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Wade - CUO - you do realize that your math here implies a 75% gross margin for the windmill project? I agree that margins are key for CUO and a valuation opinion will swing wildly depending on what you think are normal margins. If you look over the long-term (10-15 years) you'd see that the last few years were a period of low margins. I think they are starting to get back to a long-term average margin and would expect them to continue to be in the low 20% range. There is also $1.2 million of litigation expense rolling through on an annualized basis that is holding down profitability. I think $25-$30 is reasonable until they prove that they can keep these margins, after which, the $30's are certainly possible.
Agreed. Kudos to LF on a great pick. The quarter included additional litigation costs of $320,000 or about $0.12 per share after tax. I'd love to see that litigation settled and that expense go away...
This is still very cheap in the $20 range.
SIF - I got out this morning as the quarter was much worse than I expected. Q4 will likely show some improvement, but then Q1 will revert to a seasonally weak quarter. I think this is dead money for some time until they start to show more progress on the turnaround.
Nothing earth-shattering in here, just an interesting little blurb on the history of AYSI and its founder - http://catholicukes.org.au/alloy-steel-international-company-humble-roots/
SIF - In terms of seasonality, I first saw the comment from the ex-CEO you reference in your message. I then checked their quarterly results independently and did notice the seasonality, where Q1 is weakest, followed by improvements in Q2 and the best results in Q3 and Q4.
They are also expanding their California operations, so hopefully they're confident they can fill the new capacity and we'll see some nice top-line growth in addition to the profitability improvements.
I'm encouraged by the volume today, hopefully this is a near-term bottom.
SIF - I've been buying shares of Sifco here the past few days at $9.00 and lower. This is an aerospace component manufacturer that has fallen on some hard times recently. The stock traded around $30 for the majority of 2014. The company's results are a bit seasonal with their upcoming Q3 and Q4 being the stronger quarters. They have made several acquisitions here over the past 3 years, most recently in 2015, that have added debt to the balance sheet. Though results have been below expectations, they have been able to generate cash flow and pay down over $10 million of debt in the past six months. I expect they can lower the debt balance by another $5 million through the end of their fiscal year (9/30).
Their latest acquisition, C*Blade generated about 5 million Euro of EBITDA on sales of 25 million Euro, or a 25% margin. Their existing business generated EBITDA margins in the range of 10% - 15%+. Currently, EBITDA margins are depressed at approximately 5%. Over the past several quarters, the company has incurred significant one-time costs associated with the C*Blade acquisition. They also implemented a new ERP system that resulted in extra costs and a delay in their financial reporting. As a result, G&A expenses increased significantly in FY15 and YTD16. I believe those expenses are one-time in nature and in the company's latest financial release, the company indicated that those additional costs will not be incurred going forward. I think EBITDA margins can return to the 13%-15% range over the next two fiscal years.
I believe the company will begin to show a profit again beginning this next quarter (Q3) with improving results in Q4. I think in FY2017, they will again show profitability from an EPS perspective and could generate EPS above $1.00 per share by the end of FY2018. They have a new CEO that has significant experience in the aerospace & energy industry with a history of turning around under-performing businesses. If he can right this ship, I could see SIF trading at double its current price at some point in late 2017.
Sales were at the low-end of the range we're used to seeing, but as I mentioned, there was a cyclone that hit Western Australia in January that likely impacted results. What's encouraging is that even with the lower sales, EBITDA and profitability remained on par with prior quarters. Their business is lumpy, and it's hard to put too much stock in any single quarter (either up or down). I continue to see this as a business that can generate $0.15 - $0.20 in EPS a year in these lower demand cycle years, with the potential to earn more when the industry improves. I'm buying that business now for essentially the cash it has. When I get to realize a profit is the real question, and I've been patient and will continue to be patient until I realize that profit.
I just bought a chunk at $1.11 and have orders here at lower prices. I think cash and land will approach $1.20 per share by the end of the year, assuming similar results in the second half of the year versus the first half.
Q2 earnings are out and they made $.037 in EPS in the quarter, closer to $.048 excluding currency related charges. Similar results to the past two quarters. Cash and real estate represent $1.04 per share and book value is up to $1.55 per share. Pretty good results in a weak iron ore environment. There was also a cyclone that hit the area in January that affected iron ore production facilities, port facilities, and likely their results.
CUO - I've been initiating a position here in CUO as well this morning in the low $15's. Trades at an EV/EBITDA in the 4x range, and EBITDA should increase here throughout 2016. I think CUO should trade in the 5x-6x EBITDA range, or in the mid-$20's sometime this year.
RUBI - This has continued to rip higher. I didn't expect such a large move straight upward, or I would have kept my calls. I sold the remaining half position today and hope to revisit after seasonally lower Q1 earnings are reported in early May.
I've been buying some more shares here in the $1.03 - $1.05 range. There seems to be a large seller here willing to dump shares. Given the increase in the AUD we've seen over the past 2 months, this is trading below the value of cash and Indonesian land. They have a tough comp coming up here in Q2, but comps will get much easier in Q3 and Q4.
I'm still hoping for an eventual transaction or dividend to provide liquidity and realization of value. Underlying value is undeniable. I can be patient and wait.
RLYP - Joined the crowd here and sold 10% of my position at $23. Congrats to all holders! With numbers as high as $38 being thrown around, I plan to hold my remaining shares.
http://www.thestreet.com/story/13522999/1/relypsa-fielding-takeout-offers-shares-move-higher.html
Some recent Arcoplate news. Looks like Martin Engineering is expanding their relationship with AYSI and extending the reach or Arcoplate internationally.
http://www.globalcement.com/news/item/4724-martin-engineering-launches-arcoplate-worldwide
https://www.martin-eng.com/press-release/martin-arcoplate
For those of you who would like to know more about Martin Engineering, check out their website, www.martin-eng.com. Seems as though they could be a natural fit for eventually buying AYSI.
Martin Engineering Company designs, manufactures, sells, and services bulk-materials handling systems. It offers belt cleaning solutions that include primary cleaners, secondary cleaners, specialty cleaners, blades and accessories, and safety accessories; transfer point solutions that include belt alignments, belt supports, belt sealing products, tail protection products, chute structures, and transfer point accessories; and flow aid solutions that include air cannons, air cannon accessories, and sonic horns. The company also provides vibration solutions that include screen, truck, electric, hydraulic, piston, roller, turbine, ball, and portable pneumatic vibrators; dust management solutions that include filtration, suppression, and containment; and railcar unloading solutions that include railcar connectors, railcar openers, and railcar vibrators. In addition, it offers safety solutions that include guarding, safety training, and safety services; dust monitoring, laser surveying, silo, and installation services; specialized maintenance services that include inspection and adjust, repair and replace, improvement and optimization, and alternative custom option; and training and education. The company serves mining, aggregate, cement production, and coal-fired power industries, as well as the food processing, port and transportation, biomass, pulp and paper, and steel industries. Its products are available through a network of dealers and distributors in the United States and internationally. Martin Engineering Company was founded in 1944 and is based in Neponset, Illinois with business units in Walluf, Germany; Colmar, France; Nottingham, United Kingdom; Istanbul, Turkey; Gorgonzola, Italy; Chihuahua, Mexico; Campinas, Brazil; Arequipa, Peru; Jakarta, Indonesia; Tokyo, Japan; Kunshan, China; Witbank, South Africa; Pune, India; and Currumbin, Australia. It also has licensees in Canada, Australia, Japan, Chile, and Colombia.
Those are good questions. I think the how is pretty straightforward. You have a stock that is trading at essentially cash levels. So when you buy a share you get an operating business that has generated EPS in excess of $0.20 per share for the last 4 years. Put a 5x earnings multiple on that and you get to $2.
The better question is when. It's obvious that there is no interest in the company based on the anemic trading and volume. So to get there, I think it takes some steps by management to help it there. A dividend is one way to attract interest and unlock the value of the company's ridiculously strong balance sheet. A buyback does the same, as it returns the company's excess cash to shareholders. A tender offer by the company to purchase the remaining non-family shares is another way to get to that valuation. And the value-maximizing option, would be to sell the business to a strategic third party, which I don't envision. In that case, I would argue that you could get well north of $2 per share (synergies for the buyer, etc...)
It doesn't help that the industry in which AYSI operates is not in favor with investors. I also think that with the Australian dollar starting to bottom and strengthen, we'll start to see some positive revenue comparisons year-over-year, which could help stir interest.
RUBI - Sold my $12.50 and $15.00 calls for a nice profit and sold half my shares on today's jump. It was nice gain from the low $12's when I mentioned it, so a good time to talk some profits. I will look to revisit and buy back if it gives back some of its gains before Q1 earnings.
RUBI - Wade, if you look back to my earlier posts on the company, they have a history of guide low and blow out results. For instance, 2015 EBITDA was originally guided to $20 million, they nearly tripled that with $60 million. My complaint with management is that while it gives them credibility that they'll always hit their "guidance", it makes it difficult to project what will actually happen. You'll see them raise throughout the year, as they did in 2015 and I bet you'll end up seeing 2016 EPS above the 2015 level. It's just frustrating as it makes it appear as though profits are declining, which is far from the case as revenues are projected to grow at least 25%+. If you listen to the conference call, it was all positive. When asked about guidance, their answer was that they didn't want to raise guidance just 2 months into the year... Frustrating
RUBI - Rubicon kills it with Adjusted EPS of $0.72 versus a $0.33 estimate. Cash increases to over $150 million. The only negative I see in the report is that they did not shift their 2016 guidance higher, which is extremely frustrating, given how badly they've beaten their forecasts in the past. I understand you want to under-promise and over-deliver, but when you're beating EBITDA guidance by 80% and EPS guidance by over 100% in a quarter, you're starting to do more harm than good. I'll listen to the conference call to see if there is an explanation. The reported numbers at face should have catapulted the share price. A bit frustrated at the moment...
Rubicon Project Posts Record Fourth Quarter and Full Year 2015 Results; Rapid Growth Delivers Full Year Profitability
Fourth quarter non-GAAP net revenue(1) of $83.7 million, an increase of 100% year-over-year
Fourth quarter GAAP revenue of $94.0 million, an increase of 125% year-over-year
Fourth quarter Adjusted EBITDA(1) of $36.0 million (a 43% Adjusted EBITDA margin(2)), an increase of 171% year-over-year
Fourth quarter non-GAAP earnings per share(1) of $0.72, an increase of 188% year-over-year
Fourth quarter net income of $20.4 million, or $0.43 per diluted share
Full year non-GAAP net revenue(1) of $227.3 million, an increase of 81% year-over-year
Full year GAAP revenue of $248.5 million, an increase of 98% year-over-year
Full year Adjusted EBITDA(1) of $59.5 million (a 26% Adjusted EBITDA margin(2)), an increase of 211% year-over-year
Full year non-GAAP earnings per share(1) of $1.08, an increase of 440% year-over-year
Full year net income of $0.4 million, or $0.01 per diluted share
From Andrew Kostecki's LinkedIn page:
Alloy Steel North America is looking to expand! Currently seeking engineers and sales people in North Carolina.
I should also point out that the current level of sales on a USD basis makes the picture look a lot weaker than it is. Sales in terms of AUD are in the 28 - 30 million range. As you see a rebound in the Australian dollar, you'll see an impact to reported sales in USD, which will hopefully be a tailwind here going forward, rather than the headwind its been the past several quarters.
AYSI's revenues at this point are primarily tied to the output at their customer's facilities. Their largest customer for example, BHP, continues to produce a record amount of iron ore and is even looking to grow that output in 2016. So long as output remains strong, customers will need to maintain their equipment and AYSI's product helps them reduce cost and increase the efficiency of their operations. I don't see demand for AYSI's product declining.
They also continue to innovate with their existing product line, Arcoplate, with thicker plates as well as new product lines, Armatuff. I see these revenue levels as reported in Q1 as a base level, with potential growth as these new products gain traction and grow AYSI's share.
So to answer your question, I expect AYSI to at least maintain a $20 million annual sales pace, with potential to outperform that level. I think they are setup to produce about $0.15 of EPS at a $20 million sales level.
The alloysteel.net website has been updated again. I think the new site is a slight improvement to the prior site as its more focused and better laid out. It's interesting that they're giving more attention on the site to the new Armatuff line. The Armatuff line is a relatively new product line.
A description from their site:
ArmaTuff liners combine exceptionally abrasion resistant alumina tiles, imbedded in an impact resistant polyurethane or rubber elastomer, to provide an outstanding wear solution and cost saving measure to many mining operations and process industries.
I agree with your statements. It still allows for the family to eventually buyout the remaining shareholders using available cash as even a $0.10 annual dividend would keep the cash balance growing as the company generate more than $0.10 per year in free cash flow. The company doesn't need this level of cash, so it should be returning that cash to its shareholders.
No response yet, but I will let everyone know.
I have emailed Sam and management a note imploring management and the board to consider initiating a quarterly dividend to begin returning cash to shareholders that has been built from the past several years of strong financial performance.
The company could easily afford a $0.10 annual dividend (implying a 9% yield) while continuing to invest in the business and building cash on the balance sheet.
I think it would be great if other shareholders could reach out to the Company with similar requests. Maybe if enough of us pressure the company, they'll consider taking some action to align the market value of their business with its intrinsic value.
The Q1 financials are up and working on the OTC Markets website. They match what was discussed here on Friday.
http://www.otcmarkets.com/stock/AYSI/filings
I have updated iBox with the latest financials and I am including the latest valuation sensitivity table here below. At these prices, AYSI is trading at a 0.2x EV / EBITDA multiple, 3.7x P/E, 1.1x P/E excluding cash, and 0.3x P/E excluding cash and land. I continue to think that fair value for this business is closer to $2.25 to $2.75.
As a reference, Bisalloy is similar sized with EBITDA of approximately $5 million and trades at over 5x EV / EBITTDA.
I tend to think there are two possible scenarios here.
The first is that the family will buy out the remaining public portion of shares not owned by the family. They have the cash ($13.2 million plus $4 million when the real estate gets sold) to be able to buy out the non-family shares (17.35 million less 10.345 million = 7 million shares) at up to $2.45 per share. While I don't think they would offer that much, $1.75 - $2.00 per share is likely closer to a realistic offer at this point in time. That would leave them with 100% ownership of the business that is essentially run like a private family owned business anyway without the obligations to report financials publicly. The business would also be left with a sufficient cash cushion to invest and grow as they see fit.
The second is the eventual sale to a third party. The other public companies in their space (Bisalloy and Bradken) both trade at significantly higher EV / EBITDA multiples (5x - 6x). A sale to a third party at a 5x EBITDA multiple would result in a share price of in the range of $2.25 to $2.75, assuming a Q1 2016 run-rate performance (trailing twelve month EBITDA is actually higher, due to a monster Q2 in 2015). I don't think the conditions are right at the moment to sell to a third party, so I feel this is a less likely option in the near-term, but definitely something that might happen in the future (2-3 years from now once the materials industry stabilizes). A sale to a third party would allow the family to move on to other interests.
Both scenarios point to a solid ROI from the current levels, even if it takes 2-3 years to happen (if it does take that long, the company is adding $0.10 - $0.15 per share in cash to the balance sheet at this rate every year, so the values I list above would be that much higher).
I'll be updating the ibox tonight with the latest information. I think I may write a note to Sam and company in Australia to see if they could consider doing something with their massive cash pile. A $0.02 per quarter dividend would be easily sustainable.
Thanks for the link! I get about 4.2 cents a share excluding the foreign exchange. Sales in AUD were actually up 13% over last year's Q1. EBITDA is $1.2 million for the quarter, which means trailing twelve month EBITDA is $6.9 million. Enterprise value is $1.7 million at $1.09. This is absurd... Bought some shares here.
Wow, great work! Earnings are actually much better than I was expecting! If you remove the exchange rate loss, earnings were actually above .03 per share. Cash is up to $0.76 per share and including the real estate assets, its $0.99 per share! So, at $1.08, we're basically paying $0.10 for assets that produce greater than $.03 per share in earnings a quarter...
I'm having issues opening the file as well.
RLYP - Wade, I own RLYP and have an avg basis in the $20's. Luckily, I've sold some call on spikes and have brought my avg down, but still waaay underwater. I think the short thesis is simple, they don't expect a B/O and they are betting that it's a slow ramp in sales. With ~$290 million of cash, and a high cash burn rate, the thought is that RLYP will have to raise more money at some point if they don't get sold. That means an equity issuance that may be dilutive, especially if done at these levels. An equity issuance would allow short sellers an easy opportunity to cover.
I personally think that management should strongly consider a sale instead of a potential share issuance later this year. They may be holding off on a sale now until they see what happens to ZS-9 (will it get approved, will there be restrictions, etc.). It's a bit of a bet on their part hoping that any negative impact to ZS-9 will be a positive to their drug and make it more valuable in a sale. I think the cash position is giving them a longer window in the hope of getting a better price.
I'm disappointed with the price action as well, but plan to hold as I think downside is limited and will continue to sell one-month out calls on upswings as my current ones roll off until May (when the FDA's decision on ZS-9 is due).
I've been buying some beaten down tech names ahead of earnings the next few days, specifically RUBI, INFN, and ATEN (purchased yesterday). These companies are generally being rewarded with strong earnings (AKAM today, ATEN today, GIMO last week, SSNI earlier this week). I think RUBI and INFN are strong contenders for strong performance when earnings are released.
I particularly like RUBI. I think they are significantly undervalued in the low $12's. The company will report earnings near the end of the month and I expect them to beat estimates and their own guidance handily. They have a history of under promising and over delivering. EBITDA guidance for the fourth quarter is $20 million, I expect them to come in closer to $25-$26 million of EBITDA, meaning full year EBITDA in the range of $48 - $50 million. Cash should increase to close to $140 - $145 million, meaning at current share prices, the company is valued at 8x trailing EBITDA.
The company has set EBITDA guidance for 2016 at $45 million - $60 million. They initially set 2015 EBITDA guidance at $20 million, and they're coming in at more than double that amount. I would expect the company to raise its 2016 guidance when they release earnings in late February, and then continually throughout the year, similar to 2015. I would estimate 2016 EBITDA of close to $80 million, meaning they are trading closer to 5x 2016 EBITDA! It's difficult to find companies that are growing at 30% - 40% per year trading at 8x trailing EBITDA and 5x forward EBITDA.
I think fair value is above $20. The company traded over $20 per share after last year's earnings release, and performance has more than doubled since that time. I find it puzzling that they are trading at half the price with double the performance. I feel the upside at $12 is 30% - 50%, while the downside is 10%. I have loaded up with shares and options (March 12.5 and 15 calls). Look at CRTO, in the same space, announced earnings today and they are up 20%+. I would expect something similar with RUBI on earnings day.
Another solid quarter considering all the headwinds they are facing. The drop in the Australian dollars continues to affect their reported results in USD. For the year, sales in Australian dollars were actually up 5%, but due to the declining dollar, sales as reported in USD were down 11%. Even with the difficulties associated with the falling currency and overall broader weakness in the iron ore and mining markets, AYSI is still delivering solid profitability. Cash is still strong at $12.0 million and with the Indonesian facilities listed for $4 million, it totals $16.0 million of cash assuming the sale of the facilities at the book value. $16 million of cash and land is approximately $0.92 per share. So the remaining business is being valued at $0.27 per share, or less than 1x last year's earnings.
I think at this time next year, if they sell the Indonesian land and building at $4 million, cash per share will be near $1.10 per share, or the current share price. There is little risk here with the large cash cushion, and plenty of opportunity once AYSI can start growing again. I also believe there is still the potential for the family to take the company private with a buyout of remaining shareholders using existing cash on hand. I think a buyout would have to be in the range of $2.00 to be fair based on the current market conditions.
Thanks to SKILLZ for running the first two Pick 3 contests and for setting up this next contest. I always look forward to seeing everyone's picks at the beginning of the contest and it's given me several ideas to work with in my portfolio. I hope everyone had a great 2015 and wish everyone a prosperous 2016!
-Chris
RLYP - Spiking on rumors that Merck plans to make an offer for the company.
FCHS - The company seems to issue a lot of stock for services. It also appears they converted some debt to shares in 2015. They mention in the recent filing that they need $4-$6 million over the next 12 months to fund the expansion and development they're looking for. Do you know how their going to finance this?
Picked up some cheap shares under $1 shares on this drop! Why someone sold all the way down to their cash level is insane to me...
The next earnings report is the year-end report that is audited and takes a bit longer to complete. Last year it was issued around December 19 and I'd expect something similar this year.