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Envoy Global, Inc., was founded in 2001 to pursue investment opportunities in turnaround and restructuring situations both in private and public companies. Casino Capitalism, the research arm of the company, periodically publishes reports on specific companies, as well as general articles on... More
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  • Value Of Tax Loss Carryforwards In A No Tax World?

    My primary reason for holding IESC is because of their huge pile of tax loss carryforwards which the company can use to acquire profitable companies and reduce the target taxes. But, of what value really are tax loss carryforwards today when corporations have other ways to significantly reduce taxes to increase earnings? Is it merely the ease in which tax loss carryforwards can be implemented vs the other tax schemes? Perhaps, the drive by government to get corporation's to pay their fair share of taxes may drive up the value of tax loss carryforwards in the years ahead? As it now stands, though, my impression is that I have overvalued the value of tax loss carryforwards in a company, like IESC. The primary driver of value remains the ability of management to locate good companies at fair prices that have other synergies with IESC operating companies, other than tax benefits. Does management have the talent to do this? I'm not sure.

    Tags: IESC
    Aug 20 8:54 AM | Link | Comment!
  • STR Holdings (STRI): Still A Developing Story

    STRI's Q2 results were again unimpressive and the story still remains developing, with little evidence that the company has been able to make any progress towards renewed growth and profitability.

    A couple of notes:

    1. The company's balance sheet remains clean, with more than sufficient cash to stay in business, while management attempts to execute on the new business plans with Zhenfa. However, a clean balance sheet is meaningless, if you don't have a viable long-term business.

    2. The encapsulant business opportunity for STRI remains enormous, as the company is a known brand in the $1 billion encapsulant market. The issue, of course, is being able to close sales that are profitable and get paid for those sales. Right now, only 25% of STRI's capacity is being utilized, so there is no prospect of profitability on a small increase in sales. However, if the company can hit it's target of $100 million sales target (10% of the market), which is not inconceivable, then I would expect a significant increase in the profits which would easily send the stock back to the highs.

    3. The company apparently has difficulty getting paid in China, which is not a surprise, but this tempers my enthusiasm for the shares. This quarter, the company once again, entered into a module-for-encapsulant transaction to turn AR into cash. However, these types of swaps don't pass the smell test. Basically STRI accepts modules from a customer as payment, and then Zhenfa pays STRI for the modules. This seems to be more like a shell game, then a viable method of monetizing receivables. I'm surprised why nobody has asked STRI, why Zhenfa can't just pay for the modules directly to the supplier? Why does the supplier first transfer modules to STRI, before Zhenfa pays for the modules? If Zhenfa wants the modules, it should pay the supplier as usual, and then the supplier would pay STRI. So unfortunately, these swap transactions don't make any sense to me, and there clearly must be something else going on here. Perhaps there are tax benefits for Zhenfa and the supplier in pursuing the transaction in this roundabout manner. STRI should address these issues in future calls.

    4. The company is considering getting into the downstream solar business in the US. This is exciting news, that could eventually generate demand for the shares, given investor excitement over downstream solar. However, I'm not quite sure this is a smart move by management. The fact is that downstream investments appear overpriced right now, given the large amount of capital chasing too few good opportunities. Furthermore, STRI does not have the capital or size to compete effectively for the top projects, so it's hard to see how a downstream strategy will actually create value, if STRI will be left with scouring the bad opportunities. Fundamentally, it would appear that STRI is chasing a hot investment theme du jour, which is generally a recipe for disaster.

    Taking all of the above into consideration, my impression remains that Zhenfa will attempt to use STRI has some sort of vehicle to benefit Zhenfa, whether simply some tax related scheme, or an actual growth business plan, remains unclear. The move into the downstream US solar market certainly provides some clues as to Zhenfa's ultimate intentions, but again the issue is whether the benefits to Zhenfa will accrue to STRI shareholders or will Zhenfa just use STRI as some sort of conduit. I remain open minded here, as to date, management at STRI has been quite transparent and conservative vis a vis the balance sheet, so they do seem to be genuinely interested in shareholder value.

    Tags: STRI
    Aug 13 11:32 AM | Link | Comment!
  • Xerium (XRM): Management Needs To Share Takeover Details

    Back in May 2015, XRM received a takeover letter from one of their largest shareholders ( The takeover price was conveniently removed from the SEC filing. On today's conference call, an analyst asked about the takeover offer, and XRM's CEO refused to provide any valuation, simply stating that he didn't view the offer as fair and it wouldn't have provided a "big pay day".

    Well now that the stock is down 15% from May, on the back of poor results, does XRM management still think the offer undervalued the company? Interestingly, XRM's CEO hardly own any stock in XRM. So I think it's disingenuous to fail to disclose the actual takeover offer.

    Unfortunately, it is quite common for entrenched management teams to refuse to accept decent M&A opportunities, and then see the stock plummet far below what was previously considered an inadequate offer. As a shareholder, I'd like to know what price was offered for XRM and I think XRM's management has an obligation to share this information with shareholders. I think shareholders should decide what kind of "pay day" they want, and not management/Board.

    Tags: XRM
    Aug 11 1:09 PM | Link | Comment!
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