I don't know what the ADRs represent, but each of the 203m Copenhagen shares have been trading at DKK50-60 so around $8-10. The current market cap is EUR1.6b. I sense from one of your points ("expected operating profit" in the first bull argument) that the current market cap is not fully acknowledged - correct me if I'm wrong. This would mean that you need to adapt your arguments to a price triple of that of the ADR - perhaps you would even change your mind a bit.
In 2007 Vestas was trading at 120x earnings and even in 2010 it was at 30x. It is natural to take a look when the price comes back down to earth. Personally I did take quick look back in November but let it go.
Safe Bulkers Still Has Attractive Risk/Reward [View article]
Hah, I thought you had given up on SB. Anyway, I'll make the same point I made on your first related article: SB investors can feel relatively assured - one can never know - that their money is not diverted to management's/bankers'/... third party pockets in any of the various ingenious ways many shipping companies have adopted (and always disclose). SB keeps operating, financing and G&A costs extremely low. They care about the franchise and the owner/CEO is one of the most upfront commentators on shipping markets I've ever heard. He is less cagey and more open now that a couple of years back.
I'm not a fan of the dividend and I'm worried that there may be another badly executed spring secondary offering so personally I recently reduced my position. But in contrast to many other companies in the sector, SB seems really safe to me for the very long term.
Hartford Financial Will Do Fine Without John Paulson's Advice [View article]
To be fair, Paulson wasn't the only one that pursued the issue of the split-up - other analysts wondered why it was not a good idea. And a 10% shareholder is fully entitled to push for changes in both business strategy and management (even if Paulson is fairly limited by regulation as to the second.)
A small correction to one of your comments - it is Allianz that has invested in HIG, not AXA - $1.75b in 10% debentures plus millions of warrants that become extremely dilutive above $25 per share. An investment that is truly a huge drag on HIG.
Overseas Shipholding Group: Why Now Is a Great Time to Buy [View article]
I've commented above that OSG has made some very bad business choices. In addition, the spin in their presentations is grating (only the Navios group and, by far, NAT, outspin OSG.) They have already telegraphed that they will take writedowns for 2011 - or at least, it is obvious that they should. They will lose lots of money in 2012.
Having said that, I find the calls of bankruptcy premature. OSG faces no near-term refinancing needs and its 2013 maturities have been largely prefinanced. Most of the debt is unsecured so there are no LTV issues. The horrible charter-in book is problematic, but not enough to destroy the company as in Torm. The fleet is relatively diverse. The cash retained after the dividend cut could be used to buy back the outstanding bonds at 60-70%.
Despite its issues, OSG is a real company with Europe-based principal shareholders that put their money back in the company. It's not a ponzi like NAT or a now empty shell like FRO, its assets stripped away by the major shareholder after all cash was handed out as dividends. Its share count hasn't increased by 50% in a year like TNK's in order to maintain a dividend.
I think OSG takes another hit when they report Q4/2011 but it is well worth a punt at these levels.
Once again I recommend that people interested in insurance have a look at ACE's Q4 CC transcript. Listen to the CC as well. Excellent franchise, with more to come.
Affymetrix Officially in Rebuilding Mode [View article]
Affymetrix dipped below $4 following the announcement of the eBioscience acquisition but recovered riding the general market uptrend over the last month. The news that Roche is tendering for Illumina sent the stock momentarily above $5 and gave investors the opportunity to trim positions/exit.
The eBioscience acquisition has still not closed. Hopefully it never will. Holders of the Affymetrix convertible bonds sued to block the transaction; in order to have the lawsuit dropped Affymetrix has now agreed to tender for the bonds within two weeks. http://1.usa.gov/yhMtAa
Not only will Affymetrix lose $95m of its cashpile one year earlier than anticipated (the bonds can be put in Jan 2013), the financing of the eBioscience acquisition now needs to be rearranged.
Personally, I think - and hope - that the eBioscience deal fails due to inability to obtain financing, Affymetrix pays any break-up fee and unconvincing new CEO Witney resigns. Whither then? Back to preserving cash.
In fact if the deal closes I will permanently exit this stock.
The ECB's liquidity program looks to have done the job of buying time for the EU's banks and troubled sovereigns, but even as short-term rates dive, yields at the long end of the curve remain stubbornly high as investors await not just austerity, but signs of economic growth that could allow governments to make good on their debts. (submitted by Bret Jensen) [View news story]
Cue more sarcastic comments as usual. But isn't this what Europe was asking from the markets in the first place anyway? Time to see if the chosen path - austerity and structural reforms - will work? It defies belief that people expect for any structural changes to produce results after one week.
I'm not saying that kicking the can down the road will work eventually but after six months of endless market talk of "endgames" and "Euro-lehman" and "bazookas/plasma guns", Euro banks and sovereigns have at least some breathing space. And the sinking realization that Greeks never had and still have no intention to ever turn into a normal economy is actually beneficial for the rest of the Eurozone.
Hi - NMM reported on the Apollon in its Q1 and Q2 releases - e.g. http://bit.ly/x0WsHP - the important bit is that the related charter was cancelled and the company had to write off the remaining portion of the above-market charter that had been capitalized when the Apollon was acquired.
Sagittarius grounded off Denmark in July. The incident was widely reported in specialized press but see some gruesome details at http://bit.ly/yz7HF8 - after underwater repairs she recommenced her slow voyage East in October. In fact NMM did report loss of revenue due to unscheduled off-hire in its Q3 results but did not name the vessel. Sagittarius went into a repair/drydock yard up the Yangtze river in mid- to late December. She is on a very long-term and very good charter and long-term charters are more difficult to terminate even after extensive off-hire so the charter may be safe. If this is not the case, NMM will have to take a very significant write-off. But I guess you will have to wait for the full 2011 results to ask more questions i.e. normally next week.
The problem with these ponziish vehicles is that they have very little margin of error. I just saw that NAT is out for cash again to pay their dividend. Don't get me wrong, the model can work for more than 20 years and be very lucrative for investors. But its a return of capital model.
In fact NMM and its "success" is very transparent and easy to explain - it regularly raises capital, buys cashflows in the form of above-market charters (and assumes the charterparty risk) and then returns that same capital to its unitholders. Some classes of investors appear to simply love these type of structures, which work until no more capital can be raised - this happens when financial conditions in the sector deteriorate and stay low for a while. Stanislav Oleynikov's 2010 article on NMM remains more partinent than ever http://bit.ly/xgsW15.
Sometimes a small spanner is thrown in the works too - one of NMM's vessels, the Apollon, had a serious engine breakdown and its charter torn up last year. A second vessel, the Sagittarius, was off-hire for more than a couple of months after grounding last July and has been again in drydock recently - no word from management on that. Due to unscheduled off-hire NMM is operating from hand to mouth cash-wise while charters start to reset lower this year. So NMM looks ready for another secondary before Q4 is announced or just after. The whole Navios group will have very serious problems in 2012.
"Not what you'd expect," tweets the Bloomberg BRIEF team of the change in bond yields in the days, weeks, months, and years following an S&P downgrade. Their chart shows yields sinking in the year following, but sharply higher 2 years later. [View news story]
Absolutely useless info without background on when each downgrade occurred (Canada, one notch 20 years ago, Sweden a bundle of notches more than 20 years ago with subsequent successive upgrades), the severity of the downgrade and the ensuing macro environment (Spain, Ireland). But the Bloomberg BRIEF team is brave enough to provide an "average". Too easy, no thanks.
Also in Merkel's response to the S&P downgrades comes this chilling idea: She says she will consider legislation to bar institutional investors such as insurance companies from selling bonds when ratings are downgraded, or fell below investment grade. If banning short sales doesn't work, why not step it up a notch and ban selling altogether? [View news story]
FrannyR, I'm not sure if your comment is sarcastic (as so many comments here are) but bad translation is indeed the case - and a simply sad FT mistake. If you're actually interested you can read the actually accurate FT Deutschland version - http://bit.ly/xsZIF6.
This is nothing else than suggestions - that have often been put forward in the past - to modify regulatory and legal texts that contain ratings thresholds. That means that downgrades wouldn't automatically result in institutional investors HAVING TO sell and would avoid automatic pro-cyclical consequences.
For an excellent discussion of how rating agencies became powerful through, among other things, the inclusion of ratings in various frameworks regulating financial institutions, see Frank Partnoy's early 2000 work.
JPMorgan Chase (JPM): Q4 EPS of $0.90 in-line. Revenue of $22.2B (-17% Y/Y) misses by $850M. Shares -1.7% premarket. (PR) [View news story]
During the Q3 bank reporting period we heard no end about "fake" banking profits and "sleight of hands" as a result of the banks' debit/credit valuation adjustments. Literally dozens of self-perpetuating articles and talking heads per week. I don't care much about banks but I wonder if anyone is going to come out and talk about "fake losses" now as the spreads are tightening again and banks give back the accounting gains. Nah, the pro-cyclical commentary will be on the lower overall profits as banks are naturally impacted by global economic slowdown and regulatory tightening.
Evaluating Operating Performance At Mid-Size Exploration And Development Companies [View article]
Yes, thanks, I read your article on Apache and the replacement cost inflation adjustments. I guess in a conglomerate you can divert the super-rents or windfall profits derived from big commodity price increases to another activity rather than reinvest in the same business if you consider that the (actual) replacement costs are too high at a given point of time. Maersk Oil has been effectively carrying the whole group recently. Anyway, they're targeting a build-up to a steady 400kboed eventually and have doubled or tripled their - very small - E&D spending. If oil prices decline, the group's shipping business costs go down, a natural hedge, and perhaps capex flows fully reverse.
Evaluating Operating Performance At Mid-Size Exploration And Development Companies [View article]
Hi Jeremy - I've been reading your recent articles on E&P companies, including the recent one on Apache. I'm a Maersk shareholder and the Maersk oil E&P subsidiary, Maersk Oil, appears to be making a killing on invested capital - 40% ROIC annualized and heading for a $2b profit for 2011, same level as last year. I'm then struck at the valuations of the U.S. independents when the whole of Maersk trades at half the market cap of Apache, for example. I know, I know, closely held conglomerate plus exposure to some nasty sectors.
But in fact Maersk Oil is up there with the larger independents as far as production is concerned even if indeed production is declining (from some 400 kboe/d a couple of years back to 312 kboe/d in Q3 2011). They're now investing heavily in new offshore fields (i.e. more expensive E&D) but as you note the price of oil will hold up so the older fields seem cash cows. Anyway, just a thought, I wondered if you or Bob de'Long had any insights. Some financials are included in the Maersk annual reports but not in great detail.
Both OSG and Euronav are on a run today on little news. Perhaps it is the fabulous "Iran shuts Hormuz straits" SciFi scenario coupled with good recent product tanker and Suezmax markets. What is encouraging is the decoupling with the price movements of Frontline, which is now in run-off mode.
This allows me to close the OSG short-term position mentioned above - the bounce has been good enough. They have a nicely diversified fleet but I've chosen my horse in the sector. And I believe they have telegraphed that they will take yet more write-downs. This will void a number of slides in their ridiculously optimistic presentations.
Euronav reports Q4 and full year preliminary results on January 17. Looking for a loss but relatively good news (well, income can't be lower than Q3 anyway + newbuilding restructuring and lower finance/derivative costs + no bank issues). I continued to invest here (big, big mistake to fall in love with a set of accounts) but could be wrong so if the run-up continues I'll protect my position somewhat.
I continue to play the product tankers through Scorpio Tankers and I bought DHT a couple of weeks back on the off-chance OSG will buy them out in 2012 since OSG is paying them quite a bit for charters anyway. That's extremely speculative.
Why Vestas Is Undervalued [View article]
I don't know what the ADRs represent, but each of the 203m Copenhagen shares have been trading at DKK50-60 so around $8-10. The current market cap is EUR1.6b. I sense from one of your points ("expected operating profit" in the first bull argument) that the current market cap is not fully acknowledged - correct me if I'm wrong. This would mean that you need to adapt your arguments to a price triple of that of the ADR - perhaps you would even change your mind a bit.
In 2007 Vestas was trading at 120x earnings and even in 2010 it was at 30x. It is natural to take a look when the price comes back down to earth. Personally I did take quick look back in November but let it go.
Safe Bulkers Still Has Attractive Risk/Reward [View article]
I'm not a fan of the dividend and I'm worried that there may be another badly executed spring secondary offering so personally I recently reduced my position. But in contrast to many other companies in the sector, SB seems really safe to me for the very long term.
Hartford Financial Will Do Fine Without John Paulson's Advice [View article]
A small correction to one of your comments - it is Allianz that has invested in HIG, not AXA - $1.75b in 10% debentures plus millions of warrants that become extremely dilutive above $25 per share. An investment that is truly a huge drag on HIG.
Overseas Shipholding Group: Why Now Is a Great Time to Buy [View article]
Having said that, I find the calls of bankruptcy premature. OSG faces no near-term refinancing needs and its 2013 maturities have been largely prefinanced. Most of the debt is unsecured so there are no LTV issues. The horrible charter-in book is problematic, but not enough to destroy the company as in Torm. The fleet is relatively diverse. The cash retained after the dividend cut could be used to buy back the outstanding bonds at 60-70%.
Despite its issues, OSG is a real company with Europe-based principal shareholders that put their money back in the company. It's not a ponzi like NAT or a now empty shell like FRO, its assets stripped away by the major shareholder after all cash was handed out as dividends. Its share count hasn't increased by 50% in a year like TNK's in order to maintain a dividend.
I think OSG takes another hit when they report Q4/2011 but it is well worth a punt at these levels.
ACE's CEO Discusses Q4 2011 Results - Earnings Call Transcript [View article]
Affymetrix Officially in Rebuilding Mode [View article]
The eBioscience acquisition has still not closed. Hopefully it never will. Holders of the Affymetrix convertible bonds sued to block the transaction; in order to have the lawsuit dropped Affymetrix has now agreed to tender for the bonds within two weeks. http://1.usa.gov/yhMtAa
Not only will Affymetrix lose $95m of its cashpile one year earlier than anticipated (the bonds can be put in Jan 2013), the financing of the eBioscience acquisition now needs to be rearranged.
Personally, I think - and hope - that the eBioscience deal fails due to inability to obtain financing, Affymetrix pays any break-up fee and unconvincing new CEO Witney resigns. Whither then? Back to preserving cash.
In fact if the deal closes I will permanently exit this stock.
The ECB's liquidity program looks to have done the job of buying time for the EU's banks and troubled sovereigns, but even as short-term rates dive, yields at the long end of the curve remain stubbornly high as investors await not just austerity, but signs of economic growth that could allow governments to make good on their debts. (submitted by Bret Jensen) [View news story]
I'm not saying that kicking the can down the road will work eventually but after six months of endless market talk of "endgames" and "Euro-lehman" and "bazookas/plasma guns", Euro banks and sovereigns have at least some breathing space. And the sinking realization that Greeks never had and still have no intention to ever turn into a normal economy is actually beneficial for the rest of the Eurozone.
Navios Partners' Tempting 10.9% Dividend [View article]
Sagittarius grounded off Denmark in July. The incident was widely reported in specialized press but see some gruesome details at http://bit.ly/yz7HF8 - after underwater repairs she recommenced her slow voyage East in October. In fact NMM did report loss of revenue due to unscheduled off-hire in its Q3 results but did not name the vessel. Sagittarius went into a repair/drydock yard up the Yangtze river in mid- to late December. She is on a very long-term and very good charter and long-term charters are more difficult to terminate even after extensive off-hire so the charter may be safe. If this is not the case, NMM will have to take a very significant write-off. But I guess you will have to wait for the full 2011 results to ask more questions i.e. normally next week.
The problem with these ponziish vehicles is that they have very little margin of error. I just saw that NAT is out for cash again to pay their dividend. Don't get me wrong, the model can work for more than 20 years and be very lucrative for investors. But its a return of capital model.
Navios Partners' Tempting 10.9% Dividend [View article]
Sometimes a small spanner is thrown in the works too - one of NMM's vessels, the Apollon, had a serious engine breakdown and its charter torn up last year. A second vessel, the Sagittarius, was off-hire for more than a couple of months after grounding last July and has been again in drydock recently - no word from management on that. Due to unscheduled off-hire NMM is operating from hand to mouth cash-wise while charters start to reset lower this year. So NMM looks ready for another secondary before Q4 is announced or just after. The whole Navios group will have very serious problems in 2012.
"Not what you'd expect," tweets the Bloomberg BRIEF team of the change in bond yields in the days, weeks, months, and years following an S&P downgrade. Their chart shows yields sinking in the year following, but sharply higher 2 years later. [View news story]
Also in Merkel's response to the S&P downgrades comes this chilling idea: She says she will consider legislation to bar institutional investors such as insurance companies from selling bonds when ratings are downgraded, or fell below investment grade. If banning short sales doesn't work, why not step it up a notch and ban selling altogether? [View news story]
This is nothing else than suggestions - that have often been put forward in the past - to modify regulatory and legal texts that contain ratings thresholds. That means that downgrades wouldn't automatically result in institutional investors HAVING TO sell and would avoid automatic pro-cyclical consequences.
For an excellent discussion of how rating agencies became powerful through, among other things, the inclusion of ratings in various frameworks regulating financial institutions, see Frank Partnoy's early 2000 work.
JPMorgan Chase (JPM): Q4 EPS of $0.90 in-line. Revenue of $22.2B (-17% Y/Y) misses by $850M. Shares -1.7% premarket. (PR) [View news story]
Evaluating Operating Performance At Mid-Size Exploration And Development Companies [View article]
Evaluating Operating Performance At Mid-Size Exploration And Development Companies [View article]
But in fact Maersk Oil is up there with the larger independents as far as production is concerned even if indeed production is declining (from some 400 kboe/d a couple of years back to 312 kboe/d in Q3 2011). They're now investing heavily in new offshore fields (i.e. more expensive E&D) but as you note the price of oil will hold up so the older fields seem cash cows. Anyway, just a thought, I wondered if you or Bob de'Long had any insights. Some financials are included in the Maersk annual reports but not in great detail.
Some Thoughts on Euronav [View instapost]
This allows me to close the OSG short-term position mentioned above - the bounce has been good enough. They have a nicely diversified fleet but I've chosen my horse in the sector. And I believe they have telegraphed that they will take yet more write-downs. This will void a number of slides in their ridiculously optimistic presentations.
Euronav reports Q4 and full year preliminary results on January 17. Looking for a loss but relatively good news (well, income can't be lower than Q3 anyway + newbuilding restructuring and lower finance/derivative costs + no bank issues). I continued to invest here (big, big mistake to fall in love with a set of accounts) but could be wrong so if the run-up continues I'll protect my position somewhat.
I continue to play the product tankers through Scorpio Tankers and I bought DHT a couple of weeks back on the off-chance OSG will buy them out in 2012 since OSG is paying them quite a bit for charters anyway. That's extremely speculative.