this is a better board than most, but still rife with some of the general misunderstanding that comes from investing in tiny companies, based 8K miles away and where mgmt disclosure to shareholders is fairly limited and typically confined to SEC filings ...
there are a couple basic points one needs to keep in mind when looking at this company- pertaining both to its coming qtrly/annual release and also the longer term thesis
we can skip the longer term thesis as most of you seem to recognize there is massive eps power here over the course of a cycle that would likely generate a far higher stock price (multiples north of current levels) with proper execution and a market that remains static or even one that is not substantially worse (both end-user markets and the financial markets)
so moving to the more timely issue of the coming results for qtr/yr ending sept 30th ...
i've seen some really aggressive estimates thrown out- esp by davehacksack and gilead- and also a well-meant but misguided intention to scrutinize gross margins within the release (littlefish)
the math on the big #s thrown out by sack and gil may work in a spreadsheet or through reasonable assumptions and estimates likely derived by piecing together various bits from the filings and the press releases ...
this is a logical approach and almost the best you can do here- BUT i think there is a flaw- that is, this analysis lacks what i'd call a ''real-world'' component- that is, its unlikely we got full traction on both mills until the month of september, which immediately means the big rev estimate is way too high -- furthermore, im guessing that july was likely dead (as it was for most of the industry i reckon) and august, while likely better, well, id bet that you still had ramp-up issues w the new mill- that is, typically in my experience w manufacturing cos, new machines take time to really run at full speed- u dont commission it and start off running full blast (regardless of demand- which luckily in this case seems tremendous) ... also, its unlikely that the first few wks don't see myriad issues around bugs/kinks/workout etc that need to be dealt with ... so im betting sept 30 will really only have one month of full freight-
all of the above leads to the problem w littlefish obsessing over gross margin in the qtr- that is, id bet anything that the true superplate margin is obscured in the qtr from all the excess scrap that was likely generated when testing and working out the new mill- not to mention likelihood of other one-timish cogs that probably exist in the launching of this new beast -
adding the above together also leads me to think your eps estimates are perhaps very aggressive (which is logical if the underlying assumptions are flawed)
but this said- i think we can all agree sept 30 qtr should be substantially better than the previous qtrs, and possibly even a record qtr (as far as revs go) ... i also think eps will be far better than what we've seen, tho tough to completely peg- i think maybe 3-5c ?
of course if this is all true, not sure the real relevance on the value of the company should be- nor the stock price beyond traders who either do or dont understand the company ..
id think as investors the far and away most important thing would be the current trend- and under the scenario ive outlined above, september would be our most relevant datapt- and of course whether that trend was continuing into oct and nov- suggesting that Q1 (and likely all of 2010) will be at a significantly higher trajectory than Q4/sept 30 qtr- ie my bet is that some of the gilead reach #s are a dec 30 event and not a sept 30 event- which is FINE id think ?
following this- we have a story in 2010 where current demand far outstrips supply and where cash flow should be tremendous based on the full efforts of two mills running balls out- this cash flow seemingly being deployed towards building more capacity, for which production time is already booked ... lets take some reasonable #s based on current capacity and assuming a full book of demand- im guessing this suggests ~35mm+ in revs and eps of 35-50c ? this may prove very conservative but i think is a reasonable ballpark assuming they execute on what is currently visible ...
using this as a base, we can then work the addition of mill #3 into estimates as more info comes along- and then same for mill #4 ...
and then indonesia ...
id say mongolia is dead and a very poor allocation of capital and not nearly as good of an idea as more capacity in WA or indonesia or other parts of the world- simple infrastucture issues (not to mention a very difficult red-tape)
there is also the prospect of landing one or more 'whales' whether it be cvrd or rio or newmont or someone else ...
so ill be v interested in the actual results when they come and also in how the stock reacts -- if it sells off vs what i perceive as pie in the sky expectations, ill certainly buy more- if it gaps up on ppl taking notice of a company that is jamming sequentially and has the obivous promise to crush it in 2010 and perhaps 2011, i may still buy more-
the point is that a trade into this qtr may ot be wise, while a trade into 2010 may be very wise- and understanding the fine line between the two (and recognizing the smarter avenue) is most important
all this said, id love nothing more than a boffo qtr, but i think being realistic here is extremely important- as the very near-term (which in this case is actually traveling BACKWARDS in time) should be seen only as a reflection of the months ending sept 30th and the unique circumstances involved in launching a new mill- while 2010 may indeed look substantially better (even in real-time as in qtr ending dec 30th)
but who really knows- we shall see - im inteersted in the toughts of others here ...
special shout-out to littlefish for doing consistently strong research on the micro issues
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