MXG - Maxim Power Corp

[misterkrusty]

why before Christmas?  Tough time to get anything done on Wall St.  Folks are on vacation.  I don't know as much about Bay St. though.

[Cardboard]

Because it is about time  ;D

 

And normally, I see a fair bit of business done between U.S. Thanksgiving and the week before Christmas. Allows to get deals done before year end and to start fresh in January.

 

If the guys on Wall Street are already on vacation then they are off from before Thanksgiving until January 10 or so or when kids return to school? Maybe the case for the big bosses but, not likely for the folks participating in the sale of Maxim U.S. assets.

 

Cardboard

[Cardboard]

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aMXG-2428153&symbol=MXG&region=C

 

That is quite positive news since with the closing of the sale, that money is now in the bank, the revolver issue goes away and with this, better negotiating power to finalize the sale of its U.S. assets.

 

Cardboard

[Cardboard]

Sounds like bad news and to release this tonight...

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aMXG-2433136&symbol=MXG&region=C

 

They were getting $112 million U.S. and $90 million net from Rockford in 2013 so with EBITDA growing and FERC resolved this looks shitty.

 

Cardboard

 

 

 

 

[sculpin]

Sounds like bad news and to release this tonight...

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aMXG-2433136&symbol=MXG&region=C

 

They were getting $112 million U.S. and $90 million net from Rockford in 2013 so with EBITDA growing and FERC resolved this looks shitty.

 

Cardboard

 

Fire sale - obviously the Board has no idea what they are doing.

[sculpin]

Sounds like bad news and to release this tonight...

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aMXG-2433136&symbol=MXG&region=C

 

They were getting $112 million U.S. and $90 million net from Rockford in 2013 so with EBITDA growing and FERC resolved this looks shitty.

 

Cardboard

Last IAS report...

 

Both intrinsic value and relative valuation point to >$3/sh value for the US division. As we have calculated in previous Research Updates, we continue to believe that the intrinsic value of MXG’s US assets are worth >$150M (>$2.50/sh, net of debt), based on annual EBITDA of $40-50M/year over the next three years (driven by higher capacity payments) and >$20M/year thereafter. Asset transactions for gas-fired capacity in the US Northeast continue to indicate valuations above 7x EV/EBITDA, which supports our intrinsic value calculation.

[TBW]

Still appears to me to be a bit of MOS here but still v disappointing result on the sale.  Less than 5x ebitda, what explains that?

 

Is there a bullish spin here that the Alberta development assets are attractive and thus capital now is very useful?  Or just wishful thinking?

[BG2008]

I don't think there's much margin of safety here left.  When assets sales in a liquidation play consistently come in below your estimates, you should start paying attention that perhaps your assumptions are wrong or they just want to get out so bad that they don't care a low price. 

 

MUSA came in at $143mm CAD versus the $200+ CAD that is posted here.  This is a huge delta.  All along my thesis was that if one gets MUSA right, then the rest of the thesis takes care of itself. 

 

The Alberta restitution can take years to resolve.  Met coal can be valuable one day and then poof worthless the next.  I never got comfortable with MUSA and never bought a share and am glad.  At least, it's one thing that I no longer have to spend time on. 

 

Sorry that it worked out this way for people who are involve.  I just want to add that pay attention to cash burn and wind down cost.  A wise man once said that "assets are fleeing like the wind, but liabilities are like passing a kidney stone."  Good luck to all you guys. 

[sculpin]

I don't think there's much margin of safety here left.  When assets sales in a liquidation play consistently come in below your estimates, you should start paying attention that perhaps your assumptions are wrong or they just want to get out so bad that they don't care a low price. 

 

MUSA came in at $143mm CAD versus the $200+ CAD that is posted here.  This is a huge delta.  All along my thesis was that if one gets MUSA right, then the rest of the thesis takes care of itself. 

 

The Alberta restitution can take years to resolve.  Met coal can be valuable one day and then poof worthless the next.  I never got comfortable with MUSA and never bought a share and am glad.  At least, it's one thing that I no longer have to spend time on. 

 

Sorry that it worked out this way for people who are involve.  I just want to add that pay attention to cash burn and wind down cost.  A wise man once said that "assets are fleeing like the wind, but liabilities are like passing a kidney stone."  Good luck to all you guys.

 

At the $2.50 level where people were buying this over the last year the returns should be still quite favourable. Once these deals all settle and paying off all debt, Maxim should still have over $3 in cash factoring in the basic line loss settlement of $41mm. On top of this there is still the Milner plant, Summit resource and the various development assets. Remains to be seen what direction the Board of Directors takes the cash shell post the closing of the MUSA business.

[BG2008]

Yes, at $2.50, it's a different risk/reward.  At the most recent mid to high $3, there's not much of MOS to talk about. 

[valcont]

What a meltdown today!!Another big move down and I'll be a buyer. At least the management is motivated to sell at any cost ;) Are you guys still holding?

 

[Cardboard]

Still holding but, less enthusiastic for sure.

 

I think it is time for hedge funds holding this thing to get more vocal: block that sale and/or force a plan disclosure for value creation.

 

However, it will be tough to push or block the 2 insiders with over 40% of shares and the only ones supporting this ridiculous asset sale. The metrics are crazy unless there are undisclosed liabilities/maintenance. It does not approach public valuations/other asset sales.

 

Cardboard

[valcont]

Still holding but, less enthusiastic for sure.

 

I think it is time for hedge funds holding this thing to get more vocal: block that sale and/or force a plan disclosure for value creation.

 

However, it will be tough to push or block the 2 insiders with over 40% of shares and the only ones supporting this ridiculous asset sale. The metrics are crazy unless there are undisclosed liabilities/maintenance. It does not approach public valuations/other asset sales.

 

Cardboard

 

Beats me as to why they sold for so cheap to a PE firm. I did a fair amount of research on the comps and everything came out at atleast 7x+ on EBITDA. What concerns me is this statement:

 

"MUSA sale proceeds will be held by MAXIM for strategic corporate purposes, including providing the potential opportunity for MAXIM to invest in new projects in Alberta's power market which is expected to undergo significant reforms in the coming years. MAXIM currently owns and operates a number of operating and development stage projects and assets in Alberta, including HR Milner, a 150 MW coal-fired generating facility located near the town of Grande Cache, Alberta."

 

So no plans to return money to the shareholders. Although Alberta assets are still on sale. If they can/or are already in talks to buy some power assets at a discount, that may be a good tradeoff. Will like to hear from the management. They are on a negative watch for now.

 

[Cardboard]

They don't need to buy anything as they have many assets to develop. They still need more capital but, you can leverage power assets such as their wind power project.

 

I had thought that a smart sale of MUSA, selling their coal asset and collecting the Line Loss settlement would have resulted in the most value creation. Then a combination with Transalta who needs to transition away from coal power made the most sense.

 

Interestingly, their latest new hire used to work for TA and has received performance shares which would incentivize him to do the right thing: see latest insider trades.

 

Cardboard

[sculpin]

Industrial Alliance note....

 

MXG Enters Agreement to Sell US Operations for US$106M;

Closing in on Expected Valuation

 

Event

 

On Friday (December 23) MXG announced an agreement to sell its US

operations to an affiliate of Hull Street Energy LLC (a private equity firm) for

US$106M (US$84M net of debt).

 

Highlights

 

 MXG announces an agreement to sell its US operations. MXG will sell its

US operations (MUSA), including five natural gas-fired power plants

totaling 446MW of installed capacity, for US$106M (US$84M net of

existing debt). The Company will seek shareholder approval for the

transaction in February 2017 (shareholders representing approximately

42% of outstanding common shares support the transaction). Subject to

shareholder and regulatory approvals, the transaction is expected to close

in Q1/17.

 

 We consider the implied valuation of the transaction to be fair. From a

valuation perspective, we estimate EV/EBITDA of roughly 5-6x based on

average EBITDA of US$19M/year ($25M/year) over the next five years (an

increase from 2016 and 2017 due to higher expected capacity revenue in

the New England power market). We had previously expected that MUSA

could be worth in excess of US$110M ($150M in our Q3/16 Research

Update1), based on its intrinsic value and potential optionality associated

with growth prospects. Thus, we view the announced transaction as fair,

but essentially in line with our base-case estimate and at a slight discount

to recent market precedents.

 

 MXG continues to crystallize value for shareholders. Net of associated

debt, the transaction will put ~$2.09/sh of incremental cash on MXG’s

balance sheet; moreover, note that the sale of MUSA follows on MXG’s

sale of its French assets for net proceeds of €18M (~$25M, ~$0.47/sh,

excluding a potential contingency payment), which closed on December 2.

 

Recommendation

 

We are maintaining our Speculative Buy rating and $4.50 price target. Pro

forma for the MUSA transaction, MXG will consist solely of its Alberta

operations (M1) and various development prospects. We are moving to a sumof-the

parts valuation based on (1) the intrinsic value of M1 from our DCF

model, plus (2) cash proceeds from the sale of the French and US assets (net of

debt), plus (3) expected line loss recovery payments. Pro forma for the US sale,

~$2.50/sh of our valuation (~60%) relates to cash. Note that MXG has longerterm

potential upside associated with its operations and prospects in Alberta,

although we believe that a wind-up of MXG would not be out of the question

at this point. In a takeout scenario, we would expect MXG to receive a

premium, bringing us to our $4.50/sh price target.

[sculpin]

Dark Horse mention in their annual letter...

 

Maxim was down a bit on the year. As our largest weighting for most of 2017 this small downturn

resulted in Maxim making this list. We anticipate that with a final resolution to the AUC Loss Factor Decision

, 2018 will see Maxim Power finally put out to pasture. Such a move will likely

move Maxim to the following list for next year.

 

Specifically, we would point to Maxim Power Corp. (MXG:TSX) and Terago Inc. (TGO:TSX)9

aslikely recipients of some long overdue recognition – their “Michael Keaton in Birdman” moments.

That sentiment may be a repeat of what has appeared in previous annual letters, but this time we

really mean it. Heck, if an iced tea company, cigar maker and Kodak can become cryptocurrency

“plays” with a simple name change, why can’t an actual power producer or a data centre operator be

turned into legitimate blockchain companies?10

 

https://seekingalpha.com/article/4143463-ewing-morris-dark-horse-lp-annual-update-2017