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  • Research Frontiers: Shares Could Fall Substantially If Sky-High Expectations Are Not Met [View article]
    Yes, those sales figures are for MB USA only, I don't have the global figures. But if you assume that worldwide sales are in the same proportions as in the USA, i.e. 70 E : 13 S : 7 SL, the projected royalty figures still hold up as is.

    Source: http://bit.ly/1jeyqXb
    Jun 24 02:34 PM | 1 Like Like |Link to Comment
  • Research Frontiers: Shares Could Fall Substantially If Sky-High Expectations Are Not Met [View article]
    I shorted REFR back in 2000 and made a little money off of it then, so I am generally sympathetic to the author's idea. But I have to wonder why $6 would be a good entry price for a new short, and why is now the right time to short it? At the risk of being pedantic, short positions are riskier than longs and so require exceptional due diligence, which I feel this article falls short on.

    Here are two of my principal issues. First, the company has $10m in cash, versus a recent burn rate of about $3.3m/yr net of stock issuance proceeds. So even if they were unable to access the capital markets and made no efforts to economize, they'd still have enough cash to operate for 3 years. (To his credit, the author does say he believes there is no "hard catalyst" for a stock price drop). It's safe to say that having survived 50 years, REFR will still be around at least through 2017. So a short investor has to consider the possibility that in the meantime, REFR will luck into some business opportunity that actually ends up justifying the stock price -- or more.

    Second, it's taken them 50 years to get a product to market, sure, but a product they do now have. Despite the fact that SPD glass now has a track record, the author makes no attempt to develop a bottom-up value on that product, the company, or the stock. I will assist on that point: here's a back-of-the-envelope stab at valuing the MB sunroof fee stream. In Q1, license fees were $308k, $145k of which apparently were non-one-time fees from MB. Annualize that ($580k) and assume $200 per sunroof in license fees; that implies 2900 SPD sunroofs are being installed per year. MB sold 7k SL-class cars in 2013, for a take rate of 41%. S-class sold 13k units last year; assume a similar take rate on those, and that's another $1.08m in fees per year perhaps starting in 2015. SWAG a take rate of 10% on the 70k E-class cars sold in 2013, and that's $1.4m in (far more speculative) fees. Add that up ($3.06m), haircut it 20% for uncertainty, and put a 20x multiple on what's left to account for a growth valuation, and you end up with a fee stream with a potential value of $49m, or $2.12/share. (YMMV, of course). Add the .47/share in cash, and you're at about $2.60, solely based on one license relationship plus the cash. Of course that's well less than $6 -- and it totally ignores the cost side of the income statement -- but it does suggest there could be, finally, some fundamental value in REFR and the SPD product.

    Anyway, you don't have to believe in the promise of SPD glass to see that there are nevertheless considerable risks to the short thesis on REFR. REFR is probably worth more than zero, management's efforts to dilute and confiscate that value notwithstanding. REFR the company is not going to fall off a cliff tomorrow. And for the duration of your short, management is trying their hardest to keep the stock afloat through a steady stream of sky's-the-limit press releases. What you're left with is the worst kind of short: you know the stock should go down, but it's gonna be a very long, anxiety-inducing grind before you get there, if ever. Again, I'm not saying the thesis won't prove out, but I for one would rather be able to sleep well at night.
    Jun 24 11:41 AM | 2 Likes Like |Link to Comment
  • Microsoft: Worth $37.07 Per Share [View article]
    Using a discount rate of 10% for a proven cash-generating machine like MSFT is too conservative. Who really requires 10% long-term returns on large caps in a market like this? (In fact, if you believe in the Shiller PE10, it's currently projecting future annual market returns under 1%! In a market like this, good luck finding other large-caps that are trading at or below fair value when using a 10% discount rate.)

    Not to say an investment in MSFT is riskless; clearly there are existential threats to their business model which they have not yet proven they can navigate a way out of. But with such a paucity of alternatives in this frothy market, I think one should be delighted with an 8% expected return in the stock. I'm too lazy to reconstruct your model and apply a 8% discount rate, but I'm guessing your discounted-earnings fair value would be closer to $45-$50 on that basis. (I also second mjwrona's point about backing out the cash on balance sheet.) MSFT has come a long ways, but it still has room to run.
    Jun 21 12:44 PM | 1 Like Like |Link to Comment
  • Public Storage - Put The New Preferred In Storage, Not In Your Portfolio [View article]
    The yield to worst on the preferred O's is 3.9% according to your own analysis (another site I looked at says 2.5%) and will likely be called in a year. Why take the risk on that when you can buy the new issue at par and get dividends for at least 5 years?
    Mar 11 09:00 AM | 1 Like Like |Link to Comment
  • 16 BDCs - The Good, The Bad And The Maybe? Part 12: Triangle Capital [View article]
    You guys are way too complacent about this stock. A nearly 100% premium to NAV is not sustainable for a BDC. Sooner or later the part of the loan portfolio which was bought at a discount will either roll off or be paid down, and TCAP will need to reinvest those funds at much lower rates of return. That in turn will jeopardize the dividend.

    It may not happen for a year or two, but when that day comes, I doubt the optimism will be quite as heady as it is today: how many investors then will be willing to pay $1 for 50 cents of NAV if TCAP can't generate the same rates of NII as they have in the past?
    Mar 7 04:01 PM | 2 Likes Like |Link to Comment
  • Atlantic Power: A Clean 10% Yield To Charge Your Portfolio Monthly [View article]
    1) At first, you claim that because AT is not a utility, they can reduce generation capacity at will if it makes economic sense, and we shouldn't be concerned about that. But then you spend a few paragraphs worrying about how they will make up for the cashflow lost from reducing their generation capacity. So, which is it? Should it be a concern, or shouldn't it?

    2) In your cashflow analysis, you give AT credit for $16mm of savings on nat gas purchases. But by doing that, you are double counting that amount. The fuel savings are already embedded in the $38MM figure. So your $49mm "additional" cashflow conclusion is overstated by at least $16mm.
    Feb 26 03:19 PM | Likes Like |Link to Comment
  • Atlantic Power: A Clean 10% Yield To Charge Your Portfolio Monthly [View article]
    wdjax0n, the "problem" with this (at least from management's standpoint) is that sooner or later the market wises up to the game and the stock gets punished. So the trick for the CEO is to both maintain the divvy any way possible -and- to talk a good game about all the great things his company will be doing in the future, so that the stock price stays propped up and he can raise more capital to keep the game going.
    Feb 22 08:29 AM | Likes Like |Link to Comment
  • Atlantic Power: A Clean 10% Yield To Charge Your Portfolio Monthly [View article]
    > I spend hours doing research, listening to conference calls, etc, before buying any stock any position size.

    What would be really great is if you also did some research before writing an unjustifiably flattering article like this one.
    Feb 22 08:21 AM | 4 Likes Like |Link to Comment
  • Krugman Is Wrong On Inequality [View article]
    > Profits rise as a part of GDP, and demand is maintained by expansionary monetary and fiscal policies.

    There's nothing expansionary about current-day fiscal policy. If anything, fiscal policy is working in the opposite direction. The only thing keeping GDP afloat right now is the Fed.

    > ultimately even shareholders will have to recognize that this is no way to run an economy long term. The shortfall in demand that this causes either has to come either from abroad [...] or kept up by very expansive macro policies.

    So long as the Fed is willing to continue its easy-money policies--which at the moment look to be quite open-ended--why should investor sentiment change at all? What other catalyst is there for investors to start worrying about US macro structural issues?
    Feb 5 09:23 PM | Likes Like |Link to Comment
  • Buy Atlantic Power For A 10% Yield, Paid Monthly [View article]
    Wornout123, buying into AT was a poor choice. This investment is not in line with the low tolerance for risk you claim in your SA profile. AT's dividend is unsustainable at its current level, as other commenters have said.

    The author doesn't need to connect the dots for me, thanks. I can see plainly for myself that AT is a stock headed for trouble once the dividend is cut, and even more trouble after that once investors start to focus on AT's seeming lack of profit potential.
    Feb 5 02:11 AM | Likes Like |Link to Comment
  • Buy Atlantic Power For A 10% Yield, Paid Monthly [View article]
    > I wouldn't suggest it for those looking at it for pure income.

    How, exactly, is that caveat consistent with an article titled "Buy Atlantic Power For A 10% Yield, Paid Monthly"?
    Feb 3 11:06 AM | Likes Like |Link to Comment
  • In Search Of Yield: Yield To Call 24.07% For I-Star Preferred I [View article]
    Even as a substantial holder of SFI preferreds, I agree with bg6638 the bear case presented here is way too rosy. This is a stock that goes up and down just like any other, and a "bear" case that posits the stock staying flat is not considering the full range of possible outcomes.

    Also, if you're thinking about buying IStar preferreds as a play on the company calling them in, then buying the D shares would seem to make more sense than the I's -- D's have a higher coupon yield, and so are more likely to be called first.

    In any event, a call is years away, maybe never. The company has demonstrated they'll only buy back their own securities if (1) it's the highest and best use of their capital or (2) they can refi at a lower rate. (1) is unlikely as SFI is now talking for the first time in years about deploying their capital on new projects, suggesting that pfd buybacks are not a priority. (2) is also not likely until the pfd's trade at a premium to par. The author has identified a good investment idea -- SFI pfd's are indeed likely to generate a fair risk-adjusted return for the next several years, imo -- but for the wrong reasons.
    Dec 11 01:04 AM | 1 Like Like |Link to Comment
  • North Atlantic Drilling: Cheapest Offshore Driller With A Huge 9% Yield [View article]
    > Well, Seadrill has funded the entire capital structure. That is, they are the creditors under the loan facility.

    The $2b loan facility is explicitly referred to as a "bank loan". In Note 22 of the annual report they even spell out which banks are the lenders: Swedbank, Fokus, ABN Amro and Nordea. Seadrill is not the creditor here.

    Maybe as you suggest, tho, Seadrill is the master puppeteer manipulating the strings behind the scenes. But also remember that they're trying to divest themselves of their NATDF stake. While SDRL may be protecting them today, eventually NATDF stands on its own; and if at that point they're routinely violating bank loan covenants, who knows how things turns out?

    > In terms of the actual covenant, the covenant is on a marked to market basis. So, by my math, you should take the completed rigs value (as you did), but also you should include the cash spent to date on the new rigs, which is around 250.

    As a refresher, here's what the annual report (Note 14) says about the equity:assets covenant:

    "[M]aintain total equity to total assets ratio of at least 25.0% throughout 2011 and 30.0% thereafter. Both equity and total assets are adjusted for the difference between book value and market values of drilling units."

    By measuring total equity and total assets, the covenant -already- includes the value of the newbuilds in progress. As did my calculation of whether they're in compliance. My point about the valuation of the operational rigs was just to point out how impossible it is that NATDF could be in compliance today: the banks would have to be agreeing to a valuation on the rigs which is greater than cost of building those same rigs new.

    > I get a 26% ratio if you do that, which is in compliance.

    Aside from the fact that you're double-counting the value of the newbuilds, the compliance threshold for this year is 30%, not 26% or 25%.

    > The 10Q also states that the company is in compliance w/ all their covenants.

    Note that they don't indicate how often they test for compliance; compliance tests may only be run annually, we don't know. So the statement in the 3rd quarter report (not actually a 10Q, btw, as it was not filed with the SEC) may only be true on a technicality. What I do know is that if the tests were run at 9/30, it is highly unlikely they would have been in compliance.

    > I submit that if you cannot get comfort w/ this capital structure, and it does have a fair amount of leverage, then just don't buy the stock.

    Don't worry about that, I'm not touching NATDF. But I did do a fair bit of work on it following your article and thought it would be helpful to share with the SA community.

    > I find more diligence issues with your comments (lack of understanding of math on covs, lack of even knowing that Seadrill is the lender under the bank facility, basic stuff) than with the work provided here to be honest.

    Suffice to say that I think the same of your response.
    Dec 10 11:45 PM | 2 Likes Like |Link to Comment
  • CEF Weekly Review: ING Emerging Markets High Dividend [View article]
    > Depending on what the sequestering and tax rates is the market will need to significantly lower the deficit and borrowing.

    These words mean, uh... ?

    > The annual quarterly [sic] yield is 10.4% and its premium to [NAV] is about 4.3%.

    Friendly reminder that the most value-added thing you can do when you write about CEFs is to tell us not just the distribution yield, but how much of that yield is organically generated vs. return of capital, so we don't have to do the math on it ourselves when you likely already have the answer. Thanks.
    Dec 9 10:29 AM | 6 Likes Like |Link to Comment
  • North Atlantic Drilling: Cheapest Offshore Driller With A Huge 9% Yield [View article]
    Related to Clemens's comment above, the disclosure in NATDF's posted Q/annual reports is not great. Example: one of the covenants on the bank loan is to maintain a ratio of at least 30% total equity to total assets (both adjusted for the difference between book and market values of the rigs, whatever that means). As of 9/30/12 I calculate that ratio to be 22% based on book values; since the firm claims to be in compliance with all covenants, that must mean there is some mystery mark-up being applied to their rig values. But since it's not disclosed, how can we ever know how much cushion they have on that covenant?

    Also, market values do fluctuate of course, so compliance this Q could easily turn into a breach next Q, at which point NATDF would likely have to beg for a rescue from the parent co, as Archer did. I wonder how the author got comfortable investing in this stock with that kind of wildcard hanging over it?
    Dec 7 11:17 AM | 2 Likes Like |Link to Comment
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