Replies to post #33 on China Ceramics Co. Ltd. (CCLTF)

[GorillaGorilla]

Thanks for laying that out... eom

rich

[bUrRpPPP!]

Nice work redman!

[redman_2014]

2010 Projections for CCLWF warrants

I got bored so decided to do the 2010 projections aswell.

Share price: $8.90
Shares o/s: 10.16M
Warrant price: $1.60
Warrant strike price: $7.50
Warrants o/s: 15.55M(will raise $116.5M when converted)

The projections include the cash and use 25.7M o/s(includes the warrants) and are based on expected 2010 numbers:

2010E Net Income = $31.40M($1.22 eps using 25.7M o/s)
$8.90(share price) - $4.57(cash) = $4.33 adjusted share price.
$4.33/$1.22(Expected 2010 eps) = PE of 3.55

Projections(using 2010E eps of $1.22):

PE of 5 = $10.67(intrinsic value of warrants = $3.17)
PE of 6 = $11.89(intrinsic value of warrants = $4.39)
PE of 7 = $13.11(intrinsic value of warrants = $5.61)
PE of 8 = $14.33(intrinsic value of warrants = $6.83)


Warrant potential:

Share price of $11 = $3.50(119% upside)
Share price of $12 = $4.50(181% upside)
Share price of $13 = $5.50(244% upside)
Share price of $14.25 = $6.75(322% upside)


Notes:

In their investor presentation they mentioned that sales volume for Q4 2009 was +20.8% year over year from Q4 2008, and their preliminary results for Q1 2010 show a 36% increase compared to Q1 2009, so it looks as though they are accelerating growth going into 2010. Mr. Jia Dong Huang, Chairman of China Ceramics "Our outlook for 2010 remains positive and our backlog of orders for delivery in the first quarter stands at approximately $35.5 million, representing an underlying annual growth rate of 36% compared to the first quarter of last year."


Summary:

It only requires a forward PE of 8 to make it to the $14.25 redemption price for the warrants. The annual report next week and the Q1 report in a month or two will provide a great deal of clarity as to whether the $31.4M earnout target for 2010 is achievable.


-Adam

[redman_2014]

Updated projections for CCLWF using 2009 numbers and adjusting for the 1M warrant buyback:

Share price: $6.35
Shares o/s: 10.16M
Warrant price: $1.00
Warrant strike price: $7.50
Warrants o/s: 14.55M(will raise $109.13M when converted, or $4.42/share in cash))

The projections include the cash and use 24.7M o/s(includes the warrants) and are based on 2009 numbers:

2009 Net Income = $26.20M($1.06 eps using 24.7M o/s)
Adjusted PE = Current Share Price - Cash/Adjusted EPS(using fully diluted 24.7M o/s)
$6.35(share price) - $4.42(cash) = $1.93 adjusted share price.
$1.93/$1.06(2009 eps) = PE of 1.82

Projections(using 2009 eps of $1.06):

PE of 4 = $8.86 (intrinsic value of warrants = $1.36)
PE of 5 = $9.92(intrinsic value of warrants = $2.42)
PE of 6 = $10.98(intrinsic value of warrants = $3.48)
PE of 7 = $12.04(intrinsic value of warrants = $4.54)
PE of 9.27 = $14.25(intrinsic value of warrants = $6.75)

Warrant potential:

PE of 4: value of warrants = $1.36 (36% upside)
PE of 5: value of warrants = $2.42 (142% upside)
PE of 6: value of warrants = $3.48 (248% upside)
PE of 7: value of warrants = $4.54 (354% upside)
PE of 9.27: value of warrants = $6.75 (575% upside)

Summary:

The warrants at $1.00 are a worthy investment, especially with a management team with the wherewithal to do a warrant repurchase when the opportunity presents itself and at such a bargain price. The repurchase was made at $1.00, so it provides a floor for the warrants going forward. Helps eliminate future downside risk.

Using the cash method for the warrants it only requires a trailing PE of 6 to provide a 250% upside in potential warrant appreciation. It currently has a PE of 1.82 on a trailing 2009 basis once you subtract out all the cash the warrant redemption will generate. The common is also a compelling value at current levels since a PE of 7.81 will create a 100% appreciation from the current level of $6.35/share.


Note:

I use the P-C/EPS to determine value when accounting for warrants, whereas many others use the treasury method. Valuation calculations will differ when using the treasury method. For example, if the share price is $10, the treasury method would have the outstanding share count at 13.8M, 2009 EPS at $1.90, and PE at 5.26. If the share price was $14.25, the o/s count would be 17.05M, EPS $1.54, and PE 9.25.


-Adam