Clemens don't have time to systematically take your comment apart but yes, they've made a bunch of big mistakes in the past but those mistakes are firmly behind them and the future is bright.
I'll circle back and provide this with a thorough treatment when I can but this stock is GROSSLY mis-priced by any rational measure, and I think your assessment of the situation is imbalanced to say the least.
Clemens, do the work and then circle back to this thread. The differences between the first three deals and the byproduct deals with SAND are literally night and day. As far as "stretched" and "amended" payment schedules at Thunderbird, those are signs of managerial savvy not incompetence. Would get a kick out of your explanation as to why I'm wrong on any of the above. Your obviously a smart guy...lobbing ill informed bombs doesn't suit you.
Investment Analysis: The PHH Corporation [View article]
Yup, I think your exactly right and its really about as big a no brainer as it gets from a PE perspective once all of the various credit related concerns are behind the company (which is right about now).
Selling the fleet segment to GE for example would likely allow them to earn the majority of their invested capital back immediately and the rest is all gravy. The question is how long will it be before the blackstones of the world decide to pick up the proverbial $100 bill on the floor. Again, my guess is they will sooner rather than later.
Investment Analysis: The PHH Corporation [View article]
Chris, appreciate the commentary and agreed, so far so good. Even after the run-up since $15, still pretty hard not to like the risk/reward at these levels imo.
Fwiw, good shot we see something approximating $30 or higher by YE. Lot's of different ways we can get there but regardless, hunch is we will see a value unlocking corporate event of one type or another within a year, maybe two (max).
If that's the case not hard to see an upside scenario materially in excess of that target but we will see. Downside protection of course remains rock solid.
EW, no disrespect but there are so many things wrong with this analysis its hard to know where to begin.
First it makes zero sense to value this company on its LTM earnings given the natural lag between when capital is deployed and when the associated revenue and income from said investments start to hit the bottom line. Second, using proven and probable reserves isn't much better given the nature of the deals they do which are predicated on the idea that there is substantial low hanging fruit in terms of resource expansion (I mean come on, the NPV of the Aurizona stream alone could end up being worth something approximating SAND's present EV).
Regardless, SAND should be valued at minimum on the steady state earnings power of its existing asset base, in other words what it will earn in a normal year form its existing streams absent any exploration upside (which I would add is many multiples of what's currently booked and the realization of which is highly probable). So, given its existing streams by my rough math SAND is trading at about 10x normalized "steady state" FCF. Is 10x EV/Normalized FCF expensive for a high quality business that's 1) existing asset base could double or triple as its proved up over the next few years 2) possesses ~$175m in available capital to be deployed into new streams at high returns, which will likely add another $40m+ to the bottom line and 3) that could easily double its total stream count over the next 3-5 years? I think not.
Anyhow, I'd say not only is the stock not expensive given what's tantamount to a no growth valuation, it's downright cheap all things considered (on an absolute basis). It's also cheap on a relative basis, as its less attractive comps trade at apples to apples valuations typically 50-100% higher.
Again, no disrespect but I'd advise against using superficial metrics grounded in the rearview when coming to a conclusion on the value of this business. Any enlightened understanding of the opportunity needs to take into account that the severity of the current mis-pricing is specifically due to the fact that accurately predicting the magnitude of the embedded exploration upside here is so difficult to handicap (and hence market participants have a hard time appropriately accounting for it when valuing SAND's assets). Ironically then the issues you point out are actually the very reason the opportunity is so attractive in the first place.
Time will tell of course but I expect that as new streams are added and existing streams are expanded and fully proved up over time - and the associated increases in production and/or extended mine lives are announced - analysts will be forced to continuously ratchet up their estimates. As they do, investors should benefit from this steady stream of positive news flow as it catalyzes step change like re-rates in the value of SAND's equity. Just my 02 cents.
Shareholder Activism In Canada And Equal Energy [View article]
Nawar,
Looks like my prior post has been removed. As I said then, I was the author of that piece, not Thomas (so shame on me) and why your "outing" people" like a thin skinned little girl its worth mentioning your own praise of that article back then - at least if ones going to have some integrity about it.
Again, I would appreciate it if you would leave me out of this debate.
Investment Analysis: The PHH Corporation [View article]
On a somewhat related note, this is some good news as far as the GSE's having their backs against the wall (which is a good thing as far as how they act/deal with the company)...
Investment Analysis: The PHH Corporation [View article]
Let me look into it and get back to you but I don't think that's the case. My understanding is the agreement only applies to loan's going forward but I'll double check.
Can't speak for Lane, but personally I like his choice of emphasis.
I think the mortgage ops are worth "true" book value or book value where the MSR's are given an appropriate valuation of say 4-6x recurring cash flows at an absolute minimum (so say $35+). On an earnings basis, I would say 10x mid cycle earnings power. I should note that I think is almost nonsensically conservative given we're talking about a growing, competitively advantaged market leader with above average margins and the lowest costs in the industry. I think the fleet business deserves a standalone multiple of at least 12x normalized earnings for basically the exact same reasons (though the fleet ops are substantially less cyclical and hence generate more stable - and higher quality - cash flows). Obviously GE would pay something much higher than 12x given all the operating efficiencies that could be wrung out and the fact that the fleet ops would be materially stronger under GE's credit rating.
So imo a conservative range of values should provide a return of 2x or higher over the next 3+ years depending on how things develop. With rock solid downside protection and a potential near to medium-term hard catalyst like a spin, a probable 25% IRR is pretty damn good on absolute, but especially risk-adjusted, basis.
Investment Analysis: The PHH Corporation [View article]
I appreciate the thoughtful questions. Intelligent critiques and feedback is one of the primary reasons the blog exists, so thanks for taking the time (its definitely appreciated).
Yes, because they get it wrong all the time and its not a casual dismissal. Unless its a company killing amount - which its not by your own logic (or the downgrade would have been more severe) and/or management's lying (or at least being aggressive) I don't think this is something to fear. I would note management has every reason to kitchen sink these estimates and play it safe (so incentives argue for conservatism).
Perhaps managements de-leveraging efforts are aimed more at achieving a targeted level of financial leverage that should appease the ratings agencies and allow the businesses to finally be separated (as opposed to fears of an avalanche of losses)?
Regarding your understanding of the process I think your right. What I think your missing is that the new agreement isn't retroactive, so going forward I agree, PHH will likely have to eat a larger % of the bad loans than maybe they would have in the past, but the new rules don't effect the "put-backability" of the loans management is reserving for over the next few years.
Not so sure the pig is not through the python as far as foreclosure related costs but fair, so lets assume that the future will turn out exactly as you say. My answer is still yes, that PHH can pay that and then some and its cash generative power is getting stronger by the day.
What I'm interested in is (1) does PHH have the financial strength to withstand the losses still coming down the pipe (2) can they achieve the requisite financial strength/credit ratings in the near to medium term to spin the fleet businesses and allow the mortgage ops to comfortably stand on its own and (3) what is the companies normalized earnings power once its level of credit related costs normalizes. I think the answer is yes, yes, and significantly higher than this or next years numbers. If I'm correct in regards to all three than PHH is profoundly mispriced.
Why Pharmathene Could Go From $2 to $20 [View article]
James,
Been meaning to send you an email for awhile now, as I can't tell you how much I appreciate the link(s)...its an honor actually. Fwiw, I think trade like Warren Buffett is one of the best Buffett books of all time (Its not a stretch to say I've probably read it a half dozen times).
I wonder if the clowns on this thread (along with their painfully ignorant comments) are even the slightest bit aware of how ridiculous they look with their baseless accusations and ad hominem attacks (I just read through this thread for the first time and in the process was reminded why I've stopped posting for the most part to SA). Anyhow, thanks for staying above the fray and for all the good work you've done over the years. I for one am incredibly grateful.
Another superb write-up my friend, well done. I would only add that you probably want to take into account the company's new investment in Union Agriculture Group (UAG). If your wondering what the hell I'm talking about the quick and dirty synopsis is below...
As I understand it, UAG is a privately held farming company that was formed for the purpose of acquiring and developing prime agricultural land throughout Uruguay. UAG currently owns and/or operates on roughly 125,000 acres of prime land and notably, is one of largest agricultural businesses in the country. Other notable data points on the company (given the dearth of publicly available information) include (1) a recent takeover attempt of NZ Farming Systems - which is a publicly traded/New Zealand listed company focused on dairy farming (2) the presence of both highly incentivized insiders (the insiders/founders collectively own roughly 20% of the outstanding shares) as well as other sophisticated/savvy investors (such as Blackrock and Wellington Financial) and (3) the expectation that the company will do an IPO by the end of the year (obviously these are all very good signs). Classic Sprott, no?
The crazy thing is that most investors in SCPZF.PK are completely (and understandably) unaware of this investment at the moment given the fact that the transaction was a done in a very "Michael Smith-esque" manner (hat tip btw to Matthew Schroeder of the outstanding Anomalous Investments for doing the heavy lifting here). Again, the lack of unawareness isn't surprising given Sprott (1) claimed in their most recent quarterly release that they did not make any new investments for the quarter and (2) the fact that in order to actually uncover the investment you had to dive into the company's August 10, 2010 Management Discussion & Analysis regulatory filing (where the disclosure was burried deep inside).
Regardless of the "trickery" here, the good news is that Sprott now owns a 14.7% stake in UAG at a cost of C$ 28.7m. Better yet, the investment (1) increases their allocation to agriculture (of which i'm wildly bullish on) and (2) has all the hallmarks of a classic Sprott home run - i.e., UAG appears to be a high quality, development stage asset that is perfectly poised to make the company quite a bit of money in both the short-term (due to the potential for an accretive takeover of NZ Farming Systems and/or an IPO by the end of the year) and long-term (through continued organic growth, continued highly accretive acquisitions, etc.).
Anyhow, not a game changer but I have to say I love it all things considered. Any thoughts?
Great article. You make a cogent case for the fact that an investment in Cano really boils down to one thing, and one thing only - the price factor (everything else as I see it really is noise). As you lay out so well, at roughly fifty cents, CFW's price more than compensates investors for the various remaining risks involved. Especially given that even in bankruptcy equity holders would likely still do well - granted, $30 dollar oil prices while their there could change things, but outside of that possible but highly improbable scenario it really is difficult to imagine how one could permanently lose capital here.
Sandstorm: Another One Is Coming [View article]
I'll circle back and provide this with a thorough treatment when I can but this stock is GROSSLY mis-priced by any rational measure, and I think your assessment of the situation is imbalanced to say the least.
More to come when I've got some time.
Sandstorm: Another One Is Coming [View article]
Investment Analysis: The PHH Corporation [View article]
Selling the fleet segment to GE for example would likely allow them to earn the majority of their invested capital back immediately and the rest is all gravy. The question is how long will it be before the blackstones of the world decide to pick up the proverbial $100 bill on the floor. Again, my guess is they will sooner rather than later.
Investment Analysis: The PHH Corporation [View article]
Fwiw, good shot we see something approximating $30 or higher by YE. Lot's of different ways we can get there but regardless, hunch is we will see a value unlocking corporate event of one type or another within a year, maybe two (max).
If that's the case not hard to see an upside scenario materially in excess of that target but we will see. Downside protection of course remains rock solid.
Don't Buy Sandstorm Gold - Yet [View article]
First it makes zero sense to value this company on its LTM earnings given the natural lag between when capital is deployed and when the associated revenue and income from said investments start to hit the bottom line. Second, using proven and probable reserves isn't much better given the nature of the deals they do which are predicated on the idea that there is substantial low hanging fruit in terms of resource expansion (I mean come on, the NPV of the Aurizona stream alone could end up being worth something approximating SAND's present EV).
Regardless, SAND should be valued at minimum on the steady state earnings power of its existing asset base, in other words what it will earn in a normal year form its existing streams absent any exploration upside (which I would add is many multiples of what's currently booked and the realization of which is highly probable). So, given its existing streams by my rough math SAND is trading at about 10x normalized "steady state" FCF. Is 10x EV/Normalized FCF expensive for a high quality business that's 1) existing asset base could double or triple as its proved up over the next few years 2) possesses ~$175m in available capital to be deployed into new streams at high returns, which will likely add another $40m+ to the bottom line and 3) that could easily double its total stream count over the next 3-5 years? I think not.
Anyhow, I'd say not only is the stock not expensive given what's tantamount to a no growth valuation, it's downright cheap all things considered (on an absolute basis). It's also cheap on a relative basis, as its less attractive comps trade at apples to apples valuations typically 50-100% higher.
Again, no disrespect but I'd advise against using superficial metrics grounded in the rearview when coming to a conclusion on the value of this business. Any enlightened understanding of the opportunity needs to take into account that the severity of the current mis-pricing is specifically due to the fact that accurately predicting the magnitude of the embedded exploration upside here is so difficult to handicap (and hence market participants have a hard time appropriately accounting for it when valuing SAND's assets). Ironically then the issues you point out are actually the very reason the opportunity is so attractive in the first place.
Time will tell of course but I expect that as new streams are added and existing streams are expanded and fully proved up over time - and the associated increases in production and/or extended mine lives are announced - analysts will be forced to continuously ratchet up their estimates. As they do, investors should benefit from this steady stream of positive news flow as it catalyzes step change like re-rates in the value of SAND's equity. Just my 02 cents.
Shareholder Activism In Canada And Equal Energy [View article]
Looks like my prior post has been removed. As I said then, I was the author of that piece, not Thomas (so shame on me) and why your "outing" people" like a thin skinned little girl its worth mentioning your own praise of that article back then - at least if ones going to have some integrity about it.
Again, I would appreciate it if you would leave me out of this debate.
Thanks!
Ryan
Investment Analysis: The PHH Corporation [View article]
Investment Analysis: The PHH Corporation [View article]
http://nyti.ms/LknNlS
Investment Analysis: The PHH Corporation [View article]
Can't speak for Lane, but personally I like his choice of emphasis.
I think the mortgage ops are worth "true" book value or book value where the MSR's are given an appropriate valuation of say 4-6x recurring cash flows at an absolute minimum (so say $35+). On an earnings basis, I would say 10x mid cycle earnings power. I should note that I think is almost nonsensically conservative given we're talking about a growing, competitively advantaged market leader with above average margins and the lowest costs in the industry.
I think the fleet business deserves a standalone multiple of at least 12x normalized earnings for basically the exact same reasons (though the fleet ops are substantially less cyclical and hence generate more stable - and higher quality - cash flows). Obviously GE would pay something much higher than 12x given all the operating efficiencies that could be wrung out and the fact that the fleet ops would be materially stronger under GE's credit rating.
So imo a conservative range of values should provide a return of 2x or higher over the next 3+ years depending on how things develop. With rock solid downside protection and a potential near to medium-term hard catalyst like a spin, a probable 25% IRR is pretty damn good on absolute, but especially risk-adjusted, basis.
Investment Analysis: The PHH Corporation [View article]
Yes, because they get it wrong all the time and its not a casual dismissal. Unless its a company killing amount - which its not by your own logic (or the downgrade would have been more severe) and/or management's lying (or at least being aggressive) I don't think this is something to fear. I would note management has every reason to kitchen sink these estimates and play it safe (so incentives argue for conservatism).
Perhaps managements de-leveraging efforts are aimed more at achieving a targeted level of financial leverage that should appease the ratings agencies and allow the businesses to finally be separated (as opposed to fears of an avalanche of losses)?
Regarding your understanding of the process I think your right. What I think your missing is that the new agreement isn't retroactive, so going forward I agree, PHH will likely have to eat a larger % of the bad loans than maybe they would have in the past, but the new rules don't effect the "put-backability" of the loans management is reserving for over the next few years.
Not so sure the pig is not through the python as far as foreclosure related costs but fair, so lets assume that the future will turn out exactly as you say. My answer is still yes, that PHH can pay that and then some and its cash generative power is getting stronger by the day.
What I'm interested in is (1) does PHH have the financial strength to withstand the losses still coming down the pipe (2) can they achieve the requisite financial strength/credit ratings in the near to medium term to spin the fleet businesses and allow the mortgage ops to comfortably stand on its own and (3) what is the companies normalized earnings power once its level of credit related costs normalizes. I think the answer is yes, yes, and significantly higher than this or next years numbers. If I'm correct in regards to all three than PHH is profoundly mispriced.
Investment Analysis: The PHH Corporation [View article]
SA drives me crazy when editors feel like its no big deal to remove critical pieces of the article - in this case the introduction. Rather annoying.
Why Pharmathene Could Go From $2 to $20 [View article]
Been meaning to send you an email for awhile now, as I can't tell you how much I appreciate the link(s)...its an honor actually. Fwiw, I think trade like Warren Buffett is one of the best Buffett books of all time (Its not a stretch to say I've probably read it a half dozen times).
I wonder if the clowns on this thread (along with their painfully ignorant comments) are even the slightest bit aware of how ridiculous they look with their baseless accusations and ad hominem attacks (I just read through this thread for the first time and in the process was reminded why I've stopped posting for the most part to SA).
Anyhow, thanks for staying above the fray and for all the good work you've done over the years. I for one am incredibly grateful.
Bear With Me: Sprott Resource Corp. [View instapost]
Another superb write-up my friend, well done. I would only add that you probably want to take into account the company's new investment in Union Agriculture Group (UAG). If your wondering what the hell I'm talking about the quick and dirty synopsis is below...
As I understand it, UAG is a privately held farming company that was formed for the purpose of acquiring and developing prime agricultural land throughout Uruguay. UAG currently owns and/or operates on roughly 125,000 acres of prime land and notably, is one of largest agricultural businesses in the country. Other notable data points on the company (given the dearth of publicly available information) include (1) a recent takeover attempt of NZ Farming Systems - which is a publicly traded/New Zealand listed company focused on dairy farming (2) the presence of both highly incentivized insiders (the insiders/founders collectively own roughly 20% of the outstanding shares) as well as other sophisticated/savvy investors (such as Blackrock and Wellington Financial) and (3) the expectation that the company will do an IPO by the end of the year (obviously these are all very good signs). Classic Sprott, no?
The crazy thing is that most investors in SCPZF.PK are completely (and understandably) unaware of this investment at the moment given the fact that the transaction was a done in a very "Michael Smith-esque" manner (hat tip btw to Matthew Schroeder of the outstanding Anomalous Investments for doing the heavy lifting here). Again, the lack of unawareness isn't surprising given Sprott (1) claimed in their most recent quarterly release that they did not make any new investments for the quarter and (2) the fact that in order to actually uncover the investment you had to dive into the company's August 10, 2010 Management Discussion & Analysis regulatory filing (where the disclosure was burried deep inside).
Regardless of the "trickery" here, the good news is that Sprott now owns a 14.7% stake in UAG at a cost of C$ 28.7m. Better yet, the investment (1) increases their allocation to agriculture (of which i'm wildly bullish on) and (2) has all the hallmarks of a classic Sprott home run - i.e., UAG appears to be a high quality, development stage asset that is perfectly poised to make the company quite a bit of money in both the short-term (due to the potential for an accretive takeover of NZ Farming Systems and/or an IPO by the end of the year) and long-term (through continued organic growth, continued highly accretive acquisitions, etc.).
Anyhow, not a game changer but I have to say I love it all things considered. Any thoughts?
Cano: A Closer Look at Valuation [View article]
Great article. You make a cogent case for the fact that an investment in Cano really boils down to one thing, and one thing only - the price factor (everything else as I see it really is noise). As you lay out so well, at roughly fifty cents, CFW's price more than compensates investors for the various remaining risks involved. Especially given that even in bankruptcy equity holders would likely still do well - granted, $30 dollar oil prices while their there could change things, but outside of that possible but highly improbable scenario it really is difficult to imagine how one could permanently lose capital here.
First Financial Northwest: Regional Bank Priced for Bankruptcy That May Not Be at Death's Door [View article]