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Financehulligan
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Private European Investor and Fulltime trader. Legally trained with focus on commercial law. For my buy and sell decisions, I use Elliott Wave Principle. Fundamentals and education helps me to understand where we are today and where we are headed. Annual P / E ratio = future lies Fibbo, Gun,... More
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  • Nokia Need More Money 5 comments
    Jan 16, 2013 9:18 AM | about stocks: BBRY, NOK

    Last week was a week with Nokia (NYSE:NOK) surprising on both the positive and the negative sides.

    Tuesday January 8th, Nokia confirmed that Indian tax officials visited its manufacturing unit in Chennai in southern India. Local authorities said Nokia is suspected of tax evasion worth the equivalent of $545 million, according to Economic Times.

    The share declined down to € 2.85 in Helsinki after that news.

    Only two days later, Thursday January 10th, Nokia sent out a press release saying Nokia exceeds previous Q4 2012 outlook for Devices & Services and Nokia Siemens Networks making the share bounce up.

    The timing could not have been worse, regarding to an investor. Conference call to be held 25 minutes later after the press-release, at the same time as Mario Draghi, President of the European Central Bank held a press conference on the banks decision to leave interest rates unchanged.

    Before those two happenings, I counted on the debt that that expires in Feb. 2014. I wanted to know if the money from raising junk bond, diluting the share with 7%, not even 3 months ago, together with some other liquidity creation events would be sufficient and equal to pay the debt amounting EUR 1250 million exp. date Feb. 2014.

    During the autumn, Nokia has taken the following liquidity creation actions:

    - Issuance of junk bonds, EUR 750 million (23 October 2012)

    - Nokia sells and leases back head office building, EUR 170 million (5 December 2012)

    - Obtained a one-time payment from RIMM (RIMM), settling and entered into an agreement to resolve the present dispute between the parties. Nokia received EUR 50 million. The amount was confirmed by Nokia in press release 10 January 2013.

    During the autumn, Nokia also has taken liquidity destructive actions. These are:

    - Acquisition of 3D capture company, earthmine (The terms of the transaction are confidential.)

    I got full confidence in Nokia management and CEO Stephen Elop. Therefore I also believe that the amount raised in convertible bonds was carefully balanced to be sufficient without creating greater dilution than necessary for shareholders.

    I do not think there is a calculation error by Nokia management during the issuing of convertible bonds. Nokia has always been very accurate about their guidance.

    I also believe that none of the parties at this moment had knowledge about the arising tax problem in India that just showed up.

    I have read and calculated on the press release, listened on the conference-call, still do not think there was an actual reason to make this "profit warning", especially with regard to the weak outlook for the first quarter 2013. Nokia had a big helping hand from NSN during Q4, but I do not think anyone following Nokia on a daily basis did not expect strong number from NSN.

    A review of the guidance for Q1 2013, Nokia is telling us that we could not expect the helping hand from Nokia Siemens Networks to last in short term:

    "Nokia and Nokia Siemens Networks expect Nokia Siemens Networks non-IFRS operating margin in the first quarter 2013 to be approximately positive 3 percent, plus or minus four percentage points."

    And neither from their guidance for Devices & Services:

    "Nokia expects its non-IFRS Devices & Services operating margin in the first quarter 2013 to be approximately negative 2 percent, plus or minus four percentage points."

    And the guidance for business area Location & Commerce is also negative.

    "Nokia expects Location & Commerce non-IFRS operating margin in the first quarter 2013 to be negative due to lower recognized revenue from internal sales, which carry higher gross margin, and to a lesser extent by a negative mix shift within external sales."

    Why making a profit warning? The only reason that I could come up with is the one that is not mentioned either in the press-release or at the conference-call.

    By making the profit warning Nokia management is trying to buy time. The amount of non-paid taxes in India, EUR 545 million is equivalent to 54% of the junk bond money raised not even 3 month ago.

    The tax obligation arose before the 31 December 2012, and therefore Nokia normally would need to adjust its December 31 balance sheet and its income statement for the year 2012 for this EUR 545 million in tax debt expense.

    By acting fast (only 2 day later) Nokia management tries to move the starting point where they finalize and starts the distributing of the income statement for 2012, and tries to put the new tax debt in India as a statement, i.e. events after the balance sheet date, hoping that investors will not see through this.

    I hope that Nokia's management acts quickly and takes the opportunity to ask shareholders for more money now while the price of shares is relatively high. In that way, they could avoid diluting the shares more than necessary. Otherwise the question if Nokia needs to raise more money will hang like a wet blanket of the company's shares pushing down the price in the same way that it did during the spring.

    Hopefully Nokia shareholders gets the same discount as institutional investors did in the junk bond, i.e. 28 % conversion premium to the volume weighted average price of Nokia shares. I see no reason why they should not.

    Nokia later report was released 18 October 2012. Only 3 business days later they, on the 23 of October 2012 Nokia announced and completed a offering of EUR 750 million Convertible Bonds due 2017 with the purpose to:

    "intend to use the net proceeds of the offering to prudently manage its capital structure, proactively address upcoming maturities while preserving existing pools of liquidity and for general corporate purposes."

    That behavior from Nokia is also something to keep in mind. If you want to buy the share without risk to be diluted, you cannot be sure you will not be, not even two days after report

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in NOK over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: short-ideas Stocks: BBRY, NOK
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Comments (5)
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  • godalmightee13
    , contributor
    Comments (466) | Send Message
     
    Wow! FH you have turned from a fanatical NOK long supporter to a shorter of NOK. Read your opinion above' we will see what the near future brings.
    16 Jan 2013, 04:26 PM Reply Like
  • Financehulligan
    , contributor
    Comments (1079) | Send Message
     
    Author’s reply » Sorry if I don´t understand you, what part did you like most?

     

    I just write what I see, their is no fancy bankruptcy articles written by me on SA like it was this summer when I was "fanatical NOK long supporter" and Nokia was traded below $2.
    16 Jan 2013, 05:11 PM Reply Like
  • godalmightee13
    , contributor
    Comments (466) | Send Message
     
    So from what I can gather FH your main concern is the avoidance or manipulation of the Indian tax allegation being pushed under the carpet or deferred until after 2012 4th qtr an qtr 1 2013. an the manipulation of misleading device sales. But surely there is a bigger picture for Nokia even if this is the case. As I was lucky enough to have purchased all my holdings under $2 with a med-long term time frame in mind' with the added spice of maybe a takeover of NOK by Microsoft, my initial interest in NOK was sparked by Microsofts close interest in NOK.
    And hope Mr. Elop is not working with Microsoft too closely as to sell NOK on the cheap to them (just a thought).
    16 Jan 2013, 07:53 PM Reply Like
  • Financehulligan
    , contributor
    Comments (1079) | Send Message
     
    Author’s reply » I think you understand what dilution means. If you read the Instablog again, what I believe is actually based on Nokias own conclusions not even 3 month ago.

     

    If Nokia didn´t have better numbers when they decided to dilute the shareholders with 7%, I do not want to own the share anyway.

     

    Everyone is talking about the warning, but almost no one is talking about the weak guidance. It is all about trying to sell the share.

     

    Microsoft work close to most tech-companies, will they buy everyone of them?
    16 Jan 2013, 11:03 PM Reply Like
  • godalmightee13
    , contributor
    Comments (466) | Send Message
     
    Read comments on the guidance and thoughts from others that seem to lean towards they are being conservative.

     

    It will be interesting to see if NOK elaborate more on forecasts going forward on the 24th Jan and will be looking harder into this twist(poker lol) FH.

     

    At present on a personal level I am not too concerned as for me to liquidate my position an go short I can take a 35% of me holdings in NOK off the table and let the rest ride the momentum if need be.

     

    With what I have made on various trades of NOK up an down over the last 8 months this share has done well for me in 2012.

     

    An I have no problem in reading others ideas-viewpoints or opinions even if not aligned to me own all helps either way I say.
    17 Jan 2013, 05:41 AM Reply Like
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