Seeking Alpha

Milwaukee Private Wealth Management, Inc

 
View as an RSS Feed
View Milwaukee Private Wealth Management, Inc's Comments BY TICKER:
Latest  |  Highest rated
  • Stealth Gas: An Unnoticed Market Leader [View article]
    I agree with your investment thesis. The publically traded shares appear to be undervalued. Your concerns regarding related party transactions are notable. I think upon closer inspection you may surmise that Mr. Vafias has not exploited his relationship to the detriment of shareholders.

    In order, I have tried to answer your questions:

    Q: Management contract with Stealth Maritime charges the following: fixed daily fees per vessel depending on the type of charter. (3 yr annual average of $5,010,000 - 2008/2009/2010)

    A: I believe rates charged are competitive versus other charter companies ($440/day for vessels on TC/Spot and $125/day for vessels on Bare Boat).

    Q: Commission on freight, hire and demurrage (3 yr annual average $1,400,000)

    A: I believe industry commission rates are between 1% and 5%. The 1.25% seems fair and reasonable.

    Q: 1% commission on every vessel purchased (3 yr annual average of $826,000) & 1% commission on every vessel sold (3 yr annual average of $258,000)

    A: Again, I believe these charges are within the norm for the industry, ranging between 1% and 3.5%.

    Q: In addition, on top of the above fees, we reimburse the Management company for the salaries of our CEO, CFO, internal auditor, chairman, and executive director - (3 yr annual average of $1,300,000).

    A: This is GASS’ corporate structure. We effectively employ via contract this management team. The cost of compensation seems reasonable. I think the lack of bonus comp over the past few years indicates that these guys are performance oriented unlike many public company management teams.

    Q: Furthermore, we lease office space from Vafias Group - another $55,000 per year.

    A: I think this benefits GASS by virtue of its close proximity to Stealth Maritime. The annual rental rate seems reasonable. (20-F: As of June 1, 2011, Stealth Maritime served as the technical manager for 13 of the vessels in our fleet while subcontracting the technical management of the remaining vessels in our fleet to third party managers. We are accordingly dependent upon our fleet manager, Stealth Maritime, for the administration, chartering and operations supervision of our fleet.)( 20-F: We lease office space from the Vafias Group. For the year ended December 31, 2010, this rent amount was $55,214. This lease was renewed effective January 3, 2010 for two years at a rate of €42,000 per year. We believe this is no more than would be incurred on an arm’s length basis with an unaffiliated landlord.)

    Q: A few more ship purchases from affiliates.

    A: GASS has purchased ships from and through its affiliate. However, it strikes me these have been negotiated and “at arm’s length” transactions that were fairly priced. I haven’t seen evidence to the contrary. (20-F: In all cases, the acquisition price for vessels described above (see 20-F ‘Vessel Acquisitions) was set at the average of the assessed value of the acquired vessels by two unaffiliated international sale and purchase brokers.)

    Keep in mind that GASS is a holding company that doesn’t directly manage its vessels. All resources required for its fleet management are outsourced. Additionally, Mr. Vafias has been able to negotiate rather favorable payable terms due to the relationship between GASS and Maritime.

    I do not see any ‘monkey business’ going on with this company. The economics of GASS’ business are in the early stages of significant improvement which will continue to become evident as charter rates reset at higher level in the foreseeable future.
    Sep 19, 2011. 02:17 PM | Likes Like |Link to Comment
  • New York Community Bancorp One of the Riskiest Bargains of the Year [View article]
    When evaluating NYB, it's worth noting their very conservative loan underwriting standards. For example, as of 6/30/11 average loan to value was 58% for their multi-family loan portfolio. The average loan to value for their commercial loan portfolio was 53% and for their 1-4 family portfolio the average was 69%. Loan re-appraisals occur on a frequent basis.

    This helps explains why NYB has had such a low loan loss ratio on its portfolio. They tend to make loans that have a high margin of safety.

    Approximately 70% of their loans in the greater NYC metro area are in a niche/rent controlled multi-family housing market. 25% of their loans are in the commercial market. They have a modest amount of 1-4 family loans.

    I believe the company knows their business and has had the discipline to stay within their circle of competence resulting in a minimal number of loan losses.

    There was a recent WSJ article on July 26th (The Bank Dividend that Binds) that makes the case you support regarding NYB's $.25 quarterly dividend. Speculation by sell-side analysts and various financial reports has surfaced over the past two-plus years for similar reasons cited in your article and the WSJ article. I believe analysts underestimate the resolve of CEO Ficalora to continue paying the dividend.

    Keep in mind that NYB accepted no TARP money and thus is not subject to the same constraints as many of their peers. Further, their capital ratios are 'excellent'. NYB's capital levels exceeded the minimum federal requirement of 8% for a bank holding company. On a consolidated basis at 6/30/11, Tier 1 leverage capital equaled $3.5 billion, representing 9.22% of adjusted average assets. Tier 1 and total risk-based capital equaled $3.5 billion and $3.7 billion, representing 13.94% and 14.55%, respectively, of risk-weighted assets.

    I listened to the company's Q2 earnings conference call and continue to see a well managed business that has acted opportunistically with respect to acquisitions (two made last year - both facilitated by the FDIC) as well as loan underwriting. Their quarterly 'provisions for loan losses' charges over the past 4 quarters have declined as follows: $32m, $29m, $26m and currently $24m. This reflects an improving, not a deteriorating, loan performance situation. Their balance sheet 'Loan Loss Allowance' account is just $134m on a gross loan portfolio of $24.5b (ratio of .55%).

    Finally, as it relates to your concerns regarding the dividend, the company reported diluted GAAP EPS of $.27 for the quarter, but adjusted (non-GAAP) EPS of $.33. Dividends are paid from cash, not from "reported" earnings. The cash earnings exceeded the dividend by almost one-third.

    I believe the dividend is secure at this point given all the available information.

    Disclaimer: The security described in this reply is owned by the respondent and clients of Milwaukee Private Wealth Management, Inc., an investment management firm owned by the respondent. Thus, the respondent has a financial interest in any future price increase of the security.
    Aug 11, 2011. 02:41 PM | Likes Like |Link to Comment
  • Duckwall-ALCO Stores: Finding Value in America's Heartland [View article]
    We believe the new manager compensation plan rewards store managers for improved performance. We think this is an important part of an enhanced shopping experience for customers - along with the various major initiatives discussed earlier. Our expectation is that this will improve the overall value of the franchise.

    Employee turnover has always been a challenge for retailers and predictably has been an issue for Duckwall-ALCO. However, Wilson emphasized in a recent telephone conversation that it is a corporate priority to train and retain strong store managers as well as regional managers. We believe this emphasis has already begun to have a positive impact on sales across all regions.

    Among the three Georgia stores, same store sales growth has averaged in excess of 5 percent on a year-to-date basis.

    We recently received nearly a dozen pictures taken and sent to us by an independent party while visiting the Pembroke, GA ALCO store. This customer stressed how impressed he was by the friendliness of the employees and cleanliness of the store. This is real evidence of a strategy successfully working out.
    Jul 26, 2011. 04:47 PM | Likes Like |Link to Comment
  • Stealth Gas: An Unnoticed Market Leader [View article]
    ras921, thanks for your comment. We agree, in today’s market one could reasonably expect to sell a Medium Range product tanker like the three owned by GASS for roughly $30 million. However, GASS has charter agreements attached to theses vessels thus making a sale in today’s market a very different proposition. The real question is: what is the value of a long term bareboat charter and a vessel? In GASS’ latest 20-F the company stated that they were in breach of a debt covenant, which they received a waiver for, on a loan secured by one of the product carriers, the “Navig8 Faith.” The debt covenant states that the aggregate market value of the mortgaged vessel “Navig8 Faith” at all times exceeds 125% of the amount outstanding under the term loan. This estimated value is calculated as though the vessel did not have a charter. GASS’ product tankers are on long-term bareboat charters with high quality customers. Vafias purchased these vessels and immediately employed them on charters that ensured a high return-on-invested-cap... over five years based on purchase price and the negotiated bareboat rate at the time. We believe GASS could sell these vessels today with the charter attached for considerably more than $30 million.
    Jul 26, 2011. 03:22 PM | Likes Like |Link to Comment
  • Duckwall-ALCO Stores: Finding Value in America's Heartland [View article]
    Undeniably, inventory shrink has been a huge problem in Duckwall-ALCO’s operations. The company has been diligently focusing on correcting this problem by changing inventory controls and compensating local managers for shrink improvements.

    Store layout definitely has an impact on shrink and recent improved results are encouraging. Shrink in the last quarter decreased by 30 basis points year over year. Admittedly, there is continued room for improvement, but this presents today’s investor with an interesting opportunity since nearly all of the shrink improvement will show up on the bottom line.

    Thank you for sharing your insights from your years of retail experience.
    Jul 20, 2011. 05:44 PM | Likes Like |Link to Comment
  • Stealth Gas: An Unnoticed Market Leader [View article]
    There are a wide variety of sources that provide vessel sales data, however, most charge a fee. You will also find anecdotal information in various trade publications and news releases.

    Mr. Vafias stated in a recent conversation that he felt the vessel liquidation value was $11 per share. Based on our own internal appraisal of the fleet we calculate a similar value.

    Keep in mind that the ever changing vessel supply and demand (which is much more difficult to track) will affect vessel values. Based on our industry sources, we believe many owners are not willing to sell vessels at today’s quoted prices, particularly in the LPG sector.

    The web site of Stealth Gas (stealthgas.com) has a tab labeled “Weekly Market Report” that provides useful information on industry traffic, time charter fixtures, sales & purchases of new buildings, scrapping, and market changes in 12 month time charter rates. Definitely worth a visit on a weekly basis.
    Jul 20, 2011. 05:17 PM | 2 Likes Like |Link to Comment
  • Duckwall-ALCO Stores: Finding Value in America's Heartland [View article]
    We share your concern. However, keep in mind that DUCK’s CEO, Richard Wilson, brings to the company many years of experience in merchandising and retail management.

    Prior to accepting the CEO position, Wilson worked as a consultant to Duckwall-ALCO focusing on merchandising and marketing. In advance of that, he was employed by BJ’s Wholesale Club as Senior VP - General Merchandise, where he was responsible for a $2 billion business including merchandising, marketing, private brand development, global sourcing, and club presentation.

    The recent change in store format, product mix and store sales growth (3.2% Q1) demonstrates leadership’s ability to get the business right.

    We ultimately expect the company to hire a permanent, full-time merchandising manager. This will allow Wilson to focus on broader company initiatives such as improving enterprise profitability and new market development – a central part of our investment thesis.
    Jul 20, 2011. 05:13 PM | Likes Like |Link to Comment
  • Stealth Gas: An Unnoticed Market Leader [View article]
    H.J. Huneycutt, thank you for your comment. You are correct. We intended to write, “We suspect the market will not be able to ignore Stealth Gas’ growing asset base and large operating cash flows for much longer…”.

    Nevertheless, Stealth Gas’ large capital expenditures are in fact investments in newer vessels, earning higher TCE rates than older vessels with like characteristics. Vafias has been opportunistic throughout the economic downturn purchasing an M.R. product tanker and an Aframax tanker.

    Capital investments in LPG vessels should increase future net earnings as LPG TCE rates continue to rise (see July 13, 2011 press release announcing recent additional charter rates above $10,000/day). To date, Stealth Gas has used only a modest level of leverage – a material fact when considering this company.

    We believe Vafias continues to have a viable long-term strategy to employ capital at favorable rates of return.
    Jul 19, 2011. 04:30 PM | 2 Likes Like |Link to Comment
  • Duckwall-ALCO Stores: Finding Value in America's Heartland [View article]
    Thank you for your constructive critique as well as your comments related to your recent shopping experience at an ALCO store operating under the new store format.

    Milwaukee Private Wealth Management believes that in the past ALCO stores benefitted from a lack of competition in the majority of their markets. The company generated 82% of its revenue in markets recognized as “non-competitive” in fiscal 2010.

    Today, however, it is our belief that Duckwall-ALCO Stores is evolving into a business that can compete successfully against other retailers—whether broad line or dollar stores.

    We are encouraged that newly formatted ALCO stores are succeeding in markets with multiple competitors. For example, Duckwall-ALCO Stores reported that its Demotte, Indiana store had strong sales of roughly $3 million in an area that has a CVS Store, Walgreens, Family Dollar, and a local grocer on the same street. Additionally, there are three Wal-Mart Stores within 35 miles. Demotte is a town with a population of fewer than 7,000 residents and a metropolitan area of approximately 12,000. This demonstrates how the new store format/merchandise mix strategy and strong local and district management can lead to exceptional performance and competitiveness.

    Duckwall-ALCO Stores again demonstrated the impact of its new strategy by announcing sales from continuing operations for the fiscal five-week period ended July 3, 2011, increased 11.8% to $49.4 million versus last year (ex-fuel, same store sales increased 10.6%). On a year-to-date basis, sales from continuing operations increased 6.7% to $203 million (fiscal year ending January 31st). This is the fifth consecutive month of positive comparables. This was achieved with strong sales in apparel, sporting goods, outdoor furniture, air conditioners and health & beauty products.

    Our investment thesis is based in large part on Duckwall-ALCO Stores’ ability to execute its strategy then expand its store base. We believe there are hundreds of rural American communities in which to expand this successful business model.
    Jul 7, 2011. 06:26 PM | 1 Like Like |Link to Comment
  • StealthGas Is Undervalued [View article]
    If you reference the company's SEC filing from prior quarters you will see a reduction in shares outstanding. According to the company cash-flow statement, there were no shares repurchased during the calendar third quarter. Diluted shares outstanding as of September 30, 2010 stood at 21.09 million vs December 31, 2009 diluted shares outstanding of 22.26 million.

    If you reference the company's balance sheet you will see the share buyback reflected in the Shareholder Equity section under Common Stock and Additional Paid in Capital.
    Nov 19, 2010. 10:03 AM | Likes Like |Link to Comment
  • StealthGas Is Undervalued [View article]
    GASS management had previously been guarded with charter rate expectations. We view the two recent announcements related to vessels moving from spot to time charter or time charter renewal as material.

    We believe management is willing to be more aggressive in locking in rates at current time charter equivalent (TCE) levels. The rates announced represent roughly a $1,000 per day increase per ship above the current daily run rate of the fleet. According to the October 26th release the average TCE rate for ten vessels of $8,016/day and per the November 8th release, a TCE rate for three vessels of $7,632/day. We think these rates represent attractive alternatives to the spot market.

    By no means do we believe rates have peaked, rather, we think rates are now at levels which GASS is willing to accept over spot. Recall that one year ago, at quarter end 9/30/09, the average daily TCE rate was $6,564. Rates seem to be trending higher, consistent with our outlook for capacity supply & demand dynamics.

    With the two recent announcements GASS has contracted 38% of its fleet. Further, with the latest announcement, roughly 60% of 2011 capacity has been fixed.

    GASS also stated they entered into an agreement with a new customer that is a major charterer.

    We continue to see this as an improving situation.
    Nov 9, 2010. 02:09 PM | 1 Like Like |Link to Comment
  • Duckwall-ALCO Stores: Underfollowed and Overlooked [View article]
    Duckwall-Alco Stores shrink ratio is about 2 times industry average. Not quite sure how it compares to a smaller peer group such as Family Dollar, Dollar General or Fred’s, but the absolute rate is 2.7% or in dollars about $13.5 million.

    CEO Wilson has initiated several measures to address this issue. He states the impact of his efforts will not be noticeable until early in calendar 2011. The principal initiate is technology based and goes to the tracking and account of DSD merchandise as well as vendor credits for returned goods.

    The company has also implemented employee training and other measures in an attempt to minimize the incidence of merchandise ‘walking out the door”. Again, longer term impact.

    Board Chair Winsten stated “progress is going well” during a recent conversation on this issue. Further, he said the I.T. investment could address a “large portion” of the company’s shrinkage.

    Two takeaways: first, the company is clearly paying attention to the issue and has made it a priority with shareholders – creating accountability to get it done; second, if success is simply measured as getting to an industry average of 1.3% then the actual dollar savings is $6.5 to $7.0 million. Stated differently, the savings would amount to $1.70 to $1.85 per share pre-tax.

    Clearly the success of this one initiative would have a meaningful impact on earnings and consequent equity valuation of the business.

    The company reports on September 10th and will provide updates at that time. Pay attention to new supply chain initiatives they will be announcing – they have some interesting projects in the works.
    Sep 9, 2010. 06:14 PM | Likes Like |Link to Comment
  • MFRI: Down and Out in Illinois [View article]
    Agreed. Looking at gross operating margins is another useful way to measure performance before unusual or one-time items.

    Each of MFRI’s operating segments has unique and quite different profit margins and economic sensitivities. Further, their global diversification provides additional counter cyclical protection. As reported during the most recent quarter they are as follows:

    Apr `10 Apr `09
    Piping Systems 27.8% 43.3%
    Filtration Products 13.8% 11.3%
    Industrial Cooling Equipment 24.8% 20.8%

    Cuing off of these ratios and recognizing where order backlog is growing provides useful guidance in understanding future profitability.
    Sep 3, 2010. 04:17 PM | Likes Like |Link to Comment
  • MFRI: Down and Out in Illinois [View article]
    Earnings per share are ‘lumpy’ on a quarterly basis as a result of management’s focus on long-term value creation. If you calculate trailing twelve month earnings you get a better sense of MFRI’s earnings power.

    Keep in mind there are cyclical aspects to this business. Order backlog is a leading indicator of future earnings. It appears orders are picking up once again which bodes well for future growth.

    Pay particular attention to the balance sheet line ‘Shareholder Equity’ which has increased from $31.5 million in April of 2005 to $72.3 million as recently reported (from $5.04 to $10.60 on a per share basis). That’s a 16% compound rate of return over the past five years.

    Shares can currently be purchased for $6.50, at roughly 65% of tangible book value. Over the past five years shares have trade at a low of 50% of book and a high of 325% of book.

    Milwaukee Private Wealth Management is a Registered Investment Advisor with the SEC employing a value oriented discipline when managing client portfolios. You are welcome to contact us to discuss MFRI, Inc. or retain our management services.
    Sep 3, 2010. 01:49 PM | 1 Like Like |Link to Comment
  • Duckwall-ALCO Stores: Underfollowed and Overlooked [View article]
    July same store sales were reported at -5.9%. The primary issue impacting recent sales comps has been merchandise selection. Due to miscalculated buying efforts in February the company found itself grossly undersupplied with children’s apparels and seasonal items going into the summer season. In some cases inventories were 50% below desired levels. Other seasonal items such as outdoor furniture, pool toys, camping and sporting goods generally had inventories levels 20-30% below desired levels. This has put pressure on revenue.

    As a result of this Wilson consolidated merchandising and buying under his direct control. Consequently, the COO/head of merchandising departed the company. Wilson confirmed that inventory levels across all channels have been corrected.

    Inventory turns were 2.1x last year. Wilson expects that to improve to 2.6x – 2.7x this year. Average inventory levels are anticipated to be $15 million less year over year.

    When questioned about the primary metric of success, Wilson replied “top line improvement".

    Additionally, the company’s store reset initiative has been implemented in over half of the chain. Expect to see new jean brand labels for women and men introduced beginning in September. New lines will include POP support, lay-down tables and better presentations. The company is trying to ‘differentiate’ itself through improved brand offerings.

    Further, the company may have a well recognized private label food line launch to announce later in the year which could include 600 to 700 new products. This could be a strong driver of business. Their marketing campaign will focus on its new brands.

    This is an evolving and much improved company under Wilson’s leadership.
    Aug 13, 2010. 02:24 PM | Likes Like |Link to Comment
COMMENTS STATS
22 Comments
13 Likes