Saturday, November 15, 2008

Corporate Results Announcements

As I have a serious lack of time, I will not be doing reviews for ALL my companies which have released results recently, but will just focus on one or two. I've realized that it takes a lot of effort to analyze and post all the analysis here on my blog, when actually one should be more concerned with the long-term prospects of the businesses rather than staying too focused on quarterly results. That is the domain of analysts, whose job is just to churn up reports based on short-term forecasts (yes, 1-year price targets are considered short-term !).

Tat Hong Holdings Limited

Tat Hong released their 1H FY 2009 results on November 12, 2008. Revenues for 2Q 2009 rose 15% but this was offset by higher COGS (increase of 20%), resulting in gross profit increase of only 5%. Profit for 2Q 2009 dipped 3% from 2Q 2008; but looking at half-yearly figures, net profit increased a decent 25%. The Company declared an interim dividend of 3.5 cents per share, payable on December 12, 2008. At my purchase price of 71.5 cents, this represents an interim yield of 4.9%. I will be doing a more detailed review of Tat Hong's financials and prospects in due course, as I have quite a bit to say about their various divisions and also for their regional prospects in the longer-term (up till FY 2012).

Swiber Holdings Limited

3Q 2008 revenues surged 186.5%, while COGS increased an even heftier 247.3%, resulting in a 68.4% rise in gross profits. As a result of lower exceptional items for 3Q 2008, net profit fell 7.4% while profit attributable to shareholders fell 18.7% on quarter. For 9M 2008, profits increased a healthy 58.9% to US$47.1 million, and this already more than covers the entire FY 2007 profits. During bear markets, analysts love to focus on the negatives, and I am sure the "surprise drop" in profits of 18.7% on quarter will be mentioned many times. Putting things in perspective, the lumpy nature of contracts and the increase in headcount and administrative expenses as a result of business expansion into the region probably added quite a bit to Swiber's cost structure, as did the finance expenses on their bank loans and bonds. While this is not good for the company in the short-term, in the longer-term their asset-light strategy and their larger spread of vessels will help to snare them larger contracts which are hopefully long-term (e.g. is the CUEL 5-year contract for US$50 million per annum).

Their Balance Sheet is healthy with gearing at about 1.06 and current ratio >1, thus there is no immediate cause for worry as their debt is not due till FY 2011. Their cashflows from operating activities is also healthy at US$19 million for 3Q 2008, though the bulk of their cash inflows still came from the raising of more banks loans worth US$74 million. Still, there is probably more visibility now in terms of operating cash inflows, and the Company will take a more cautious stance towards expansion, and has put their deep-water plans on hold until oil prices firm up in future years. Prudence will see the company through these lean times, and they should emerge stronger and more ready for challenges by FY 2010. I will NOT be writing a detailed review on Swiber.

Using US$47.1 million at an exchange rate of 1.50 to the USD, EPS is about 16.76 Singapore cents per share for 9M. If annualized, EPS will be about 22.35 Singapore cents. At today's closing price of 61 cents, this values the company at a mere 2.73 times PER.

Pacific Andes (Holdings) Limited

Revenues for 2Q 2009 dipped 4% while gross profit dripped 12.6% due to higher fuel costs and also the supply chain management division getting disrupted due to the Olympic Games. Net profits decreased by 16% on quarter and about 16% for 1H 2009 too. However, due to PAH's increased stake in CFG, profits attributable to shareholders rose 18.5% on 1H FY 2009 compared to 1H FY 2008. Management has reported that fish product prices have risen 10-20% due to increased demand during the economic slowdown (hey, people still have to eat fish right ?). Due to the deployment of less fishing vessels to the North Pacific, they suffered a temporary drop in fishing volume which will be made up in 3Q 2009 (4Q 2008 for China Fishery).

Higher fuel costs were also cited as one of the reasons for the fall in profits, which was largely in line with what I expected. Fuel prices have since dropped to around US$56 per barrel and are likely to remain low for as long as the recession does not blow over. Thus, this should ease the gross margins for CFG's fishing division. Catalysts for profit growth in 2H FY 2009 will include measures taken by CFG to fish for more catch and also for deployment of their elongated vessels to the North and South Pacific. In CY 2009, higher total allowable catch (TAC) is also expected as fish supplies have remained healthy due to sustainable fishing practices. There will be NO further review from me for PAH's 1H FY 2009 results.

China Fishery Group Limited

Revenues for CFG were up 3% for 3Q 2008 and 8.4% for 9M 2008. However, net profit dipped by 28.1% on quarter due to the problems mentioned in PAH's review - higher fuel costs and deployment of vessels to defer catch volume till 4Q 2008. As a result of these, lower volumes of fish were caught even though prices had risen. Gross margin for 9M 2008 was high at 34%, while net margin was a respectable 22%. The Group managed an 11% rise in 9M net profit to US$78 million. Assuming oil prices remain at current levels, and CFG replenishes the fish which they had failed to catch in 3Q 2008, this means that annualized profits should hit about US$104 million. Using exchange rate of 1.50 to the USD, annualized EPS will be about 20 Singapore cents. Using closing price of 61 cents, FY 2008 PER is just about 3 times. Considering their revenues are consistent and recurring (unless the ocean runs out of fish !), this is a very low valuation for a good fishing company to trade at, which is one example of Mr. Market's mood swings.

Net cash from operating activities was a healthy +US$42 million for 3Q 2008, and +US$60.1 million for 9M 2008. Net increase in cash was US$23.2 million for 9M 2008 after factoring in acquisition of PPE and subsidiaries. Net gearing improved to 92.9% from 108.3% as at December 31, 2007. Prospects are decent for CFG as they are expanding their number of vessels and also elongating their existing ones to increase the fish hold capacity. When the ITQ is implemented in Peru in FY 2009, this should provide a further boost to prices as quality of catch will improve. I have also noted the Chairman Ng Joo Siang's plans to eventually branch out to catching krill by FY 2010 and hope that they can implement this as an additional revenue stream. I hope to get more updates on this at the next AGM. Meanwhile, I will provide no more further analysis on CFG until the FY 2008 results are out some time in Feb 2009.

Boustead Singapore Limited

Boustead released a decent set of results today, underscoring their slow but steady growth in all divisions despite the economic downturn. Since I will be doing a more detailed review of Boustead's 1H FY 2009 results, I shall not say too much during this post. Suffice to say that the Company has grown all divisions decently, and has a net cash position of S$117.6 million. They have declared an interim dividend of 1.5 cents per share (a yield of 2.6 cents based on my purchase price) which is payable on December 18, 2008. On a comparative basis, after removing one-off items, net profit attributable to shareholders improved 30.2% to S$15.2 million.

One must note that the Company usually does better in 2H of the financial year and shows weaker financial results in 1H. Thus, due to their lumpy project nature of their revenues, it will not be wise to annualize their net profit to derive a valuation as it would be misleading. Also note that the sale of a leasehold property will net the Company another S$200 million in 2H 2009, and this should result in a very decent final dividend for FY 2009. I will be doing a detailed breakdown in a future post for Boustead, and discuss possible strategies which the Company may take to grow their top and bottom line.

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Stay tuned for more posts coming on Investment Sins, as well as a continuation of the Behavioural Finance series. I am also planning a future "Your Money and Your Brain" series after reading the book by Jason Zweig, to draw out snippets to illustrate the fascinating relationship between money and our own brains.

21 comments:

MakeTraffic said...

Hi MW,

I came across this good video clip (from Yahoo Finance), which i would like to share with you.

http://projectheavytraffic.blogspot.com/2008/11/dont-try-to-time-market-either.html

Cheers!, MakeTraffic

patrick ho said...

Hi MW,
just like to mention that I personally find looking at the past year PER is quite unreliable, esp. for companies in cylical industries like Swiber. The past few years of earnings might not be so accurate for projection of near future earnings as it is likely to go on the downturn? For PAH, where earnings are highly leveraged, might not be reliable too in such a tight credit environment. Wonder if u agree?;)

For me, at least for now, I'd want to look at the valuations and asset values net of surpluses to find out how much of a drop the market is pricing in, and look at my margin of safety from there.

Patrick

patrick ho said...

Hi MW,
was looking through ur comments on LP's blog...anyhow, just wanted to say I feel Tat Hong's a gem...just like the property plays which lease to rent out...high profit margins and ROE, but when environment turns unfriendly, margins suffer a sharp decline...but Tat Hong can do exactly the opposite, switching to renting at a time when crane rates have peaked(still a question mark).

Anyhow, strong cash position to tide through this crisis coupled with very high barriers to entry seems a very mouthwatering position to be in;)

Anonymous said...

hi mw,

i would have thought swiber putting their deep water plans on hold as a very big setback. i would be very disappointed since this was ultimately the lucrative market that they want to break into and not just remain in the shallow water market where competition is a lot more intense, more so in the current environment. I have always thought this was their aim and to change their business plan so drastically really doesn't give me much assurance and comfort. do u also view this negatively?

in my opinion, and u r free to disagree, this setback reflects badly on swiber's management, as experienced veterans in the field of e&p. this worries me as i wonder what else have they not foreseen and what other business strategies that they have not given enough thorough consideration.

moreover, since they are putting some of, what i view as, their more important expansion plans on hold (and i view the equatorial driller as very important), then i really question what really sets them apart from the rest of the field , who are, surprise surprise!, also holding back their expansion plans?
what would have impressed me more was to see them selling some vessels (although they are not in vessel trading business, certain flexibility and taking the lead are signs of gd management!) to raise cash last year and seeing this period of credit crunch and falling asset prices as a golden opportunity to expand their fleet and invest in deep water and complex vessels that are seeing drastic price declines now, which otherwise would have been selling at exorbitant prices this time last year.

in other words, this is the time to get whatever they want cheaply in preparation for the good times, but instead they are holding back! and they still have the cheek to say 'the group is confident of the long-term fundamentals and outlook of offshore oil and gas industry remain positive ' when their actions clearly reflect otherwise!

you mentioned 'Prudence will see the company through these lean times, and they should emerge stronger and more ready for challenges by FY 2010', but isin't that the case for all the other companies? of course everybody else, if not bankrupt, will emerge stronger and will be more ready.

and no doubt hindsight is always 100% accurate, but if im correct, i already heard some players in the chartering business were already selling their vessels in the past 2-3 years, and they look like geniuses now, and clearly this company's mgt does not belong to that group.

if you look back at their presentation slides for 1Q08 and 2Q08 (and probably even including slides before 2008), the equatorial driller was suppose to be the 'key revenue contributor in the future' and their 'immediate focus'. and they devote like 2-3 slides to this development and the attractiveness of deep offshore drilling. and in the 3Q results, the deferment of the equatorial was presented tersely in 1 line. and what is clearly missing is also the presentation abt the attractiveness of the deep-sea drilling business. so what happened? it's not attractive anymore?

honestly, i am REALLY disappointed with management, not so much about their change in business plan, but what this change in business plan implies about the management of this company. and if i want to invest my money, i definitely put my money on management with greater foresight than one who is clearly 'behind the curve', if not, mediocre.

simon

musicwhiz said...

Hi Maketraffic,

Thanks for the link. A very interesting discussion indeed !

Cheers,
Musicwhiz

musicwhiz said...

Hi Patrick,

I don't agree on Swiber as I think contracts flow should provide steady income and the industry should remain buoyant at least in the distant future (unless alternatives to oil are discovered).

I do agree with PAH as it is better to evaluate based on NAV instead of earnings as they are more into SCM and have a 64.1% stake in CFG. So they are more like a holding company.

The market has already priced in a large part of the recession and downturn, but I feel most people don't seem to realize that. Markets can be a lot of efficient than people give them credit for.

Regards,
Musicwhiz

musicwhiz said...

Hi again Patrick,

For Tat Hong, being a large player helps in such uncertain times as they have the assets and financial muscle to last through the credit crunch and recession. Cash flows should be relatively stable now that they are not spending more on capex but are instead using a rental model to run the business.

Of course there will be earnings decline which I am fully expecting, but the key is for the company to recover after the recession and continue to grow, so I am willing to stay vested to collect dividends all the way. :)

Regards,
Musicwhiz

musicwhiz said...

Hi Simon,

Thanks for such a long comment and sharing your views on the company. I really wish there were more like yourself who bother to comment about the company's business and the prospects. Kudos to you for that ! Let me reply to your comment point by point.

1) Raymond Goh had said that he expects the deepwater drilling segment to contribute strongly in 5 years time (this was told to me at the AGM during April 2008). I did not expect their ED to take off quickly and was quite surprised they wanted to push it through so aggressively. In fact, I consider it a blessing in disguise that they dropped it, cos I was wondering how they were planning to fund it !

2) To even begin construction of the ED, Swiber needed to clinch a back-to-back contract, so that the asset will not lay idle in the yard incurring fixed costs and bleeding cash. Since the macro-environment has changed for the worse, and oil prices have fallen, they were naturally not able to secure the contract. Thus, Management is prudent in NOT building the ED because there was no contractual commitment. Companies like Ezra build their deepwater vessels once there is firm intent to charter them from oil majors.

3) Yes I disagree with your point that they are less than professional. In fact, they are veterans which is why they can see that building the ED now may not be the best move, and to wait till global economic conditions stabilize and improve before embarking on aggressive expansion plans. Would you really feel happier if they loaded on more leverage to build an asset which may not be chartered out by FY 2010 ? I'd definitely be uncomfortable.

4) They ARE planning to sell some vessels to raise cash to fund further vessel investments (e.g. subsea and other construction vessels like sheerleg barge etc). Look at their 3Q 2008 presentation to get more details.

5) Management has also indicated they are not expecting to expand their fleet further not because they do not want to take advantage of lower prices, but because I suspect FY 2009 and FY 2010 may see a glut of AHTS coming into the shallow water arena. Thus, the over-supply may mean that shipyards cannot handle more newbuilds at this point in time. I personally believe Swiber should just concentrate on their JV and expanding their network first to secure more customers in SEA before they embark on any further expansion plans.

6) The outlook for O&G for the long-term is positive. I strongly believe oil prices will continue to rise into the forseeable future as oil is a scarce resource. Swiber are positioning themselves for the long-term instead of chasing short-term profits.

7) All companies are prudent ? I won't really say so. Many may have over-expanded or committed too much in terms of short-term loans to be able to get out of the classic "cash burn" situation. Swiber has debts it can manage and also has all the committed capex covered by S&L and sharing of assets with JV partners. The idea during a downturn is to conserve cash until better times make credit more readily available. It's a strategy which companies SHOULD take, but not all company Management realize it, or some may realize it far too late.

8) If you had read The Edge, Raymond Goh gave a long interview on delaying the ED and why it was not a good idea at the current moment, so that helps to explain most of the decision. Yes I know it appeared as one line in their presentation but there were already articles written to explain this much earlier. Thus, I was not surprised. ED will be the key contributor in future, but future may mean 4-5 years down the road. Unless you are in a big hurry to sell, why get so worried about the next 1-2 years ?

9) I don't see much evidence of them being "behind the curve". They had already identified deepwater long ago with their deepwater forum, and had ventured into subsea as well. Being a niche player, they needed to ensure they had the resources and contract before they built the ED. Plans are in place, but execution will take time.

10) Management has also identified windpower as a promising new sector, so can they be considered "in front of the curve" for this case ? If their vessels can easily be used for wind power projects as well (e.g. KS Energy chartered their boat for the Siemens wind power contract recently), then this could potentially open up another revenue stream for them.

Overall, the credit crisis is slowing down their expansion plans because of the unprecendented scale of the downturn. However, I feel this is also a good thing as it prevents them from bring overly aggressive and forces them to think through their options and to be more prudent.

Regards,
Musicwhiz

Anonymous said...

hi mw,

thx for the very complete replies! yes, let's keep the comments flowing. =)

anyway, i still feel they could have handled it better. e.g. disposing their assets last yr at much better prices rather than this yr. or lowering their gearing much earlier rather than now so as to take the opportunity now to expand while asset prices are low and not be crippled by high gearing.
i mean, although they can't buy ships now since there are no customer orders, there could be other ways of expansion, e.g. buying more yard space perhaps? yards would really help them with any future fabrication and cut costs and improve margins and come in really handy when vessel supply is tight again. this is just a suggestion, and im sure there are other ways to expand.

i still feel tat this company's mgt is not much different from others, in the sense that when they realised that the economy is not doing well and they have not much room for more debt and have to scale down their expansion plans, it was already too late, just like the rest of the companies. it seems their approach is more reactive rather than proactive, and proactive is one of the hallmarks of skillful management.

although i admit, it wouldn't be fair to expect them to foresee the kind of drastic and unprecedented impact that the credit crunch is having on the world, but at least they, being veterans, should have an idea of which stage the o&g industry cycle is in and the impact on e&p expenditure and be prudent way before it's too late!. not that im expecting them to predict where oil price is going, but at least they should have given it some thought that a slowdown is imminent and make preparations for it, and i just can't see any indications of that in their actions or strategy or even the tone in management representations until recently, when it was already too late. it appears to me they didn't even see this coming at all!

and hence im very disappointed, particularly given the combined experience of mgt. if they are skillful and different from their peers, the execution of their plans would have been a lot better. so many actions could have been carried out during this period of opportunity to really push them ahead of their peers for good, but instead they are taking the most popular strategy practised by a lot of the mediocre companies during this downturn, i.e. scaling down expansion plans and waiting out until things get better under the pretext of being 'prudent'.

this crisis is a fantastic time to observe which management are competent with great foresight and which are less than stellar, and unfortunately, in my opinion, this mgt just doesn't fit into the former category.

-simon

Simon said...

and may i also add that while they have lots of new ideas about which sector is going to be the 'new promising' sector, execution and management of the company is still something i would pay more attention to.
it's so easy to just put in a slide about a new idea or about an up and coming sector that mgt is supposedly focusing on, but if execution and management of the company are poor, then it doesn't reflect well on mgt at all. just look at what happened to the equatorial drill ship! they were saying it's going to be a big revenue contributor etc, and nothing came out of it....

patrick ho said...

Hi MW,
well, I think I'll have to disagree with u on the grounds of the markets pricing in for a recession already. I'll give you 2 examples, Olam and Parkway.

To take a look at the earnings resilience, one might want to take a look at how the earnings and revenue held up during the Asian Financial Crisis and the period from 2000-2003. I took a look at Parkway's, revenue having actually fallen from a range of 6-10%. Based on the pricing that Parkway was exchanged about a week ago at around $1.80, the markets were still too optimistic, having not yet priced in a drop in inpatient admission and foreign patient admissions despite history having warned us. Furthermore, it was trading at a 50% premium to its peers despite this earnings profile, but possibly due to its regional franchise. What happened? it's currently trading at around 1.40 now.

Olam has traditionally been a high growth company even during the crises, posting volume growth of 36% in that period. The market I feel has been too bullish about it though, as from my calculations, the markets are actually valuing that the growth story will continue at around 20% CAGR. The markets might not be wrong though, 17 out of 20 of the soft commodities Olam is supply chain managing is the main base for some foods, but this 36% volume growth was achieved in the backdrop of the crisis and 3 years. Isn't the market price right now at around 1.3 still a little too bullish?

Nonetheless, I guess all the pricing in is subjective, some might find me too pessimistic, some might find me optimistic. Nonetheless, value investing is all about finding wonderful companies at reasonable prices. Those 2 are wonderful companies, very well-run, and risks well-managed.(i might talk about it at a later date why I claim so)Let's hope Mr Market gives us some more chances to pick them up at more reasonable prices:)

Felix Leong said...

hey man, I love your blog. I'm also a fan of value investing and follow Benjamin Graham and Warren Buffet's principles strictly. But I'm still only a newbie now, still trying to read up plenty of books while pumping my monthly savings into the STI ETF.

Will continue reading ya blog and learn more things and probably start buying individual stocks starting next year.

Cheers

Felix

musicwhiz said...

Hey Simon,

Let me start by saying that I do NOT intend to defend Swiber's Management. Their actions could have been better timed yes but who could have realized the magnitude of the credit crunch ? Looking back at early 2008 many did not even begin to envisage such a scenario, and these were "experts" in economics and the stock market and whatever else.

The Management are simply doing what's best in a bad situation (i.e. hard to get credit). Management also mentioned that since raw material prices are falling, deferring the ED is also a good idea at this point. I won't fault them for at least factoring this in as it can significantly reduce the cost of the ED (steel prices have come down a lot, as you may know).

They already bought Kreuz Shipyard in 2007, so I don't see why they should embark on another acquisition so soon. They need the capacity only if they have more fabrication orders, so I think they may do it some time in the future.

You may be right to say they are not different from other management, but then with such a short time after listing, how can they have a chance to prove themselves ? It's not as if they were Keppel Corp which have been listed for donkey years and thus one can observe how Management has astutely built the company into a blue chip rig builder.

I think saying that they cannot predict the stage in O&G cycle isn't giving them much credit. The long-term demand and fundamentals for oil should remain firm and prices will eventually rise. This recession is simply a "blip" to bring prices lower (just like recessions and bear markets bring prices temporarily lower). Since Management should be working for the LONG-TERM benefit of shareholders, I don't see why their current strategy of building JV and establishing bases in GCC countries is a bad thing. Remember that foundations must be built before a company can progress further; thus time is required.

To be objective, take a look at so many other listed companies' Management before you coment on Swiber's alone. Many companies have either lost focus (e.g. Aztech), over-expanded (e.g. OSIM) or failed to handle escalating costs (many S-Share companies). So will you also say their Managements were lousy ? It's sometimes a characteristic of the industry which determines a company's economics, not always Management quality. Read WB's comments on this (I won't repeat them here).

I still stand by my view that Management has made the best of a severe situation, and have been building their foundation for future growth.

Windpower is not a very new industry but is expected to grow in future as it is a form of clean energy. Management is just "exploring" this option and has not committed any money to it. If their vessels can be used for such projects as well (e.g. I gave the KS Energy case even though their tugboats are mostly used for O&G industry), then they can explore this as a viable revenue stream (ancillary business).

Regards,
Musicwhiz

musicwhiz said...

Hi Patrick,

Thanks for your examples !

Well, could it be that the markets only price in recession-like scenarios for some companies, and not others ? Companies which have a strong edge may also be priced at a premium valuation to its peers, therefore I think peer comparison may not always be accurate.

I don't know much about Parkway (not enough to comment on what you wrote), but I do agree with you 100% that Olam should be priced lower as it has 2 main risks which I can identify - very high gearing and very low net margins (less than 1%).

Thus, I agree Parkway may be well run but Olam may be taking on a bit more risk than it can suitably manage, from an observer's point of view. I have not gone into these 2 companies' books in detail thus I am just commenting as a layman.

Cheers,
Musicwhiz

musicwhiz said...

Hello Felix Leong,

Thanks so much for visiting.

Continuous learning is the best way to continually improve ourselves. Learning from mistakes too ! Don't forget to check out the stupid mistakes I made throughout my investing journey thus far, so that you can avoid them yourself !

Cheers,
Musicwhiz

Ricky said...

Hi MW,

Just wondering if you would consider actually picking up shares of BRK-B if it drops to an attractive price. Apologise for being off-topic.

Andrew said...

hi mw,
been reading your blog for a while, thanks for the interesting comments and insight, especially because it may not be too easy in the current market environment to stick to one's perception and hold on tight while everybody else is in panic mode.
3 things regarding PAH - I've increased my position there recently, but without conviction. The issue is not so much their gearing as such, but rather the balance sheet - more than 50% of their assets is made up of "goodwill" of some 2.7bn. HK$.
I suppose this may stem from their earlier acquisition of China Fishery, however - since you and others on this blog have highlighted the NAV as a more important fixture during bear markets, it would surely be necessary to figure out how much of that book value is currently still available.
Firstly, where does that goodwill figure come from, if you happen to know more about it? It's been there for years, so I find it tough to trace it. In general, goodwill is a very unreliable 'asset' since the ability to realise it when the company needs to depends on others willing to (over)pay as much as the company did when buying an asset well above book value earlier, putting the goodwill into "assets" on the balance sheet rather than debiting it to the equity and get it done and over with at the acquisition stage. Nobody knows (unless it can be safely traced and checked) whether that goodwill number -whatever asset, tangible or intangible, it is associated with- would still be valuable in today's market. If it is mainly associated with their purchase of CFG, then the market may give a value of zero to it (CFG now trades close to the book value of the CFG group, as opposed to 3-6 times book for the last few years). That would reduce PAH's NAV to less than half its stated value, or to roughly S$ 0.25.
Secondly, any vessels PAH or CFG own are worth, well, your guess at this point, with some vessel transactions in the container market recently done at prices 50% below those of mid year 2008. I do not know how much of their property, plant & equipment is held in the form of ships, but if there is any, it would probably be worth much less than what it was 6months ago. That would do even more damage to PAH's book value.
Thirdly, almost 2bn HKD of "interest bearing bank borrowings" are on the balance sheet, the bulk of which may need refinancing in the next 12 months. Highly geared companies pay exorbitant premiums for bank credit these days, as many a company would tell you, regardless of where official interest rates are. It is not clear what margin PAH is paying at this stage - but unless the credit crunch magically disappears overnight, they may pay far higher margins next year. Since I do not find exact numbers of what their loans are priced at currently, it is difficult to assess the effect - but of course it could easily happen that higher borrowing costs may just eat up all benefits derived from lower fuel costs in this environment.
Conclusion - PAH trades at 14cents because there are a lot of non-operational risk factors which the market has trouble pricing into the stock. Unless good answers to the above issues can be found (and management has done a good job in the past, tackling the economic cycle and its effects), times will remain tough for PAH shareholders.

musicwhiz said...

Hi Ricky,

Sorry for very late reply. No I will not buy BRK-B just because Warren Buffett is the chairman, as I will need to thoroughly understand the business before buying part of it.

Thanks,
Musicwhiz

musicwhiz said...

Hi Andrew,

Good questions, thanks.

1) Am not sure about PAH's goodwill, but it could be from the acquisition of companies which were done a long time back, and are still sitting in the Balance Sheet. Will dig a little more into this, thanks. I do agree that goodwill may be impaired, and is not accurate in computing NAV as it is an intangible asset. Thus, NAV will be lower than NTA.

2) Since CFG's ships are not intended to be resold (rather, they are utilized to generate income), the assets can be left in the Balance Sheet at cost rather than market value. I have no issues with the accounting treatment for this.

3) I agree too about the refinancing - it will get more expensive for PAH definitely. PAH trades at a steep discount mainly because of their high gearing and the uncertain environment. I believe interest rates should be pretty high but the Company should be able to service the loan through recurring cash inflows from operations.

Thanks,

Musicwhiz

Brendan Lee said...

We are in a structural bear market for years:

http://www.commoditiestradingpro.com/2008/12/we-are-in-structural-bear-market-for.html

If you want to pick bottom in stock market, think twice.

musicwhiz said...

Hi Brenden Lee,

Thanks for sharing your views.

Regards,
Musicwhiz