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Nick Clayton

 
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  • Rayonier Advanced Materials: It Should Not Take A Genius To Run This Business [View article]
    Unam,

    Thank you for your question. You raise a great point.

    Rayonier AM's capital structure is unique because they are financing their assets with almost 100% debt. If the debt is subtracted from the DCF analysis then the equity value would be close to what it is currently trading for. Since Rayonier AM has a dominant global market share and excellent business economics working in their favor, the true equity value is grossly understated if the debt is taken out. This is the case with many companies that have a dominant market share because of a competitive advantage such as being a low cost producer. These companies tend to require minimal capital expenditures, can consistently grow cash flows and typically are able to raise dividends year after year which could potentially be the case with Rayonier AM. The company should easily be able to consistently generate at least $170MM in operating income which equates to almost a five times interest coverage ratio. Thus, they have a sustainable business model that in all likelihood will be able to safely use high amounts of debt to finance operations. If the company operated in a cyclical industry such as shipping or the airline industry, then they would not be able to sustain such a high level of debt because future earnings would be so unpredictable.
    Dec 21, 2014. 03:09 AM | Likes Like |Link to Comment
  • Rayonier Advanced Materials: It Should Not Take A Genius To Run This Business [View article]
    Luis,

    Thank you. I agree!
    Dec 19, 2014. 07:19 PM | Likes Like |Link to Comment
  • California Resources Corporation Is A Spin-Off With A Substantial Opportunity In The Golden State [View article]
    Thank you for your comments Robert. During my research I read that CRC is able to charge slight premiums because of the limited transportation options in the California market. That coupled with the like you mentioned lower transportation costs I think gives CRC a small competitive advantage over some other E&P companies. This should bode well for CRC investors and potentially mitigate the risks associated with a prolonged slump in oil prices. That being said, I hope oil doesn't fall below $50 for an extended period of time because obviously CRC would lose lots of money as would most energy companies.
    Dec 8, 2014. 02:22 AM | Likes Like |Link to Comment
  • California Resources Corporation Is A Spin-Off With A Substantial Opportunity In The Golden State [View article]
    Ringdown,

    Thank you for your kind words, I couldn't agree more. Regulators can be quick to point the finger at the potential environmental consequences of oil exploration and production. What they fail to see is that the economic benefits far outweigh any environmental consequences of oil production in my opinion.
    Dec 8, 2014. 02:10 AM | Likes Like |Link to Comment
  • California Resources Corporation Is A Spin-Off With A Substantial Opportunity In The Golden State [View article]
    Dutchtender,

    Good point. While the timing of the spin-off may not have been the greatest considering the crash in oil prices, I don't know anybody who has consistently made accurate projections about macro events. Once oil prices return to the $100+ level, CRC will be a great long investment.
    Dec 8, 2014. 02:05 AM | Likes Like |Link to Comment
  • California Resources Corporation Is A Spin-Off With A Substantial Opportunity In The Golden State [View article]
    Robert,

    No problem, feel free to make comments as you see fit. You're probably right.
    Dec 8, 2014. 01:59 AM | Likes Like |Link to Comment
  • California Resources Corporation Is A Spin-Off With A Substantial Opportunity In The Golden State [View article]
    Neo-Me,

    Great question. That is exactly right. If you notice in my income statement analysis, say the price of oil falls to $50, the company would go from losing roughly $100 million to $1 billion in pre-tax income in a given year for a net loss of $900 million. (-$900 million yearly loss/4 = $225 million quarterly loss) $225 million/$25 drop in oil prices equates to $9 million impact on pre-tax income per dollar change in the price of oil. They would probably lose something like $75 million in pre-tax income for the first quarter of 2015 if the Brent index is around $65-70 per barrel. (approx. -$117 million based on $75 oil price/4 = -$30 million - (5*9 = $45 million) = -$30 million - $45 million = $75 million loss. These are just estimates and can obviously change based on the price of oil and production and selling expenses per barrel of oil. I don't foresee the price of oil falling to $50 levels for an extended period of time but there is a possibility which makes it a very real risk with this investment and many oil stocks in general. I hope this helps.

    Thanks for the question.
    Dec 8, 2014. 01:49 AM | Likes Like |Link to Comment
  • Alaska Communications: Better After The AWN Sale? [View article]
    Ted,

    Well written article. This analysis provides some great insight on what (to the untrained eye) appears to be a significant credit positive event.

    Three issues I was hoping you could address in regards to what the company might do with their free cash flow moving forward:

    1) How much do you think ALSK could pay out in dividends?

    2) Would they strictly use FCF to fund the dividend or tap alternative sources like a revolving line of credit?

    While I don't know for a fact, it is likely the company was funding the large dividend with a revolving credit facility pre-2009. They were often paying out anywhere from $30-$40 million during this time despite the fact that in 2005 and 2008 they were FCF negative. I emphasize the dividend because (as I'm sure you know probably better than me) large institutions with the buying power to move stock prices typically buy telecom stocks for their dividends. That is why the market once valued this company at close to $17 per share even though the company was sometimes leveraged 20 to 50 times or even had negative equity when they were paying an 8-10% yield. It was obviously an unsustainable dividend and management has made the necessary moves to turn things around.

    3) Would the company be better off increasing their capital spending in the broadband segment which management has projected to be generating 20%+ IRR?

    Thank you for the great analysis.
    Dec 8, 2014. 12:17 AM | 2 Likes Like |Link to Comment
  • California Resources Corporation Is A Spin-Off With A Substantial Opportunity In The Golden State [View article]
    jlalbalos,

    Thank you for the kind words. I plan to build my position over the next few months as I don't see the price moving significantly because of continued stagnation in the oil markets.
    Dec 5, 2014. 05:22 PM | Likes Like |Link to Comment
  • California Resources Corporation Is A Spin-Off With A Substantial Opportunity In The Golden State [View article]
    rcray,

    You make some great points. Often spin-offs can hold some of the greatest value because the institutions sell off in droves because like you said they are not in any indexes. Consequently, they cannot recognize the value of the very lucrative businesses concealed in the parent companies.

    California is not the friendliest of business environments and legislators may continue efforts to thwart business production until they realize where the tax dollars, pension benefits, and university endowments come from. The economic benefits from exploring the Monterey Shale are undeniable.
    Dec 5, 2014. 05:14 PM | 4 Likes Like |Link to Comment
  • California Resources Corporation Is A Spin-Off With A Substantial Opportunity In The Golden State [View article]
    Glocks-n-Gold,

    While California does have one of the most stringent regulatory environments in the U.S, low-risk in this context refers to the fact that 90% of CRC's projects are already online which translates to dependable sources of earnings and predictable rates of return.
    Dec 5, 2014. 02:25 PM | 2 Likes Like |Link to Comment
  • Box Ships Inc.: Net Asset Value Represents 111% Upside [View article]
    I hold the common and intend to continue buying. The downside risk is virtually nil as even in a worst case liquidation scenario common shareholders would most likely receive at least $1.78 per share, a 120% upside from current levels. You are essentially buying a dollar for 30-40 cents depending on your entry point.
    Nov 24, 2014. 07:19 PM | 1 Like Like |Link to Comment
  • Box Ships Part II: Well Positioned To Withstand The Stormy Seas [View article]
    Jz 10,

    The company would more likely fund a share repurchase with unrestricted cash as opposed to the proceeds from selling ships. A $5 million share repurchase would have a likely effect of boosting liquidation value by almost 17% from $2.29 per share to $2.67. (Assuming the company bought shares on the open market at approximately $0.85 per share) However, this would hinder their liquidity as they would be left with just a little over $3 million of unrestricted cash. This is the most likely reason management is not repurchasing shares at this time. I would be concerned if the company started selling ships as they are the primary sources of both earning power and borrowing capacity. Without ships, the company cannot generate cash or borrow to fund future capital needs. I believe management is positioning itself to buy more cheap ships, lower its cost of capital (ships cost 6-7% to capitalize - equity costs 10-15%), and waiting for the increase in charter rates. Once this happens the few companies that were liquid enough to expand during this downturn will be the one reaping hefty profits when rates recover.

    Thank you for your comments!
    Nov 24, 2014. 02:00 PM | 2 Likes Like |Link to Comment
  • Alaska Communications Is A Pre-Packaged LBO With Attractive IRR Scenarios [View article]
    Guby25,

    AWN is paying ALSK $12.5 million per quarter.
    Nov 10, 2014. 03:45 PM | Likes Like |Link to Comment
  • Alaska Communications Is A Pre-Packaged LBO With Attractive IRR Scenarios [View article]
    Travis,

    Before an acquirer would feel comfortable paying something like $10 to $11 per share, I think they would want to see that all short term financing risks have been abated. I believe ACS needs to reduce debt levels to somewhere around $325-$350 million - required loan covenants that would allow management to pay dividends or issue new debt to retire $318 million in senior obligations due October 2016. That being said, there is a real possibility that they could renegotiate loan covenants before then. After loan covenants have been met, ACS could use the $30-$40 million from AWN interest to pay dividends which could quickly push the stock back up to $6-$8 levels. So yes, the AWN transaction makes ACS more valuable and strengthens their negotiating power. Not sure if AWN protects them from cheap takeovers. Any private equity or larger telco would be getting a bargain paying even a moderate premium to the $80 million equity value.
    Oct 6, 2014. 02:51 PM | 1 Like Like |Link to Comment
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