Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Bear,
For the sake of argument, let's say that all the fish farm, cattle farm, and WSPS construction income is automatically dedicated to reinvestment in new capital development and increased equity stakes. Therefore, all that business is cash flow neutral, maybe negative.
That has been a huge percentage of income until now.
The questions for me are:
1) In 2013, what percentage of sales will generate non-dedicated cash profits?
For instance in Q3 FF1 sold $6.25M fish; at 40% margin that's $2.5M cash profit. It will be $3.0M in Q4 and probably $12M in 2013. Likewise, the product sales from fertilizer, beef, restaurants, HU plantation, and WSPS1 and 2, plus import export all will generate cash profits, right?
2) Is it not at the election of the company to reinvest these cash profits into the company's asset growth, at least on the margin?
3) So whereas I agree with fast growth, and reinvestment of up to 100% of free discretionary cash flow (and loans) at infancy through toddler stage, can there not, should there not in 2013 be some leeway in the business plan to issue new shares only when market conditions are favorable?
Whereas Ecuador, the country does in fact deficit spend, to Ecuador, the poster's point, the return on marginal CapEx spend for shares issued at $.50 will not be returned in eps, tho perhaps there are strategic reasons.
Of course, Ecuador, the country, intends to be around for millennia. Solomon has said he's building a company for the next 100 years. Unfortunately, he doesn't have any shareholders who will attest to his success.
F Shares Question:
My understanding is that the F shares distribution of $.034 derived from 1/4 the dividend guideline of 8% of income; so, $.01 for 2010, and $.02 for 2011, and $.004 interest. This is payable May 31,2014 to shareholders of record 9/28, 2012.
Question is, how will they pay that portion of the 2012 dividend to be declared a year from now? Assume 2012 income is $.70, then 1/2 of 8% is $028. I guess they could add it to the F shares, so then $.062. But what about people who become of record in 2013 but weren't in 2012?
Do they have to issue "G" shares?
Or, did the F shares only apply to 2010 and 2011 dividends, and there will be a new policy for 2012, declared and paid late 2013?
Ecuador.
I completely agree. That's why I said marginal issuance should be toned down.
I do not buy that Solomon does not know what you are saying. He has made commitments to growth that have come due. Fair enough. But I fully think that 2013 issuance eliminated, if other alternatives are available, or limited by curtailing some capital development if the alternatives are not available.
He should have had some ability to moderate growth in a year or two time frame, if market conditions turned dilutive, which they have for over a year now.
There's nothing magic to me about the $500M NTA number. I'd much prefer a $400M NTA company with 100M shares outstanding.
Good post, Viking.
Nice to read the broader perspective -- flip side to the 50 anti-dilution posts every single day.
I think that some marginal issuance can and should be toned down, or alternatives taken They are being pursued, and 2013 is the last year of issuing shares, so ... guess, we'll see.
Can't figure why the same people that decry dilution; foresee it as endless; and post about its destroying the pps literally every day continue to own their shares?
Have to disagree.
It would not be pretense. It would be including in the capital development business plan a moderation depending on market conditions, and other alternatives.
Hopefully, it is exactly what we are seeing with the new initiatives: FN listing, bond offering, and private placement.
I would hope for an additional alternative, should those others come up short: forego some marginal 2013 CapEx in favor of less unfavorable share issuance.
C'mon.
They just made two pretty important announcements in the last 8 days!
And that, after blow out earnings two weeks before.
It's not like the summer at all.
Yes, the divi announcement is late. But we know it will come soon, making three releases in 10 or 12 days.
Perhaps what you don't like is knowing what's coming in advance, and then seeing them be late (a little).
Geez, it's still a small company. I see complaining about no PR when there is no pr, or late earnings reports when they are late. But ...
Has anyone correlated the number of dilution posts on down days vs. up?
Handlamera,
Talk about proving a point.
Yes, I suppose I could say that my way, PPS be $10, or $20. Let's see, I would sell the HU plantation also. Since you quoted $75M,, I would sell it to you for only $50M, since most people would not pay more for a small part of a company than the whole thing.
Then, I'd yell really, really loud about the only true value is PEG ratios.
You never answer how you would have built the fish and cattle farms and distribution network with no money. You'd have nothing to sell.
I'm perfectly willing to admit that the marginal CapEx funded by equity has not worked for shareholders. There are reasons for this: commitments and a dearth of other funding sources. They are now trying other alternatives. Let's hope they succeed.
But it would be a mistake anyway to renege on a promise, imo.
SIAF is growing the same way most fledgling U.S. companies grow. They issue equity on a business plan with imagination and good management. The US companies have access to private or venture capital. SIAF did not.
Successful U.S. companies continue to dilute until they reach the critical mass they intend, and then IPO. They do this at increasing valuations, if they are on plan.
Solomon's model was basically the same. I have to laugh when someone says a real dumb thing like his way the shares would be $5. Wow, no dilution. What a genius. There would also not be any fish farms.
And companies must meet their maturity level to get a proper valuation. PEG ratios are totally inapplicable to pink sheet OTCBB companies with negative cash flow.
In Sino's case, the plan calls for significant vertical integration, which we can see with the distribution network ahead of schedule. There are steps. And these steps the company takes to manage itself operationally are mirrored by gaining acceptance to more senior exchanges, hiring investor relations personnel, and garnering access to broader and deeper funding sources.
The fly in the ointment for the SIAF model was the decreasing valuations on the very small public market exchanges due to Chicom scams.
There were then hopes the price would rise to a modest $1.50, and now there are alternative plans to achieve the target, most often articulated in NTA targets.
I would agree that the marginal cap ex is detrimental to the shareholders. But it was not done in a vacuum. Commitments were made. Pretty much simple as that.
To my knowledge no one has ever projected cash rich in 6 months; not even cash flow positive. Do you have anything to cite?
However, the time frames may be advanced with an FN listing and bond deal.
We should monitor the Gustavia Commodities Fund, their funds under management, or NAV, or however their size is measured. Recall that 4% of the fund figures to be in vested in SIAF. This would surely make it onemof their largest holdings.
It is a small fund now. But perhaps one of the Swedes could guess the inpact of its becoming eligible for the pension contributions. For instact, what is the size of the smallest such eligible fund?
As I recall they are currently at $14M, so 4% = $560,000 = 1M shares.
But perhaps the eligibility will increase $5M - $10M per quarter, or more. I have no idea. But that would create decent on-going buying.
Really they are adjacent; don't remember if the second floor is above both. The Guangzhou Market is huge. It is a major new food distribution hub for China. SIAF occupies maybe 1%.
As per cc, this part of the plan is ahead of schedule.
Hoping it portends the same for retail stores.
Yes, I recall something like that, tho don't think he ruled it out.
But I am not sure that WSPS2 (which can't be that acronym cuz it's meat) isn't really the expansion of WSPS1 which was already announced -- since they are adjacent.
Totally agree.
I think there was criticism of paying too much and too little.
Two fantastic new independent Board members, both with experience and wherewithal to solve the very issue(one) all the complaints (thousands) are about.
And so, naturally, more complaints.
Ultimately, SIAF should convert to this kind of dividend, declared forward -- and hopefully about those numbers too :)
Of course, three years would not actually happen. And there wouldn't be a 100m shares either. They are not needed -- ever. It was hypothetical, illustrating other possibilities that are real.
A smaller placement or a bond deal, as in the post.
Solomon could dilute with 100M new shares, and the pps might well go up IF he did it in a private placement with a three year hold -- because the p/e would still be under 3, and there would be no more dumping.
Point is, some small private placement is a possibility, and so is a bond deal, and so is a broader buying audience.
Wise man once say,
From a common sense viewpoint, the answer was that it would include the spin out. There's no need for him to go so far above and beyond, especially from where we are now.
I should point out that at the time, the spin out proceeds were divided by a whole lot less shares.
And to chime in, other than dilution and aspects related to dilution, what has Solomon said he'd do and not done?
These are admittedly major, but he could never have thought that commitments would have to be paid with $.60 shares.
He's been better than most CEOs on the operations and finances, much better fr such a fast growing company with so many moving parts. Came through on Form-10, dividend policy, etc. Sometimes delayed, but basically done.
Would be a good idea to ask him in Stockholm about projected ordinary dividend (unless Stolpen has the answer), and about what revenues and earnings he thinks the spin out cattle farm will have to justify a $250M price tag.
I'm betting on his numbers making sense; not any others.
Here's the full 10-Q:
* Management is projecting a five-year plan from year 2013 onward summarized as follows:
1. To establish a chain of 50 restaurants using our existing Xining restaurant as a model under the brand name “ BULL ” throughout major China cities within our franchising and management system.
2. To slaughter and process up to 15,000 head of cattle and 100,000 sheep per year.
3. To generate annual sales revenue up to RMB 485 million per year, and targeting annual income of no less than RMB 65 million/year (excluding revenue and income of the 50 franchised restaurants).
4. To become a Dragon Head company during or before 2014.
Not saying you are necessarily wrong, and it takes an assumption that SIAF was not clear in the 10-Q (wouldn't be the first time), but I think that revenue target is for 2013. This is my recollection from being there, and handed there projections which I don't have with me (Sly?).
But I absolutely remember the figures 26,000 RMB per head and 46,000 RMB per head sold to the restaurants. They are projecting without restaurants, so the question is how many head of cattle and sheep are projected for 2013 and 2014. 10,000 head at 26,000 = $41.6M revenue alone.
Before the spin out, most probably they will have a larger stake, the slaughterhouse in operation, and the restaurant franchise well under way, likely selling at a higher gross price, and at much higher margins.
Petrejus,
Thanks for the explanation.Interesting that you are very conservative with the spin out dividend projection, and get to $.90 using 50% of income.
Well, I certainly have no objection.
But going from 8% of income, and from raising capita from equity for growth to paying 50% of income would be quite a leap. This is most assuredly not common in the U.S., other than reits or royalty trusts, and perhaps another category or two.
I imagine that Solomon will still want to grow the company in 2014 and 2015, and fast growing companies do not pay high dividends in the U.S., without exception I believe.
In addition, I would think that Solomon would see 50% of spin out cash distributed to shareholders as plenty generous. And, I have to agree.
But if it is common in Sweden to pay that much of ordinary income, would be interesting to get some guidance on this from the company. JF may have a good idea.
If 50% of ordinary income as a dividend is common in Sweden, what is the common yield?
Hopefully, by 2014 or 2015, they declare a normal yearly dividend in advance (declare in 2013 for 2014, like basically all companies) paid quarterly, in the year it occurs.
If they do this, they can add a special dividend, if and when a spin out happens.
Do the Swedes prefer that the dividend be declared after the fact, so that it is more likely included in a yield?
I'd prefer to not wait; particularly, if spin outs are well publicized as yearly probabilities.
What do you think 2014 earnings will be? Even at $2.00, that's $.40. The spin out would have to be valued at $333M to get $.50, and that assumes only 100M shares.
Why is there any reason to believe that the regular dividend would be raised by 150% as a portion of income, 400% in absolute number from 2013 to 2014?
Can't get to $.90 even with 20% of income allocated for the regular dividend. Both dividend components are off. I think it was just a typo. But maybe Petrujus can explain.
I thought that any distribution to shareholders from a spin out would be a special one time dividend. So if the first spin out occurred in 2014, it could be distributed in 2014. Is this untrue? Rather would half the cash from the IPO in 2014 be paid in late 2015, like the dividend? Has the company made this clear?
Regardless, if they spin out and IPO 30% of a subsidiary valued at $250M in Hong Kong, half that cash received would equal $37.5M, or $.375 per share, or less.
This policy is the SIAF holy grail, as it adds huge value because of, but also more so beyond the dividend.
Don't see how you get to $.90, not that I'd complain.
Maybe $.50, $.60?
If you extend that quote about one head every three days to restaurant revenues, you get a much larger number than most here think:
46,000 = $7,400 = $2,400/day * 313 days = $750,000 year cost to Bull. 50% margin on beef alone doubles the revenue to $1.5M, and counts only beef, no fish or beer.
The real strategic advantage is having a built in customer for their own goods. No middle man (except their own distribution), no sales and marketing expense (except their own marketing branch).
Hi Swede,
I guess I revert to the post you responded to. For 5/2012 in the same line you refer to it states, and I cited, 6,250,000 RMB. That's $1M. I don't know that that is for one restaurant, but you don't know that the 25M figure is for 50. I mean 500K RMB for any restaurant is just absurdly low, even for a minimum. It's $80,000.
I did not see prices in the restaurants.
This is an area worth asking about, because the revenue could be significant (or not).
You said restaurants sell main courses at $150/kg.
Thought we were talking about Bull, not Leonies, but either way ...
$300,000 is 10,000 covers a year at $30/each.
That's 32 customers per day. You could have only 8 tables; fill it once with no turn over for one meal only per day, and that's it.
Why not 20 tables of 4 with 2 turns for 2 meals? That's $3M.
Which do you think is more likely?
From da internet (you don't have to look it up) :
http://wiki.answers.com/Q/What_is_the_average_sales_per_square_foot_for_a_restaurant
Well, it depends on what type of restaurant you have.
Casual dining restaurants like Chili's or Applebees will average between $550 and 650. $2,800,000 / 4500 sq. ft
Fast food chains like McDonalds and Chick-fil-a do better averaging about $1000 per foot. $1,300,000 / 1200 sq. ft
Up scale restaurants Ruth's Chris or Morton's are in the middle, around $800 $4,500,000 / 5250 sq. ft
The Leonie's contract said that the hurdle for revenues was $1M in 5/2012, right? And that's a starting figure. I am not sure that the 19M RMB figure in 2012 does not mean per restaurant.
Did you see anything else?
I recall SIAF stating that the prototype restaurant consumed one BULL every three days. At 46,000 RMB per head, that's about $2,400/day. Double that for 100% mark up, and that's $1.5M per year. Double that for sales of everything else (alcohol) gets $3M.
Worth getting the answers here, as $300k/year times 50 restaurants in 3+ years means fairly little, maybe 2% of revenues then.
Doesn't make sense to me either way. How is 1.85M RMB any more realistic. $300,000 / year is worse, on the other side.
Split the difference as in divide by 10 for $3M yearly revenues might work.
Don't see how. Revenues would have to be $80,000/day. Good catch.
It would mean $40M only if the fund has $1 Billion.
$40M would buy the entire float, taking shares from JF members.
Sugar plum thinking, but it's still something to give thanks for.
What does 50M-100M "to start with" mean.
100M SEK is $14M. And I see no better interpretation than they'd invest 4% of their funds in SIAF, or less than a million shares.
Good news indeed, nothing to sneeze at. Better news, depending on what "to start with" means, and just having a fund is a great endorsement. Not exactly a game changer tho.
Does show that if a larger fund came in with $3M+, could make a big difference.
No drinking; that made sense in context originally.
Do you think Solomon does not know what NTA is, as one poster declared?
I disagreed with that poster, and NTA and LUR assets, and how it was said.
Just curious RD,
Have you ever built a facility or organization that produces $27M in revenues in three years, perhaps $13M in net profits? How much do you think it would cost you to do that?
What if you didn't have the money? How would you own 75% of those assets and profits?
Solomon has said many times that 2013 will be the last year for share issuance. I believe he reiterated that in answer to a question on the call. Will have to listen again; he at least left that impression remain.
2013 will also be the first cash flow positive year, which is another way of saying the same thing.
Both do not mean that $100M + capital development budgets will stop. But it means that they will be 100% funded thru earnings. Guess is that the 2013 cap ex will be more looked $130M.
He also said what sounded like a growth target of $500M NTA.