- the major factor, most easily understood -- was jettisoning 3/4 of revenues. Though they did explain the new strategies at the time, with good projections, the share price stumbled, understandably.
Now, they've issued another quarterly report, of by far their weakest quarter. Yet with this presentation, they are clearly on record that 2011 will not suffer as a result of the dairy sale, and in fact, they've accelerated the pace to higher than previously guided financial targets for 2012 and beyond.
Of course, they still have to execute. But I am encouraged that the share price indicates a confidence in the new direction/strategy that was not immediately there. And, more importantly, successive upcoming quarters will show two things:
1) massively better revenues than Q1, and
2) point toward/validate 2012 results that are better than anyone had a right to believe, based on public information
Emilez,
I think you are looking at shareholder equity, not share count. Please take a second look. I see no more than 70M fully diluted shares in the future.
This is really better than anyone could have expected.
Still hard to read. I'm sure that the company will issue a better copy at some point, but the numbers are staggering, and there are a couple nuggets:
Initial Takeaways:
1) The franchising operation has huge potential, much bigger than I'd have thought.
2) The dairy sale and concentration on faster growing businesses was done w1th the franchising in mind. Similarly, the diversification of products, adding asparagus and sheep.
3) Earnings projections are improved, so they must be ahead of projection; probably, fish farms set to start later in the year.
Nuggets:
1) they have 600 mu of outdoor fish facilities, producing 600 tons (didn't know that at all)
2) the dividend now targets 12% of income rather than 8%, a clear shareholder friendly move. They've done this very cleverly, 1/2 with convertible stock
3) there are proposed buybacks and share retirements
Hoping Q&A justifies land use purchase price, and explains usage by plot.
Still, how many company's are this forthright with strategic plans out two years? They are publicly reporting now, and will be held to these projections, so will need to report any material changes, as well as important milestones on the way.
Love Lucky's Graham valuation. Just watch the milestones; admittedly ambitious, and the value will follow.
Well, I live 7,000 miles from Sweden, closer to China.
Everything I post comes from press releases, filings, and my interpretations/extrapolations, for which I try to give reasons and hope are on the mark.
I do have occasional correspondence with the company, and I am heavily invested.
I am really glad that there is such a good following of long term investors in Sweden. I hope that gets mirrored in the U.S., at some point. I imagine if/when that happens, there will be a presentation on this side of the Atlantic.
Anyone going to the presentation:
Another question I'd like to see asked is this:
Now that the dairy has been sold and new land reserved, how exactly is the company's direction improved, and more importantly, is it in a better position to beat previous 2012 guidance of $.80 per share than before the changes?
My strong guess is yes, because of one of the main reasons I like the company; that the business models promote growth for several years, without doing anything.
Any old widget company pretty much has to sell 20% more widgets YoY to grow 20%.
SIAF will invest in and expand their current businesses traditionally. And they will integrate vertically and grow earnings through economies of scale. And they will grow horizontally by adding nrew product lines -- like asparagus and sheep -- as well as marketing and distribution.
But they will also grow by the three main current businesses simply maturing according to plan.
Consider HU flower business:
As I recall, planting an MU acre requires an investment of $20,000 and will yield $20,000 net profit when the plants mature. The return on investment is 10% the first year, 50% the second and 100% the third. So, for the flowers planted three years ago at harvest, income will jump 100%, without doing much of anything. For those flowers planted two years ago at harvest, income will jump 500%.
The cattle business was just starting in 2011 and consequently gross margins were 15%. That is true of the new sheep ranches this year as well. Cattle is now projecting 30% to 35% gross margins for 2011 on ~5x the revenues (from memory). I suspect we'll see a similar growth trajectory for sheep. And more, though conjecture, makes sense that the cattle gross margins will be north of 50% in 2013; therefore producing 50%+ more net income per head of cattle, 2012 over 2011.
Fish sales lag a fully completed fish farm by 6 months or so. Also, SIAF has promised an increasing equity stake in each farm, something on the order of 25% increasing to 75%. For the sake of argument, let's say the stake increases from 20% in year one to 40% in year two to 60% in year three. If SIAF maintains and reaches its target of 1 farm constructed in 2010, 4 in 2011, and 8 in 2012, then income from fish sales will increase by 500% in 2012 over 2011, and triple 2013 over 2012! In 2014, income from fish sales would increase 70% if they did not build a single new farm.
Plan calls for a 100% SIAF owned franchise marketing network for "end to end one stop shop" in 2012 and spinning out subs in 2013, after the growth I just outlined is well under way.
That's where it gets very interesting, because if SIAF executes currently articulated buiness plans, there will be a whole lot of revenues by then, just two years from now.
A widget company also has to worry about overall product demand, and competitors coming up with a much better widget. They also have to pay taxes.
I suppose that another company could come up with more efficient or better food product, but the overall demand is guaranteed for virtually any supply SIAF can produce.
Agree that they won't guide for the quarters.
However, the $.39 yearly guidance was based on selling the dairy for $31M, but they actually sold it for $45M.
I am unsure what impact this will have on capital gains -- therefore GAAP income -- nor on capital development expenses, or where they come from.
These would be great things to discover at the Q & A.
Yes, much appreciate, Strindberg.
Will be interesting to see the price action Tuesday and Wednesday, before and after the conference.
I don't expect any blockbuster news, but do expect a positive outlook on the company's direction; why it is improved post dairy; and answers to some of the questions raised on this board.
Hoping that guidance is reiterated, and perhaps some further and clear explanation and growth plans for current business model, as well as what franchising and distribution networks will look like.
Would love to see concrete project and financial milestones toward 2013 spin out(s) clearly established.
My interpretation is simply that, like you say, those discussions are will under way. We already know about the prawn farm. I don't see that statement as limiting in any way.
One thing I'm unsure of is what exactly constitutes a farm, at least as far as build out revenues are tied to capacities.
In the first farm, they directly built to a 500 tonnes capacity, though I think they originally intended 250 tonnes. The new farm contract calls for a capacity of 2,000 tonnes, and is for 5 years.
I'd like to find out how the $32M+ in 2011 revenue projections are obtained. For instance, do they get $4M per 250 Tonne capacity, and anticipate constructing 2,000 tonnes of capacity in 2011, no matter how many "farms" their are.
Two points;
re 1031 exchange
Again, all supposition, but something akin to a 1031 exchange could explain not only the delay in cash proceeds, but also the timing of the deal, as land they wanted became available before a ready means to pay for it.
re eel farm
All the reasons you mention for encouraging an eel farm, and likely getting one make sense. Additionally, each new and different farm provides further proof of concept, and acts like another demonstration for further farms.
However, I don't recall any statement limiting potential partners to an eel farm in any way. As you say, wouldn't make any business sense.
Can you say or refer exactly what you heard?
Well, I agree that the timing of dairy sale proceeds needs to be explained. Likewise, the sale prices for the new land use rights should be explained. How will each tract be used? What are the expected financial returns? When will the land qualifying as collateral result in actually well geared loans, so that any dilution is not needed through the 2013 proposed spinouts?
Not actually receiving the dairy proceeds when title is turned over would not be a "normal" way of transacting a business sale in the U.S. But I was struck that SIAF specifically said that the proceeds are directly linked to the land purchases, and that the forthcoming funds are directly tied to -- indeed are the majority of cash -- for those transactions.
So, I figure there must be some reason.
In the US, a 1031 exchange is a tax provision, whereby if rather than sell a property and then buy another, you barter one property for another, capital gains taxes are deferred until the second property is sold. Or, theoretically, taxes are completely avoided if the property is held or traded again until the cost basis is bumped up, in an inheritance. In the meantime, if there is appreciation, money can be borrowed on the property.
In such an exchange, the funds received from the sale are escrowed into a special 1031 account that cannot be touched by the seller. Instead, they are dedicated for use for the "purchase" which becomes a barter or trade. Thiscan take up to 6 months, I believe. The seller only needs to identify what properties might be purchased with those funds, at the time of the sale.
So, since SIAF has specifically stated that the dairy proceeds are linked to the land purchases, I am simply guessing that in China there is some type of corollary advantage, or mandate to tie the transactions together. I don't know what those advantages may be.
And again, in any case, hopefully, we'll learn not only about that process -- why the sale and purchases are linked -- but also why the trade redirects the company to heightened growth.
There's no doubt in my mind that the remaining three businesses have a better growth curve than the dairy business.
You bring up two issues:
1) the discrepancy in prices paid for the dairy between the Form-10, and the timing of payments.
The 10-Q higher figure is right. The $40M is based on a final accounting of the business, which showed considerably more assets than used in the original computation. This is great news for SIAF, as that's $14M they thought they'd have to come up with for land that can be used elsewhere.
2) timing of payments
Don't have an answer for this, although since the receivables are listed under current assets, they will be paid within this year; presumably, soon, as new land use rights close. I am guessing that there are some benefits, or possibly mandates that so specifically link the proceeds from the dairy to the purchase monies for the land, much like a 1031 exchange in the U.S.
Hopefully, SIAF will explain how these transactions work in China, while at the presentation in Sweden.
Great post.
Gets interesting when you use next year's projected numbers. Growth company at deep value price.
Totally agree that honest negative opinions based on facts are fine.
I am very long this company, so I post from that perspective. I try to give my reasons for optimistic posts, and welcome any debate.
I absolutely think the company needs to explain how the dairy sale and new land purchases are linked. I expect much will be learned in Sweden; and more so, if by some miracle the Form-10 review is completed by then.
Frankly, absent these types of explanations of business directions, I'm surprised that the share price has basically held up, given by far the weakest quarter of the year, whether this was known beforehand or not.
Now, we can expect revenues to jump every quarter, from $3M to ~ $8M to $10M in Q2 to an average of $22.5M in the 3rd and 4th, if targets are made. Those targets are replacing dairy revenues from Q1 and $58M in full year guidance. We can also expect qualification for uplisting and increased news releases and investor relations work; e.g., road shows, etc.
Guidance is not given lightly. Solomon doesn't guide $32M+ for the fish business without having a good idea what contracts are signed; what are close, and for what farm capacities, therefore revenues. Does not mean that there isn't uncertainty.
If guidance is made, the company is MUCH, MUCH, MUCH better off than if equal or even somewhat higher revenues were recorded with the dairy. Why?
Because they will have created a much larger infrastructure to drive more scalable businesses, that can be spun out after reaching some critical mass. And because they will have proven those businesses -- fish and cattle -- faster, and with higher revenues than had they not concentrated on them. At least, that's my take.
The gross profit margin for the cattle business in 2010 and the the new sheep houses in 2011 were/are 15%, on small revenues. The gross margin for the cattle business in 2011 is projected at about 30% - 35%. Very likely that the gross margin will increase again in 2012, and the sheep business will follow the same trajectory. Growth is built into the business models, and this is before adding a distribution network on top, and franchising the proven concepts -- 2012 initiatives.
Likewise, the fish business has growth built in. If four farms are built in 2011, then SIAF will receive income from fish sales in 2012 based on 25% equity stake from 5 farms, rather than 1. In addition, in 2013, the equity stake in each farm will bump up, perhaps to 50%. So those revenues double without doing anything.
Okay, I'll correct two mistakes you made -- yet again -- in this post:
1) "... was saying I hoped SOME came during Q2 making it a "good Q2" as I said."
Wrong! you actually said -- and I quoted this to be clear what I was disputing -- ""I hope SIAF ... does not wait till Q3 to show proper harvests this year"
2) "Your correct that I had misread the amount of cash that was paid during that 'installment plan', I thought it was 40M and it ended up being only that 3M-ish amount. Of course, we don't know when the 40M will be paid either -- It could be in December for all we know, making it a year after the January sale (It was January right, going off memory) of the dairy."
The $3M cash also will be fully paid within a year, not after. In fact, 60% has already been paid, or will be in Q2.
The $40 could be December, which also would not be after a year; in fact, the deal didn't close until late Feb (going off memory), but it is specifically linked to land use purchases, so will occur on an ongoing basis within this year (because 100% of proceeds listed in current assets) when land use is taken. I surmise that there is some benefit to this linking, akin to a 1031 exchange; otgherwise, why link them so specifically. But I don't know, and freely admit that the land purchases, proposed uses, and prices need to be explained and justified.
I am confident that they will be.
So what you are now saying -- that the main harvests come after Q2 -- proves that you knew your earlier post couldn't happen:
"I hope SIAF's HU plant has a good Q2 and does not wait till Q3 to show proper harvests this year"
You've also posted multiple times that the dairy proceeds will take longer than a year to realize.
When pointed out that you were wrong, you claimed that only some of the $3M+ cash -- rather than $40M for land -- would be realized more than a year hence. This also was wrong.
I'm all for healthy, fact based debate. So, I'm just wondering.
"I hope SIAF's HU plant has a good Q2 and does not wait till Q3 to show proper harvests this year -- As people say, the company has supposedly been very conservative in that segment's "guidance", so I hope you guys are correct in that prediction."
Where are you coming from with this?
The flowers aren't sold in the second quarter because they haven't been harvested. Revenues from HU were $150K in 2009 and $0 in 2010.
Revenues will be realized in the second half, plain and simple. This is one of the reasons guidance called for strong growth -- sans dairy -- in the second half.
As for your comment that "some people" say that guidance is "supposedly" conservative:
They guided based on 2010 experience in which the yield was 31M flowers, which was about 1/2 of 2010 capacity, due to bad weather. 2011 capacity, weather permitting, is 100M flowers.
Right.
But because the proceeds are listed in current assets, none will be longer than a year, and probably considerably sooner.
I am disappointed that there's no conference call to really really explain. I think their feeling is that the presentation in Sweden will do a better job, as they have more time to prepare.