Shailesh Kumar

Value, long only, special situations, deep value
Shailesh Kumar
Value, long only, special situations, deep value
Contributor since: 2007
Company: Value Stock Guide Membership for Long Term Value Investors
Yes, it is US dollar. Can't comment on the taxation as I am not a tax professional, but by experience, there will be some foreign tax withheld if you are in US which you should be able to adjust for on your US tax filing.
I do not automate my dividend reinvestments. Not sure if the brokers will reinvest dividends for Non US payers. Should be just a phone call to ask.
I would generally go with small value. There is data that shows small value (and micro caps if you are so inclined) tend to sport the largest premium. I am unable to recommend funds in this area.
Thank you and glad to be of help.
Agreed. Investing in small caps still tends to be a "in the trenches" kind of endeavor where information plays a significant part in your returns. Lack of wall street coverage is one of the big reasons.
Thank you for digging deeper into the mechanics and asking great questions. I do run a pure value based portfolio so unfortunately can't comment on the crossover aspects but I would like to remark that in the end you will/should end up adapting a strategy and make it your own that matches your goals, psychology and approach.
1. I have never run a DCF model in my life, other than perhaps at business school. Majority of my investment decisions are balance sheet based (tangible assets) so in a way it keeps everything simple. There are situations where I will switch over to fixed multiples comparisons but only for industries that are asset light (service industries, for example) or in cases a company has converted its tangible asset to future cash stream (used cash to acquire another company, entered a new market, etc). I find current or historical based multiples much more palatable than using future estimates.
Peer multiple comparisons do not make sense to me much in most cases since the question I ask when making an investment is how profitable this is going to be for me. How competitors are valued is generally irrelevant, except to
a. Verify that you are indeed getting the best value in the sector (still needs to make sense on an absolute basis), and,
b. In rare scenarios where there is a range of extreme valuations in an industry (both high and low) that may indicate increased M&A. This may happen in cyclical industries
2. Portfolio context: I generally limit my exposure to any single stock to less than 10% of my portfolio when buying. Price appreciation may move the weightage to above this limit but that does not trigger selling until there is a reason to sell. I also limit my exposure to any one sector to about 10% of my portfolio.
This gives me a fairly diversified and yet focused portfolio. If there are not enough pockets of values in diverse sectors, the portfolio will end up being cash heavy, which is acceptable to me. In cases when I want a strategic exposure to an industry and there is no investment available at a good valuation, I will end up giving this industry a pass. Ultimately the goal is to maximize my investment returns, diversification and asset allocation are just tools to reduce risks and improve the chances. There is a propensity to turn diversification and asset allocation into goals, and we must guard against it and use these as mere tools. Cash is better at reducing risks than diversification and gives you an added option of being able to make a great value investment in the future when it becomes available.
Looking at the comments, it is fairly obvious why this company is as undervalued as it is today.
A secondary is not always dilutive. They do get $1 in cash for every $1 of stock they sell. It is not like they are issuing stock for the heck of it. Whether it is dilutive or not depends on the use of the funds and how the stock is being valued in the market.
There is significant value in this company based on the assets they have acquired over the years and the prices they have paid. It is a balance sheet story where the parts are greater than the whole.
Shareholder approved. As of Aug 29, the stock will be worthless after the liquidating distribution is paid and you will be unable to trade it as the company closes its stock transfer books and delists. I assume there will still be some market for its stock otc but the liquidity will dry up. The only claim that will remain is a potential $0.09/share in contingency reserves which is apparently worth 4 cents according to the market today.
This is the end of the road.
MAXY plans to delist its shares and is going forward with dissolution subject to shareholder approval within the next week.
Sure Jae. Look forward to what you conclude
You are welcome MWinMD! Commodity businesses can be fickle and it is good to insist on a larger margin of safety for these kind of businesses. I am glad I could help.
Would like to elaborate on the after market equipment valuation.
This is primarily the result of the long term trend in the steel industry as the steel companies of all types in the US have declined in numbers over many decades and most of the steel production has moved overseas (China, Russia, Korea, etc). As a result, there is a pronounced glut of the used equipment in the US market resulting from business closures with very few buyers and they mostly tend to get scrapped.
In the private market, steel service companies this size tend to sell for 2-3 times EBIT or tangible book value whichever is greater, this being a commodity business. Primary reason being the steel price volatility and the bloated scrap market that values the equipment at pennies for a dollar of book (if you go for liquidation valuation). The LIFO book versus market gap can flip from being an asset to being a liability and back within a few months. Knowledgeable acquirers know this and will not put too much stock in the inventory valuation drift.
In my previous life I have bought, run and sold whole steel companies like this. It is a hard business to make a buck when you are smack in the middle of the value chain as you have no control over prices, supply or demand. If any value is created, it is mainly by gaining economies of scale and/or scope. I looked into FRD 6-7 years ago and it looked attractive then as well but knowing the market dynamics I passed on it.
The free option on remaining asset is worth zero. They are not going to spend any more time marketing G34.
The only value you might have is an additional $0.09 from the current prices and that is not guaranteed. It is a bad idea to tie up your money in this stock at the current prices.
The gap between $81 m in cash and $70 million that is being distributed is for contingent liabilities for any lawsuits that may arise out of prior operations. This leaves very little to none to pay executive salaries if they were not to close shop right away.
There is also a bunch of employee stock options that are exercisable in few months (I forget exactly when, but it is probably early next year. It is there in the 10-K) which would be highly irresponsible for them to payout given that there is no on going business. The management has been upstanding in returning value to the shareholders and they would wind down the business before the options become exercisable. If they stretch the inevitable end out until the options are exercised, and there is still no deal by then, than it is lawsuits waiting to happen.
This tells me they are not planning to spend any more time on trying to sell MAXY-G34.
It is indeed a free option as you state, but you incur the opportunity cost of money you tie up in this stock. Ultimately, the company came out with a press release stating they are closing the business. Not sure if it can get any more clearer.
Paulo, I think the time has passed. They spent about a year trying to monetize their asset before handing in the towel and calling it quits.
Another thing you need to keep in mind is that their expenses run at about $2.7 million/quarter so the value of the cash keeps eroding longer they have to wait. At some point they would figure that waiting longer is detrimental to the shareholder value and I suspect they have already made that decision.
We took a position in MAXY last year for this option value and sold out when they decided to liquidate taking it as a signal that the end is here.
yes, of course :-) Wonder if all that traveling was getting on their nerves
Thanks Derek! All the articles seem to be forgetting Canada, but we shall see. A lot is happening in the sector for sure.
This is concerning of course. There may be a strategic fit so the acquisition in itself may be okay, but who knows how they figured the price they should pay
Arrgh, I did not even put the ticker for Southern Copper. Must have been added by the editor.
It is a great rundown of the issues Vince.
Question for you: how undervalued do the shares have to be in your opinion to outweigh the management concerns?
I have followed the company for a long while and despite the optics it seems to me that holding significant amount of cash was justified in case the highway bill passes (which it did). Any new business will require significant capital outlays so cash adds flexibility. As a shareholder, I would be annoyed if the company paid dividends and then had no way (short of taking debt) to fund capital expenses on the passage of the highway bill, which by the way was expected and anticipated.
Now that the deed is done, it remains to be seen how the business performs and how the company manages its cash. I am willing to give them a rope for a couple more quarters.
You go James! And good luck. Hope the third time remains the charm
hmm, looks like you are having trouble understanding that new business developments can change the investment outlook
No, I am out. The company was doing fine alone. They had to go and mess it up courting SPMD
No change in my outlook with the merger with SPMD and I am still long. I added more whenever stock fell below my original purchase price. I have now reduced my position to my initial stake
Guillermoleon: Don't get too worked up on the short term price movements
No change in my outlook with the merger with SPMD and I am still long. I added more whenever stock fell below my original purchase price. I have now reduced my position to my initial stake
Given the risks, the time to get in was about 4 months ago, when we did. Got out at 22 last week.
Glen, good to see another DEXO long. I agree that these yellow pages companies are potentially the best value available in the market today
Sorry, don't get to visit seekingalpha so often now as most of the time the site does not load in my browser.
I am still holding and have not changed my position on the stock. Not adding any more as I have allocated as much as I wished to in here.
Please go to my website and send me an email from the contact form and we can take it from there.
I am still long and added some more in 80s :-)
They went aggressive on D&A, which is fine as the earnings are good enough to allow them to clean up the balance sheet a little more.
But since the change in the amortization schedule will stick on the remaining quarters, it is a significant signal from them to the community that the Q2 - Q4 earnings are going to be able to support this.
Also note there comment about revenue stabilizing.
James, great analysis. I feel the company should do a little better on the revenue line given that Q1 is generally better than the other quarters for Yellow Pages but I will defer to the company's guidance on that one. Hopefully the costs are down a little as well in line with the cost reduction targets for the year. We shall see what they report soon, won't we!
Only a small percent of these bonds were issued as PIK. PIK carry an interest rate of 14% whereas regular bonds are at 12%.
Issuing a PIK instead of regular bond payments increases the future interest burden