Interesting idea. Costco has 10% gross margins, how can this company do better than Costco? PriceSmart is reporting 20%+ margins. PriceSmart ships the products from the San Diego or Florida location, seems like their costs would have an impact on lowering their margins.
Also, why isn't Costco entering the markets that PriceSmart is entering?
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
NAV can be manipulated, so let's look at it from a different angle. say you are an investor and you are looking to buy certain production of gas. what price are you willing to pay for X production of gas for Y years.
let's run some back-of-envelope numbers on the cash flow. last quarter, quarter ended June '09, the company made around 17M of EBIDTA. the gas prices in the Apr - June period weren't high, i believe they were in the $6-8 range. lets assume the gas prices are around $5-8 range for July - Dec '09 and then for 2010 and 2011. the company has hedged around 60-70% of 2010 production and around 50% of 2011 in the $7 range. for July '09 - Dec '09, i think over 70% of production is hedged.
so it is not too far fetched to expect the company making $17M of EBIDTA each quarter from July '09 - Dec '11. That is roughly $170M of EBIDTA in that period. take into account the cash they have on hand at June '09, $55M. so a total of $225M in cash at Dec '11. they have debt around $220. so let's say they make enough money by Dec '11 to pay off all the debt by Dec '11.
at the current rate of production the company has 12 yrs of reserves. so by Dec '11, you have 9 yrs of reserve left.
it costs the company $3.10 to produce the gas. so at current market cap of $88M you are getting 9 yrs of NatGas production w/ your cost of $3.10. so you can now put your projection for gas prices for 2012 - 2020 and compute what cash flow the company might produce. i think at $88M you are getting a huge discounted price for 9 yrs of production.
i haven't accounted for CapEx, increases in production costs, and other unexpected expenses that might impact cash flow. so if you been extremely conservative and say that instead of getting 9 years of production, you get 7 yrs (let's say the 2 yrs of production makes up for CapEx, increased production costs, and other expenses for July '09 - Dec '11). even 7 yrs of production for $88M is a huge discounted price. you don't need gas prices to hit double-digits for a multi-bagger return.
remember the company was paying $.56 dividend per quarter. if the company reinstated dividends at let's say $.30 per quarter, you are getting your money back in 3 yrs. and the company has a production life of 12 yrs. i see a solid 2-3 bagger at current prices and potential for much more if the gas prices hit double-digits.
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
CEP has 16M in cash and likely will produce around 10-12M in this quarter. so even if the bank was to decrease its borrowing base, i think CEP will pay down the debt w/ cash on hand.
i doubt the bank will do anything detrimental to the company's operations. CEP's hedges guarantee strong cash flow until 2012. so there is no reason for banks to do anything stupid.
remember the paying down of debt increases shareholder equity. so if CEP redirects all cash flow to pay down debt, it doesn't harm the equity holders. also, its proven gas reserves means it has plenty of assets to pay off debt (in case CEP is forced to sell its assets).
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
i came up with 50-70M based around 17M per Q1 and Q2 results. i did not account for CapEx, which i should have included. in the recent quarter the prices have dropped compared to Q1 and Q2, so I could be wrong in the near term. in the long run, w/ prices back in the 5-8 range, company can make 50-70M w/ current production (not accounting for CapEx). you can take out 20-25M for CapEx.
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
the comment basically paints the worst case scenario. the interesting thing is what happens after NG goes to $1, if it does. i think NG will not stay at 0 or 1 forever. suppliers will act and cut back dramatically. look at what happened to oil when it hit $40 and how OPEC responded.
so then it is a question of how long we stay in the $1 range and what happens to CEP during that time. w/ CEP's hedges we can expect the company to easily survive 2 yrs. the company's current production is 16B per year and hedges for 2010 are 12B and for 2011 are 10B. so even if the company takes a loss of $3 on the remaining unhedged supplies, it is still making plenty of $ on the hedged production.
On Sep 08 10:43 AM H.J. Huneycutt wrote:
> This comment was kinda interesting the first time I read it. Not > so much now that the user has plastered it over several articles > over the past several days. In fact, it would appear that he just > automatically posts it in every natural gas related article without > any thought.
i agree on CEP. it is dirt cheap. they have some debt, but it is not due until Oct 2010. they have hedges on their production in the 7-8 range. they can easily pay off chunk of their debt and then rollover the remainder.
the company's NAV is $13, assuming natural gas is at $2.41. most NatGas companies and almost anyone w/ industry knowledge, expects gas to sell in the 6-8 range in 6-12 months. at current prices you are getting a huge discount.
if they start their dividend payout next year, you are looking at a huge dividend yield at current prices.
Global Ship Lease: Heads I Win, Tails I Don't Lose Much [View article]
GSL is not really a play on the shipping industry. it is rather a bet on whether the debt issue gets resolved. once the debt issue gets resolved, the shares can give you a multiple-bagger from current prices.
On Aug 14 10:45 PM Snitzer wrote:
> Although there will always be some amount of global container freight > volume, the main question is if/when the Asian/American markets reopen, > and that's looking a bit dim for the foreseeable future. They widened > the Panama Canal, built up East Coast ports so as to run the ever > larger container ships from China to the American East Coast direct, > thereby eliminating rail/truck costs between coasts. Problem is, > they're all dressed up but the parties been canceled, or at least > postponed, and while yes, there will be some super good deals in > the sector, the time is not yet right to pluck.
Global Ship Lease: Heads I Win, Tails I Don't Lose Much [View article]
it is still not late to get into GSL. i think once the debt issue is resolved, the shares should trade in high-single to low double-digits.
On Aug 15 12:51 PM Glen Bradford wrote:
> $GSL I regret that I didn't find this sooner, I was invested in SBLK, > FREE, DAC. My investment mentality is the heads I win, tails I don't > lose much and then ample diversification to ensure that I don't lose.
Caraco Pharmaceutical: Underappreciated and Undervalued, Part 2 [View article]
the margin of safety is the assets the company owns. CPD has about 50M in cash, 60M in PP&E, and owns over IP for over 25 generic products. at the current market cap of 150M you are getting 110M in hard assets. With the 25 drugs, about 18 are pending approval. I think the other 7 created revenue of roughly 50M a year. CPD has 40%+ margin on manufactured drugs, so it is safe to conclude that you can easily get 1x of sales on the 7 drugs. as for the 18 pending, there is atleast 1 where CPD has a potential for 180 day exclusivity on a branded drug. I think the branded drug had over 1B in sales. So you can put whatever valuation you want on just that 1 drug and I think you got a huge margin of safety.
CPD has said the licensing cash flow will allow it to cover its operating expenses. I can easily see that happening. Even after the FDA raid, CPD has taken over distribution for multiple drugs for Sun Pharma. Also CPD signed the distribution deal for generic versions of Forest Labs. Recently Sun Pharma got a shared 180-day exclusivity for a branded drug that had over 2.3B in sales. If CPD gets the distribution deal for the generic, CPD will be cash flow positive even while resolving the FDA issues. (There are some legal issues around when Sun Pharma might start manufacturing this generic version, but CPD has a very good chance of distributing the drug).
The job cuts should get the operating costs in line with the revenue generated with distribution. Basically the company is running on a slimmed version until it gets the FDA issues resolved. Once the FDA issues are resolved, CPD will hire the employees. CPD is located in a part of Michigan where there isn't much economic activity. So CPD doesn't have to compete for its employees. The biggest pharma company in Detroit area is Pfizer, and they were laying off people last year. So job cuts are a non-issue.
Caraco Pharmaceutical: Underappreciated and Undervalued, Part 2 [View article]
there isn't much to say about the FDA raid. the company can't manufacture any drugs until it fixes the FDA issues. i think it will be 12-18 months before these issues are fixed.
SUNP has plenty of experience in FDA compliance. SUNP bought Able Labs when it had FDA issues and now the Able Labs plant is in FDA compliance and manufacturing drugs.
When SUNP invested in Caraco, CPD had FDA issues. SUNP got the issues fixed and CPD ended up w/ over 350M in sales.
The current trend with FDA compliance is that FDA has become very strict with the compliance issues. If you look at what is happening in the pharma industry, you got big pharma companies and small generic companies getting FDA compliance warnings. So part of the problem CPD faces is that FDA is more stricter than before. Although, CPD has the management team to fix these issues. Also, Sun Pharma's management team is very patient and looks at the long-term picture. They will get these near term issues fixed.
CPD recently signed a manufacturing and distribution deal with another Sun Pharma sister company. CPD will get access to ANDAs from this subsidiary which CPD will file with FDA for approval. These drugs will be something CPD will manufacture and distribute. CPD has 40%+ margins on drugs it manufactures, so the growth potential is strong. Also, Sun Pharma wouldn't consider doing this deal if it thought CPD couldn't get its FDA compliance issues fixed.
CPD recently signed a deal with Forest Lab to distribute generic versions of Forest Lab's drugs. Forest will manufacture them and CPD will distribute them. This should be in a 7-10% margin range, this should create adding cash and growth for CPD.
Any you look at it, at current prices you are getting the company for basically for book value (50M in cash and 60M in PP&E). Add the ability to make 20-25M each year and potential to grow in double-digits, there is no reason that company shouldn't be selling in mid-teens once the FDA issues are fixed.
Caraco Pharmaceutical: Underappreciated and Undervalued, Part 2 [View article]
If SUNP decides to buyout Caraco, it will have to pay a premium to the current price. Caraco makes 20-25M in cash each year. At current market cap of 150M, you have a company with net cash of about 50M and making 20-25M per year. If SUNP wants to buy CPD, they will likely pay in double-digits.
It is not clear that SUNP will buyout Caraco. They are interested in expanding in US and have mentioned interest in doing another acquisition. Also, Caraco taking on debt is a sign that CPD might become another acquisition vehicle for SUNP.
Either way, CPD sells for much higher in 12-18 months.
Grupo Prisa SA: An Update On Refinancing Debt [View article]
Why I Feel Safe With Hallmark Financial [View article]
PriceSmart: Emerging Markets Warehouse Clubs [View instapost]
Also, why isn't Costco entering the markets that PriceSmart is entering?
Global Ship Lease: Heads I Win, Tails I Don't Lose Much [View article]
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
let's run some back-of-envelope numbers on the cash flow. last quarter, quarter ended June '09, the company made around 17M of EBIDTA. the gas prices in the Apr - June period weren't high, i believe they were in the $6-8 range. lets assume the gas prices are around $5-8 range for July - Dec '09 and then for 2010 and 2011. the company has hedged around 60-70% of 2010 production and around 50% of 2011 in the $7 range. for July '09 - Dec '09, i think over 70% of production is hedged.
so it is not too far fetched to expect the company making $17M of EBIDTA each quarter from July '09 - Dec '11. That is roughly $170M of EBIDTA in that period. take into account the cash they have on hand at June '09, $55M. so a total of $225M in cash at Dec '11. they have debt around $220. so let's say they make enough money by Dec '11 to pay off all the debt by Dec '11.
at the current rate of production the company has 12 yrs of reserves. so by Dec '11, you have 9 yrs of reserve left.
it costs the company $3.10 to produce the gas. so at current market cap of $88M you are getting 9 yrs of NatGas production w/ your cost of $3.10. so you can now put your projection for gas prices for 2012 - 2020 and compute what cash flow the company might produce. i think at $88M you are getting a huge discounted price for 9 yrs of production.
i haven't accounted for CapEx, increases in production costs, and other unexpected expenses that might impact cash flow. so if you been extremely conservative and say that instead of getting 9 years of production, you get 7 yrs (let's say the 2 yrs of production makes up for CapEx, increased production costs, and other expenses for July '09 - Dec '11). even 7 yrs of production for $88M is a huge discounted price. you don't need gas prices to hit double-digits for a multi-bagger return.
remember the company was paying $.56 dividend per quarter. if the company reinstated dividends at let's say $.30 per quarter, you are getting your money back in 3 yrs. and the company has a production life of 12 yrs. i see a solid 2-3 bagger at current prices and potential for much more if the gas prices hit double-digits.
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
i doubt the bank will do anything detrimental to the company's operations. CEP's hedges guarantee strong cash flow until 2012. so there is no reason for banks to do anything stupid.
remember the paying down of debt increases shareholder equity. so if CEP redirects all cash flow to pay down debt, it doesn't harm the equity holders. also, its proven gas reserves means it has plenty of assets to pay off debt (in case CEP is forced to sell its assets).
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
Constellation Energy: A Good Trade for a Natural Gas Rebound [View article]
so then it is a question of how long we stay in the $1 range and what happens to CEP during that time. w/ CEP's hedges we can expect the company to easily survive 2 yrs. the company's current production is 16B per year and hedges for 2010 are 12B and for 2011 are 10B. so even if the company takes a loss of $3 on the remaining unhedged supplies, it is still making plenty of $ on the hedged production.
On Sep 08 10:43 AM H.J. Huneycutt wrote:
> This comment was kinda interesting the first time I read it. Not
> so much now that the user has plastered it over several articles
> over the past several days. In fact, it would appear that he just
> automatically posts it in every natural gas related article without
> any thought.
The Hun's Top 12 Value Buys [View article]
the company's NAV is $13, assuming natural gas is at $2.41. most NatGas companies and almost anyone w/ industry knowledge, expects gas to sell in the 6-8 range in 6-12 months. at current prices you are getting a huge discount.
if they start their dividend payout next year, you are looking at a huge dividend yield at current prices.
Global Ship Lease: Heads I Win, Tails I Don't Lose Much [View article]
GSL is not really a play on the shipping industry. it is rather a bet on whether the debt issue gets resolved. once the debt issue gets resolved, the shares can give you a multiple-bagger from current prices.
On Aug 14 10:45 PM Snitzer wrote:
> Although there will always be some amount of global container freight
> volume, the main question is if/when the Asian/American markets reopen,
> and that's looking a bit dim for the foreseeable future. They widened
> the Panama Canal, built up East Coast ports so as to run the ever
> larger container ships from China to the American East Coast direct,
> thereby eliminating rail/truck costs between coasts. Problem is,
> they're all dressed up but the parties been canceled, or at least
> postponed, and while yes, there will be some super good deals in
> the sector, the time is not yet right to pluck.
Global Ship Lease: Heads I Win, Tails I Don't Lose Much [View article]
On Aug 15 12:51 PM Glen Bradford wrote:
> $GSL I regret that I didn't find this sooner, I was invested in SBLK,
> FREE, DAC. My investment mentality is the heads I win, tails I don't
> lose much and then ample diversification to ensure that I don't lose.
Caraco Pharmaceutical: Underappreciated and Undervalued, Part 2 [View article]
CPD has said the licensing cash flow will allow it to cover its operating expenses. I can easily see that happening. Even after the FDA raid, CPD has taken over distribution for multiple drugs for Sun Pharma. Also CPD signed the distribution deal for generic versions of Forest Labs. Recently Sun Pharma got a shared 180-day exclusivity for a branded drug that had over 2.3B in sales. If CPD gets the distribution deal for the generic, CPD will be cash flow positive even while resolving the FDA issues. (There are some legal issues around when Sun Pharma might start manufacturing this generic version, but CPD has a very good chance of distributing the drug).
The job cuts should get the operating costs in line with the revenue generated with distribution. Basically the company is running on a slimmed version until it gets the FDA issues resolved. Once the FDA issues are resolved, CPD will hire the employees. CPD is located in a part of Michigan where there isn't much economic activity. So CPD doesn't have to compete for its employees. The biggest pharma company in Detroit area is Pfizer, and they were laying off people last year. So job cuts are a non-issue.
you can email me at pakiyafunds [at] gmail.
Caraco Pharmaceutical: Underappreciated and Undervalued, Part 2 [View article]
SUNP has plenty of experience in FDA compliance. SUNP bought Able Labs when it had FDA issues and now the Able Labs plant is in FDA compliance and manufacturing drugs.
When SUNP invested in Caraco, CPD had FDA issues. SUNP got the issues fixed and CPD ended up w/ over 350M in sales.
The current trend with FDA compliance is that FDA has become very strict with the compliance issues. If you look at what is happening in the pharma industry, you got big pharma companies and small generic companies getting FDA compliance warnings. So part of the problem CPD faces is that FDA is more stricter than before. Although, CPD has the management team to fix these issues. Also, Sun Pharma's management team is very patient and looks at the long-term picture. They will get these near term issues fixed.
CPD recently signed a manufacturing and distribution deal with another Sun Pharma sister company. CPD will get access to ANDAs from this subsidiary which CPD will file with FDA for approval. These drugs will be something CPD will manufacture and distribute. CPD has 40%+ margins on drugs it manufactures, so the growth potential is strong. Also, Sun Pharma wouldn't consider doing this deal if it thought CPD couldn't get its FDA compliance issues fixed.
CPD recently signed a deal with Forest Lab to distribute generic versions of Forest Lab's drugs. Forest will manufacture them and CPD will distribute them. This should be in a 7-10% margin range, this should create adding cash and growth for CPD.
Any you look at it, at current prices you are getting the company for basically for book value (50M in cash and 60M in PP&E). Add the ability to make 20-25M each year and potential to grow in double-digits, there is no reason that company shouldn't be selling in mid-teens once the FDA issues are fixed.
Caraco Pharmaceutical: Underappreciated and Undervalued, Part 2 [View article]
It is not clear that SUNP will buyout Caraco. They are interested in expanding in US and have mentioned interest in doing another acquisition. Also, Caraco taking on debt is a sign that CPD might become another acquisition vehicle for SUNP.
Either way, CPD sells for much higher in 12-18 months.