OptsyEagle Posted May 15, 2012 Share Posted May 15, 2012 Chad was on BNN at around 3:10pm today. I tried to find the link but BNN Video seems to jump from 3:05 to 3:40. Maybe someone there forgot to hit the record button. Anyways, Chad indicated that they have new orders that they fully expect will be ready for the 2nd half of 2012. The orders are numerous enough that they are now concerned about scheduling difficulties at Landqart over the 2nd half of this year. These orders are in addition to the one big order they have been waiting on and also expect to receive, that will take up over 1/2 of Landqart's capacity as well. I suppose this is why he is reluctant to buy the padlock I suggested a while back for that division. Link to comment Share on other sites More sharing options...
Liberty Posted May 15, 2012 Author Share Posted May 15, 2012 It's now on BNN.ca http://watch.bnn.ca/clip679792#clip679792 (funny how they screwed up the video ratio on Chad's feed so that he looks like he has a super wide head) Link to comment Share on other sites More sharing options...
lessthaniv Posted May 15, 2012 Share Posted May 15, 2012 Chad was on BNN at around 3:10pm today. I tried to find the link but BNN Video seems to jump from 3:05 to 3:40. Maybe someone there forgot to hit the record button. Anyways, Chad indicated that they have new orders that they fully expect will be ready for the 2nd half of 2012. The orders are numerous enough that they are now concerned about scheduling difficulties at Landqart over the 2nd half of this year. These orders are in addition to the one big order they have been waiting on and also expect to receive, that will take up over 1/2 of Landqart's capacity as well. I suppose this is why he is reluctant to buy the padlock I suggested a while back for that division. http://watch.bnn.ca/#clip679792 Link to comment Share on other sites More sharing options...
Liberty Posted May 16, 2012 Author Share Posted May 16, 2012 Here's how I think Chad is looking at Landquart (and this is just my guess): In that business, moving from 'new order' to 'printing' seems very tough. There are delays, lots of bureaucratic layers, very stringent specifications to meet, which can cause more delays, etc. But once you are printing, as Alfonso said on the call yesterday, a new series can go on for 10 years. Landquart just upgraded from 2,500 tons/year to 10,000 tons/year. That's 7,500 new tons that didn't exist before, so they need new orders to fill them, all at once, 3x more than what they had before. So now they're in the tough part of trying to get to printing, and they're getting the delays and bureaucrats.. But once they start printing enough big orders to almost fill the papiermachines, it sounds like there should be minimal fuss for a while, and Landquart at 4X the production that it had before sounds like it could be nicely profitable. I think that's why Chad is being so patient with it. They just have to get through this transition period (after all, you don't quadruple production very often) and get to a stable state. But that's just my guess. Link to comment Share on other sites More sharing options...
Myth465 Posted May 16, 2012 Share Posted May 16, 2012 One also has to consider a Euro breakup. Its a big job printing all those new notes from the countries which may or may not leave. Link to comment Share on other sites More sharing options...
tombgrt Posted May 16, 2012 Share Posted May 16, 2012 Myth, I believe that would take half a year at least. Mr market is more worried about the short term liquidity, cash cost for thurso and problems at landqart. I too believe there could be some real value at Landqart once the 10,000 tons start to get used efficiently. Dresden is worth almost the current market cap. And does anyone believe FTP would trade at below $100m market cap if Chad had to sell Dresden suddenly for $200m? I bought more at $20.8 just now but had to sell some of another holding for it. I just couldn't pass this after a 20%+ drop. Link to comment Share on other sites More sharing options...
Myth465 Posted May 16, 2012 Share Posted May 16, 2012 Im trying to sell my ATPGP to do the same. I am using this downturn to clear out all of the rift raft. If I get a bid, I will use the cash to buy some more FTP. You know you have a good holding when you dont care if it goes down, and want to buy more. Thats how I feel about SD and FTP. Link to comment Share on other sites More sharing options...
OptsyEagle Posted May 16, 2012 Share Posted May 16, 2012 WOW, these prices. Anyone feel like you just took at shower at a maximum security prison ... and you dropped your soap! Link to comment Share on other sites More sharing options...
colinwalt Posted May 16, 2012 Share Posted May 16, 2012 WOW, these prices. Anyone feel like you just took at shower at a maximum security prison ... and you dropped your soap! Or one of the guys who didn't drop the soap - a big opportunity ;-) Link to comment Share on other sites More sharing options...
bonechip1 Posted May 17, 2012 Share Posted May 17, 2012 FTP has a very similar setup to the prototypical company discussed in chapter 5 "When to Buy" in Fisher's Common Stocks and Uncommon Profits. Fisher talks about a shake down period when a complex plant is ramping up to commercial production and takes much longer than even the most pessimistic engineer would have thought it would take to work out the bugs. Disappointment in the investment community results in the punishment of the share price, but according to Fisher, it is at this inflection point that it is time to buy. Link to comment Share on other sites More sharing options...
bathtime Posted May 17, 2012 Share Posted May 17, 2012 FTP has a very similar setup to the prototypical company discussed in chapter 5 "When to Buy" in Fisher's Common Stocks and Uncommon Profits. Fisher talks about a shake down period when a complex plant is ramping up to commercial production and takes much longer than even the most pessimistic engineer would have thought it would take to work out the bugs. Disappointment in the investment community results in the punishment of the share price, but according to Fisher, it is at this inflection point that it is time to buy. Thanks for that analogy, bonechip1. Good to hear from you, I may have first come across FTP in a post of yours at Motley Fool. Always enjoyed your writing. Link to comment Share on other sites More sharing options...
OptsyEagle Posted May 17, 2012 Share Posted May 17, 2012 Yeah, I kind of thought we were going to find the bugs and problems during the long conversion last year. I guess I should have known that bugs are not that visable. Anyway, this stuff is normal. It is the investment community that is not. Link to comment Share on other sites More sharing options...
lessthaniv Posted May 17, 2012 Share Posted May 17, 2012 Yeah, I kind of thought we were going to find the bugs and problems during the long conversion last year. I guess I should have known that bugs are not that visable. Anyway, this stuff is normal. It is the investment community that is not. Daryl Swetlishoff's commentary on May 16th is an excellent read if you can get your hands on a copy. Link to comment Share on other sites More sharing options...
Liberty Posted May 18, 2012 Author Share Posted May 18, 2012 Bought a few shares today at 20.09 -- couldn't resist. Link to comment Share on other sites More sharing options...
merkhet Posted May 18, 2012 Share Posted May 18, 2012 I finally sat down and ran a few of the numbers and scenarios in my head. Dresden looks to be worth about the current market cap of the company. Landqart looks to be worth about double the market cap of the company (when run @ capacity). Thurso & LSQ look to be worth at least a billion a piece. What am I missing here? It does look like Chad's cutting it a bit close with the liquidity issues, but from the latest conference call, I got the following: Sources of liquidity: (1) Landqart hydro sale = $18 million (2) Landqart lands sale = $5 million (assuming they don't get the zoning approval for an extra $5 million) (3) Tax credits from gov = $13 million (might be a million more) (4) Remainder on IQ loan = $4 million (5) Accounts Receivable = $30 million (6) Cash on hand = $6 million Total sources of liquidity = $76 million Sources of spend: (1) Finishing Thurso co-gen = $50 million (2) Paying off short-term loans = $19 million (assuming they decide not to defer $9 million) Total sources of spend = $69 million Additionally, they could always push off closing the Thurso co-gen and not have to spend the whole $50 million this year, since the penalty for not completing in a timely fashion is capped at $1.8 million... Of course, this neglects to factor in the following: (1) Dresden throws off about $8 million in operating earnings per quarter, so there's $24 million coming in this CY (2) Landqart burned about $7 million last quarter and has at least one more quarter of burn. (3) Thurso burned about $4 million last quarter and may be break-even or even positive this quarter. Even assuming Landqart burns $21 million over the next three quarters (i.e. further delays on the large customer that is looking to take up 50% capacity or 5,000 tonnes), you can cover that with Dresden w/o even counting Thurso. Best case scenario is that Landqart burns one more quarter and gets online w/ an extra 5,000 tonnes, which I believe would drop around $9 million onto operating earnings per quarter... So... what's the problem? What am I missing? Link to comment Share on other sites More sharing options...
tombgrt Posted May 18, 2012 Share Posted May 18, 2012 How do you come at that value for Landqart merkhet? I have no clue how to value it so I just put in a big zero or even put in a negative valuation to be sure. I would just be guessing if I tried! I also think Thurso is worth far less than $1b now. Maybe if DP prices get to $1600 but not now. We'll see what value it has in a couple of years. I also but zero value on LSQ. Maybe in 2014. ;) Uncertainty is something most people can't live with. Most would rather have $100 in their hand than a 75% chance to get $200. FTP has a very similar setup to the prototypical company discussed in chapter 5 "When to Buy" in Fisher's Common Stocks and Uncommon Profits. Fisher talks about a shake down period when a complex plant is ramping up to commercial production and takes much longer than even the most pessimistic engineer would have thought it would take to work out the bugs. Disappointment in the investment community results in the punishment of the share price, but according to Fisher, it is at this inflection point that it is time to buy. Correct. It's also mentioned in Money Masters of Our Time where I read it for the first time. :) Link to comment Share on other sites More sharing options...
merkhet Posted May 18, 2012 Share Posted May 18, 2012 tombgrt, Landqart Landqart makes about $16 million of revenue on 1,000 tonnes, and I believe Chad mentioned recently that they used to make 20% EBITDA contribution margins. So an additional 5,000 tonnes brings in an additional $80 million of revenue w/ $16 million of EBITDA minus about $1 million of cap-ex spend minus the $7 million current shortfall of operating earnings gets us to about $8 million of pre-tax profits a year @ a tax rate of 28.6%, that's around $5.6 million a quarter or $22 million of profit a year. If they fill up the remaining 9,000 tonnes, then the calculation rounds out to about $58 million of profit a year... A sanity check against De La Rue, which has a 14.4% net margin, indicates that on revenues of $640 million a year @ capacity, making $58 million or around a 9% net margin isn't crazy... nor is applying a 1x sales multiple to Landqart when De La Rue has a 2.1x sales multiple. (De La Rue isn't a pure play though, so the comparison is, by necessity, a little flawed...) To be completely fair, I'm not sure my number is any better than a guess. ;D Thurso & LSQ Good point -- I think @ around $1,050 per tonne, Thurso is probably worth around $600 million or thereabouts. If pricing gets back to $1,200 per tonne, Thurso is worth around $700 million and at $1,600 per tonne it might be worth about $1.25 billion. I'd get LSQ in a range of $850 million to $1.5 billion once we get it... Link to comment Share on other sites More sharing options...
Liberty Posted May 19, 2012 Author Share Posted May 19, 2012 Looks like they got a pretty good deal on that european credit facility, replacing one with an effective interest rate of 7.6% with one at 3.81%. Link to comment Share on other sites More sharing options...
tombgrt Posted May 19, 2012 Share Posted May 19, 2012 Thanks for the explanation merkhet. Would be great if you are right. I'm not sure if those margins are still relevant and Chad has been overoptimistic in the past, but even with half those margins there would be considerable value at Landqart that we aren't seeing now. Link to comment Share on other sites More sharing options...
merkhet Posted May 19, 2012 Share Posted May 19, 2012 tombgrt, I agree that the margins for Landqart may not be relevant given changes that are largely, I believe, due to the strong Swiss franc and higher raw material costs -- but I also think that the "large coefficient" factor is that they're running at 10% capacity... my best guess is that you won't see 20% EBITDA contribution margins, but maybe 15% or 12% so long as they're up and above a certain critical threshold... Landqart seems to me to fulfill Berkowitz's checklist question of "Is the company essential?' -- over time, I'd guess that someone who holds on to Landqart will do well once the issues that are causing the strong Swiss franc and higher raw material costs subside... Link to comment Share on other sites More sharing options...
Liberty Posted May 19, 2012 Author Share Posted May 19, 2012 Higher material costs should also impact competitors and allow LQ to pass on costs to customers over time. Strong swiss franc is a different thing, though... Link to comment Share on other sites More sharing options...
tombgrt Posted May 20, 2012 Share Posted May 20, 2012 Post on FTP from another shareholder. http://pretoriainvestment.com/2012/05/17/the-tree-or-the-forest/ Can't say he's really wrong. Link to comment Share on other sites More sharing options...
colinwalt Posted May 20, 2012 Share Posted May 20, 2012 This is a pretty scary scenario (one Prem has been worried about for a while now)... World edges closer to deflationary slump as money contracts in China http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9263196/World-edges-closer-to-deflationary-slump-as-money-contracts-in-China.html I wouldn't think those long term contracts would be worth much if commodity prices slumped... Link to comment Share on other sites More sharing options...
merkhet Posted May 20, 2012 Share Posted May 20, 2012 I wouldn't think those long term contracts would be worth much if commodity prices slumped... I've been thinking about this one as well... It seems, though, that not all commodities are the same. If iron, oil and coal slump, does that mean dissolving pulp slumps? Maybe... Maybe not... Link to comment Share on other sites More sharing options...
tombgrt Posted May 20, 2012 Share Posted May 20, 2012 If I am not mistaken, companies like Rayonier have had very stable relationships and contracts with their costumers over time no matter what the price of cotton and DP did. I must add that this was mostly the case for their specialty DP. Anyway, it's important to be a low cost producer, those contracts are more or less irrelevant imo over the longer term. The biggest risk is whether we will see a cash cost under $750-800 after co-gen is active. As long as Fortress can pay the bills, current low prices are a good thing. Supply will drop (high cost producers will stop operating and new capacity will be delayed) what will make sure that there isn't too much overcapacity in the coming years. If you believe the thesis that DP will be in higher demand in the future, then current volatility doesn't matter all that much. It will be important to have higher prices in 2014 and beyond when both mills are fully operational, not now. Link to comment Share on other sites More sharing options...
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