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You deride Swedes because English is their second language, when you want to ask a CEO what dilution is?
Why not follow up with, "what is the process when your revenues add $1M?, or what is income?"
As a side note, many here call new share issuance "dilution" while they also say the new shares add to eps. So, yes dilutive to shareholders' percentage interest in the company, but accretive to the economic worth of the same shareholders' interests. So, I think share issuance is the better term.
It's widely acknowledged that shares hitting the market is the problem, not effect on earnings. I too was very disappointed in the magnitude of new shares to be added. But at least this time there are factors and potential factors to mitigate or eliminate the dumping effect, and/or to mitigate or eliminate the need to put the shares in the hands of short term sellers.
Time will tell. Won't have this problem in 2014.
Direct and honest would have been fine if coupled with a fuller explanation, imo.
He is in a tough position, as the bad news is much easier to disclose than the good news, from a regulatory point of view. Plus, there's the language thing, when nuance is required. They should have Dan R on the calls, imo.
Of course, he's going to expand pretty much as fast as he can; but we could have had a better explanation of the preferred ways to do it, given some options are conjectural -- like private placement and the bond deal; some are variable -- like the stock price; and some may be dependent on time or external events.
Thanks,
Very fast.
You really don't have a clue.
He did say that the equity raise would be approximately equal to 2012, presumably in dollar volume.
He also said that the share raising would be affected by a possible bond offering. He also mentioned a private placement, which would alleviate the dumping problem.
Better to just email Chad. It's good IR.
He'll ask Solomon, I'd think; should also cull and summarize the questions.
Good idea, imo; maybe every 6 weeks, as a mid-quarterly update.
Of course, Q&A on the call is also good; especially with a published transcript after.
I'm guessing $.72 this year based on $61M with 85M ave weighted shares. This was simply assuming the same income in Q4 as Q3, with no more shares added. May be more of both, so still $.72
Another 50% would be $1.08. Not sure it makes sense to cut it any closer this early.
Here's another approach. SIAF grows its existing businesses 50% from 140M in revenue to 210M with 40% net margin, and adds another 90M in new businesses with net margins of 25%. That totals $106.5M income.
90M - 110M average weighted shares calculates $.97 - $1.18, midpoint $1.075.
Bond deal would help.
And all your points are fair as well. The world believes small cap US listed Chicoms are worth very, very little, and this has not changed for 2 years.
So, this could go on another two years.
SIAF has a few things going for it the others don't, including some near term catalysts:
1) Majority ownership abroad
2) JF sponsorship
3) Nisse to be a Board member
4) Foreign independent Board members
5) Form-10 and Pensar and FN application due diligence all after Chicom meltdown
6) 200%+ annual revenue and income growth for the last two years
7) 50%+ annual income growth to come for two+ years
This last distinction implies that the shares should appreciate 50% per year, even with no movement toward normal value recognition.
8) 75% annual revenue growth to come for two+ years
9) FN listing
These last two distinctions make SIAF eligible for purchase to a far wider audience, including funds and retail that may not have the jaundiced view of Chinese (getting to be not so) small cap
Let me give another answer to why the price could be 6 in two years.
You posed the question as that being an alternative to the Current lowly valuation now for SIAF and other Chicoms.
Maybe it's not an alternative. Maybe the market does continue with its same valuation, and it's 6 anyway. How?
P/e isn't the only valuation metric, even tho the forward p/e in two years with a pps of 6 would be in the 2 s anyway. What about the $50M in cash they may well have then. That should add $50m in value I'd think. Really it should add triple that, just in the flexibility the company would have. How about a multiple to free cash as a metric? That's negative now.
Or how about the same p/e valuation as now, but with a premium for a spin out, or a dividend, or a 5 year history of 50% eps growth?
Or, of course, I suppose we could stay at $.60, cash value give or take, and a p/e of .3 . Not impossible.
I do have little doubt that operations will perform, give or take, and financing share issuance will end, sooner or later,
There's probably 100 reasons the shares could be 6 in two years, or 16.
Off the top of my head (apologies to Jester):
1) A dragonhead JV spin out
2) Trading in Sweden Nasdaq
3) Trading on FN
4) TTM earnings of $1.75+
5) NTA of $500M
6) Share issuance long gone
7) Cash balance of $50M+
8) Stain on Chinese companies gone for survivors,; let alone, dual lister(s)
9) Series F dividend of $034 paid
10) Regular dividend of $.15 +/-
12) $.40 cash pay out to shareholders from spin out #1
13) Spin out #2 announced
14) ...
Really, it's just share issuance ending and anything remotely approaching an economic view of what value a stream of earnings should have.
In my view, as long as the company is legitimate -- and there is every reason to believe it is -- you have realistic prospects of being a SIAF millionaire within two years with the shares trading on Sweden's Nasdaq.
Sorry this is disappointing in relation to the almost $4M SIAF value your account should show now, according to some.
Future revenue growth will outpace the growth of eps, but by less than in the past, imo. This is because while net profit margin will decline, the number of outstanding shares will stop growing.
Round figures, guess 100% revenue growth 2013 vs 2012, 50% eps growth.
Of course the fish sale revenue is less than contracting and servicing; they are building 6 of the things and selling from 1 1/2, ramping to capacity.
Next year they will get revenues from building 6 again, maybe 8, but 3 or 4 will be selling, all ramping further.
Seems to me that what bothers you is that they are growing.
Have you considered this line in the income statement:
Less: Net (income) loss attributable to the non - controlling interest (2,476,834 )
Since SIAF books all the fish sale revenue, their absolute profit and also their profit margin goes up when they increase equity in the JVs. The line above (a deduction from profit) decreases percentage wise, while the revenues increase.
The corollary math for the JV partner may be even more interesting, with respect to Bear's convertible debt theory.
Using your numbers: JV partner puts up $8M and gets back $4M upon construction completion; say one year. Noteworthy that SIAF has just reinvested 100% of its construction profit, assuming 100% mark up. So SIAF is net even, with 75% stake. They've traded earnings for equity and future cash flow, while their actual cash flow during construction and paying for equity is net zero.
The JV partner winds up with 25% equity stake worth say $1M return first year; $2M return second and $3M/year three years out and thereafter for a $4M investment, net after one year half repayment.
The question is, in Bear's convertible debt scenario, how much is that 25% JV partner stake worth, to offset the net $4M "loan?"
Not trying to snow you:
From release:
"During the third quarter of 2012, CA sold just over 493,700 sleepy-cod weighing between 516g to 628g per fish from Fish Farm 1."
Roughly .5 kg x $25/kg x 500,000 = $6.25M
As to revenues, sure higher profit margin is better, but profit is not the only yardstick, imo. So, to reiterate: I agree that profits trump revenues, but revenues absolutely do matter, particularly in SIAF's case, where vertical integration is key to strategic advantage. Also, key to funds who invest in companies with only $250M sales.
Even with newer, lower profit margin businesses kicking in, I doubt net margins will fall below 35%, even in 2014 or 2015.
No, I don't know that they will sell all 10,000 head to their own restaurants in Xining. Just said that for those that they do -- when production is reached, and restaurants are actually operating, the profit will double.
As I recall, they've said the one existing "Bull" restaurant consumes i head every three days. So that's roughly 120 per year, 6,000 for 50, in WAG numbers. This will not happen overnight.
I agree that some fish farms are taking longer than expected to ramp, but I don't see why you think that the profit margin for sales is low.
I think the sales for beef has a lower gross profit margin than SIAF overall, but will rise significantly because of (with apologies to Sly):
* economies of scale,
* rising beef prices falling to the bottom line, and
* selling into their own distribution/retail machine
Yes, yes (bigger yes for Green prawns), and okay for Bull prototype (better for Leonie's).
What makes you think they are targeting any restaurants, other than their own, and their own retail, when up and running?
Have they ever said that?
Think the average head sold was more like 1,000 kg. But again, not really sure.
Perhaps, Sly has the numbers.
He has no idea whatsoever what price SIAF is charging. He tried to back into it.
Please don't quote wag numbers, especially from an unreliable source as from a Q.
Better to look at the cattle projections of revenue and head sold, I believe in the latest video presentation.
The prices for wholesale beef and beef sold to restaurants were quoted on the investor tour, tho for their projected revenues (in Xining), they assumed no restaurants, even tho they intend to franchise. at that presentation, they said there would also be compny owned restaurants.
Off the top of my head, they used prices of 26,000 RMB per head wholesale and 46,000 to their own restaurants.
Perhaps, sly recalls better.
What price does it say in the Q, and where? Must have missed it.
I'd be shocked if the prices were near the $150/kg RD is bandying about.
Btw, petite filet mignonette is probably the only cut served in 200 gram portions at fine steak restaurants in the US. Could be $30 easily. But most portions are much larger, so cost per gram is lower. Unless, of course, it's Kbe beef which is much higher.
From the release,
Crazy numbers, if you ask me.
Have you been to China and seen $30 200 gram plates?
There is a potential perception problem that the margins are too good to be true.
But no taxes explains a lot of it. Also, the non-operational GAAP income, as I alluded; for instance, extinguishment of debt, or currency exchange.
Another reason is that SIAF corporate expenses (G & A) are quite low, but were even lower this quarter, for some reason.
Just don't get it.
FF1 sold about $6.5M in fish; open dam about $3.5, so $10M in a quarter. Very, very nice gross profit margin. Rather nice that in SIAF's model net profit margin is almost as high as gross. These figures will grow exponentially, as new fish farm sales kick in and the equity stakes double on top.
Agree that profits trump revenues, but revenues absolutely do matter, particularly in SIAF's case, where vertical integration is key to strategic advantage. Also, key to funds who invest in companies with only $250M sales.
You don't like the Distribution net profits,, because they may be only 15%. Well that's 15% of $60M they have never done before! So that's another $.10 per share -- and it will grow.
Import/Export is just getting underway. Retail has not even started.
They are talking about 10,000 head of beef sold from one farm. And they are talking about selling into their own restaurant chain or franchises. This will double the profits per head!
Do you really see this as a dwindling construction business?
Just cannot understand how anyone would be disappointed in operational prospects after this report.
Could hardly disagree with you more.
Using outstanding shares for 2012 annual results is totally wrong.
I'm trying to imagine how you'd say that to someone else who wrote what you just did.
Why would service revenue be flat or down? There will be new ones like every year.
There will also be retail income vs zero this year.
And may be somewhat significant restaurant revenues.
Can't recall, was the $.68 guidance for fully dilute earnings?
If SIAF has the same Q3 results in Q4 -- $22.37M income on 91m+ FD shares -- full year 2013 will be $61.1M earnings on 84.9M ave. weighted shares (vs. 82.7 end of Q3).
That's $.72 per share! So, obviously beating aggressive guidance, and beating growth rates.
There are two assumptions in this calc, and both are conservative, imo.
One is income will be flat QoQ. But we know the Q4 will include one month of Distribution income (W1 and W2) vs. zero in Q3. We also know that FF1 sales will be higher, as prices are (as projected on the tour) and pf1 should kick in a bit. Not sure about the construction income for fish and cattle and warehouse construction, but there's more going on.
The other assumption is ave. wtd shares. Shares have not been retired through Q3, so they should more than compensate for any new shares.
Can't recall, was the $.68 guidance for fully dilute earnings?
If SIAF has the same Q3 results in Q4 -- $22.37M income on 91m+ FD shares -- full year 2013 will be $61.1M earnings on 84.9M ave. weighted shares (vs. 82.7 end of Q3).
That's $.72 per share! So, obviously beating aggressive guidance, and beating growth rates.
There are two assumptions in this calc, and both are conservative, imo.
One is income will be flat QoQ. But we know the Q4 will include one month of Distribution income (W1 and W2) vs. zero in Q3. We also know that FF1 sales will be higher, as prices are (as projected on the tour) and pf1 should kick in a bit. Not sure about the construction income for fish and cattle and warehouse construction, but there's more going on.
The other assumption is ave. wtd shares. Shares have not been retired through Q3, so they should more than compensate for any new shares.
If it's minor, stop making a big deal about it, and using it as an excuse to call Solomon childish names.
I am not an accountant, but in the US (read GAAP) leasehold property is definitely an asset, and I'm 90%+ sure that it is tangible. Why wouldn't it be; it can be sold. So, i do agree that even if you are right (which I doubt), it's minor.
If that's all you meant, then why bring it up, not to mention use it as justification for your puerile rants?
Actually "tantrums" is a better word, as they relate to short term thinking.
Geez, they just posted quarterly revenues than 2010 yearly revenues; quarterly income more than the first half of 2012 and more than the full tear 2011 !!!!
Prove it.
A - L (less intangible A)
He knows, 100%.
To think otherwise is absolutely idiotic.
Can anyone point out a link to the 10-Q addendum or appendix for Distribution Center 2 contract?
Answer for seasonality is an unqualified yes, as in seasonality will be much, much less. In fact almost all of the increasing revenues throughout the year will show growth, not seasonality, which basically comes from only HU.
Surely early for 2013 guidance, but a good line of questioning anyway. For instance, "Do you see revenue growth on the order of 100%?"
I really hope they give preliminary 2012 full year result and very preliminary 2013 ranged guidance in early January, before a First North listing.
I think I can offer some reassurance on the unlikely scenarios you mention.
First, like you say, FN listing is only a matter of time. The conpany wants it; the majority ownership has a big stake in it; they've applied; if any, it would take $500,000 to get the minimum share price, if needed.
The names RD calls Solomon are childish, not only for the language but the ideas. Here's a guy with a masterful vision running vastly diverse operations right on a four year schedule. That's a smart guy. His brain doesn't turn to mush on the finance side. After all, he has an accounting degree.
There are reasons for the share issuance, past commitments tied to growth, other debts and strategic considerations to create barriers to entry for competition (particularly on the fish side, etc.
So any issuance beyond authorized shares would have a vastly more stringent capital hurdle rate, not to mention more stringent process including Board of Director approval.
Let me up the ante on this improving dynamic. First, we all agree that the fundamentals of the company are stellar, having just been re-proven in spades. Let's also stipulate that the share price is determined by the supply and demand for the shares, not the fundamentals. Of course there must be some effect when the company earns $.25 in a quarter, just like everything in the world effects share price to some minute degree. But these other determinants can be viewed as secondary, in that they effect the demand for shares.
In 2012, there were at most two years left of financing shares to come to market. Now, there is at most one. So, logically, the effect should be half. But maybe there are only six months left, since they always said in 2013. So the effect could be 1/4. I buy the argument that the incremental shares -- on the margin -- are not accretive to eps. With yesterday's report, this may not be true, and certainly is not true if new shares are issued at higher prices, a factor that again will limit the effect. There wer always other justifications for new shares, imo.
If the bond deal is done, then the effect of financing shares will be next to zero.
On the demand side, we will see an entire new market for shares in as little as 2 months. On top, we will have a company with forward revenues of $250M - $300M+ and eps > $1.00 per share.
These metrics and exchanges attract money that is simply not allowed to buy shares now.
So a dramatically larger demand for shares, probably trading with greater liquidity will chase a smaller and smaller float, even with share issuance.
Curious if there is disagreement with this general scenario, which in its direction is still true no matter what.