nielfiel Posted February 10, 2015 Share Posted February 10, 2015 Newbrook’s Boucai Goes Long SS&C Tech, Short Rayonier Advanced RYAM a compelling short given overcapacitized industry, slowing demand growth, margin erosion from pricing pressure, “stretched” balance sheet and sudden departure of CFO I hadn't heard of Newbrook Capital until I saw the Bloomberg story and cannot seem to find the actual letter either. Full disclosure, I am long RYAM and recently added at $17.99. Generally I have to agree with Boucai's short thesis however we are likely to disagree regarding or have different investment time frames. Longer term (beyond the next few quarters) I believe there will be no further substantial CS price declines and that full cycle EBITDA is likely to be between $250m and $300m with $60m in maintenance capital expenditures and ultimately unlevered free cash flow of ~$150m. At an current EV of $1,600 this equates to just under a 10% free cash flow yield. Probably a really long shot, but would be interesting to see RYAM merge with the soon to be spun out specialty chemical business of MWV. Link to comment Share on other sites More sharing options...
3259 Posted March 25, 2015 Share Posted March 25, 2015 Morningstar just precipitously dropped fair value on RYAM from $36 to $22. The 03/25 analyst report also indicates that they've "transferred coverage" to another analyst. It seems like Morningstar frequently does that when they make a really bad call. I've also seen Morningstar drop coverage of a stock after making a really bad five star stock call, which is horrible timing for subscribers who are trying to figure out how to respond to the steep decline in price. Does anyone else agree or know why they do that (transfer analysts or drop rating) other than the obvious reason which might be to wash their hands of the bad call? It seems like M* really dropped the ball on this one. Here, they gave RYAM a $36 fair value, a narrow moat, and a five star rating. Its lost 50% while having a five star rating and NOW they say its really a $22 stock with NO MOAT. Report says "moat trend" is stable but there is concern over COMPLETE loss of third largest customer and entrance of new player, Bracell, which has "long possessed" the ability to toggle between commodity- and specialty-grade products. Link to comment Share on other sites More sharing options...
jschembs Posted March 25, 2015 Share Posted March 25, 2015 Is MOAT TREND a trademarked term? Link to comment Share on other sites More sharing options...
ccap Posted March 25, 2015 Share Posted March 25, 2015 Morningstar prices are a joke. The whole site is geared to "retail" investors (aka unknowledgeable). The whole growth vs value grid should emphasize the fact that they just don't understand how to value a business. Back when AAPL bottomed a few years ago, I was very long AAPL. At the absolute bottom, Morningstar lowered their price targets >30% and joined the end-of-the-world crowd. They were absolutely bass ackwards and driven by the crowd. Keep in mind that Morningstar makes money by publishing something -- anything. They're not paid to be right. Link to comment Share on other sites More sharing options...
3259 Posted March 26, 2015 Share Posted March 26, 2015 In May 2014, RYAM and its Chairman / CEO entered into a retention award agreement whereby the company awarded $4 million in stock and accumulating dividends with interest to the CEO. The award was contingent on continued employment and was set to vest on 08/31/2018 or upon a change in control. A Form 4 was filed yesterday (see attached pdf "stock award amended") for the Chairman/CEO. The filing states that "On March 23, 2015, at the Compensation and Management Development Committee's direction, [the CEO's] retention award agreement ... was amended to convert the guaranteed value RSU award described in the Agreement.... The award, as amended, will vest and become payable solely in cash, at the same value as the original award, on August 31, 2018." I've attached what I think is the retention award agreement referred to (See attached "stock award'). The prior award was based on the stock price last year. Since the stock has tanked since that time, isn't the board simply giving the CEO over a million dollars for no real reason (other than that the stock has gone down a ton)? For those of you who are more familiar with these issues, is this a common occurrence or an alarming indication of poor stewardship on the part of the board? They simply seem to be giving away over a million dollars for no legit reason. UPDATE: I spoke with Inv Relations regarding the amendment to the retention agreement. Per IR, the issuance price for the $4 million in stock is based on the price when the award vests in 2018 not based on 10 days of trading after the new RYAM stock was issued in 2014. Based on what IR said, the CEO is getting $4 million either way: in Aug 2018 he gets $4 million either in cash or stock at the Aug 2018 price. This IR interpretation of the issuance price isn't clear to me for two reasons. First, its not clear based on the attached document (assuming I've identified the correct award agreement). Second, this interpretation provides no incentive for the CEO to increase the stock price. If the purpose of the award agreement is to motivate the CEO to stay with the spin off and grow it, wouldn't it make more sense to base the award on the 2014 price and not on the price when the award vests in 2018? If its based on the 2014 stock price and the price goes up, he potentially gets a lot more money.stock_award.pdfstock_award_amended.pdf Link to comment Share on other sites More sharing options...
KCLarkin Posted March 26, 2015 Share Posted March 26, 2015 For those of you who are more familiar with these issues, is this a common occurrence or an alarming indication of poor stewardship on the part of the board? Sadly this is both poor stewardship and a common occurrence. Link to comment Share on other sites More sharing options...
merkhet Posted March 26, 2015 Share Posted March 26, 2015 As far as I can tell, it seems like the CEO was supposed to get $4M worth of stock based on the 2018 price. Instead, now he is going to get paid $4M in cash. I can see why this is worse than $4M worth of stock based on the spin-off price, because that would incentivize him to make the stock price go up. I don't quite see why the change is terribly different from the original deal other than the fact that the company is no longer going to have to turn over stock to him in 2018. Am I missing something here? Link to comment Share on other sites More sharing options...
3259 Posted April 13, 2015 Share Posted April 13, 2015 I have heard comments elsewhere that Bracell (Sateri) has a competitive advantage v. RYAM due to access to cheaper wood inputs. Would be interested to hear from anyone with insight into this issue. The comments about Sateri having cheaper inputs reminded me of something Charlie Munger supposedly said about Berkshire Hathaway when it was still in the textile business: "[The] textile business in New England… was totally doomed because textiles are congealed electricity and the power rates were way higher in New England than they were down in TVA country in Georgia. A totally doomed, certain-to-fail business." I'm trying to figure out how serious an issue the cheaper inputs are for RYAM, how sustainable an advantage it is for Sateri, and what, if anything, RYAM can do to address the issue. Link to comment Share on other sites More sharing options...
3259 Posted April 13, 2015 Share Posted April 13, 2015 04/02/2015 investor presentation attached. Page 6 indicates that current market value is "well below replacement cost of assets."Investor_Presentation_040215.pdf Link to comment Share on other sites More sharing options...
ccap Posted April 13, 2015 Share Posted April 13, 2015 Slide 23 is the most interesting. It looks like they are projecting the output price to continue the free fall. Last time I looked at this business, management didn't admit or acknowledge their situation. Link to comment Share on other sites More sharing options...
Spekulatius Posted April 14, 2015 Share Posted April 14, 2015 Slide 23 is the most interesting. It looks like they are projecting the output price to continue the free fall. Last time I looked at this business, management didn't admit or acknowledge their situation. That's probably all one needs to know about RYAM right now. In addition, I would avoid this stock because the leverage at 4.5x EBITDA is simply way too high for such a cyclical business Link to comment Share on other sites More sharing options...
3259 Posted April 14, 2015 Share Posted April 14, 2015 I have heard comments elsewhere that Bracell (Sateri) has a competitive advantage v. RYAM due to access to cheaper wood inputs. Would be interested to hear from anyone with insight into this issue. The comments about Sateri having cheaper inputs reminded me of something Charlie Munger supposedly said about Berkshire Hathaway when it was still in the textile business: "[The] textile business in New England… was totally doomed because textiles are congealed electricity and the power rates were way higher in New England than they were down in TVA country in Georgia. A totally doomed, certain-to-fail business." I'm trying to figure out how serious an issue the cheaper inputs are for RYAM, how sustainable an advantage it is for Sateri, and what, if anything, RYAM can do to address the issue. I got an answer to my question quoted above that I found very helpful. Here is the response I received: Interesting parallel and statement by one of the world's most highly regarded investors! Do these companies use the same wood source for all of their products? Is there any way RYAM can adjust to a cheaper source or are they just stuck with their more expensive sources due to the location of their facilities? No. Different wood is required for different end markets. Per my research, acetate (80% of RYAM's revenue) requires hardwood. Bracell (fka Sateri) is vertically integrated into eucalyptus (a type of hardwood). RYAM is not integrated and sources hardwood from third parties (sourcing radius limited to 100 miles due to transportation costs). See RYAM's latest IR deck. Eucalyptus takes 7-8 years to grow; hardwood that RYAM relies on takes 30 years to grow, so even if RYAM's suppliers can grow eucalyptus, that is unlikely to help for several years. With respect to dollars and cents, RISI's December 2014 World Timber Monitor shows that Brazilian eucalyptus trades at a 35% discount to US South hardwood (see p. 6 and 13 of this pdf: http://bit.ly/1FH4thW). You'll note that this pricing was as of December 2014. Since then the Brazilian real has depreciated by 25% vs. the USD. You can also see this difference in Bracell and RYAM's financials. In 2014, Bracell produced 435kmt of dissolving wood pulp and reported a cost of sales of $240mm (reported $300mm less $60mm of depreciation in COS). Same figures for RYAM are 627kmt and $648mm. Thus, Bracells cost of sales was $550 per ton and RYAM was $1,030 per ton, nearly 2x Bracell. RYAM's greater CS mix (versus Bracell's more commodity mix) accounts for ~$100 per ton of the difference, so clearly, Bracell has a much lower cost position. Link to comment Share on other sites More sharing options...
rogermunibond Posted May 2, 2015 Share Posted May 2, 2015 http://finance.yahoo.com/news/rayonier-advanced-materials-reports-first-103000430.html No respite on DS pricing but it looks like energy prices drop and maybe some of their internal cost reductions have improved profitability. Link to comment Share on other sites More sharing options...
magno111 Posted May 15, 2015 Share Posted May 15, 2015 David Abrams has sold out all of his stake... got in at 30$ and out at 15$... it isn't always a good idea to follow big hedge funds... Link to comment Share on other sites More sharing options...
yadayada Posted July 19, 2015 Share Posted July 19, 2015 I have heard comments elsewhere that Bracell (Sateri) has a competitive advantage v. RYAM due to access to cheaper wood inputs. Would be interested to hear from anyone with insight into this issue. The comments about Sateri having cheaper inputs reminded me of something Charlie Munger supposedly said about Berkshire Hathaway when it was still in the textile business: "[The] textile business in New England… was totally doomed because textiles are congealed electricity and the power rates were way higher in New England than they were down in TVA country in Georgia. A totally doomed, certain-to-fail business." I'm trying to figure out how serious an issue the cheaper inputs are for RYAM, how sustainable an advantage it is for Sateri, and what, if anything, RYAM can do to address the issue. I got an answer to my question quoted above that I found very helpful. Here is the response I received: Interesting parallel and statement by one of the world's most highly regarded investors! Do these companies use the same wood source for all of their products? Is there any way RYAM can adjust to a cheaper source or are they just stuck with their more expensive sources due to the location of their facilities? No. Different wood is required for different end markets. Per my research, acetate (80% of RYAM's revenue) requires hardwood. Bracell (fka Sateri) is vertically integrated into eucalyptus (a type of hardwood). RYAM is not integrated and sources hardwood from third parties (sourcing radius limited to 100 miles due to transportation costs). See RYAM's latest IR deck. Eucalyptus takes 7-8 years to grow; hardwood that RYAM relies on takes 30 years to grow, so even if RYAM's suppliers can grow eucalyptus, that is unlikely to help for several years. With respect to dollars and cents, RISI's December 2014 World Timber Monitor shows that Brazilian eucalyptus trades at a 35% discount to US South hardwood (see p. 6 and 13 of this pdf: http://bit.ly/1FH4thW). You'll note that this pricing was as of December 2014. Since then the Brazilian real has depreciated by 25% vs. the USD. You can also see this difference in Bracell and RYAM's financials. In 2014, Bracell produced 435kmt of dissolving wood pulp and reported a cost of sales of $240mm (reported $300mm less $60mm of depreciation in COS). Same figures for RYAM are 627kmt and $648mm. Thus, Bracells cost of sales was $550 per ton and RYAM was $1,030 per ton, nearly 2x Bracell. RYAM's greater CS mix (versus Bracell's more commodity mix) accounts for ~$100 per ton of the difference, so clearly, Bracell has a much lower cost position. So could this mean RYAM is toast then? Could be interesting if a lot of supply is taken off the market, since Bracell does not look that expensive. Edit: Bracell only uses 1/3 of their specialty capacity. And they have a serious cost advantage indeed. And a lot of Ryam's contracts are up for grabs in the next few years as they will have to be renegotiated (besides from year price reneg). It seems Bracell could be a really interesting play here, trading 5.5x 2014 earnings. Link to comment Share on other sites More sharing options...
bigbluffzinc Posted July 23, 2015 Share Posted July 23, 2015 Wanted to thank you guys for forcing me to rethink my position. RYAM was a larger position for me at around 10% of assets. We sold at a modest loss after the discussion on this board and running through everything again. Instead of staring at a 40% loss we took a 13.5% loss. Link to comment Share on other sites More sharing options...
wachtwoord Posted August 19, 2015 Share Posted August 19, 2015 I'm also very happy I exited this one a few weeks ago, especially considering the price action today. The input of this topic was very helpful. Link to comment Share on other sites More sharing options...
yadayada Posted August 19, 2015 Share Posted August 19, 2015 Almost bought some at around 20$. Glad I didn't. Now waiting for that evil fucker Sukarno Tanoto to die so I can buy Bracell (who is stealing all of RYAM's market share in non ether's. ) Link to comment Share on other sites More sharing options...
Saj Posted August 19, 2015 Share Posted August 19, 2015 Is Bracell indeed the 3rd party that is causing this dispute b/w RYAM and Eastman? I tried to find the court documents RYAM referred to in their filing without much success. Link to comment Share on other sites More sharing options...
yadayada Posted August 20, 2015 Share Posted August 20, 2015 http://www.brazilcellulose.com/phocadownload/download/document/bracell-announces-fy2015-interim-results-e20150817.pdf They are likely doing 50-60m$ USD this year on a 420m$ market cap. This is an interesting presentation: They are basically the lowest cost producer now. And they pay a 4% dividend. Have the best margins, best growth prospects, lowest leverage. Only 1/3 of capacity is used. Will profit from weak brazillian real in the next few years. Yet they are the cheapest by far. Maybe the reason is sukanto tanoto? It seems it could be a multibagger though :/ . Ryam's loss will be Bracell's gain. Link to comment Share on other sites More sharing options...
wjsco Posted January 26, 2016 Share Posted January 26, 2016 Well, 2013 GM for RYAM was like 30%+, similar to Bracell. In 2014, sales dropped 9%, with 8% attributable to price decreases, while COGS stayed the same. FX might be helping Bracell, but I don't think it has as big of a sourcing advantage/margin advantage as y'all are saying? Also, Bracell spends a ton on "replanting capex." Theyve done it the past 2 years - IDK if they do it every year, but if you're going to say that being vertically integrated gives them a cost advantage, I might expense this capex for the purpose of seeing how big that advantage is. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now