Teenie Cap Research

Long/short equity, value, deep value, event-driven
Teenie Cap Research
Long/short equity, value, deep value, event-driven
Contributor since: 2012
This is also slightly relevant: http://bit.ly/1gbpTrM and http://bit.ly/1gbpSnL
Just for reference prices for uranium have fallen off a cliff recently: http://bit.ly/1qD6LaH
When the article was written, it was at 40, now 28. SWU 112 down to 95.
I guess too early to the show. I'm looking for right time to average down (again). I still think nuclear will turn around.
I was just looking at the same thing.
Stock has really tanked.
The nuclear industry has not recovered yet which I think is the big issue. SWU and Uranium prices are still in free fall.
Australian dollar hasn't helped matters either.
PEG ratios would have been helpful in your analysis table.
I refer specifically to this:
"Unidentified Analyst
Hi, last time we spoke back in June, it sounded like you had about three to 10 parties that are interested in acquiring the whole company or part of the company. I think you mentioned around three to 10 and it sounds like the focus has moved off of that and more into restructuring, I was wondering why that is.
And also you mentioned that there is some restructuring in order to save some money, but we’ve been seeing this difficulty in the market through last two to three years already. Why haven’t those initiatives been in place years ago?
Greg Anderson
Hey LaDuane.
R. LaDuane Clifton
Both fair questions, I’ll take them one at a time. So the first one about the expressions of interest from external parties of acquiring all our portions of the company, certainly we have those, the strategic committee took those into consideration. Frankly speaking, I don’t believe that that they probably matured at least at this point to where they felt that was the best action to take and, so it doesn’t mean that they are off the table, it just means that, but they just frankly never materialized to a maturity that that at least at present the Board chose to move forward.
So in the mean time, we just took some additional steps when it came to restructuring, probably and it leads into your second question why weren’t those – I’ll call it restructuring changes made two years ago. I think the reality is that things change. And so two years ago, we saw some strength in parts of our business that we don’t see today. And so we are just restructuring and pointing us towards where we have our strengths and where we think we can get the chance to grow. And so if that makes sense, we’re probably reducing structure where we didn’t think we could grow and that that is different than two years ago or profitably grow. And so that’s I would say the answer to your second question."
It sounds like from "...the strategic committee took those into consideration. Frankly speaking, I don’t believe that that they probably matured at least at this point to where they felt that was the best action to take and, so it doesn’t mean that they are off the table, it just means that, but they just frankly never materialized to a maturity that that at least at present the Board chose to move forward."
that a lot of the language being used is past tense.
Greg said that it is not off the table, but it doesn't sound like there is a serious process anymore.
That's just my take away from those comments.
I would be happy to be proven wrong as I still own quite a few shares.
Whopper - Not sure if you listened to the last investment call, but my take away was that they turned down all the acquisition offers. (Based on one of the Q&A responses.)
You are still positive something will happen?
Immediately after the company restated their project costs I apologized for the bad call. It was also before all hope was lost.
I don't believe I am playing a semantic game. The writing was already on the wall when this article was published and the risk was downplayed.
What I wrote is above in full in a previous comment:
"In the first paragraph Zvi writes: "Though substantial dilution is possible, bankruptcy and delisting appear less likely, and current valuation offers speculative investors the potential to earn substantial returns in the next few years.""
Bankruptcy was a near certainty when he wrote the article.
The article - which is no longer public - misrepresented the risks of the company.
I pointed it out then and alerted SA.
But I guess that is what you get when there are no real editors.
"USEC Inc, a supplier of enriched uranium for commercial nuclear power plants, said it expected to file for bankruptcy protection in the first quarter of 2014."
Bravo again on this call that everyone pointed out was outrageous and irresponsible. And then this article was posted as Seeking Alpha Pro? Crazy.
Still positive on the stock. Unfortunately haven't been publishing many articles for SA due to frustrating editors. Sorry.
How do you know that they processed more satellites in the current quarter? How many launches did they do in Q3? How many launches do you think they did in Q4? How many do you think happen in Q1?
It sounds like the "two very important U.S. government missions" were what led to this increase in margins.
Hard to understand this quarter financials.
One good quarter though does not make something a good investment.
"Anticipating this law to pass, Ituran has signed with GM to be their OEM. If Ituran can get their equipment installed on every GM car for Brazil, this will be a huge boost to their subscriber base."
The deal with GM does not require all GM vehicles to have Ituran devices.
As a regular follower of the uranium enrichment industry I was upset that Seeking Alpha recently published an article by Zvi Bar which gives an unrealistic, rosy outlook for USEC (USU).
I wrote this original rebuttal article on Sunday morning but Seeking Alpha did not publish it calling it an "ad hominem". If an ad hominem is pointing out the foolishness in an authors article then sure, it's an ad hominem. USU has since fallen another ~20%.
I've written about it in the past but let me reiterate: Current USEC shareholders will receive nothing in any deal that the company does with debt holders. The company is technically already bankrupt with liabilities equaling greater than total assets.
Zvi makes no tangible supportive arguments for his assertion that "recent declines appear excessive, including the 39.5% decline on Friday, July 5, indicating a probable reversion prior to the announcement of such any secondary."
He also fails to mention USEC's recent lawsuit filing against the DOE which makes it extremely unlikely that DOE will ever give them another dime for research let alone fund the ACP.
Zvi is not clear about the almost certainty that USEC shareholders will lose money through a significant dilution, debt conversion, or bankruptcy.
In the first paragraph Zvi writes: "Though substantial dilution is possible, bankruptcy and delisting appear less likely, and current valuation offers speculative investors the potential to earn substantial returns in the next few years."
He later writes: "Because of all this, while eventual dilution appears highly probable, the event appears most likely to occur in the fall of 2013 or later, and at a time after a great deal of the present risk will have mitigated."
At the end he writes: "Due to the high risk of bankruptcy or substantial dilution, any position taken in USU should be limited, with the understanding it will likely generate either a substantial loss or gain within the next year."
Which one is it? Are the chances possible, highly probable or is it a high risk? I imagine that as he wrote the article, he became more aware of the high risks.
He mentions "it is reasonably likely that DOE will guarantee the loans, because
1) it has already paid for much of the program's costs, and
2) the enrichment facility should be seen as an extremely important facility."
He fails to mention that USEC has continually changed the cost of the ACP project and that the DOE is bound to be fed up with the constant increases to the cost estimate. I know that as a one-time shareholder I was recently upset when they increased their cost estimate by another $1 billion a few months ago.
He fails to mention that the new Secretary of the U.S. Department of Energy Moniz addressed the Loan guarantee recently during a press conference and did not mention USEC in his whole speech.
Zvi fails to mention any competitors in his article and the probabilities that they will replace USEC. He fails to mention that another company is even likely to takeover the Paducah facility which they are leaving. (Not necessarily to use the GDP but to use the other supporting facilities.)
USU share price has fallen in half since the reverse split and I would guess that this is primarily due to investors' willingness or ability to only short stocks above a certain price. (I personally regret not taking advantage of this layup investment.)
The change in firm value over the last week he been minimal as the equity value is such a small proportion of it. The market cap dropped from about $40 million to $17 million but the company still has convertible preferred stock of $103 million and debt of $530 million (which comes due in about one year).
Don't buy a stock just because the stock price has declined - which is what Zvi is recommending. The outlook for USEC has never looked bleaker and the likelihood that an equity investor will make money is extremely small. Anyone considering investing in USU should ask themselves: "Would I rather a 1% chance to earn a 100% return on USU or a 49% chance to earn a 100% return playing blackjack?"
After reading this article yesterday morning I wrote a rebuttal piece but SA has not published it yet. I don't know why.
It is frustrating the delay in publishing the article because I hope nobody was fooled into buying this company due to this article.
They are still going to be delisted. They have fixed the minimum share requirement but are still at risk for being delisted due to low market capitalization.
It is foolish to discuss the reverse split as an important matter.
The focus is on the debt now; the equity is already assumed to be worthless.
A reverse split is a simple corporate action done in order to avoid delisting by the exchange. It does not decrease the likelihood of bankruptcy. It does not show that management is executing on its plan.
After reading your article I only have one real question: Is your article purposefully misleading or are you just misinformed?
How is bankruptcy a less possible outcome after a reverse split?
I wrote an update to this article shortly after regarding why I was selling my holding : http://seekingalpha.co...
I see very little possibility that the equity is worth anything. Kind of regretting that I didn't short the stock on the reverse split.
I still like Silex though and have added to my position as it has come down a bit primarily due to exchange rates of AUD to USD. SWU rates have still failed to rebound.
Clay - Glad you appreciate it. It has definitely taken significant time (which will hopefully pay off).
I haven't seen any specific analysis showing the expected cost per SWU for each.
From what I've read it would be cheaper for laser (but I can't find a source for that now). Unclear by how much. The positive for Silex is that it doesn't matter the cost per SWU as they are receiving a a royalty rather than ownership in the project.
I do agree it would be better if Silex were a pure play. I don't think USEC will be a good investment for equity holders though. In even the most optimistic scenario I see them being wiped out. (I do still own some options for the long shot, but I don't expect them to pay off.)
jmpbrown - I agree with you that demand for nuclear energy is still hot but that is not enough to invest in a poor venture.
Silex (SILXY, SILXF) is a much better opportunity (especially at these prices).
The company has already spent >$1B on the ACP and going forward was only expected to spend approximately $3B more.
Instead they announced during their last earnings that they will require an additional $4B of investment to complete the ACP.
I agree with you regarding SWU being a great investment. I wish I had a better way to go long. I think economically USEC investors are going to lose out due to dilution. I have switched horses and am now investing in Silex.
I am not talking about the write-off. That is purely accounting and doesn't bother me.
The cost of the additional R&D though is accounted for and funded separately.
This additional $1 billion is directly related to an increase in the cost for the ACP and seems to be primarily related to a revised cost estimate.
They underestimated the cost of the project from the very beginning and every year continue to increase the cost of the project. It is no wonder why the DOE is having a hard time justifying the expense.
I agree that the laser enrichment is not as developed but it is also better than centrifuge. You also have GE backing the project.
I don't think I mentioned anything about China needing enrichment. They are definitely growing their nuclear platform though and may need additional enrichment capacity in the future too. I am more focused on global SWU demand and supply. You are correct, China is bringing on some enrichment but not nearly quickly enough or with a large enough capacity to meet the upcoming demands.
I assume that your question is rhetorical, but the board is likely incompetent too. They actually gave this management team a raise a few months ago!
Thanks. Unfortunately some mistakes are more costly than others...
I definitely had the urge to hold on and see if the market gives it a bounce but I generally don't like to play that game.
When my thesis is busted I try to move on.