Sino Agro Food Inc (fka SIAF)

[treit2002]

he general mechanism (which is well understood)is that a return on the equity acquired thru financing shares generates another return, and that return generates a further return, and on and on. I'm sure you're familiar with companies saying that although an acquisition will be dilutive immediately, after a short period of time, it will be accretive. Do you think no company should ever be involved in any such a transaction as well? What we are talking about is the multiplier effect that equity can represent.

Sly,

Where do you get this stuff, as applicable to SIAF?

Sure a buyout or capital investment may be accretive to earnings per share starting in a second year, because of whatever synergies or integration being fully realized and the ROE being much higher the second year.

That happens when the ROE of the investment surpasses the ROE of the company as a whole. For instance, a company with a p/e of 10 buys a company with a p/e of 20. Because the larger buying company can integrate the smaller company into a much larger organizations, revenues derived from the purchase may easily more than double; therefore, eps will be accretive at that time.

But when you invest capital at a p/e cost of .5, the ROE must be 200%. Ain't going to happen.

The second year has to be 200% also. The time value of money has nothing to do with it.

It's a tribute to this company that equity funding probably is worthwhile to shareholders at a p/e of 2 or so.

If you are going to reflexively defend the company growing at any cost, you're just going to lose credibility imo unless you use some math or logic to defend.

A couple years ago the company projected 2013 eps of perhaps $1.50. Now perhaps we'll see $1.00. Yet they will earn the same amount of money. The lower eps -- a whole lot lower -- is because there are so many more shares. Simple as that.

What perhaps makes this excusable imo is that the company made it's commitments figuring a higher share price which would have worked out better for all.

Now we see new financing possibilities. So, I think they learned the lesson. All other aspects of the company, growing a $500 NTA machine are on track; that's why the prospects are still very bright (albeit, less bright than without the 2012 dilution), as long as the lesson has indeed been learned.

Saying that no lesson needed to be learned doesn't help anything, imo.