CKI - Clarke Inc.

[APG12]

Is there a way to subscribe to a thread without posting in it? Because I have nothing intelligent to say but want to follow what's going on.  :)

[Myth465]

I am not sure I have much to add, but Mr. Market is confusing me.

 

Sherritt, up 25% YTD - 25% of portfolio

Supremex, up 14% YTD - 22% of portfolio

Terravest, up 42% YTD - 16% of portfolio - https://www.google.com/finance?q=TSE%3ATVK&ei=srhjU6DoO8G6kAW-9wE

 

Spyglass flat YTD, Royal Host down 10%, but probably Flat because shares are down but I dont think Debantures are but too lazy to check.

 

Thats a $130 million portfolio vs. a $156 million market cap.

Most of the debt has been retired, at least half at par, and perhaps more.

 

Pension Surplus of $48 million likely similarly invested as above with similar gains. Also holds Clarke Debs and will show a gain.

We also likely sold some RE or other private assets. Clarke has $30 million of tax loss carry forwards too which means we will buy an operating company to utilize those...

 

Bought another slug today, dont know what I am missing.....

 

[racemize]

There's also the ~$30 million notes from the home heating sale that wasn't reflected in the pro-forma BVPS (I believe).

[Myth465]

These numbers are on top of that  :).

Proforma bv was 11.72 with the expected gains being the only adjustment.

I dont know how the debs were accounted for, was it diluted or as debt.

 

BV is probably over 12 even with converts now with no dilution risk.

[racemize]

These numbers are on top of that  :).

Proforma bv was 11.72 with the expected gains being the only adjustment.

I dont know how the debs were accounted for, was it diluted or as debt.

 

BV is probably over 12 even with converts now with no dilution risk.

 

Oh yeah, I was just adding the extra notes to it (unless I'm misunderstanding you). 

 

Even if they were diluted via conversions, it isn't that bad--the converted debt doesn't have to be paid for, so they keep the cash.  Before this redemption, I had diluted BVPS still at $10.88 (assuming full conversion of the 34.5 million in debentures).  I haven't bothered calculating it for the final one, as it should be over $11.00 now, and that's good enough for me.

 

Edit: perhaps this is the confusion--the pro forma was only for the freight sale, thus I believe it did not account for the home services sale, so it is an extra upside.  That's what I was trying to say.

[Myth465]

Aw didnt catch that, hopefully you are right.

[racemize]

Aw didnt catch that, hopefully you are right.

 

It is in the presentation and the announcement, if you read the *.

 

Here's the quote from the announcement:

The Commercial Tanks & Home Heating segment generated EBITDA of $10.4 million in 2013 compared to $8.5 million in 2012. This increase was due in part to the acquisition of 90% of Pro- Par Group ("Pro-Par") that was completed during the third quarter of 2013. Subsequent to year end, the Company sold its Commercial Tanks & Home Heating segment ("Jerico") to TerraVest Capital Inc. The transaction valued Jerico at an enterprise value of $54.0 million. The Company received $24.9 million for its 75% interest in Jerico in the form of a 6.50% promissory note with a three year term.

 

On October 31, 2013, Clarke announced that it had entered into an agreement to sell its truckload, less-than-truckload and freight logistics businesses (the "Freight Transport Business"), which was included in the Company's former Freight Transportation segment at the time. The transaction was completed on January 1, 2014 and the Company received proceeds of $100.5 million on the sale including an estimated net working capital adjustment of $12.5 million. The Company had net income from discontinued operations of $11.2 million for the year ended December 31, 2013 compared to $11.0 million for the year ended December 31, 2012 which represents the results of the Freight Transport Business.

 

Basic earnings per share for the year ended December 31, 2013 was $3.17, compared to a basic loss per share of $0.05 for the year ended December 31, 2012, an increase of $3.22 per share. Book value per share at December 31, 2013 was $8.32 compared to $5.15 on December 31, 2012 after deducting the payment of $0.34 per share of dividends in 2013. Adjusting solely for the estimated gain on sale of the Freight Transport Business (to be recognized in the first quarter of 2014) and reflecting the Common Shares outstanding as at March 6, 2014, the Company estimates that its pro forma book value per share is $11.72 of which 75% is held in cash and marketable securities. The Company's current trading price represents a 34% discount to this pro forma book value per share as at March 6, 2014.

 

 

[Myth465]

Do you reckon there was much of a gain on the home business. They never broke it all down.

[xtreeq]

Is there a way to subscribe to a thread without posting in it? Because I have nothing intelligent to say but want to follow what's going on.  :)

 

Click "Notify" at the bottom of the thread

[racemize]

Do you reckon there was much of a gain on the home business. They never broke it all down.

 

No idea, I was figuring there was some gain, but didn't know how much to put for it.  Basically, just assumed that there would be an up-tick in BVPS from it, but wouldn't know how much until the quarter came in.

[racemize]

I just tried to hack together a BVPS number based on the presentation.  This is really rough and could be prone to errors, but I'm getting BVPS ~12.5-13 with changes in securities (although I didn't find the change in value for the Royal Host debentures).  Also, not assuming any dilution from the presentation numbers, which somehow might be true (who holds this debt and doesn't convert?).

[xtreeq]

The market value of the Royal Host debentures on December 31, 2013 was:

DB.B 89.7

DB.C 91

DB.D 89.8

 

If this list is updated then the updated price is:

DB.B 90.5

DB.C 91.75

DB.D 90.27

 

http://www.financialpost.com/markets/data/bonds-debentures.html

 

[racemize]

The market value of the Royal Host debentures on December 31, 2013 was:

DB.B 89.7

DB.C 91

DB.D 89.8

 

If this list is updated then the updated price is:

DB.B 90.5

DB.C 91.75

DB.D 90.27

 

http://www.financialpost.com/markets/data/bonds-debentures.html

 

I think I need it for March 5, 2014, rather than Dec 31, 2013.  Looks like they haven't moved much, so using the value they previously had for March 5, 2014 is probably fine.

 

Edit: Also, they don't list which of the debentures they have.

[xtreeq]

I believe they do, on page 6 of the annual report.

[Guest 50centdollars]

Closing prices as of March 5, 2014:

 

DB.B 92.50

DB.D 91.60

DB.C 91.60

 

 

[APG12]

Is there a way to subscribe to a thread without posting in it? Because I have nothing intelligent to say but want to follow what's going on.  :)

 

Click "Notify" at the bottom of the thread

 

Doh! Thanks!

 

Do you reckon there was much of a gain on the home business. They never broke it all down.

 

No idea, I was figuring there was some gain, but didn't know how much to put for it.  Basically, just assumed that there would be an up-tick in BVPS from it, but wouldn't know how much until the quarter came in.

 

I've only looked at this briefly so please correct me if I'm wrong but it looks like the non-controlling interest on the balance sheet pertains only to the commercial heating segment meaning the book value of 25% of that segment is $7.793 million. So the BV attributable to shareholders is $23.379 mil. As consideration for the sale CKI received a note with face value of $24.9 million.

[racemize]

Ok, updates:

 

1) my BVPS calculation didn't change much (I was looking at the presentation vs the annual on the debentures, but after update, not a big change);

2) based on the difference from the December 31st listing of securities and the values listed in the March presentation, they had increased their Sherritt holdings a bit (not surprising);

3) With regard to home heating sale, note 11 of the Q4 financials lists assets-liabilities of 28.8 which is slightly higher but similar to what agaglio said with the annual, so probably not getting any boost from the sale, unless I'm missing something.

[xtreeq]

Thanks racemize

[Myth465]

I think the gains from the sale show up in Terravest.

Basically they just moved the operating company to Terra where there are some synergies, and probably closer hands on Management. I dont think we will see a significant book value gain from that sale, and also dont like the note. Prefer they buy more Canadian equities yielding 6% which also feature upside as well.

 

Thanks for continuing the good work guys. Its not hard to see a BV of $12 - $14 by year end. I think Spyglass will work or be sold, and we will get on the board of Sheritt or walk away with a 40% gain. I also think there is a gain in then pension surplus of at least $4-$5 million with the bulk of that coming from the fact that the pension bought some warrants.

 

Finally we have a few other assets on the book which they have been liquidating for a few million here or there. I think there will be some dilution from the debs, but it does look like we bought back half at par. Even if the rest convert we will have done quite well. Clarke will also report quite late, which will allow me to funnel more gains into here......

[alertmeipp]

Myth,

 

No position on CKI (no time to read up on it yet). But what do u think they can/will do with SGL.TO?

 

 

[Myth465]

I just think they will protect our interest.

Clarke has less than $15 million of operating business which probably throw off little cash.

They are committed to a 5% dividend which needs to be funded.

 

They will have no debt, a bit of cash, those operating business, a note, and an investment portfolio which throws off dividends (Spy, Terra, Royal Host, Supremax).

SGL is yielding 16% and I believe Clarke needs the yield. If they cut the dividend and want to do asset sales they will be in a similar situation to PWE and LTS and it will be a multi year play.

 

I dont think that works for Clarke. Clarke inmo will need them to keep the div to keep the SP high, and to be able to fund their current dividend. Either that or a sale with a nice gain. I sold Spy because I was tired of LTS and PWE plays, but bought back because of pricing. PWE got great pricing on gas and Spy is 50% gas. Pricing has gone up quite a bit and should help close the funding gap. M&A in Canada is also up quite a bit. Spy is probably the only stock not to run in Q1. Spy will not get rerated until they get a payout ratio under 100% (not net of asset sales which is a BS metric) and get their debt down closer to 2. Something has to give....

[mcliu]

How do you get confident with the company's ability to generate higher future returns? BVPS from 2007 to 2008 dropped over 50%..

[Myth465]

How do you get confident with the company's ability to generate higher future returns? BVPS from 2007 to 2008 dropped over 50%..

 

You cant inmo.

You are buying a portfolio of stocks at 50% of BV.

I think George is a good investor who got caught up, but everyone has to make their own judgement.

 

Its easy for me to get comfortable because we are using the same strategy. I think Canadian Energy and REITs are the best sectors right now. Both trade at a significant discount to USD equivalents, both throw off cash which protects you during a pullback / pays you to wait. Would I hold at BV, probably not, but you can buy the basket of stocks he owns at 50% of what he paid for them..... He also has a big stick and can shake things up, which beats what I can do to Management.

[matts]

I've looked at this company but one thing always stops me from investing. Correct me if I'm wrong but Clarke prefers you elect to get the dividend in shares right? They obviously want more capital and it makes perfect sense given their activist model. So why pay a dividend at all and subject shareholders to unnecessary tax if you will just ask for the capital back?

 

It just seems like poor capital allocation to me. Dividend just to artificially support the stock by appealing to yield whor..chasers.

 

Can someone rebut?

 

Thanks,

 

[Guest Quebec]

I dont think Clarke offers a DRIP and believe that cash dividend is the only option. Like myth, I believe you are buying a positive trending value portfolio at a discount to nav/book. As the recent capital moves becomes visible in the financials of Q1 and Q2, the discount to book may decrease a lot. Like Dazel, I' say: Ssshhhh , keep quiet and let them redempt the convertable debs for cash, and buy back shares while it's quite below pro-forma book.