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Martin Vlcek

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  • Update: RadioShack Reportedly In Talks To Avoid Bankruptcy - Stock Up 60% In A Week [View article]
    Sure, I completely agree. And if they don't get extra financing, they will go bankrupt probably this year. It's not an easy situation. If it was, the stock would not have been trading below $1 this year and the 16-month $2 strike call options wouldn't have been so cheap a few weeks back. Now, the reward/risk is not favorable any longer. But I will be curious to watch how the story unfolds.
    Sep 16 05:42 PM | Likes Like |Link to Comment
  • Update: RadioShack Reportedly In Talks To Avoid Bankruptcy - Stock Up 60% In A Week [View article]

    That's right. I am worried about the share dilution part as you pointed out:
    "the bondholders usually get an equity kicker at the expense of the old shareholders, as you point out"

    That's why I am staying away from RSH for now (unwinding my options as they expire) even though I think the "rescue" is more probable than ever. I just don't see a favorable risk/reward for current shareholders benefiting enough from whatever solution is on the table now. Options are much more expensive compared to when my long thesis started.

    So the company/brand may survive and do well, although significantly downsized and drastically reorganized after winter selling season, but I am worried about the current shareholders.
    Sep 16 04:45 PM | Likes Like |Link to Comment
  • The Dollar Rally Has Negative Equity Implications [View article]
    Paulo, Excellent article. Spot on.

    This will probably be the Q3 earnings theme and some market weakness is obvious now already.

    The dollar weakness is also supported by the falling Euro. The EUR/USD move was massive too, for example the FXE ETF that I use for currency hedging and investments fell from close to $140 to close to $127 = almost 10%.
    Sep 15 09:42 PM | Likes Like |Link to Comment
  • Update: RadioShack Reportedly In Talks To Avoid Bankruptcy - Stock Up 60% In A Week [View article]
    But still the company reported much worse numbers than the consensus of these reasonable analysts. The same store sales declines accelerated tremendously, loss was much higher than expected, even adjusted loss was terrible. So the liquidity that was enough to last for several quarters before the earnings call may now run out within a few weeks. That is a materially different liquidity situation. With RSH under such time pressure, bondholders are unlikely to give many concessions to stockholders as the company will probably have to file for bankruptcy much sooner than previously expected. Shareholders now have a much slimmer chance to get anything out of a potential restructuring deal.
    Sep 12 12:09 PM | Likes Like |Link to Comment
  • Update: Closing My Long Thesis On RadioShack Following The Q2 Earnings Call [View article]
    The arguments for selling are much more complicated than "sell because there is a profit". The four points towards the end of my article are worth reading not only for RSH but generally for analyzing reward/risk. The situation has completely changed in many aspects and until after the earnings was not unfavorable, that's why I didn't sell at a higher profit before.

    To sum it up, after the earnings, the short interest is very low while the wording of the 10-Q sounds like a law document that protects the management in case of a bankruptcy, showing they are running out of good options. The conference call wording around the negotiations centered not on saving the company but on being fair to all stakeholders, meaning they were ready not to purely add more capital but to write off debt and heavily restructure. Shareholders will be among the ones most hit in such case. Bankruptcy post earnings is much higher. As management said, they will need more money very soon, it sounded like within a month or two before they run out. That is very different from before the earnings, when the money was expected to last for a few quarters.

    I continue to hold some RSH positions but can't recommend any decent, responsible trade to other investors as the position would have to be too closely monitored and I wouldn't be quick enough to write on the web what actions I am taking to protect the position.
    Sep 12 08:02 AM | Likes Like |Link to Comment
  • Update: RadioShack Reportedly In Talks To Avoid Bankruptcy - Stock Up 60% In A Week [View article]
    The stock was up roughly 200% at one point and if options were used as I advised, the trade was even more successful. So the reward/risk was favorable even with the stock price at below $2. The options were so cheap because nobody could imagine a solution. The target price was the ideal scenario with the lowest probability of success. After the Q2 earnings, the situation is materially different as the numbers are simply terrible and much worse than expected by me or just about any other analyst.
    Sep 12 07:53 AM | Likes Like |Link to Comment
  • Update: RadioShack Reportedly In Talks To Avoid Bankruptcy - Stock Up 60% In A Week [View article]
    I will probably let half of my position ride and close the other half if the protective short-term put options kick in. With ~100% profit since my contrarian call, this was and still is a great contrarian bet. I advice others to take profits as well to at worst achieve a break-even. The earnings before the potential financial rescue announcement are simply changing the odds for me and I don't like this setup.

    There could be terrible earnings, no rescue = game over. There could be terrible earnings and some kind of a rescue plan with the earnings or a few days later = temporary rescue and very volatile stock action probably deeply down followed by strong up. There could be surprisingly good earnings, which would probably be follower by some kind of a rescue plan = stock up. However, even the rescue plan could mean stock gets heavily diluted = stock drop.
    Sep 9 05:00 PM | Likes Like |Link to Comment
  • Update: RadioShack Reportedly In Talks To Avoid Bankruptcy - Stock Up 60% In A Week [View article]
    I am buying full temporary put protection on my long RSH position until the earnings are announced. I am sitting on ~100% profits on my RSH options and the stock is still up ~70% since my long contrarian call. It is prudent to take profits. The Q2 earnings announcement is a different event than the financial rescue package. The odds of a survival are diminishing as I expected to have a decision on the financial rescue package by now already. With the earnings announcement now getting in the way, the reward/risk is not so attractive here for me any longer until the earnings are out of the way. I am not convinced the earning are a positive event for RSH.
    Sep 9 04:10 PM | Likes Like |Link to Comment
  • Update: RadioShack Reportedly In Talks To Avoid Bankruptcy - Stock Up 60% In A Week [View article]
    RSH will be announcing the Q2 results on Sept. 11. It's decision time.
    Sep 9 11:56 AM | Likes Like |Link to Comment
  • Update: Allete Reported Strong Q2 Revenue Growth And Rising Earnings [View article]

    Thank you for an opposing view on near-term sales and excellent overview of the projects. Future will tell us what the correct view would have been.

    Yes, FCF has been positive only in 2006 and then tiny positive in 2011 and ALE paid a special $16 dividend in 2004. But the high CAPEX has also been able to deliver at least some top line growth. Nothing spectacular, but still ~25% top line growth since 2008. ALE has also been investing in solar projects to diversify away from coal. The company has to spend large sums to transform its coal-based power plants to nat gas/combined cycles. These high capital requirements with lower ROI will not last forever. The solar and other alternative energy projects could increase the ROI in the longer term and lower the cost per watt. However, the large and increasing debt is a big risk if interest rates start rising and dividends could be cut.

    Future sales are hard to predict because the prices of commodities can greatly fluctuate and are also dependent on currency exchange rates (strength of the dollar). These are extremely hard to predict, that's why I write the future demand is hard to predict. Currently, the dollar has been strengthening very rapidly, helped by Euro negative interest rates and the pending Euro QE and U.S. taper. In addition to commodity prices, the legislation on coal or alternative energies can change, so nobody can promise either rising or falling sales here with much certainty.
    Sep 4 06:30 PM | Likes Like |Link to Comment
  • Update: IXYS Corporation's Q2 Earnings Show Solid Sales, Rising EPS And Bookings [View article]
    Rolling O Research,

    You are right. I usually withdraw the limit orders after a while if I see there is no demand for them at the price I want and I try later so I don't let them sit on the order book. I also update the limit orders up and down and try different strike prices to try to hide my true intentions or get a better deal.

    But still, low liquidity hurts the execution price almost always. So I have to simply calculate the wider bid ask spreads into my evaluation of how attractive the investment is compared to other investments that I have available at that moment.
    Sep 4 12:45 PM | Likes Like |Link to Comment
  • Update: IXYS Corporation's Q2 Earnings Show Solid Sales, Rising EPS And Bookings [View article]
    Rolling O Research,

    Good point about the algos and low volume. It is often a problem with many small-caps and is worth being aware of. I usually use limit orders, options and longer-timeframes to mitigate some of these issues but they have impact nonetheless.

    Also, most of the lightly traded small-caps have high beta so the moves either wy are larger than for most large stocks.
    Sep 3 09:58 PM | Likes Like |Link to Comment
  • TGC Industries: Buy When Others Are Selling [View article]

    Only the future industry development will determine the exact real useful life of this equipment. But I will try to give you as much light as possible based on my expectations. The industry is shifting towards the wireless land-based equipment as opposed to the wired equipment and this is where lots of TGE's new CAPEX went and is going to. This wireless wave is quite recent and swift and many companies still haven't caught up, so it will take several years before the refresh cycle is fully done.

    It will take some time before newer technology is invented which would represent a significant jump in equipment features but constant smaller-step improvements should be expected that will make wireless equipment more efficient. So I expect the equipment could be used over ~5 to 7 years, probably up to ten for some. But 5 to 7 years on average are my estimates. However, if the R&D and refresh cycle intensifies amid increasing competition, the equipment could become obsolete sooner if a major-step improvement appears again similar to the wireless equipment versus cable equipment.
    Sep 1 01:56 PM | 1 Like Like |Link to Comment
  • Transocean: High-Yield Contrarian Play Continues To Bottom [View article]

    A very nice contrarian call. I didn't analyze either RIG or SDRL so I am just making high-level general comments from my observations.

    The relatively high amount of responses stating that SDRL is better and RIG is going to tank come from the fact that RIG has a ~20% short positions of the entire float whereas only 8% of SDRL's float is short. This high short position has to show up in the comments, statistically. The sentiment on RIG is very negative compared to SDRL. This could be a confirmation of your contrarian call. The P/S of SDRL is roughly double that of RIG, so relative valuation of RIG is quite low.

    With the high dividend yield (if it holds), it has to be pretty expensive to short this stock in addition to the probable high cost to short the stock coming from the 20% short interest pushing the cost up.

    The aging equipment is a negative if the market is weak and customers pick the latest equipment. But if the market rebounds, RIG's older equipment will be in great demand without the high CAPEX costs associated with the new equipment of its competitors, so RIG could actually be more efficient. But it all depends on future demand. The demand is partly dependent on oil prices. If the U.S. dollar stops falling against Euro (that would be another contrarian bet at the moment), the oil prices quoted in USD could be pushed back higher, at least in the near term. And RIG could get a very nice bump.
    Sep 1 10:52 AM | 2 Likes Like |Link to Comment
  • TGC Industries: Buy When Others Are Selling [View article]

    "When we combine low future CAPEX requirements and high depreciation"

    You make a very interesting point.

    I expect the future depreciation *rate* will be similarly high as today. That is, in percentage terms of the capital on the books. However, due to lower future expected CAPEX, the future absolute amount of depreciation will fall somewhat, and keep falling also because the equipment ages and its net book value decreases. Same percentage of depreciation from lower net book value will mean lower absolute depreciation. Same depreciation rate from older equipment will also mean lower absolute depreciation versus the prior year on that piece of equipment. I expect the overall effect of lower CAPEX (positive effect on FCF) and high but falling depreciation (negative effect on FCF) to remain positive overall as the lower CAPEX affects the base capital and the depreciation is just a percentage of that capital.
    Sep 1 10:22 AM | Likes Like |Link to Comment