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Another solid quarter from AYSI... There was $432k of impairment expense in the year, but its not clear in which period it was expensed. This adds about $.02 per share to the annual figure and perhaps even the fourth quarter. Looks like they've had some inquiries on their Indonesian property. Hopefully they can finally sell that land and add another $0.23-$0.24 per share in cash to the balance sheet. Ex-cash and excess land, the P/E is now a staggering 1.25x at $1.30...
Hweb - Any favorites you have at the moment? I'm on the lookout for potential bargains and have some capital to deploy..
MCEM - I have not seen anything in particular causing the move. Q3 earnings were out on the 6th, EPS of $2.17 for the quarter. Continues to be cheap relative to other cement companies out there.
CNRD - There were continued losses in the large LNG carrier that they are constructing. The losses on this one project have been astounding in my opinion. The company obviously believes the losses are worthwhile to gain a foothold in this potential large market. In this quarter, they amounted to $2.4 million. Delivery of the vessel is expected in early Q1 2018, though that has been shifted back several times... Overall, it was a somewhat disappointing result as I expected more activity in the repair segment. There is some deep value here, but it appears that this may be more of a 2018/2019 recovery story at this point.
SBOW - Great question and I've read it about 5 times and I can see it being interpreted both ways... I believe that they have $115 million to go through freely, then the remaining NOLs are limited to the $5.8 million annual limit. However, I don't have a lot of confidence in that. I'll shoot a note to the Investor relations to see if I can get a clear answer.
SBOW - I know there has been interest in SWN, so I figured there may be interest in another gas producer. I've been buying shares in SBOW for the past few weeks.
They have a strong position with leading gas wells in the Eagle Ford. This is the old Swift Energy that emerged from bankruptcy and re-branded itself. The changes were more than just brand, as a new management team has taken over and refocused the operations on the core Eagle Ford assets and maintaining cost discipline while increasing production through capital conscious drilling. The results since emergence have been strong, with production growth up over 20% and quarterly EBITDA up over 50% since the beginning of the year. Q4 should be another strong quarter of increased production, as well as increased pricing on their gas, oil and natural gas liquids. They are in the process of selling off their non-core assets which will continue their drive to streamline the operations (those non-core assets represent a large portion of their wells, but less than 10% of their production). I like what I've seen from management so far in terms of execution and I think its only a matter of time before the market recognizes the progress management has made to refocus the business on cost-conscious, return-focused growth. They have a great investor presentation on the website that highlights their business and strategy. If you're interested, this would be the first place to look.
NCNA - I was curious if anyone had a view on NuCana and their ProTide platform. The share price has been steadily moving lower after a quick upturn post-IPO. The enterprise value is currently in the $250 million range. Their initial investors include Alida, Morningside and Sofinnova and some bought additional as part of the IPO. Their early clinical results look interesting and they seem to have built a better mousetrap using already approved compounds. Analysts came out and put targets in the mid $20's and higher last week. I'm curious if anyone here has taken a look at NCNA.
Thanks in advance.
AYSI - No news that I'm aware of. There was an interesting move higher a few weeks back on volume, but it died off pretty quick. Not sure what's driving this move lower.
KIK - ABLT looks interesting. Any insight as to what's driven the recent sales growth after years of declining sales? I notice they don't pay a dividend or return cash to shareholders (or at least haven't in the recent past), are you aware of any such plans going forward? Also, the large asbestos liability is a bit of a concern, do you know if that liability is essentially fixed at this point or is there still a chance that it can grow?
Thanks
MCEM - No news specific to MCEM. Ash Grove appears to be in the middle of a bidding war as they received a superior offer from another party. I believe that is the cause for the upside move. USCR has also been acquisitive in the space at valuations that continue to make MCEM look very undervalued.
Wade - I think it's risky either way. There is a lot of uncertainty in the frac sand market these days. You have the potential for all these new mines to open (60+ million tons of announcements), but then you have the other side of the story (increasing demand for sand, increasing sand intensity, environmental threats to new mine openings, labor and trucking shortages in the Permian). It's a very difficult environment to try and predict what will happen with so many moving variables. Hence the huge swings in stock prices day-to-day...
It's great to trade up and down if you have your ear to the ground, but very difficult to predict where things will ultimately shake out. I personally think the mine additions will continue and come to fruition, but bumps along the way due to environmental issues and labor/trucking issues. I don't think it makes sense to play these companies either way to be honest, given the massive uncertainty.
If you did want to short, I would target companies like FMSA that are more heavily leveraged and weighted toward Wisconsin sand.
Sand stocks down today on U.S. Silica's announcement that it's building another sand mine in the Permian... The announced new capacity in West Texas is now 60+ million tons. Additional supply has the effect of lowering prices of commodity products, of which sand is definitely a commodity.
HCLP - Please be warned that the fracking sand companies are extremely volatile. The price collapse over the past several months is due to the expectations of significantly increasing supply from in-basin sand producers that is threatening to make Wisconsin mines less profitable and possibly drive sand frac pricing lower. Demand for frac sand is expected to hit 100 million tons in 2018. In the past, the majority of frac sand was provided by Wisconsin mines and mines outside of the basin. With the majority of drilling and completion activity occurring in the Permian in West Texas, there has been a significant push to mine local sand. There has been over 60 million tons of new frac sand mine announcements so far in West Texas, with mines expected to open in 2018. If all of this supply hits the market, I don't believe the EPS estimates are valid as sand pricing for both Wisconsin sand and Permian sand will come under pressure.
There are roadblocks to being able to bring 60 million tons of in-basin sand to market, those include constraints on new equipment, new labor to run the mines, and trucks and truckers to move the incredible amounts of sand. The biggest risk to the new supply is a small lizard that inhabits the sand dunes in West Texas where these new mines are being announced, the dune sagebrush lizard. The recent rebound in price of frac sand stocks is due to increasing noise from environmentalists looking to protect the lizard. There was an announcement yesterday from a leading environmental group looking to add the lizard to the endangered species list, which could impact the new supply of mines entering the market. Each of the companies building new mines in West Texas believe their mines will not impact the habitat of the lizard. Needless to say, this will be a long-drawn out process to see if the new mines will be impacted.
It is my belief that the new mine openings will continue, as the returns implied by current pricing are too strong for in-basin mines to ignore. The administration in office today is anti-regulation and will not halt the exploitation of this resource that drives oil independence/"dominance" and economic activity/new jobs.
MCEM - Ash Grove, a large cement company was acquired this morning for $3.5 billion, or roughly $450 per share, a nice premium to the current price of $285. The transaction represents about a 16x multiple of pre-tax income. Ash Grove has a strong midwestern presence, similar to MCEM. This transaction sure makes MCEM look cheap in relation as it trades at close to 3x EBITDA. I had bought 100 shares of Ash Grove the last few weeks as I was researching MCEM, but thought I'd be holding for the next few years given the lack of public information, got really lucky.
Even more volume at the ask. The chart looks like it wants to breakout above the $1.35 line, but there is a large 50k chunk sitting on the ask that still needs to be worked through, though with this recent uptick in buying and volume, maybe it will happen...
CNRD - I've been buying shares in CNRD the past few weeks through today. The performance over the past year has been negatively impacted by the weakness in the Oil & Gas industry, as well as some out-sized losses on the first North American built LNG barge as they go through inspections. I think the future LNG barge activity may be an avenue of growth for CNRD as more LNG terminals come online in the US. CNRD should also receive some business in its repair segment, that has traditionally been its highest margin segment, as a result of the recent hurricane activity. They have benefited from this kind of activity in the past. The company is currently being valued at a discounted multiple and has a history of buying back stock and paying dividends. They had also recently invested over $60 million to improve their facilities, and the current enterprise value is only slightly more at the current trading price ($76 million).
MCEM - I do agree that it deserves a lower multiple due to a couple of factors:
1. Much smaller than USCR and SUM
2. Single facility in Humboldt, KS
3. Lower liquidity than USCR and SUM, though that's offset a bit by the dividend
SUM has been very active in the industry consolidating smaller players, as has USCR. I can see MCEM being an eventual target amongst the consolidation.
Those factors are why I think 6x EBITDA is fair, versus +10x EBITDA for the likes of USCR, SUM, VMC, EXP, etc. It's a 40%+ discount relative to those companies that still offers a 50%+ return from current prices.
MCEM - I have been buying more of MCEM here in the $48's on the pullback over the past few weeks. Where USCR, SUM, and other concrete and cement companies trade in the +10x EV / EBITDA range, this concrete and cement company trades at 3.5x EV / EBITDA and pays a 2.5% dividend yield. The company just reported a $1.56 EPS quarter, but that included $4.4 million of expense related to a settlement. Backing that out, they reported $2.36 EPS for the quarter, up from $1.46 a year ago. I expect Q3 reported results to be closer to the Q2 adjusted results and a bounce in share price as a result.
At 6x EBITDA, the stock would trade closer to $77.00 per share, with a P/E closer to 12x, which I believe is more reflective of fair value. If they were to be acquired, I could see a 7x - 8x EBITDA multiple and a share price closer to $89 - $100.
That's actually a really good question and would probably be more relevant to look at them when they were smaller and growing to what they are today. Below is the average EV/EBITDA multiple that Pool Corp. traded at during each year:
1996: 9.0x
1997: 11.5x
1998: 10.7x
1999: 8.3x
2000: 9.6x
2001: 11.3x
2002: 10.6x
2003: 11.9x
2004: 14.3x
2005: 14.5x
2006: 14.3x
2007: 11.4x
2008: 9.4x
2009: 11.1x
2010: 16.7x
2011: 12.3x
2012: 13.9x
2013: 15.7x
2014: 15.5x
2015: 16.3x
2016: 17.0x
2017: 18.6x
I'm showing the average multiples over the year, but I can also tell you that the highest its traded at is 20x EBITDA, which was in 2010. Even back in 1996, they were 4x larger than EVI today. Pool Corp.'s acquisitions were also mostly cash acquisitions and they have been aggressive over the years with share buy-backs, as opposed to issuing shares.
EVI - I'll be looking to short this as well. Any hedge fund manager that thinks a dry cleaning company deserves a 30x EBITDA valuation won't be a hedge fund manager for long... Even Pool Corp, which is 50x bigger!, trades for half that, at a 15x EBITDA multiple...
Not sure how many business sellers they'll be able to fool into taking stock, if they're selling their biz at 8x and getting something valued at 30x instead...
Time will tell, but I'll be betting on a drop.
AYSI - I think AYSI had another solid quarter of profitability. Cash increased some more and now represents $0.71 per share and the real estate is another $0.23 per share, so $0.94 in cash and real estate. The company has earned $0.16 per share through the first nine months and I anticipate a similar quarter for Q4, which would put EPS in the $0.20-$0.21 for the year. So backing out cash and real estate, we're looking at a P/E of roughly 2x.
Base metal prices have strengthened and there are several articles discussing how base metal mining companies are in a significantly improved financial position relative to the past few years and looking to re-invest in the business while still reducing net leverage. I think AYSI's products play well in that environment. I continue to hold and hope for either a dividend or a sale of the business. I think the next catalyst could be the sale of their land, which they had an offer for and would solidify the balance sheet even further.
GTRQ - Had the same thought, but looked at the merger agreement in more detail and the consideration is going to three holders: Gregg Sullivan (20%), Juan Yunis (65%), Isaac Capital Group LLC (15%). This comes from Exhibit B of the merger agreement. Not sure how they could do this, but it certainly does not appear that the holders of GTRQ receive anything...
Ask is getting hit hard with volume over 60k on no mews that I can find. I wonder if there is something more behind this volume... earnings out in the next two weeks should show great y/y improvement.
Have not heard any information on the AGM. Information following the meeting isn't usually published. There have been some strong 10k bids the last few days as it appears as though someone is accumulating. Frustrating to see it sold into each time...
New AYSI SeekingAlpha writeup. Summarizes the latest happenings at the business and suggests that they may be preparing the business for sale. I personally feel this could be worth more than $2.50 in a sale, but the question was always around a catalyst to a sale.
AGM information out on the website. Looked through the documents and found two interesting pieces of information. First, it looks like they have received an offer for the Indonesian property. Hopefully they can bring that to a close this fiscal year. Second is an expansion of their factory in Australia - "The facility at 42 Mercantile Way is being expanded". Hopefully this is a harbinger of growth to come.
AYSI now has $0.83 per share in cash and land on its balance sheet, meaning operations are only worth $0.30 or so. Given the $0.125 EPS posted in the first six months of the year, the business is being valued at slightly more than 1x EPS...
The question here has always been, what will they do with the cash and what will the exit be??? They can easily support a $0.10 per share dividend per year. Fair value in a sale in my opinion is over $2.50. The right strategic buyer could pay well more than that.
I ran the numbers again and I'm actually getting $0.073 EPS excluding the currency related items. A nice improvement from prior year and Q1.
Strong Q2 results with sales and income from operations up. EPS excluding currency related items of $0.058 by my calculations. Q3 and Q4 will continue to have favorable comps. Also spent $1 million on capital expenditures. Hopefully a harbinger for continued positive results.
His contact information is included on his LinkedIn profile.
They also have Delaware legal counsel that may be willing to give you an explanation for the company's silence, or help arrange a call/meeting by which you can have you comments/questions addressed.
Legal Counsel
Name: Peter Sugar
Firm: Jaffe Raitt Heuer & Weiss PC
Address 1: 27777 Franklin Road. Suite 2500
Address 2: Southfield, Michigan 48034, USA
Phone: (248) 351-3000
Email: psugar@jaffelaw.com
I understand your rules and it is truly disappointing that the CFO was unwilling to answer your questions.
I believe the "paranoia" from AYSI goes back several years to when they were still a reporting company and they went under investigation by FINRA. FINRA believe there was a release of non-public information, though the investigation never turned up anything.
I think as a result, the company has moved to the extreme side where they don't answer any questions, even if they are not material non-public information out of an abundance of caution. Have you tried reaching out to Andrew Kostecki who is based in North Carolina?
Bob,
Thanks for the info on SND. I have about a $15 avg. on my shares, which I felt good about until Thursday's drop. Is there anything you see out there that has caused this drop across all Frac Sand companies? There was significant weakness after SLCA reported their Q4 report and suggested some healthy capacity increases which spooked the markets. Since then frac sand stocks have been under some heavy selling pressure. SLCA reports next week. Do you think some of this weakness is based on fear or a similar sell-off after their Q1 results?
With oil holding above $50 and rigs being added weekly, I'm a bit surprised by the recent weakness here.
Thanks
Seems things are looking up in the iron ore industry...
SYDNEY-- BHP Billiton Ltd. (BHP.AU) said plans to develop its South Flank iron-ore deposit in remote northwest Australia are the most likely way it will replace production from its aging Yandi operation.
BHP has been mulling new investments in its iron-ore business given its Yandi mine, which currently produces about 80 million tons a year, or roughly one-third of BHP's iron ore, is expected to run out of resources in the coming five-to- 10 years.
"We are looking at options to replace this production" and "South Flank is the preferred long-term solution, subject to board approval being obtained," Western Australia Iron Ore Asset President Edgar Basto said on Wednesday.
He said BHP is confident in the outlook for its iron-ore business, which the world's No. 1 miner by market value relies on for a large portion of its profits, despite projecting that rising global supplies will outpace demand in the years ahead.
LMIA - Thanks everyone. Obviously extremely happy with the result, especially in light of the weak Q4 that would have been reported. Now its time to find some more opportunities to put this cash to work, would help if the markets weren't going up everyday...
Reach out to Sam the CFO directly at samd@alloysteel.net
Looks like a solid quarter for AYSI after the last few weak quarters. Sales of $5.6 million and reported EPS of $0.08 both higher than my expectations. EPS excluding the f/x gain was $0.065. Gross margins recovered and SG&A was down a good amount. Both good things.
I think we may see improved results for the remainder of the year. Iron ore prices have increased a good amount through the year and the share prices of iron ore producers have significantly recovered. I posted an article a few weeks back on how we may see a rebound in investment which would benefit AYSI.
The comps for the remainder of the year should be quite positive.
I still don't understand the accounting behind the acquisition. It appears as though they have not completed the purchase price allocation process, so they're just showing a reserve against Shareholders' Equity. Not sure if the results are even flowing through the P&L at this point... I'm hoping to get more clarity and will let everyone know what I find...
AYSI earnings should be out next week. Any estimates out there? I'm looking for sales of $4.5 million and EPS in the range of $0.03 to $0.04. I think we see a move back over $1.00. I'd also like to see what they acquired back in November (hard assets vs intangibles) and what kind of contribution it made to the business. Ideally, I'd also like to see the sale of the Indonesian land, but I'm not expecting that...
EVI - Does anyone have a brokerage that has EVI shares available to short? Ameritrade and Merrill don't and I feel like it's a no-brainer on the short side here at $17... The company trades at over 20x EBITDA pro forma for the acquisition. A business like theirs should be closer to 7x-8x EBITDA.
Higher iron ore prices may spur mining investment...
http://www.hellenicshippingnews.com/surging-iron-ore-prices-may-spur-mining-investment/