Replies to post #5859 on Tronox Inc. (TROX)

[everett7]

The funny part is, I think even the original warrant package was valuable, but the tricksters made everyone think there wasn't any value by dropping PPS so many times, but clearly they've waited until the last minute to really put the buying pressure on, because there is value here now still.

THE VALUE HERE IS IN THE PPS WHEN TRONOX COMES OUT OF BANKRUPTCY - Based on 15 million shares outstanding when it comes out of BK, with a market cap comparable to Kronos and Huntsman, and a $65 warrant strike price, we are looking pretty good right now. $2 to the upside over the coming weeks is my guess.

[ofirm]

I think you confuse market cap with enterprise value. These
warrents are based on enterprise value of $1.4B and $1.5B.
If the debt will be $500M and the company will be able to
produce $150M - $200M in cash flow and lets assume after tax
$60M-$70M of net income and we need $900M market cap for the
first set of warrents to get in the money, then we could be ok.
I just hope not too much dilution comes from management and their
options (god only knows what they did so well for this company,
but that is a different question).
If I assume 7% dilution (equity level only) then we should have
$942M market cap to have something in the money.
At $70M net income (p/e of 13.5) and $175M cashflow we should be
ok for $1.5B within a year or so.
I am being conservative in my assumptions. the cashflow could be
quite higher , but I am adjusting to cyclicality.
Good luck to us.

[Stresstest]

Valuation of warrants can be done relatively easily with a lot of already known info. I would not count on some wide guess of 1.5B or 2B market cap. Company's own financial projection already gives a pretty detailed picture.

http://www.kccllc.net/documents/0910156/0910156101005000000000008.pdf

Refer to the above '11 - '13 financial projection, including net income, book value, and cash flow, all point to a much lower yet more grounded market cap of $300MM-$1B. For example, net income will be in $30MM-$50MM range, let's say PE 10~20. Low end will be $30*10=300MM, high end $50*20=1B. That range is supported by book value as well (book value will be $6~10 per share). That means starting PPS is more likely to be in the range of $20~60 rather than a somewhat wishful $100+. My bet is it will be out of money initially and then drift higher or lower depending on economy and industry. From there you can easily estimate value of warrants.

I understand from my own early experience how hard it is to invest in BK companies and don't want to see uninformed investor be ripped off. Just providing some available public info to the true investors here. Good luck to all.