Longwei Petroleum (LPH) is one of my current holdings and I thought it would be worth my time to compile a list of possibilities as far as what Longwei can do. The idea is that any of the options can be combined together as long as it doesn’t have the same letter prefix.
I am sure that if I sat down I could come up with more options than this in terms of ways to enhance shareholder value. Longwei is incredibly inexpensive. As a long, I'd like to change this. Sometimes the best way to change this is to go public with profitable suggestions. As such, I've collaborated with myself to generate lists of options that the company can take and written them in a sort of press release format. I figure that a 30%+ growing company trading at 5x ttm eps might want to take some actions to expand their perceived value.
Maybe this is my first step to becoming an activist investor?
Shareholder Friendly Options
It has come to our attention that it is more shareholder friendly to increase the size of our public float by selling our own shares rather than issuing new shares at the company level and selling those. As such, we are announcing that the “insiders” of this company will be selling up to 10% of the average of the last 30-days in trading volume at the open market by placing sell orders on the ask and letting the market bid for our shares. We feel that this is an amount of shares that the market can handle and would assist in our objective of making Longwei a more publicly held company.
We are issuing 1 warrant for every common outstanding share at $3 to every common shareholder on record. It is the intention of the insiders to cancel their warrants. It is also the intention of the company to use 50% of the proceeds of these warrants to institute a stock buyback --- and part of this buyback agreement would allow the company to purchase stock from 10%+ shareholders at 95% of the average price of the last 10 trading days.
Announce some sort of debt financing. Longwei has no debt. What's so bad about debt if you can increase your ROE? My understanding is that for ever $50M they can expand. Last I checked the payback period was 18-months. If you do the math, from an investor standpoint --- a debt financing is highly intelligent. In fact, it's more than highly intelligent --- as they would be able to pay off the interest in 3 months from existing operations. I'd love to see them leverage up their balance sheet and easily become a multi-billion dollar company.
Announce some sort of token dividend. Even $0.001/share per quarter would do it if you ask me. The idea in this case would simply be to start investors believing that the stock won't go below $2.255 ever again and that the warrants are going to start be converted by those who believe in this premise.
We are announcing our intentions to use 25% of the cash from operations to purchase stock on the open market until potential acquisitions are more attractive than purchasing more of ourselves.
We have found being a public company an extremely perplexing experience. As we find that our shares are undervalued, we will be buying back our shares in the open market and trying to go private as long as valuations suggest that it is in our financial best interest to do so. We feel that our company is trading at a steep discount to its intrinsic value and don’t mind taking it private and keeping the profits to ourselves at the current valuation.
Announce that we realize that there are institutional investors that operate with certain restrictions and that we will be reverse splitting 1 for 3 --- including the authorized share count as well. What this would do is enable people who can't buy undervalued companies below $5 to purchase Longwei. Sounds easy enough.
And then there is the less shareholder friendly option:
Raise capital by issuing additional equity at below a forward P/E multiple of 8. Ballpark, any capital raise below $5. This illustrates to shareholders that the company believes its shares are worth trading for cash at this price. If the company thinks it’s worth less than $5 --- I’m not going to argue with them.
Disclosure: I'm long LPH