skanjete
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@Learningmachine : Maybe you also could take into account the debt situation at VZ and the investment assets at BABA, both of which have little impact on FCF, but a major impact on the valuation of the companies.
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Why do you guys think a delisting could be imminent? I thought a delisting could be implemented at the earliest in 3 years? This seems plenty of time for BABA or China/US to iron out some of the more pressing issues. Besides, there's always the possibility to open an account with a broker which allows transfer to Hong Kong shares.
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I don't know the exact math behind the investments but I know this : Belgium has 2 important nuclear plants. Beginning years 2000 it was politically decided that the 2 plants were to be phased out by 2015. They took the decision although Belgium didn't have an alternative for the to be phased out electricity. The idea was to replace the nuclear plants by renewables, but the 2 plants represent 3.900MW so this was completely unrealistic. So the phasing out has been repeatedly postponed and is now scheduled by 2025. Meanwhile, the owner of the plants, didn't invest in them anymore and squeezed out all cash flow possible because they were to be phased out. Because of this and the postponing of the phasing out, there were quite a few technical problems with the electrical capacity and production in Belgium over the past few years I have the impression that further postponing the phasing out is difficult because of underinvestment and the technical issues involved. Besides, the ecologists are part of the new government and they won't allow further postponing. So now the Belgian government is cornered. They desperately need 3.900MW new capacity by 2025 or the lights go out. 2025 is soon because one needs about 3 years to build a plant, so construction should start by next year. That's why they organise the CRM subsidy mechanism. In view of the stressed situation of the government, it's possible that the CRM subsidies provide a very good investment opportunity. It's organised as a tender. Tessenderlo offers a plant of about 900MW. Engie, Luminus, Eneco and Dils Energie are preparing a similar plant. So that's 5 contenders for about the exact amount of capacity that is needed. A sixth contender, Essent withdrew from the tender and was practically begged by the politic to reconsider. This suggests the subsidies could be really attractive. The process already drew the attention from Europe because they suspect uncompetitive state support. Conclusion : the Belgian energy management is a real mess and Tack stands ready to profit from the situation.
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In 2019 there was a bonus in terms of FX gains, in 2020 a headwind. These mainly concern intercompany loans that aren't hedged, so I would not consider them to be too important. More important at Tessenderlo, Picanol (and all companies) are cash flows as you mentioned. Consider this : the company produced 282,2m€ cash flow and they need about 100m€ a year for investments. However, the 100m€ consists of replacement and expansion investments. They record a depreciation of 133,6m€ a year, but apparently they need a lot less for replacement investments. An important part of this is to be explained by the T-Power investment : high depreciation but no need for replacement investments for years to come. To get to true free cash flow, you should use 282,2 - 22,6 (leases) - 99,5 + expansion investments. I estimate it to be about 200m€, or 4,5€/sh.
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Today the results from Tessenderlo and Picanol came out. Results at Tessenderlo were despite COVID19 even better than expected : EBITDA : +21% net profit +43% free cash flow : +58% net debt reduced to 0,6x EBITDA. It is to be expected that at this rate and without extra investments this year they will reach net cash within a year. The business has an EBITDA margin of 18,1% at the moment This starts to look like a great business! And still very cheap. I mean, EV/EBITDA of 5,7 and marketvalue 8,4 times free cash flow for a growing business in the hand of a good capital allocator is really attractive. Also some good investment opportunities for new Thio Sul plants. The extra power generation plant looks to be a big investment as well : 900MW for an investment north of 500m€ by 2025. I also noticed Picanol did a major investment in a Swiss textile business. They bought 10 of Rieter Holding for about 45m€. The textile business has some interesting technology but is loss making. So I don't think Tack made the investment to be a minority shareholder of a loss making business. I expect him to take control of the business. However, the net cash position of Picanol has reduced a lot after a difficult 2020, the Rieter investment and the Tessenderlo share purchases. Now the main chunk of cash and cash generation sits in Tessenderlo. Since he already controls more than half of Tessenderlo, maybe it's time to try combining the 2 companies again? This would make the balance sheets a lot more efficient and both shares have about the same discount to underlying value at the moment. Hopefully, Meryl Witmer isn't around any more to block a deal... We'll see what 2021 brings. But so far, Tack lives up to my expectations...
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I don't think that's all that unreasonable an assumption for a value investor. I mean, the value of a business is a sum of the discounted cash that the business will give to the shareholders. But my impression based on Biglari's past actions is that he'll take that cash for himself rather than distributing it to shareholders. So that makes the company basically worthless as long as he's running it. That's also how I look at it.
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The letter certainly isn't what is was anymore. It used to be a platform for Buffett's teachings, but I have the impression that Buffett the teacher is gone. This has been the case for some years now. Up to say 5 years ago, the letters always contained some in-depth analysis of a subject from an original and very rational angle. There was always something to be learned, but this is no longer the case. Actually, you would learn more today if you read his 1980 letter (a great one about impact of inflation on equity values) instead of his 2020 letter. Same with his interviews. His answers are more vague, more predictable than they used to be and very often repeat expressions and viewpoints from the past. Actually, Charlie kept his originality somewhat longer, but I had the same impression from his Q&A in the DJCO AGM. It's a pity, but that's life.
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Yes, that’s a simple fact. P/B ratios have been falling for most insurers, except short tail (auto) because the profits from investing the float are reduced in a low interest rate environment. Actually it's not *that* simple a fact. Discounts rates should theoretically fall with interest rates. If your discount rate is 10% then you need a stock to have a 10% ROE to trade at 1xBV. But if your discount rate is 6% then it only needs a 6% ROE to trade at 1x. That's exactly what I'm saying. With the low interest rates, their float doesn't generate income as it used to, and ROE has already fallen to well lower than 10% in the insurance industry. The low interest rates are also the reason the combined ratios are structurally lower than they used to be in the 80's for example. Back then, inflation and competition pushed CR's higher, but interest rates (and thus profit from float) could compensate for the losses in underwriting. From here one, income will have to come even more from underwriting profitability in stead of float. The question is if underwriting profit on its own can produce ROE's of 10%. I don't think this is possible for the industry as a whole.
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You have to appreciate the irony of it all : with their wild speculation the Robinhood investors are cutting off the branch they're sitting on. They are destroying the means (Robinhood) they're using to "destroy the hedge funds and the system" and so ultimately themselves. The brokers halt trading to protect their business and thus their clients. But these clients are now outraged because they think the brokers are just protecting the enemy and don't realize THEY are being protected from their own stupidity. This whole story makes me even more concerned about the market than I already was. And I'm already sitting on 50% cash.
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The low interest rates makes their float worth less. So in this climate of low interest rates, it's normal that P/B ratio's of insurers or banks are falling.
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The interim results of Tessenderlo were really impressive, stunning actually. Finally, the figures start to ressemble the underlying progress the company has been making over the past few years. Bio valorisation in particular is starting to live up to expectations after years of investment. EBITDA +25%, EBIT +45%, net profit almost doubles. Also, look at the debt situation : from 356 to 240m€, cash balance from 154,5 to 230,8m€. But in my view, the debt situation is far better than suggested. These figures include the lease liabilities they have to include since 2019. They even didn't make a split up in the balance sheet between debt and lease liabilities. Besides, this net debt number is consolidated. T-power is a sizeable electric energy operation within this consolidation and it seems to me natural that this kind of activities are financed with a sizeable debt portion. So their published debt situation is far worse than the industrial reality. Thus the 230m€ cash on the balance sheet can for a great part be considered as surplus cash and available for new investments.
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Could it be that Buffett is hedging against a Biden election win? If Biden wins the presidency it's probable the tax cuts from Trump will be reversed. So it could make sense to cristallise the historic profits in some stocks before year end. By selling f.e. WFC, he is offsetting the huge wins in WFC with losses elsewhere while at the same time keeping his bank exposure by buying more of BAC, a bank which he intends to keep anyways.
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Writser, I recently sold out as well. The Belize economy is very much depending on tourism, and the current Covid 19 crisis will no doubt cause a lot of trouble. I can't really assess whether the take-over from Scotiabank is a transaction out of strength or weakness. In 2009 they used a similar tactic with a cashbox in Bermuda, (which offered a great merger workout opportunity at the time), but that was more out of survival than anything else.
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Yes, it's a small percentage of TEU, but I used the example because it's a canary in the coal mine. At peak-economic-cycle, and pre-covid awareness, management was guiding investors to brace for impairments. They have to routinely assess every boat, large or small, for impairments (the annual report makes that clear). Impairments are based on market rates. Market rates are driven by supply and demand, and we know global demand has taken an unprecedented gut punch. Seaspan has substantial debt/costs, asset prices that could deteriorate, and limited pricing power. Seaspan has ~$40 million worth of liabilities Per Boat! Boats (Vessels) is by far the company’s biggest asset, assigning an average value per boat of ~$48 million! Boat valuation is based on the lesser of a 30 year straight line depreciation (the boats don’t last 30 years) or the present value of future expected cash flows (heavily influenced by current market rates). In other words, if today’s market rates are higher than tomorrow’s market rates then it won’t take much for that $48 million of per-boat value to be impaired below the $40 million of per-boat liabilities. The boats will be underwater so to speak. Now, that exaggerates things a bit, as the company does have other assets, but the point is that their biggest asset’s value is based on something entirely out of the company’s control - market rates. Probably the most painful lesson I’ve seen repeatedly learned the hard way on this message board over the years is that a business with limited pricing power and significant debt/costs is a time bomb - no matter how reputable the management steering the ship (er the Panamax). Witnessing the downfall of a company that checks ALMOST all the boxes of sound investing is a miserable experience. Go back about 30 pages on this thread and read up to page 47, where VAL9000 posted “I think this counts as calling it…” You can see those years were quite painful and perplexing for several investors - some that lost substantial amounts of money. Go peruse the Fortress Paper thread or the Sandridge Energy thread (another Fairfax investee) to see similar excruciating experiences. I’d rather own an index fund than speculate on a fast-growing company with, say, a 5% chance of going bust in the next 20 years. (Zero times anything is zero.) Is Atco an INVESTMENT in a business that first and foremost is sufficiently indestructible, or is it a very seductive SPECULATION that David Sokol’s talent, the company’s sizable scale advantages, Fairfax’s financial backing, and the company’s recently reported free cash flow are indicative of an ever more prosperous future? If you don’t know whether equity holders can withstand a 1 in 20 (or 1 in 50) year industry shock then, for me, Atco is speculative. Thrifty, Although I don't think you can't easily extrapolate the state of affairs of the smaller boat sector to the big boats (these are different markets), but I think your global analysis and conclusion is spot-on!
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Now you got it! The 15% IRR is achieved by high utilization rates of 96-97% and reduced financing costs through ATCO's model. The shipping industry is very similar to Sokol's experience with Netjets...how do you share the cost of transport and increase bookings to very high efficiencies. If you manage to distribute your financing cost and are efficient on bookings, you get a high capex business that is modestly profitable. It creates an internal moat that makes it difficult for competitors to enter the market because they either get the capital costs wrong or can't become efficient enough on the booking side. A great operator like Sokol is priceless for such businesses and such businesses don't work unless you have a great operator! Look at Railroads, look at the Airline industry...very much like Shipping...Energy is somewhat similar. Cheers! I don't think you can compare shipping and airlines to railroads, real estate and energy. Each sector is capital intensive, but it is far more easier to create a moat in the last 3 sectors than in shipping and airlines. In railroads, real estate and energy, there basically is a moat because of the location. The infrastructure simply cannot be replicated because of the location limitations or regulation that prohibits it. With shipping and airlines, there is no such limitation and supply can increase as long as somebody has the money available to fund it. The sector is capital intensive, cyclical and commodotised : a really bad combination. The only way to create a moat is by superior operating margins and thus structurally lower operating costs. Since these costs are a smaller percentage of revenue, it's difficult to create or maintain the moat, and even then, results can only be seen on the long term by higher survivability, not necessarily higher profit. Because of the high capital intesitivity, an operator can easily fool himself by just looking at EBITDA or cash flow and negating the high depreciation. In that way, zombies can go on for a long time, creating bad industry conditions for all participants for a very long time. It's no coincidence I think that the shipping companies pay such high dividends. The owners want to extract as much money from cash flow as they can, while they can. The shipping families also create their wealth by playing the other financing parties. The markets don't seem to understand the sector's dynamic and appear willing to buy overvalued shares when things go great. On the other hand, banks don't seem to understand it eather and get fooled into financing extra capacity. When things go bad, their collateral disappears and they have no choice but to extend and pretend. This way, the shipping families profit when things are great and pass the buck when thing are less rosy. This way the "shipping dynasties" create their wealth in an otherwise risky and difficult business. I conceed that Seaspan operates in a somewhat different way, with longtime charters and different financing models. That's why it is my favorite amongst shippers. But still, I think the sector is lousy and not to be compared to other capital intensive businesses as energy or railways. For people interested in the sector : a fun book to read is "the shipping man" from Matthew McCleery. Some fictional figures in the book seem to be based on real people in the sector by the way.