ETR:PBY - Publity AG

[Lakesider]

This has continued to take a beating. Anyone know when they are due to announce yearly results?

[JM]

http://www.publity.de/en/investor/2016-05-25-13-59-26/press-releases/item/1091-publity-anticipates-earnings-for-2017-to-be-lower-than-previous-year

 

"the company has not reached the previous year’s earnings of EUR 23.1 million. However, according to current information, earnings for the year will be significantly positive. This is due to property sales that were not realised at the end of 2017 in the amount of EUR 280 million which have been shifted to 2018. Assets under management increased substantially through to the end of 2017, however it was not possible to attain the target of EUR 5.2 billion. The portfolio property holdings will also be increased after 31 December using the existing liquidity. Provisional figures for the 2017 financial year are scheduled to be published on 20 February."

 

[Lakesider]

while preparing the annual financial statements for 2017, the Managing Board of publity AG has come to believe that in 2017 the company has not reached the previous year’s earnings of EUR 23.1 million

 

I read this as earnings are in the same ballpark as they were in 2016. The EUR 280 million sale should be a good start to 2018. Looks like the market has overreacted to the negative news? 

 

Would love to know some of your thoughts.

 

 

 

 

[LaGrandeBelleza]

while preparing the annual financial statements for 2017, the Managing Board of publity AG has come to believe that in 2017 the company has not reached the previous year’s earnings of EUR 23.1 million

 

I read this as earnings are in the same ballpark as they were in 2016. The EUR 280 million sale should be a good start to 2018. Looks like the market has overreacted to the negative news? 

 

Would love to know some of your thoughts.

 

Imo the market has overreacted given the fact that the adjusted 2017 result, taking into account the 280M shifted sale, shouldn't be that bad.

 

The thing is lots of uncertainty has been adding up regarding the company:

 

- PBY is quite opaque by it's own nature and the management hasn't helped to calm the investors

- Uncertainty and poor communication regarding the bond and its terms, they attemped this weird change of the prospectus that nobody understood

- The lack of news regarding transactions during late 2017 and early 2018 has scared even more people as they believe the business might have been materially impaired

- Yet again lack of PR & basic IR skills

 

Moreover most of the shareholder base were retail investors who were there for the dividend and most didn't perform any further research and just run away when uncertainty come into place. Most of these retail investors have just been elucubrating over every aspect regarding Publity but most don't seem to grasp the reality of the business or the situation, that just adds up to the uncertainty and downwards spiral.

 

So all in all, unless there is some hidden corpse in the closet, the company looks really cheap being an asset light cash generative business however until there is some catalyst and/or the management takes real action in order to solve these communication issues and misunderstandings the stock is on the middle of nowhere.

[whiterose]

some comments from a workplace ratings platform: https://www.kununu.com/de/publity/kommentare

looks not too good..

[LaGrandeBelleza]

some comments from a workplace ratings platform: https://www.kununu.com/de/publity/kommentare

looks not too good..

 

The company roughly has 26 workers so that could be any angry ex-employee that left on bad terms with PBY. Even though it looks quite bad it seems hardly representative as the happy workers will most likely not write there.

[ebdem]

Or maybe it fits perfectly in the picture of a company with strange structures?

[Lakesider]

I don't think you guys are wrong with the critical comments about management here. It sounds like they have been deliberately shady and wouldn't be surprised if its not the nicest place to work. I original only wanted small position in this but as the price has fallen over 40% this year I have been uncomfortably buying more.

 

It seems that they have over promised and under-delivered this year yet still assets under management grew (at least) 15%. Earnings are disappointing if they are around 10M but I suspect that if you included the 160M asset sale results would have been inline with 2016. If we are acting like owners of the company and not paper traders, why should we care if earnings have fallen inconveniently outside the calendar year? 

 

The CEO has a lot of skin in this game which gives me some reassurance that in the the long run his interest will be aligned with mine (despite abysmal IR). At todays price I think the market is already predicting the worst.

 

 

 

 

[reader]

The stock falls at an accelerated pace since the day after the earnings release. over 45% so far.

The convert is at circa 70 down from 90.

As far as I could tell the sky hasn't fallen. the company is profitable. moderately leveraged but less profitable than before due to fewer purchases and divestment of properties(the third pillar of fees is management fees).

On the 15th they acquired a building for the number 6 fund.

Yet the bottom fell off.

What am I missing?

Could it all be retail investors rushing out, seeking a dividend stock(which is missing so far)?

[misterkrusty]

I'm puzzled too.  I heard that many of the original shareholders were the same retail investors that had been in their original funds - i.e. income seeking investors.  in my experience, retail income-oriented folks aren't the smartest, and may not have much tolerance for market volatility (in the private funds there is no daily mark-to-market).  so that's just my guess.

 

someone here said earlier that the proposed changes to the convert terms were not an indication of bad intentions, but rather just inexperience and confusion on management's part when it comes to public securities.  note how they issued a convert to bridge a short-term liquidity gap due to the last dividend payment.  dumb moves like that don't give me confidence, but doesn't the share price reflect a lot of pessimism already?

 

 

[reader]

"but doesn't the share price reflect a lot of pessimism already?"

that's the way I see it but I'm looking for my blind spot.the same logic was true $4 ago(on Monday).

 

[misterkrusty]

Let's crunch some numbers:  on Feb 20th the company said "it is expected that planned sales of real estate with a value of € 280 million will be realized in the coming months - this should ensure the corresponding turnover and profit. In 2018, the group expects a profit of between 15 million and 20 million euros. "As a precaution, there is no increase in assets under management in this forecast,"

 

15-20m profit on a market cap of ~73m seems really cheap - even if you factor in the debt.  but does anyone have an idea of how much profit will come from those real estate sales, and what that implies about the other sources of profit (e.g. management fees)?

[reader]

We know that management fees are 0.5%

historical IRR for the first 530 assets 20% pa. (on the equity). hurdle rate 8%-10%

this is from the Res Privata analysis.

also in this report, every deployment of a sales proceeds is subject to the investor approval and because of the short holding period relative to the 5-7 years of the fund's life, there's always a risk of funds getting into a run-off.

I hope that's not the case.

 

Let's crunch some numbers:  on Feb 20th the company said "it is expected that planned sales of real estate with a value of € 280 million will be realized in the coming months - this should ensure the corresponding turnover and profit. In 2018, the group expects a profit of between 15 million and 20 million euros. "As a precaution, there is no increase in assets under management in this forecast,"

 

15-20m profit on a market cap of ~73m seems really cheap - even if you factor in the debt.  but does anyone have an idea of how much profit will come from those real estate sales, and what that implies about the other sources of profit (e.g. management fees)?

[Spekulatius]

I checked in Germán investment forums what the issue is with PBY.DE. It looks like these morons have violated a covenant in their (convertible?) bonds that allowed them distribute no more than 50% of their earnings and they violated that by distributing more.

 

There is a concern that the company could be forced into liquidation, which in Germany isnpretty much a guaranteed zero for shareholders.

 

Management tries to get a retroactive waiver on this covenant, but I think they don’t have much goodwill and some bond owners may like the idea of a liquidation. I do know these guys don’t have the best reputation when I looked at this stock a while ago and in Germany this goes a long way. I have no idea what is going to happen.

 

Just my 10 min worth of research as a native German. I have no interest in this stock and I am not likely do more research either and likely have missed things.

 

[Lakesider]

Thanks Speckulatius, really helpful appreciate your comment.

[reader]

Thanks Speckulatius, good to know where we stand even if it's not pleasant.

[Lakesider]

The Covenant in question.

 

The Issuer undertakes, so long as any of the Notes are outstanding, but only up to the time all amounts of principal and interest have been placed at the disposal of the Paying Agent and all obligations pursuant to § 8 have been fulfilled,

not to  -

 

(3) distribute any dividends to its shareholders in excess of 50% of the Issuer’s net income (Jahresüberschuss) as shown in its stand-alone financial statements under German GAAP for any of the Issuer’s financial years beginning with the Issuer’s financial year ending on 31 December 2016.

 

 

 

I'm amazed this hasn't been publicly addressed.

 

 

[misterkrusty]

Spekulatius- thanks for that info.  Let me admit that I don't have experience with covenant violations in Europe, though I'm certainly aware that European law is generally much less favorable to debtors than is US Chapter 11.  That said, I don't see why the convert holders would press for liquidation as it seems this company is worth significantly less than the debt's par value in a liquidation and likely much more than par as a going concern.  Reasoning is as follows:

 

1) tangible equity is ~53M at best (i.e. if one applies NO haircuts to stuff like accounts receivable, etc.), which is just slightly above the 50M par value of converts.

 

2) legal fees would eat into that figure.

 

3) Olek and the rest of senior management could just threaten to walk if convert holders voted to liquidate.  Publity isn't some huge asset manager where a few departures won't sink the ship.  This is a 26-person company and probably at least half of those are support staff.  basically, this is the Thomas Olek show.  I would expect that Elliot and other institutional investors would have a clause in their fund documents that gives them the option to withdraw their money due to a change in investment managers.

 

4) if Olek and others departed, creditors would have to orderly liquidate ~69M of real estate investments (per 1H17 balance sheet, there were 53.6M of real estate loans and 12.4M of "other assets" which was money to be invested in various funds at mid-2017.  They'd likely have to pay some investment bank to do this and I-bankers aren't cheap.

 

5) meanwhile, Publity is expecting something like 16-21M in unlevered FCF for 2018, which is huge compared to the 50M par value of the converts.  Thus the going-concern value is likely much higher than liquidation value.

 

Now, I realize that convert holders probably have no love for management after that attempt to revise the terms of the converts.  But why risk a recovery of less than par when Publity could probably just pay off the debt or refinance around year 2020?  Wouldn't convert holders would be much better off proposing a lower strike price in exchange for a waiver?

 

[misterkrusty]

two more things:

 

a) selling off that real estate in an orderly fashion would probably take significant time.

 

b) back in the mid-2000s, there was an activist campaign by Cannell Capital against a small hedge fund manager that was publicly traded.  Cannell won control, but the talent at the hedge fund manager walked out the door and thus it was a Pyrrhic victory for Cannell.

 

http://www.nytimes.com/2005/10/28/business/when-winning-the-battle-leads-to-losing-the-war.html

[petec]

Wouldn't convert holders would be much better off proposing a lower strike price in exchange for a waiver?

 

My thoughts exactly.

 

The bigger issues are:

a) If you were a client wouldn't you pull your money?

b) If you were a client wouldn't you be worried that your supposedly smart manager had done something so extraordinarily stupid?

 

I'm really tempted by this. I know I shouldn't be (mainly because I don't speak German and therefore can't get much of the relevant info) but it is approaching 1xBV assuming they capitalise 2H earnings. Not much in the price for anything going right.

[Spekulatius]

I don’t know the answer to above questions and I don’t feel like digging. for those that are able and interested, here we s a link to the Germán forums I used to investigate a bit:

https://www.wallstreet-online.de/diskussion/1215540-1-10/publity-immowert-einer

[Lakesider]

Looks like they are are voting on doubling the rate on the convertible bonds to 7%. An aditional 1.75M in interest expense. Bond holder would be unlikely to turn that down right?

 

In the context of the conversion, the bondholders shall be entitled to receive new bonds with a nominal value of 100% of the nominal amount of today's bonds, unaltered conversion price (in accordance with § 11 (anti-dilution protection) and / or § 14 (1) d) of the bond conditions Amount), an unchanged term until 17 November 2020 and an annual interest rate of 7% (as well as an interest premium of an additional 3.5% pa (ie pro rata temporis) for the first six months of the term of the new bond) without further consideration , The negative obligations of the Company in accordance with § 12 of the Terms and Conditions of the Notes shall continue unchanged in the context of the new bond.

 

http://www.publity.org/de/investor/news-und-medien/publity-pressemeldungen/item/1115-3-5-wandelanleihe-2015-2020-der-publity-ag-abstimmung-ueber-einen-umtausch-der-anleihe-in-erwerbsrechte-auf-eine-neue-anleihe-mit-erhoehtem-zinssatz

 

 

[misterkrusty]

I highly doubt many bondholders want to see this company liquidated.  it's worth more alive than dead and no one is worried about repayment at maturity.  I spoke with one bondholder who agrees (but admittedly have only spoken with one of them)

[cameronfen]

I highly doubt many bondholders want to see this company liquidated.  it's worth more alive than dead and no one is worried about repayment at maturity.  I spoke with one bondholder who agrees (but admittedly have only spoken with one of them)

 

Additionally, you are only entitled to your loan in a bankruptcy.  The obvious win win would be for bondholders is to negotiate new terms that pay them a higher win win. 

[petec]

Does anyone have an educated guess as to 1H results? I haven't seen many sale announcements.