Diana Containerships Business Model Continues To Deteriorate [View article]
Twist- "available cash from operations during the previous quarter" in even simpler English is "the money EARNED from business operations from Jan-March 2013 minus all mandatory uses of cash such as drydocking fees." So just over 13c. If you want to ignore interest expense and G&A, you get around 20c.
Either way you slice it the 30c is 17c off the balance sheet-- either funded by debt or equity. In this case, it was funded by money received from the ship sales (asset sale), which is INVESTMENT cash flow, not operating cash flow. It's basically a drawdown of equity.
In regards to the overall "investment" that people are calling "wise" by DCIX, they paid a grand total of 70.5M in April 2011. http://tinyurl.com/oje...
They sold the 3 vessels for a grand total of approx $29M.
So they 'lost' $41.5M of equity on their investment. The return on capital from the above-market charters was $8970 ($21,450/day revenue- 2.25% commission of $483 -average run of 12,000 day cash expenses) * 3 vessels * approx 720 days = $19.38M.
Assuming a discount rate of ZERO percent, DCIX effectively paid $41.5M to receive $19.38M in cash flows. They DESTROYED $22.1M in investors equity in the process.
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
You're absolutely correct that GME is regarded among gamer circles as a clear ripoff; however, that doesn't stop gamers from going there--- or (more importantly) the dads (and especially moms) from taking the kids there.
Also GME is a treasure trove for budget/poorer gamers who can't afford $60 titles. These are GMEs bread and butter customers. These gamers are also likely to have slower internet connections that cannot support DLC. These gamers are also likely to not buy an Xbox One or PS4 for 3-4 years.
----
All this talk about SNE and MSFT wanting to 'kill' the used game market might be a little overdone. While both would probably want to run a digital marketplace and take a higher % off the top (versus the traditional 5-10% licensing fees), the bigger 'enemies of used' are companies like Electronic Arts, Epic, Activision. These companies hate the idea of a used market, BUT:
1--- These companies cannot get along or agree on a new market system. What makes you think they will TRUST MSFT to run an online market? The only reason Valve/Steam worked is because Counter Strike: Source was THE game to own and Valve was incredibly incredibly indie friendly. Even then, it took 3-4 years for Steam to become 'accepted' in the community. Everyone loves Steam now-- go back 5+ years ago (I've been a member for almost 8), and it was sketchy, 7-8 years ago it was HATED.
2--- Used old titles that would never sell as 'new' anyways can help stimulate a brand and keep it going. There could be negative repercussions for 'killing' the entire market.
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
Josh-- jumping in here, but look at ANGI's balance sheet and working capital, etc. They will likely need a secondary offering within the next 2q, quite possibly this q. This will wake investors up. The ANGI cash burn is horrendous.
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
Why do you say "maybe too much so" if you agree that fair value is low-mid twenties? Most managements cease the buybacks when the stock crumbles- GME bought stock like madmen from $25-$16.
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
I agree that GME prospects are dim-ish, but management showed strong discipline on the conference call and the mobile sales are impressive (albeit growing from zippo). It's fully valued at $35, but not exactly a juicy short imo.
Next to companies like AMZN, ANGI, LNKD at least...
Ally Financial takes another step towards an IPO as it agrees to pay $2.1B towards the settlement of the ResCap bankruptcy. The move, says Ally, essentially removes the threat it would have to pay billions more in private claims related to its subprime mortgage arm. It's also a victory for MBIA (MBI), whose share of the proceeds could be $600M, according to hedge funder Manal Mehta (he's long). [View news story]
Diana Containerships Business Model Continues To Deteriorate [View article]
Twist,
Thank you for your compliments, but indeed it seems to be more of a lack of understanding by the analysts covering this company. They don't seem to understand the overall market/model or have an understanding of the company's stated objectives.
For instance why am I the only one noticing the dividend issue (broke their own objective plan)?
Anyways, on the financing, it's structured relatively simple:
1) It's unsecured debt, so it's junior to some of DCIX's other debt
2) It has a term of 4 years-- and operates like a credit facility.
3) Drawn amounts are LIBOR+5%. Not exactly competitive, but not outrageous considering it's junior debt.
4) It has a back-end fee of 5% on repayment-- not unprecedented, but kind of a "rip off" imo. Buffet had similar rules on his GS and GE loans.
5) DSX has final say in whether DCIX can take on further debt. (They probably won't allow further debt without further equity-- i.e. another dilution).
--It's not stated, but very likely the $40M equity raise was a necessary part to secure the $50M in credit.
Assuming DCIX continues their current model, DSX can't lose here. It's essentially an investment-grade investment that pays higher than the junk index.
Diana Containerships Business Model Continues To Deteriorate [View article]
Raymond,
I always appreciate the informed discussion you bring and appreciate you keeping my ego in check. It's easy to get 'stuck' in the model rut and have tunnel vision, and that's the last thing I want. I was very pro DCIX the year before I turned negative- so I'd like to think I'm capable of changing my opinion about a company's management, the industry prospects, and the stock valuations. Time will tell here though- I'm seeing familiar red flags so far.
I never questioned their ethics directly, but I can see where it might seem implied, especially with the loan comments. I've seen these loan structures before in this industry, they usually don't end well. FRO/FRO12--DRYS/OCNF/O... The NM/NMM/NNA might be a success story, but the book isn't closed, and Navios also doesn't sneak around the fact that the 3 companies are highly linked.
In regards to why I own DSX versus DCIX and why I like management on one and not the other. DSX is dry bulk / DCIX is container ships-- so different individual prospects right there. DSX is becoming a large player, one of the largest publicly traded now / DCIX is a small niche player. DSX has a wait-and-see model, no dilution zilch/nada, no dividends, very cautious expansion profile. DCIX is paying a dividend out of equity, has seen large dilution, has disobeyed their previously announced strategy, and is now shifting direction?
In direct regards to the two points:
1) I based the dividend cut off of operating cash flows and DCIX's stated dividend policy (below). I'm not sure where you are getting the 22c from, but maybe my 13c coverage technique is incorrect. I took the $31.8M net loss, added back the non-cash charges of $3.4M for depreciation and $32.6M for impairment. I then divided by 32.11M shares for 13.6c.
Going back, I think I figured how you got the 20c figure. You took the revenues minus the operating costs and divided by shares? This ignores the other necessary expenses such as G&A and interest.
The $120M of working capital isn't magic here. They sold 3 vessels, diluted by 25% (speculatively), and issued $50M in debt. We now have stronger cash flow, but a smaller fleet, more debt, and more outstanding shares (tentatively).
Quoted: "the Company intends to declare a variable quarterly dividend each February, May, August and November equal to a substantial portion of its available cash from operations during the previous quarter, after the payment of cash expenses and reserves for scheduled drydockings, intermediate and special surveys and other purposes as the Company’s board of directors may from time to time determine are required, taking into account contingent liabilities, the terms of any credit facility, the Company’s growth strategy and other cash needs and the requirements of Marshall Islands law."
Unless you think SUBSTANTIAL means "exceeding" they just broke their policy here.
"Taking into account....the Company's growth strategy" -- That's laughable. They claim to be growing and/or bolstering cash flow security for a medium-term recovery. They are issuing debt and equity to grow, yet they are paying dividends out the ears? Tell me you see the contradiction here.
2) DCIX has steadily priced for lower. $12, then $7.50, then $6.25. The $5 assumption is based on a slightly less than $6 holding average minus 30c for divy minus the 10-15% discount that secondaries usually bring.
I doubt we'll see a 'trickle' here. Of course it's possible I could be completely wrong.
Diana Containerships Business Model Continues To Deteriorate [View article]
Twist answered well. Hard to call the bottom. I'm longer winded.
I've made the mistake many times in many industries-- seeing a bleak outlook and assuming the worst is over. I own BBRY, NOK, BBY, HPQ, DELL, COH, BODY, MSFT, and recently buying AAPL. Bit of a value bottom feeder myself-- some have turned out well. Some I kicked myself for not doubling down at the bottom (ex. bought BBY from $30 down to $17, passed over at $11 / bought NOK from $7 down to $3.50 passed over at $2).
In shipping I've been long various dry bulkers since late 2009, and I've traded with various tanker and container companies. Not new to the industry at this point. On these online message boards the recovery is always "just around the corner."
Netflix (NFLX -1.5%) could pass all cable networks and perhaps even a major network this summer in terms of hours watched per month as the streaming service launches Arrested Development just as the traditional network season winds down. The feat is fairly impressive when it's considered that the service is only 28M homes - compared to the +100M penetration of cable networks. Q1 scorecard of viewer hours/month (via BTIG): CBS 3.3B; ABC 2.6B; NBC 2.3B; Fox 1.9B; Disney Channel 1.3B; Netflix 1.2B. [View news story]
That's a stretch.. Essentially saying NFLX will double this summer (won't happen) while CBS and ABC will lose up to 30% of hours (might happen). Most likely NFLX will barely increase-- we need to remember this Spring was very strong for NFLX as well.
Besides-- this is a lot of 'clicks & eyeballs' type data. Where's the profit?
Diana Containerships Business Model Continues To Deteriorate [View article]
10-20 years... Maybe if they kept similar parameters as DSX-- i.e. no dilutive dividend payouts. That's my biggest issue right now. Why pay 30c? Doesn't make sense from a mid-long perspective.
Low debt isn't true anymore. If they draw down this loan and spend the equity on new vessels they'll have $130M+ of debt over 10-12 vessels. The D/E is a misnomer, just look at the massive writedown they took on the most recent asset sales. True D/A is a much better indicator here...
Long-term in a bruised sector, I used to say DSX easy, but it's had a good run from $7-->$11, still an okay buy, but not as "great."
I think DCIX will go down far before it ever goes up. Unfortunately, I see themselves over diluting to maintain the dividend here...
Diana Containerships Business Model Continues To Deteriorate [View article]
Either way you slice it the 30c is 17c off the balance sheet-- either funded by debt or equity. In this case, it was funded by money received from the ship sales (asset sale), which is INVESTMENT cash flow, not operating cash flow. It's basically a drawdown of equity.
In regards to the overall "investment" that people are calling "wise" by DCIX, they paid a grand total of 70.5M in April 2011. http://tinyurl.com/oje...
They sold the 3 vessels for a grand total of approx $29M.
So they 'lost' $41.5M of equity on their investment. The return on capital from the above-market charters was $8970 ($21,450/day revenue- 2.25% commission of $483 -average run of 12,000 day cash expenses) * 3 vessels * approx 720 days = $19.38M.
Assuming a discount rate of ZERO percent, DCIX effectively paid $41.5M to receive $19.38M in cash flows. They DESTROYED $22.1M in investors equity in the process.
They bought the Spinels on Jan 2012 for $60M (http://bit.ly/11g55kt).
The charter terms are 24,750 (2% commission and 12,000 TCE) *720 days*2 vessels = $17.65M return.
They paid $60M for the vessels and can sell them for probably $22-24M or so.
So they paid $36-38M for a return of $17.65M assuming a ZERO discount rate.
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
Also GME is a treasure trove for budget/poorer gamers who can't afford $60 titles. These are GMEs bread and butter customers. These gamers are also likely to have slower internet connections that cannot support DLC. These gamers are also likely to not buy an Xbox One or PS4 for 3-4 years.
----
All this talk about SNE and MSFT wanting to 'kill' the used game market might be a little overdone. While both would probably want to run a digital marketplace and take a higher % off the top (versus the traditional 5-10% licensing fees), the bigger 'enemies of used' are companies like Electronic Arts, Epic, Activision. These companies hate the idea of a used market, BUT:
1--- These companies cannot get along or agree on a new market system. What makes you think they will TRUST MSFT to run an online market? The only reason Valve/Steam worked is because Counter Strike: Source was THE game to own and Valve was incredibly incredibly indie friendly. Even then, it took 3-4 years for Steam to become 'accepted' in the community. Everyone loves Steam now-- go back 5+ years ago (I've been a member for almost 8), and it was sketchy, 7-8 years ago it was HATED.
2--- Used old titles that would never sell as 'new' anyways can help stimulate a brand and keep it going. There could be negative repercussions for 'killing' the entire market.
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
Used Game Virtuous Cycle Game Over, Good Night GameStop [View article]
Next to companies like AMZN, ANGI, LNKD at least...
Ally Financial takes another step towards an IPO as it agrees to pay $2.1B towards the settlement of the ResCap bankruptcy. The move, says Ally, essentially removes the threat it would have to pay billions more in private claims related to its subprime mortgage arm. It's also a victory for MBIA (MBI), whose share of the proceeds could be $600M, according to hedge funder Manal Mehta (he's long). [View news story]
Diana Containerships Business Model Continues To Deteriorate [View article]
Thank you for your compliments, but indeed it seems to be more of a lack of understanding by the analysts covering this company. They don't seem to understand the overall market/model or have an understanding of the company's stated objectives.
For instance why am I the only one noticing the dividend issue (broke their own objective plan)?
Anyways, on the financing, it's structured relatively simple:
1) It's unsecured debt, so it's junior to some of DCIX's other debt
2) It has a term of 4 years-- and operates like a credit facility.
3) Drawn amounts are LIBOR+5%. Not exactly competitive, but not outrageous considering it's junior debt.
4) It has a back-end fee of 5% on repayment-- not unprecedented, but kind of a "rip off" imo. Buffet had similar rules on his GS and GE loans.
5) DSX has final say in whether DCIX can take on further debt. (They probably won't allow further debt without further equity-- i.e. another dilution).
--It's not stated, but very likely the $40M equity raise was a necessary part to secure the $50M in credit.
Assuming DCIX continues their current model, DSX can't lose here. It's essentially an investment-grade investment that pays higher than the junk index.
Diana Containerships Business Model Continues To Deteriorate [View article]
I always appreciate the informed discussion you bring and appreciate you keeping my ego in check. It's easy to get 'stuck' in the model rut and have tunnel vision, and that's the last thing I want. I was very pro DCIX the year before I turned negative- so I'd like to think I'm capable of changing my opinion about a company's management, the industry prospects, and the stock valuations. Time will tell here though- I'm seeing familiar red flags so far.
I never questioned their ethics directly, but I can see where it might seem implied, especially with the loan comments. I've seen these loan structures before in this industry, they usually don't end well. FRO/FRO12--DRYS/OCNF/O... The NM/NMM/NNA might be a success story, but the book isn't closed, and Navios also doesn't sneak around the fact that the 3 companies are highly linked.
In regards to why I own DSX versus DCIX and why I like management on one and not the other. DSX is dry bulk / DCIX is container ships-- so different individual prospects right there. DSX is becoming a large player, one of the largest publicly traded now / DCIX is a small niche player. DSX has a wait-and-see model, no dilution zilch/nada, no dividends, very cautious expansion profile. DCIX is paying a dividend out of equity, has seen large dilution, has disobeyed their previously announced strategy, and is now shifting direction?
In direct regards to the two points:
1) I based the dividend cut off of operating cash flows and DCIX's stated dividend policy (below). I'm not sure where you are getting the 22c from, but maybe my 13c coverage technique is incorrect. I took the $31.8M net loss, added back the non-cash charges of $3.4M for depreciation and $32.6M for impairment. I then divided by 32.11M shares for 13.6c.
Going back, I think I figured how you got the 20c figure. You took the revenues minus the operating costs and divided by shares? This ignores the other necessary expenses such as G&A and interest.
The $120M of working capital isn't magic here. They sold 3 vessels, diluted by 25% (speculatively), and issued $50M in debt. We now have stronger cash flow, but a smaller fleet, more debt, and more outstanding shares (tentatively).
(http://bit.ly/11I8QFp).
Quoted:
"the Company intends to declare a variable quarterly dividend each February, May, August and November equal to a substantial portion of its available cash from operations during the previous quarter, after the payment of cash expenses and reserves for scheduled
drydockings, intermediate and special surveys and other purposes as the Company’s board of directors may from time to time determine are required, taking into account contingent liabilities, the terms of any credit facility, the Company’s growth strategy and other cash needs and the requirements of Marshall Islands law."
Unless you think SUBSTANTIAL means "exceeding" they just broke their policy here.
"Taking into account....the Company's growth strategy" -- That's laughable. They claim to be growing and/or bolstering cash flow security for a medium-term recovery. They are issuing debt and equity to grow, yet they are paying dividends out the ears? Tell me you see the contradiction here.
2) DCIX has steadily priced for lower. $12, then $7.50, then $6.25. The $5 assumption is based on a slightly less than $6 holding average minus 30c for divy minus the 10-15% discount that secondaries usually bring.
I doubt we'll see a 'trickle' here. Of course it's possible I could be completely wrong.
Diana Containerships Business Model Continues To Deteriorate [View article]
Shareholders best interests is a time-value adjusted efficient return on invested capital.
Buying a stock for $7, so you can get 30c payouts for several years and then be left with worthless shares is not a greater outcome.
Cite a single 'strong' company in this environment that is issuing 7.5% rates?
40M secondary is pretty substantial dilution...
Diana Containerships Business Model Continues To Deteriorate [View article]
I've made the mistake many times in many industries-- seeing a bleak outlook and assuming the worst is over. I own BBRY, NOK, BBY, HPQ, DELL, COH, BODY, MSFT, and recently buying AAPL. Bit of a value bottom feeder myself-- some have turned out well. Some I kicked myself for not doubling down at the bottom (ex. bought BBY from $30 down to $17, passed over at $11 / bought NOK from $7 down to $3.50 passed over at $2).
In shipping I've been long various dry bulkers since late 2009, and I've traded with various tanker and container companies. Not new to the industry at this point. On these online message boards the recovery is always "just around the corner."
As they say-- once burned, twice shy.
Diana Containerships Business Model Continues To Deteriorate [View article]
Netflix (NFLX -1.5%) could pass all cable networks and perhaps even a major network this summer in terms of hours watched per month as the streaming service launches Arrested Development just as the traditional network season winds down. The feat is fairly impressive when it's considered that the service is only 28M homes - compared to the +100M penetration of cable networks. Q1 scorecard of viewer hours/month (via BTIG): CBS 3.3B; ABC 2.6B; NBC 2.3B; Fox 1.9B; Disney Channel 1.3B; Netflix 1.2B. [View news story]
Besides-- this is a lot of 'clicks & eyeballs' type data. Where's the profit?
Diana Containerships Business Model Continues To Deteriorate [View article]
Low debt isn't true anymore. If they draw down this loan and spend the equity on new vessels they'll have $130M+ of debt over 10-12 vessels. The D/E is a misnomer, just look at the massive writedown they took on the most recent asset sales. True D/A is a much better indicator here...
Long-term in a bruised sector, I used to say DSX easy, but it's had a good run from $7-->$11, still an okay buy, but not as "great."
I think DCIX will go down far before it ever goes up. Unfortunately, I see themselves over diluting to maintain the dividend here...