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MBA and years of personal Investing. I am currently employed in the Financial Services industry.
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  • XIN And Institutional Sales

    Xinyuan Real Estate (NYSE:XIN) is a much maligned Chinese real estate company that has had a rough couple of years. I wrote an article last quarter speculating that a significant buyback would be a catalyst for the stock in November and December. I was wrong. Very wrong. This call was made when the stock was trading at $2.70, and the shares are $2.24.

    I do believe the thinking behind my thesis is still intact hope to eventually see the results I was looking for, although it may not be as soon as I expected.

    Long story short, my idea was that a buyback should trigger a share price increase in the buyback period in Q4 (basically, November and December). Well, institutional holder Acadian Asset Management had other ideas, as Nasdaq shows them liquidating 1,186,249 as of 12/31/2014, and as of 12/31/14 update, 1,672,840 shares net were sold by all institutions in Q4. This made the buyback a wash or worse, and created an effect just the opposite of the one I was hoping for.

    Currently, volume is historically low (compare this past month vs. the same time last year, for example) which severely limits what XIN can buy back after the Q1 blackout period ends on 3-3-15. It looks like the share repurchase is going to be even more of a slow and steady process than it has been for the past few quarters. A related headwind is that Acadian is still the apparently 'not-so-proud' owner of 771,733 shares as of 12/31/2014, and may be looking to unload more of them this quarter. While this is a significant source of cheap shares for XIN, (who would be willing to pay over twice as much per share based on past purchases) it also means that my predicted price recovery might not happen until Acadian is done unloading, and until volume picks up enough to allow a critical mass of shares to be bought back by XIN.

    My short-term thesis may be shot, but regardless of what Acadian did (or does with their remaining shares), I believe this company is the best value on the NYSE, and will deliver the best returns on the NYSE over the next two years. Institutional holders only own 4,656,976 shares, so the selling can't last forever. In a Chinese market that many have described as awful, this company will soon report profit that is somewhere between $31-$33 million for 2014. That's not even close to the initial $120-$125 projected a year ago, but earnings at 5.5PE is not a disaster either. XIN will issue guidance of much better earnings for 2015 and we'll likely see a forward PE between 1 and 3, with contract sales and revenue at potentially $2 billion. This company is trading at exactly half its historical price/book value trading range of 36% (which was already very low) and continues to have free cash on hand greater than the market capitalization. XIN has explosive potential and plenty of room for growth. Other SA Authors see this as a 3-4 bagger that is more than a 'when' than 'if' question, and I agree.

    XIN recently announced that earnings will be announced on 2-27-2015. On the filing, I will look for how many shares the company buy back (It will be interesting to see if they exceeded the amount institutions sold, which looks doubtful). On the Call, I will listen for conviction about the value of shares and plans to continue buyback through 2015. The biggest short-term biggest question is whether or not fund selling is over, and unfortunately that is something XIN can't answer. Chinese Real Estate was not the sector to be in last year. My hope is that the glut of late-year selling was simple window-dressing. If it wasn't and institutional selling continues, investors could be in for a couple of volatile quarters on the road to what I believe will be an amazing couple of years.

    Tags: XIN
    Feb 20 3:49 PM | Link | Comment!
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