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Ján Mazák  

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  • The Natural Gas Industry Will Meet An Untimely Collapse [View article]
    I would say that humanity cannot rely on solar power generation to a large extent. In winter, solar is basically useless in central and northern Europe because of low per-area power output, and it's probably the same in the US close to the Canadian border. Saudi Arabia might be a different case.

    Next, you need backup power generation in case it is too cloudy. And what about large-scale volcano eruptions? I doubt we are willing to go a week without power generation because of ashes in the air.

    Finally, the transmission network is unlikely to be able to support large-scale shifts in the location of power generation (that's what is hardly avoidable with wind and solar, see what happens on grids on the border of Germany and Poland/Czech republic, where generation is in the northern Germany and consumption in the southern). At least it won't do it without huge investments.

    Could you support the article with some numbers regarding transmission grids' ability to cope with renewables? Local generation might be a partial solution, but it won't work in cities with high population density.
    Jun 28, 2015. 03:25 AM | 24 Likes Like |Link to Comment
  • Brookfield Infrastructure Partners: World Class Infrastructure Assets And Undervalued With Solid Growth Prospects [View article]
    BIP rather consistently pays out about 75% of AFFO (FFO minus maintenance) which seems to be quite sustainable. For some of their assets, maintenance will grow in the future (they explicitly mentioned the Australian railroad, and it makes sense since it is new now). So the maintenance capex given in financials cannot be taken as a reliable estimate of future capex. While they do not disclose future capex requirements, the management seems very capable and knowing what they are doing.
    Jun 26, 2015. 02:05 PM | 1 Like Like |Link to Comment
  • 5 More Reasons Why We Think Kinder Morgan's Shares Will Collapse [View article]
    Careful with that quarterly view. KMI's cash flow is seasonal, in two quarters coverage is negative and in two of them it is positive (I don't precisely remember which two quarters, but they mention it often.)
    Jun 21, 2015. 01:07 AM | 1 Like Like |Link to Comment
  • IBM Quality Of Earnings: A Quick Health Check [View article]
    What do you mean by standardization of cash flows? Are you referring to some well-known procedure? Or to put it differently, what's the unique feature of IBM's reporting that would cause the collapse you mention? I find their calculation (page 66 of 2014 AR) quite reasonable.
    Jun 16, 2015. 08:52 AM | 1 Like Like |Link to Comment
  • Why We're Dumping Kinder Morgan Right Now [View article]
    Bulls or not, I would prefer that the 'food for though' would be at least marginally palatable. This article says little more than 'they have changed the corporate structure and now we are jumping the ship because of fear'.

    > "The company's business model has fundamentally changed,"
    They are building pipelines 50% debt, 50% equity, but the equity now comes cheaper. They are doing the same thing they have done for decades.

    I would really like to know how editors of SA process articles like this. Now it looks like the editor has never known a thing about KMI. If one cannot rely on editors, I would like to have a functionality to completely filter authors like this.
    Jun 11, 2015. 01:42 PM | 40 Likes Like |Link to Comment
  • IBM: A 10-Year Review Of Return On Assets [View article]
    Yes, for IBM, R&D is very similar to acquisitions in nature. But if you capitalize it, then it should not be subtracted when calculating earnings, isn't it (apart from depreciation of that capitalized R&D which would be close to impossible to estimate)? That would compensate for the increased assets a bit.

    One should also keep in mind that apart from those visible 7B of 'new' earnings, there might be some more billions which just replaced some lost earnings in hardware etc.
    Jun 10, 2015. 05:27 PM | 1 Like Like |Link to Comment
  • Choose Toro Over Deere For The Long Term [View article]
    > I'd imagine that Toro competes with Deere in at least the majority of its sales.
    Deere mostly sells large high-power tractors. Perhaps that does not constitute more than half of the sales, but I would bet that at least half of Equipment Operations profit comes from those. I would say that Toro's sales are mostly unrelated to sales of Deere; but I know too little of Toro to be sure about that.

    > nearly $34B in debt for Deere.
    Most of that debt is used to finance sales and leases of equipment and is secured by that equipment. It does not make sense to judge Deere without separating the Financial Services and Equipment Operations.
    Jun 10, 2015. 05:19 PM | 2 Likes Like |Link to Comment
  • IBM: A 10-Year Review Of Return On Assets [View article]
    Ah, yes, I meant non-current assets, but forgot to edit the comment; so apart from that cash and receivables. There is then just those 10B, which is minute compared to 100B in revenues and 15-20B in yearly profits.
    Jun 9, 2015. 01:43 PM | 1 Like Like |Link to Comment
  • IBM: A 10-Year Review Of Return On Assets [View article]
    As far as I understand your example with X and Y, you get that nice 25% ROA for Y only because the assets of Y have book value not reflecting reality, isn't it? For instance, let's say that Y has planted a tree 10 years ago, which cost $10. After 10 years of just watching it grow, it produces about $50 of apples every year, so it's worth, say, $500. Now while Y has wonderful yield on cost (ROA with assets at book value), its capital is essentially tied in that tree; one has to take the opportunity cost into account: perhaps the tree should have been sold and the cash invested in other ventures (e.g. planting more trees). So the assets of Y should not be valued at $10 when calculating ROA for Y -- after all, the assets can be converted to $500 of cash, not $10.

    I do not see why the historical cost of the asset at Y should play a role when we are trying to determine the return of X.

    While I do use return on tangible assets (EBIT with E standing for owner earnings over tangible assets employed in the business) as a useful measure for manufacturing companies, it makes less sense to do that for IBM whose assets more or less consist only of intangible stuff like software and employee expertise.
    Jun 9, 2015. 12:18 PM | 1 Like Like |Link to Comment
  • Deere: Quantifying The Long-Term View [View article]
    Well, I don't know that much about the U.S. But in Slovakia, people now tend to use much larger tractors than 10-20 years ago, so essentially large machines are replacing small ones. Apart from increasing farm sizes, it is also caused by the adoption of no-till farming.

    Anyway, the sales of Deere will come down more; what I would like to know how much of their profit is from selling spare parts.
    Jun 6, 2015. 06:24 AM | 2 Likes Like |Link to Comment
  • Deere: Quantifying The Long-Term View [View article]
    What I do not know about the average age of the fleet is whether is should be similar to 30 years ago. I guess it depends on the utilization of the tractors -- the age of a tractor is usually given in motohours, not in years. Do you have some data on the utilization of large tractors? E.g. nowadays some farmers use the tractors even during night; was that common decades ago?

    Also, last time I have checked (about a year ago) the debt of DE Financial services was quite well matched to the financed equipment; my conclusion was that a rise in interest rates could even be beneficial to FS thanks to longer debt maturities vs. due receivables. According to note 20 in the 2014 AR, in 2015 through 2019, 4.7B, 5.2B, 4.3B, 3.4B, 3B of FS debt matures. On the other hand, about 14B (half of the portfolio) of receivables are due in less than year, and only about 15% after 3 years. Have I missed something? How could rising rates hurt the FS portfolio?
    Jun 5, 2015. 03:44 PM | 1 Like Like |Link to Comment
  • IBM Quality Of Earnings: A Quick Health Check [View article]
    What simple mathematics are you speaking about? The management decides whether to repurchase shares or not. Assume now that the company has plenty of cash on hands.
    1. If their own shares represent the best value compared to alternatives (R&D, capex, dividends...), then the management should buy them back instead of doing acquisitions or increasing dividends. If they do not do that, then they are dumb/irrational/something else negative.
    2. If shares are not the best value, they should not buy them (e.g. see what Buffett is doing). If they do, again that indicates something negative.
    (In reality, managements tend to do a bit of everything since it is hard to put a kind-of-precise value on R&D etc.)

    So assuming that the management are good stewards of shareholder money, if they do buy shares, then the shares offer better return than capex and R&D. IBM shares were not apparently deeply undervalued at about $200 (say, at most 10-15% expected return), and thus marginal return on money invested in the business would be even lower than that. In other words, no better home for the money than to repurchase.

    IBM is so big that they have perhaps most large companies as clients. There is only so much of IT and consultancy services needed, so they cannot easily expand. Hence the initiatives in Watson, IoT, big data analytics are actually targeting the few unsaturated/expanding markets. If they can reasonably invest only several billions a year in that, I'm OK with that as a shareholder; the remaining many billions will come to me as buybacks and dividends.
    Jun 5, 2015. 06:05 AM | 1 Like Like |Link to Comment
  • IBM Services Versus Accenture: A By The Numbers Comparison [View article]
    I agree with what is being said here and am long IBM. Do you have an opinion on IBM's employee morale? I lack any experience of managing a large corporation or working for one, so know very little about how strong effect that would have -- but it is written a lot about on SA. My guess is that disgruntled employees could cause low customer satisfaction, which means some decline in recurring revenues and perhaps less long-term upside potential. But IBM is no little startup; its growth is limited anyway as they already sell to most big companies.
    May 30, 2015. 11:58 AM | Likes Like |Link to Comment
  • John Deere Looks To Be A Diamond In The Rough [View article]
    In the land of the blind, the one-eyed man is king. Why care about mining when deciding on whether to invest in agricultural machinery?

    I consider Deere to be a great company, with a very strong brand, and several other attractive aspects (e.g. ag machinery is worn out in about 10-15 years, so the revenue is kind of recurring). However, to say it is incredibly cheap is nonsense. While I don't care about the forward P/E ratio, relying on 2014 earnings is just putting blinds on your eyes to not see the reality. There is no need to rely on forward data estimates, just look at how many large tractors are needed and how many were sold in the last couple of years.

    While you need to produce food to survive, it says very little about a particular investment like Deere's stock at this price. A conservative scenario is that Deere will earn something like $4-6 per share for the next three to five years, or even longer. There is a chance for better returns, but also a notable possibility for even worse results (check BluePac's articles). In other words, $94 is quite a rich valuation, comparable to most other stocks.

    There is not much chance of a permanent loss of capital since Deere is a great company and *eventually* will ride this downturn out, but it might take a decade; be aware of the opportunity costs. For instance, BRK and KMI would probably be able to grow their business and economic earnings at least by 5-10% a year in the next 5 years, with considerably less risk than Deere, and I can hardly imagine how Deere could be a better investment.
    May 29, 2015. 04:43 AM | 3 Likes Like |Link to Comment
  • Deere Investors, I've Found Your Inflationary Hedge [View article]
    Perhaps I have missed something, but why do you consider Deere to be a particularly good inflationary hedge? Prices of agricultural commodities could remain low for decades thanks to improved yields (more acreage, adoption of better farming techniques in emerging markets / gmo seeds / irrigation / whatever), and ag equipment market could remain well below 2012-2014 levels for at least 5-10 years until the machines already produced are worn out. In other words, prices of services, most consumer products, oil, etc. could increase while Deere's profits, margins etc. could further deteriorate. So almost no hedge at all, perhaps with the exception of food prices. (But the price of rolls and similar bakery products in Slovakia remained about the same for several years despite the price of wheat flour increasing by almost 40%. So the relation of consumer food inflation and food commodity prices is not that tight at all thanks to competitive forces.)
    May 26, 2015. 07:11 PM | Likes Like |Link to Comment