# Problem with calculating price to earning ratio?



## RandomInvestor (9 October 2016)

Hey there guys I have a problem getting the Price to earning ratio, if you google a company for example Facebook it shows the p/e ratio is 62. but when I did the manual calculation which is stock current price / eps I get the wrong number.

So I did 128.99 (stocks current price) / 1.24(EPS) Which I found here : http://www.nasdaq.com/symbol/fb/revenue-eps

But I get the output as 104.024, which one is correct?


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## galumay (9 October 2016)

Depends what period of earnings they used, also what share price.

As long as you use the same data for different companies you will be comparing apples with apples. P/E has limited use in analysing company financials IMO.


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## craft (9 October 2016)

RandomInvestor said:


> Hey there guys I have a problem getting the Price to earning ratio, if you google a company for example Facebook it shows the p/e ratio is 62. but when I did the manual calculation which is stock current price / eps I get the wrong number.
> 
> So I did 128.99 (stocks current price) / 1.24(EPS) Which I found here : http://www.nasdaq.com/symbol/fb/revenue-eps
> 
> But I get the output as 104.024, which one is correct?




1.24 is for only the first 2 quarters of 2016. Earnings for the past 4 quarters/12 months also referred to as trailing twelve months or ttm is 2.09, which would produce the 62 number given.


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## RandomInvestor (9 October 2016)

craft said:


> 1.24 is for only the first 2 quarters of 2016. Earnings for the past 4 quarters/12 months also referred to as trailing twelve months or ttm is 2.09, which would produce the 62 number given.




So how do I work this out, I'm confused. How did we get the value 62?


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## craft (9 October 2016)

RandomInvestor said:


> So how do I work this out, I'm confused. How did we get the value 62?




Price $128.99 divided by earnings $2.09


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## RandomInvestor (9 October 2016)

craft said:


> Price $128.99 divided by earnings $2.09




Wah where did we get 2.09? They never mentioned that as part of the formula


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## galumay (9 October 2016)

RandomInvestor said:


> Wah where did we get 2.09? They never mentioned that as part of the formula





Try reading the replies to your post, craft has already clearly explained that the full, previous year's earnings were reported as $2.09.


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## craft (9 October 2016)

RandomInvestor said:


> Wah where did we get 2.09? They never mentioned that as part of the formula




From your link, the last four quarters.. 71+.52+.54+.32=2.09


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## RandomInvestor (9 October 2016)

craft said:


> From your link, the last four quarters.. 71+.52+.54+.32=2.09




Oh I see thanks mate. Also I see you used the numbers from last years result is that because this year's is not yet avaliable?


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## craft (9 October 2016)

RandomInvestor said:


> Oh I see thanks mate. Also I see you used the numbers from last years result is that because this year's is not yet avaliable?




The USA way seems to be to use trailing twelve month (ttm) for the earning figures. There companies generally report quarterly and they use the most recent 4 quarters available at any given point.

In Aus it tends to be more the latest full year reported results are generally used as the earnings for 'Current' P/E or coming years analyst estimates for a 'Forward' P/E 


To add to your confusion its not just the time frame of earnings that can vary, there is also different ways that earnings can be stated, statutory, underlying etc. 

Are you studying or intending to invest/trade? if its the later beware, Simplistic interpretations of P/E  can easily lead you astray.


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## luutzu (10 October 2016)

RandomInvestor said:


> Hey there guys I have a problem getting the Price to earning ratio, if you google a company for example Facebook it shows the p/e ratio is 62. but when I did the manual calculation which is stock current price / eps I get the wrong number.
> 
> So I did 128.99 (stocks current price) / 1.24(EPS) Which I found here : http://www.nasdaq.com/symbol/fb/revenue-eps
> 
> But I get the output as 104.024, which one is correct?




Facebook is 104 times earnings? 

You know what that implies right?

But to the point, I find it more informative (and accurate) to work out the entire total earnings, and find out the latest current shares outstanding. Then work out the PE ratio that way.

It can be risky to simply use the reported EPS and the reported shares outstanding as they tend to be the figures last reported in an official annual report.

For young and broke companies, they issue their shares like it's just numbers. So a year or a quarter can mean a big difference in that share outstanding figure.


-----

for what it's worth, any PE above 35 are pure speculative buying. They might work out but the upside in those companies usually have nothing but hope and dreams.


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## skc (10 October 2016)

luutzu said:


> for what it's worth, any PE above 35 are pure speculative buying. They might work out but the upside in those companies usually have nothing but hope and dreams.




Well it depends on the PE calculation method. May be the high PE was a result of a large (and truely) one-off item that depressed current year earnings... the underlying company may or may not be pure speculation. But any PE value screamingly large should be thoroughly investigated.

To the OP -
Personally I think the right way to use PE is to construct it from the ground up. i.e. use your own estimates/interpretation of the earnings and use the right number of shares issued as luutzu mentioned. Then it becomes a number you can take ownership of.


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## RandomInvestor (10 October 2016)

craft said:


> The USA way seems to be to use trailing twelve month (ttm) for the earning figures. There companies generally report quarterly and they use the most recent 4 quarters available at any given point.
> 
> In Aus it tends to be more the latest full year reported results are generally used as the earnings for 'Current' P/E or coming years analyst estimates for a 'Forward' P/E
> 
> ...




Hi I study investing in my spare time have for about a year will start investing end of this year i nlower risk securities while I study value investing more, I still got alot of ratios to remember and try find the intrinsic value formula which is a pain. Also the P/E ratio I won't be overusing like alot of investors do I just want to make sure I am 100% confident in been able to obtain the data.


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## RandomInvestor (10 October 2016)

luutzu said:


> Facebook is 104 times earnings?
> 
> You know what that implies right?
> 
> ...




What do you mean by 104  times earnings?


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## luutzu (10 October 2016)

RandomInvestor said:


> What do you mean by 104  times earnings?




In your calculation above for Facebook, the price divide by the earnings per share = 104. i.e., price is 104 times earnings.

What that PE ratio implies is that, holding everything constant, facebook's current earnings will take 104 years to break even for its current buyer.

But since everything can't be held constant... so FB's earnings could really accelerate and multiples while its price and share won't be diluted... then the investor would do very well. 

Hard to predict whether FB will be earning like Apple did, or will go the way of MySpace and other web ventures. So high multiple PE stocks need a lot of luck and a lot of understanding of the business to maybe then help investor sleep at night.

----

Others will disagree, but what I learn is valuation are only of two types: asset perspective, or P/E multiples.

Once you understand the business properly, it should only take you 5 minute to come to a value using either or both of the above two methods. 

Which method you should use, how far you should take it... it will depends on your understanding of the business, the state and position the business is at, and your comfort level. 


Graham has a short hand formula to approximate market's implication in their price and the company's earnings. That all the detailed forecasts and earning estimates boils down to that formula. 

I've applied to a few major Aussie corporations, and a couple of Buffett's buys, and it makes a lot of sense... check it out in Graham's two famous books.


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## luutzu (10 October 2016)

skc said:


> Well it depends on the PE calculation method. May be the high PE was a result of a large (and truely) one-off item that depressed current year earnings... the underlying company may or may not be pure speculation. But any PE value screamingly large should be thoroughly investigated.
> 
> To the OP -
> Personally I think the right way to use PE is to construct it from the ground up. i.e. use your own estimates/interpretation of the earnings and use the right number of shares issued as luutzu mentioned. Then it becomes a number you can take ownership of.




True. I follow Graham's advice in that regard and use average of past 3 and 5 years; try to project near future based on latest developments. Together they tend to give a good sense of the business in general.

On some company I don't even look at its earnings records at all because they've earned nothing.


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## RandomInvestor (10 October 2016)

luutzu said:


> True. I follow Graham's advice in that regard and use average of past 3 and 5 years; try to project near future based on latest developments. Together they tend to give a good sense of the business in general.
> 
> On some company I don't even look at its earnings records at all because they've earned nothing.




Wait a second calculating intrinsic value is related to the earnings a company makes each year and you need to figure out how much it will be earning? So if a company earns 20m every year, you can make the assumption that they will keep doing for a few years and you can come up with a value on the share price it self?


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## galumay (10 October 2016)

RandomInvestor said:


> Wait a second calculating intrinsic value is related to the earnings a company makes each year and you need to figure out how much it will be earning? So if a company earns 20m every year, you can make the assumption that they will keep doing for a few years and you can come up with a value on the share price it self?




Well, its better to calculate IV based on Free Cash Flow rather than the more easily distorted earnings. There is no simple formula to derive IV, and no certainty that Mr Market will ever agree with your calculated IV - remember the saying that the market can remain irrational a lot longer than you can remain solvent!

The theory in general, is that a businesses IV is the sum of all future cash flows, discounted to today's dollar value. Different people use different models and formulas and the good ones never rely on only one model or formula. Its not an exact science, I use my DCF model to give me a range of IV and I will use up to 4 different formulas. I also look at a lot of other metrics and subjective measures like quality of management, competitive advantage, etc.


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## RandomInvestor (10 October 2016)

galumay said:


> Well, its better to calculate IV based on Free Cash Flow rather than the more easily distorted earnings. There is no simple formula to derive IV, and no certainty that Mr Market will ever agree with your calculated IV - remember the saying that the market can remain irrational a lot longer than you can remain solvent!
> 
> The theory in general, is that a businesses IV is the sum of all future cash flows, discounted to today's dollar value. Different people use different models and formulas and the good ones never rely on only one model or formula. Its not an exact science, I use my DCF model to give me a range of IV and I will use up to 4 different formulas. I also look at a lot of other metrics and subjective measures like quality of management, competitive advantage, etc.




Ah ok. so the Cashflow statement is important in this state? I look at historical data and make determination off that?


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## galumay (10 October 2016)

RandomInvestor said:


> Ah ok. so the Cashflow statement is important in this state? I look at historical data and make determination off that?




Well, its part of the story, you need to look at things like change in working capital, changes in borrowings and other bits and pieces, depending on the model you choose.

Perhaps its time to tell us whether you are planning to start investing in the share market, or doing some sort of study? Then we can recommend some relevant reading material to suit your needs.


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## RandomInvestor (10 October 2016)

galumay said:


> Well, its part of the story, you need to look at things like change in working capital, changes in borrowings and other bits and pieces, depending on the model you choose.
> 
> Perhaps its time to tell us whether you are planning to start investing in the share market, or doing some sort of study? Then we can recommend some relevant reading material to suit your needs.




Of course, Though I won't be doing individual stock picking end of this year, seems like so much to investigate. I get the feeling so matter how many annual reports, balance sheets, income statements, cash flow statements etc I read that I won't be able to find the intrinsic value.

Here is what I do so far, or my plan, read the companies annual report from when it start to date, read company's balance sheet looking that total assets are well above total liabilities, that there is a high return on equity, high return on assets, look for a p/e that is relatively low if the share price is low(though I think this part is wrong), I look at the net income to see if it's increasing every year. That's what I do so far, your opinion? Also I read income/cash flow statements looking for similar things.


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## luutzu (10 October 2016)

RandomInvestor said:


> Wait a second calculating intrinsic value is related to the earnings a company makes each year and you need to figure out how much it will be earning? So if a company earns 20m every year, you can make the assumption that they will keep doing for a few years and you can come up with a value on the share price it self?




Earning is not always the reported earnings. As Galumay and others have said, businesses do have bad year/s and the earnings from financial performance statements can be manipulated.

Say they reduce the price or offer special deals, claim the increase in revenues and book the profit, but then the earnigs and the profit may have yet come in, and may not come in if their customers/clients are bad enough and the company's credit policy is loose enough.

So when you work out its earnings, a more accurate term would be its "earning power". How much does the company really earn for its shareholders - in real cash.

So yes, look at the cash flow statement; focus on its operating cash inflow. See where the company get its cash and what they do with it. Ideally, the company's net operating cash should be big enough to cover both its financing and investing activities...


----
Back to valuation though. I just work out the earning power, work out its historical earnings growth averages, look to its possible growth pipeline and come to a few scenario of its likely earning power and its likely growth rate over the next 7 to 10 years... then use Graham's rough estimate formula I can have a very good idea of what's the fair value of the business would be.

Others wouldn't do that and would do a series of detailed Discounted Cash Flow modelling. Not wanting to get into that debate again, in short I just don't find that to be useful. It's too much guess work about too many future and unpredictable events - all to just get a precise figure that you really shouldn't use anyway because as an invesetor, you're not out there to work out the precise value of a business so that you would pay at that precision. 

Since you would want to pay as far below that fair value as possible, a rough estimate is good enough for me. 


----

Let's flog my value investing software shall we... www.danginvestor.com

Free for private users... it's designed to systematically analyse and value any business for you. Just enter the financial statements.

First will go through the financial position analysis; then financial performance... there are other modules to analyse management and corporate policies etc., but you can stop there and go onto its valuation module.

All ratios are worked out, charted and arranged in sequence I think company analysis should be taken. 

The valuation module include scenario planning, have calculators to value and chart the results... all with the ratios and averages worked out on a table right in front of you.

It's quite involved. But shouldn't take more than an hours to enter the frontpage financials for 10 years once you get used to it.

But yea, use the standard free results from google or yahoo or commsec to narrow the search.. but once you think you've found the company, I don't think anyone ought to use those free databases to make investment decision. 

So an investor could either open the annual reports, do their own calculations with pen and paper or excel.. .or use danginvestor.


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## luutzu (10 October 2016)

RandomInvestor said:


> Of course, Though I won't be doing individual stock picking end of this year, seems like so much to investigate. I get the feeling so matter how many annual reports, balance sheets, income statements, cash flow statements etc I read that I won't be able to find the intrinsic value.
> 
> Here is what I do so far, or my plan, read the companies annual report from when it start to date, read company's balance sheet looking that total assets are well above total liabilities, that there is a high return on equity, high return on assets, look for a p/e that is relatively low if the share price is low(though I think this part is wrong), I look at the net income to see if it's increasing every year. That's what I do so far, your opinion? Also I read income/cash flow statements looking for similar things.




Also pay great attention to its Retained Earnings and Contributed Equity figures.

If you want a safe, established and quality company, this is where you find it. 

A company can talk about all the growth and the margin it wants to, if it's been operating for a while but its retained earnings are bad while its contributed equity just keep on rising... it's a bad business.

Take APA pipeline; or ABC learning centre... compare them to WalMart or BNSF etc. It's just day and night.
btw, APA is going to crash soon.


More here, me little blog: http://blog.danginvestor.com.au/signs-great-business/


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## RandomInvestor (10 October 2016)

luutzu said:


> Earning is not always the reported earnings. As Galumay and others have said, businesses do have bad year/s and the earnings from financial performance statements can be manipulated.
> 
> Say they reduce the price or offer special deals, claim the increase in revenues and book the profit, but then the earnigs and the profit may have yet come in, and may not come in if their customers/clients are bad enough and the company's credit policy is loose enough.
> 
> ...





Man value investing is really difficult lol, knew it was but I keep getting slammed with more and more things I need to consider, though still gonna give it my all. I know earnings are manipulated, you are referring to the balance sheet and that right? How do I find the real statistics? And how come alot of different websites which show balance sheets for a company have different results? Which is the most reliable source?


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## luutzu (10 October 2016)

RandomInvestor said:


> Man value investing is really difficult lol, knew it was but I keep getting slammed with more and more things I need to consider, though still gonna give it my all. I know earnings are manipulated, you are referring to the balance sheet and that right? How do I find the real statistics? And how come alot of different websites which show balance sheets for a company have different results? Which is the most reliable source?




I haven't compare the actual annual reports against the figures from data vendors so I wouldn't know which is more reliable. In general, they tend to be quite accurate.

Problem I often find is they can be outdated. And the further away from the last reported date, the more likely it is that the reported figures have since changed. So new share issues, new development in the business, new results in the halfyearly that's not updated... So best to take a look at the original source yourself.

Data from vendors, even the high-priced ones, are at best basic summaries. Their ratios are standard stuff and their definition may be different to what this or other would define.

There's only two or three vendors anyway, all others buy theirs from them and recut it. 
So depends on your budget and approach, the old fashion pen and paper could just be all you need.

-----------

Stock investing approach depends on how you view stocks. If it's just a stock to buy low and sell high, then you can do TA or combine TA with some fundamental and macro stuff. 

If view as a ownership in a business, you would approach it as you would an owner of that business.

And to understand the business properly is not easy. To know it to the extend that you're confident in your judgment when the market thought otherwise... that need a lot of work and understanding. 

Can't do it overnight, can't get it right all the time, but you gotta start somewhere.


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## luutzu (10 October 2016)

RandomInvestor said:


> Man value investing is really difficult lol, knew it was but I keep getting slammed with more and more things I need to consider, though still gonna give it my all. I know earnings are manipulated, you are referring to the balance sheet and that right? How do I find the real statistics? And how come alot of different websites which show balance sheets for a company have different results? Which is the most reliable source?




Earnings manipulation aren't really shown the income/financial statement itself. It's manipulated in the policy and management leeway in interpretating and forecasting stuff.

So that's why galumay and others will tell you to also look at the cash flow statement, see its cash. Cash is harder to manipulate since it simply state what cash move in and out, for what activity.

So if you look at Asaleo Care, there's a bunch of bs about their earnings and debt and borrowings and contributed equity in the two years before IPO. But the cash statement show something isn't right. The borrowings they said were loan and so returned didn't make it to the cash account.


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## McLovin (10 October 2016)

luutzu said:


> So if you look at Asaleo Care, there's a bunch of bs about their earnings and debt and borrowings and contributed equity in the two years before IPO. But the cash statement show something isn't right. *The borrowings they said were loan and so returned didn't make it to the cash account.*




What does this paragraph mean? Especially the bit I bolded.


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## luutzu (10 October 2016)

McLovin said:


> What does this paragraph mean?




It mean Asaleo is the new Dick Smith.

Maybe next week when I have time, I'll analyse its 2014 and 2015 account just to put all doubt to rest... but having studied its accounts of 2012 and 2013, PEP is worst than Anchorage on DickSmith.

http://blog.danginvestor.com.au/analysis-asaleo-care-ltd-asx-ahy/


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## galumay (11 October 2016)

luutzu said:


> It mean Asaleo is the new Dick Smith.




I think what McLovin is asking, is what does the bolded part of the quote mean. The sentence makes no sense at all, could you please re-read it and then try to clarify what you are trying to say?


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## luutzu (11 October 2016)

galumay said:


> I think what McLovin is asking, is what does the bolded part of the quote mean. The sentence makes no sense at all, could you please re-read it and then try to clarify what you are trying to say?




Detailed in the link provided. 

But in summary, what Asaleo claims to be borrowings and contributed equity - as stated in the income and position statements - were not shown in the cash flow statement.

So the $250m, or whatever it was, that they claimed were contributed to Asaleo by PEP and SCA (the parent company of Asaleo before PEP came in) - that figure never arrive into Asaleo's cash account.

Further, the $235m PEP and SCA claims were debt from related party, that they must return back... that too never came into the cash flow account. 

The only cash that came into Asaleo's were the $125m redeemable pref.shares at 15% coupon that PEP lent; and also the $240m [?] loan from the banks. 

The bank loan were used to "repay" that $235m "debt to related parties" - something that never came in as cash in the first place; the rest, and then some, were to be paid by new shareholders at the IPO.


It's just as bad as Anchorage on DickSmith - but on a bigger scale.


I know, there's the $100m share buyback they're extending; a couple of directors buying back shares. So it must be a bargain. It's just all game play.


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## craft (11 October 2016)

luutzu said:


> So an investor could either open the annual reports, do their own calculations with pen and paper or excel.. .or use danginvestor.




Hey Luutzu you are unique.

software to organise and visualise data for those that like to collect their own during the understanding and verify stage is a pretty good idea, but if your posts on analysis and alike are marketing attempts...... Can't say I'm inspired to take a look at the software - More the reverse.

But I admire the entrepreneurial spirit.


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## Ves (11 October 2016)

luutzu said:


> But in summary, what Asaleo claims to be borrowings and contributed equity - as stated in the income and position statements - *were not shown in the cash flow statement.*



Because they weren't cash transactions.

PEP contributed its share of the AUS/NZ business (if I recall) valued at about $72m in exchange for shares and a further $24m in promissory notes receivable.

SCA contributed the rest of the AUS/NZ business valued at $114m.   As you mentioned there were also some expenses paid on behalf of the new entity by SCA.  

The $125m in preference shares issued to PEP are on the cash flow statement.

See the first few pages here for details.

http://www.asx.com.au/asxpdf/20140626/pdf/42qggp874c9qlz.pdf

PEP had previously bought a 50% share of the AUS/NZ from SCA as part of a previous joint venture.   If you're looking for the cash it'll be in the bank account of the head SCA entity.


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## luutzu (11 October 2016)

craft said:


> Hey Luutzu you are unique.
> 
> software to organise and visualise data for those that like to collect their own during the understanding and verify stage is a pretty good idea, but if your posts on analysis and alike are marketing attempts...... Can't say I'm inspired to take a look at the software - More the reverse.
> 
> But I admire the entrepreneurial spirit.




It's free, so I'm not making any money from private investor and those who want to learn about investing.

Though I did start out thinking that I could charge retail investors too... but it seem that most investors are not used to reading financial statement or want to get in-depth understanding of the business. That and who am I that they ought to listen to. So I guess they would rather get their data sourced from the big data vendors.

That and, I just figured this out, there might not be that many value investors out there. 

So the efforts and resources to market to retail investors for the kind of return a small number of value investors... I don't think can pay the power bills.

So focus is on the boutique fund manager/professional analyst type. Where they can buy the raw data feed from whoever and I can cut it to their liking. Combine that with DangInvestor's financial and managerial analysis modules, sharing research across the firm, standardising their firm's own research approach... some fund manager might see value in that.

DangInvestor's various modules there are how I am doing my own research into companies. So they're free because I need friends more than I do money - well I need money too, just friends tend to be easier to get than money.

----------

In terms of sales and marketing with these posts... 

Take Asaleo. You don't need my app to know it's bs. 
But most investors reading Asaleo's research on Morningstar won't know Asaleo's bs at all. I know because I read those ratios on Commsec and thought there could be a bargain in Asaleo.

But without being forced to enter the financial data, and in doing it you have to read the notes. It became clear very quickly that it ain't what it appear.

But yea, I might actually do a full financial analysis on Asaleo, compare it to DickSmith, and nail those PEP guys to the wall. Then move onto APA and blew it up too. That would be good marketing.


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## luutzu (11 October 2016)

Ves said:


> Because they weren't cash transactions.
> 
> PEP contributed its share of the AUS/NZ business (if I recall) valued at about $72m in exchange for shares and a further $24m in promissory notes receivable.
> 
> ...




I've looked at the timeline very carefully before. It doesn't add up.

They issued new shares to both PEP and SCA after forming Asaleo - January 2, then on the 4th for PEP, 2012.

The two didn't get in bed together before 2011... so whatever transactions they did in terms of contributed equity and JV etc., the cash must still be in the consolidated statement of cash flow  for 2011. The cash isn't there.


But while no cash from Con.Equity came in, all the cash that they borrowed from the banks, the $125m from pref. shares issued all came in and clearly shown. 

But cash that goes out to repay and return capital, are also shown


That and it doesn't make any sense that SCA would put any of their own cash in; nor PEP to put any new cash in beside that $125m they've loaned. I mean they should have put the cash in like they claim, but it never came in, and why in the world would it came in when PEP is already putting $125m at risk into a loss making business.


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## craft (11 October 2016)

luutzu said:


> It's free, so I'm not making any money from private investor and those who want to learn about investing.
> 
> Though I did start out thinking that I could charge retail investors too... but it seem that most investors are not used to reading financial statement or want to get in-depth understanding of the business. That and who am I that they ought to listen to. So I guess they would rather get their data sourced from the big data vendors.
> 
> ...



Maybe your posts are showing that you have no idea and putting people off??????? nah that wouldn't be it.!!!!


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## McLovin (11 October 2016)

luutzu said:


> I've looked at the timeline very carefully before. It doesn't add up.
> 
> They issued new shares to both PEP and SCA after forming Asaleo - January 2, then on the 4th for PEP, 2012.
> 
> ...




The contributed equity wasn't in the form of cash it was a contribution of assets. Like every other week on the ASX when a company launches a takeover for another company using its own shares.


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## luutzu (11 October 2016)

McLovin said:


> The contributed equity wasn't in the form of cash it was a contribution of assets. Like every other week on the ASX when a company launches a takeover for another company using its own shares.




SCA's assets were also paid for, in real cash.

So yea, these contributed equity were made up, out of thin air.

There's $250m to you bro. 

Bro: can I get my $50m back now mate, I need it.

Sure, take them... the new investors will see we've "put in" the $250, now $200m anyway. And we'll sell them for $,1000,000,000 Australian dollars. ha ha ha

It's a good game to play if you can get away with it, I guess.


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## luutzu (11 October 2016)

craft said:


> Maybe your posts are showing that you have no idea and putting people off??????? nah that wouldn't be it.!!!!




Yea, not kissing azz tend to put people off.

Maybe I don't know anything about high finance, but I know I won't be buying Asaleo while very smart people managing people's money are pouring other people's lifesavings into it like it's not their money to lose.

I guess SCA is holding its 36%, management is buying back the stocks, and also spending up to $100k of their hard earn cash from the $31m they gave themselves at IPO... what could be wrong with Asaleo.


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## McLovin (11 October 2016)

luutzu said:


> SCA's assets were also paid for, in real cash.
> 
> So yea, these contributed equity were made up, out of thin air.
> 
> ...




You've really got no idea. I just hope you don't lead any newbies astray with this rubbish.

Have a look at VOC cash flow statement and contributed equity. Contributed equity increased by $2955m, but in the cash flow statement cash from equity raisings was only $1m.


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## luutzu (11 October 2016)

McLovin said:


> You've really got no idea. I just hope you don't lead any newbies astray with this rubbish.
> 
> Have a look at VOC cash flow statement and contributed equity. Contributed equity increased by $2955m, but in the cash flow statement cash from equity raisings was only $1m.




So no real cash came in from the contributed equity, but the cash is there? Because they agreed that they've put in equity, they've put in cash?

What am I missing?

Is that different from reported earnings where the cash ain't coming? It's worst because pepends on the business, delayed earnings you may at least could gain some if you send the lawyers out... when your fellow shareholders say they put in equity but you both know there aint no cash attached, it's collusion to rip the other shareholders off.

---------

Investing isn't rocket science mate. And I'm not offering some "secret" and magical formula to lure or trick people. Just a simple calculator where those who care for one can use to help with their own research and decide for themselves.

But yea, I don't know what I'm talking about because I'm not smart enough to see how in the hell private equity could put in $125m for 15% interest, work their magic and in less than 3 years flog Asaleo off for almost $1Billion real Australian dollars.

Yea, nothing's wrong with paying $1b for a lost making business that's been "turnaround" by financial experts in under 2 years - and have $20m to show how awesome their work has been.


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## McLovin (11 October 2016)

luutzu said:


> So no real cash came in from the contributed equity, but the cash is there? Because they agreed that they've put in equity, they've put in cash?
> 
> What am I missing?




You're missing that if I agree to sell my factory worth $1m to XYZ Ltd in return for 1m shares worth $1 then I have contributed $1m in equity to XYZ Ltd. Equity can be any asset, not just cash.

VOC bought AMM and MTU. The takeover was done using shares. The value of the businesses acquired was the equity that was contributed in return for the shares.


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## Klogg (11 October 2016)

I must say, some of the posts in this thread are bordering comical.



> Yea, not kissing azz tend to put people off.



It's not 'kissing azz', its paying respect to those that clearly know a lot more than most and willing to share their knowledge.


----------



## galumay (11 October 2016)

Klogg said:


> I must say, some of the posts in this thread are bordering comical.
> 
> 
> It's not 'kissing azz', its paying respect to those that clearly know a lot more than most and willing to share their knowledge.




hear, hear.


----------



## luutzu (11 October 2016)

McLovin said:


> You're missing that if I agree to sell my factory worth $1m to XYZ Ltd in return for 1m shares worth $1 then I have contributed $1m in equity to XYZ Ltd. Equity can be any asset, not just cash.
> 
> VOC bought AMM and MTU. The takeover was done using shares. The value of the businesses acquired was the equity that was contributed in return for the shares.




Yea, I know how contributed equity can be "contributed" without cash changing hands. Kinda like when I start a company with my siblings, we "contributed" $1,000 for 1,000 shares but none of us put in the cash.

So maybe my little experience know how it's done.

But the $224m of Con.Eq "contributed" - with $96m from PEP and $128m from SCA - they are not for brand name or for plant and equipment or for anything tangible. 

Why?

Because those tangibles were bought and paid for - at $113.3m plus $13.7m - in 2012. 

BOught with the $125m pref.shares; and with the $275m in new debt they took out.

Further, SCA and PEP got back, in real cash, a further $235m in borrowings from related party in 2012.


So the $224m equity is just a made up number to fool those who haven't read the notes.

It is also a nice way to repay yourself $50m you've "contributed" - calling it return of capital. A special dividend I'm guessing.


Then with the $173m "contributed", you can further net your $17m net losses and bring it down to $165m of equity investment six months before the float.

So that $224m was made up because, one, it looks bad to have a negative freaking Con.Eq. number on the balance sheet. People tend not to buy stocks in companies with negative equity.

And two, it's so you could "repay" yourself $50m without looking like you just steal from the cookie jar without putting any real cash in.


----------



## luutzu (11 October 2016)

Klogg said:


> I must say, some of the posts in this thread are bordering comical.
> 
> 
> It's not 'kissing azz', its paying respect to those that clearly know a lot more than most and willing to share their knowledge.




Did I call anyone name? I just say I don't bs with polite words and kissing azz to get along.


Yea man, I don't know anything about investing or financial statements. I mean, I only read up on it, see where it came from and what it means, then select what I find use, write the formula, adapt some new key measures, design my own financial statements, then code the bloody thing item by item.. .then chart, then write a few notes about its interpretation. 

That's not enough. Can't know more than some one who simply know the definition of CFC, DCF and use it off the bat.


And ey, look at those smart monies owning some 60% of Asaleo. Must be real smart.

I mean, a bunch of financial engineers put in $125m, work their magic on a losing business whose parent company - with all its history and global experience - haven't managed to make profit... These PEP guys managed to turn things around, two years later came up to the smart money and say oi, this is an awesome company and you can have it $1billion. Put you're only allowed to buy up to 60% of it because SCA love this too much, believe in its future, and we care for the mom and pop investors so we'll need to give them some too.

The smart money, with their MBAs and fancy maths... wooo... give me give me.

pffttt...


----------



## McLovin (11 October 2016)

Klogg said:


> I must say, some of the posts in this thread are bordering comical.




I think it crossed the border long ago.


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## luutzu (11 October 2016)

McLovin said:


> I think it crossed the border long ago.




Wait, I'm a bit slow here so bear with me...

why am I haven't a clue and comical?

Because I can't read financial statements? 


Have you guys even read and analyse Asaleo's financials? 

'cause it take real genius to buy it once you do.


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## Klogg (11 October 2016)

luutzu said:


> Wait, I'm a bit slow here so bear with me...
> 
> why am I haven't a clue and comical?
> 
> ...




I'm not saying you can't read financial statements. Just that Ves has given you the answer... Please re-read his post from earlier.

Not trying to offend.


On a separate note to the OP - I'm sure the above thread has given you an idea of at least one thing to look for in a company's financials, and how difficult it can be to translate at times.


----------



## luutzu (11 October 2016)

Klogg said:


> I'm not saying you can't read financial statements. Just that Ves has given you the answer... Please re-read his post from earlier.
> 
> Not trying to offend.
> 
> ...




I've already replied to Ves' post.

That I've read the timeline of when PEP and SCA got together and what them two claim they've paid and borrowed and contributed must be within either the 2011 or the 2012 financial reports. Reason being that previous entities and discussion didn't begin until late 2011. So it cannot be earlier.


Have also responded to McLovin's point that the $224m contributed eq. weren't cash because it's for assets. That it's not for assets as the assets have been paid separately, for $113m.

So PEP and SCA just made up that contributed equity. No cash and no assets ever changed hands for those shares.

Not saying that that's illegal... companies have given out shares and options have been taken for nil consideration and it's still reported in Con.Eq. 

But this $224m imaginary numbers are more sinister in that it allow PEP and SCA to pay themselves $50m - using debt financing but claimed to be "capital return"; it allow them to not show a negative equity in the balance sheet due to operating losses; and it permit the lenders some excuse to take their, what, $19m in fees to borrow some $275m in debt.

It's harder to get a $275m loan when your balance sheet show no equity.

anyway, Asaleo is a bad deal for investors any which way you slice it.

It's great for PEP, and great for SCA. And SCA will hang on to it forever because without Asaleo, they will lose market to sell their products in Austral/Pacific region. They're not hanging on because they have faith in the value of Asaleo like a normal investor wanting returns from Asaleo's earnings and dividends alone.


And here's another kicker... how will Coles and Woolies like Asaleo when it starts to sell its products to Aldi. If you were to run Coles or Woolies, will you play nice with someone who's getting in bed with your enemy?


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## Klogg (11 October 2016)

luutzu said:


> So PEP and SCA just made up that contributed equity. No cash and no assets ever changed hands for those shares.
> 
> Not saying that that's illegal... companies have given out shares and options have been taken for nil consideration and it's still reported in Con.Eq.




So from what I gather, you're arguing that the dilution of equity amongst a greater number of shares it the cause of concern. Yes, that's right, but don't forget the company got something in return for it.

And just because no cash exchanged, it doesn't necessarily mean it was a bad deal for existing shareholders. You'd just need to assess each one on its merits...
The VOC example McLovin gave is a great one. Because equity was issued for the M2 group, or AMM, does that make it a bad transaction for existing shareholders?

As for other factors relating to Asaleo, I'm not close enough to it to have a useful opinion.


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## RandomInvestor (11 October 2016)

Well incase you guys wanted my opinion on Asaleo Care, here it is lol:

Interesting company its total assets seem to be improving steadling, where as the total liabilities is more volatile from what I see but seems to be going down aswell(this is quick analysis not proper one btw)  Though it's retained earnings are going down which seems to be going down rapidly every year. Though problems with companies like this is that they are missing data like total stock holder equity so what do I do in this case? Anyways... net income seems strange to it had a odd jump from 2014-2015, might be going up. Though there operating expense is quite high, I'm not sure if they can afford it considering the fact that their net income is so low compared to the operating expense.

Even total cash flow is 400k less than the operating expense this tells me the company has a hard time generating a profit, Alot of their data on the financial statements are volative making it less predictible in my opinion I personally think I would not own this company. But at the same time I might have no idea what I'm talking about lol.


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## luutzu (11 October 2016)

Klogg said:


> So from what I gather, you're arguing that the dilution of equity amongst a greater number of shares it the cause of concern. Yes, that's right, but don't forget the company got something in return for it.
> 
> And just because no cash exchanged, it doesn't necessarily mean it was a bad deal for existing shareholders. You'd just need to assess each one on its merits...
> The VOC example McLovin gave is a great one. Because equity was issued for the M2 group, or AMM, does that make it a bad transaction for existing shareholders?
> ...




No. 

The brand and whatever plants SCA sold to Asaleo was purchased separately for $113m. 

So maybe what SCA put in to receive that 114m at $1 each  + the fees etc isn't the plant and tangibles. It could be the rights for Asaleo to be solve distributor to sell SCA's stuff.

The 96m that PEP "contributed", it's not tangible either. It's their skills or whatever, who knows.

All PEP put in was $125m in cash, for 15% interest on the 125m pref.shares. Note this $125m is a loan, convertible to shares... it's not equity.


With that $125m in cash, and with the imaginary $224m in non-cash contributed equity shown on the balance sheet, they managed to borrow $275m from some bankers. 

Use that to pay themselves $50m, and further repay - probably the both of them, as it's not clearly stated in the financials - pay $235m. 

So PEP and SCA already took out $285m from Asaleo. Add about $10 to $20m in consultation fees - mainly to PEP, but also to SCA and that's an already nice return for 1 year's work.

Then there's the $125m pref. shares... the 15% coupon are compounded, and ends up to cost the new shareholders another $40m+ in interests. 

At IPO, all the cash raised - ok, 97% of it - went to repay that $125m pref.shares; pay the coupon still owing; pay the banks their, from memory, $275m or more; pay management their some $32m in incentives; and pay for all the IPO costs - about $40m.

The new shareholders are left with about $20m in cash after all that. PEP walked away with over $500m; SCA get to own some 32% of a $1b company, and of course had already pocketed all them hundreds of millions and a willing distributor of their goods and brands.

----

Now, if a guy walk into your office and offer you this IPO, would you buy it?

A lot of smart monies did bought it. Because they can't, or didn't bother, to read and re-interpret what's in the financials.


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## McLovin (11 October 2016)

luutzu said:


> Have also responded to McLovin's point that the $224m contributed eq. weren't cash because it's for assets. That it's not for assets as the assets have been paid separately, for $113m.
> 
> So PEP and SCA just made up that contributed equity. No cash and no assets ever changed hands for those shares.
> 
> Not saying that that's illegal... companies have given out shares and options have been taken for nil consideration and it's still reported in Con.Eq.




You cannot create contributed equity out of thin air. Something has to be given in consideration. If a company gives away bonus shares (although that doesn't seem to happen anymore), number of shares on issue goes up, but equity stays the same. The ATO would take great interest in artificial contributed equity being used to fund return of capital. It would amount to a tax free dividend limited in amount only by the assets of the company.

In any event, looking at the transactions of that company when it was private is much of a muchness, DSH went bust because it had inventory problems. So what is it today that makes AHY the next DSH?


----------



## luutzu (11 October 2016)

RandomInvestor said:


> Well incase you guys wanted my opinion on Asaleo Care, here it is lol:
> 
> Interesting company its total assets seem to be improving steadling, where as the total liabilities is more volatile from what I see but seems to be going down aswell(this is quick analysis not proper one btw)  Though it's retained earnings are going down which seems to be going down rapidly every year. Though problems with companies like this is that they are missing data like total stock holder equity so what do I do in this case? Anyways... net income seems strange to it had a odd jump from 2014-2015, might be going up. Though there operating expense is quite high, I'm not sure if they can afford it considering the fact that their net income is so low compared to the operating expense.
> 
> Even total cash flow is 400k less than the operating expense this tells me the company has a hard time generating a profit, Alot of their data on the financial statements are volative making it less predictible in my opinion I personally think I would not own this company. But at the same time I might have no idea what I'm talking about lol.




Asaleo was making losses for at least the two years prior to PEP.

PEP managed to make it profitable in the second year. How did it do that when SCA and them operation managers whose business is tissues and tampons couldn't all these years?

And why is it struggling now? Can't just be Coles and Woolies going to war.

The new investment in new plants and machineries... some may call that fixing the dam machine before it get overheated and burn the factory down... that's not an investment.


Another question is... if Asaleo is so cheap and valuable at current prices - same level as at IPO - then why did the managers and SCA flogged it off two years ago for the same price? 

It's not like Asaleo is swimming in cash. So where's the money from to buy the shares at practically the same price they sold at? For the new machineries? For better looking EPS and maybe market price control?


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## luutzu (11 October 2016)

McLovin said:


> You cannot create contributed equity out of thin air. Something has to be given in consideration. If a company gives away bonus shares (although that doesn't seem to happen anymore), number of shares on issue goes up, but equity stays the same. The ATO would take great interest in artificial contributed equity being used to fund return of capital. It would amount to a tax free dividend limited in amount only by the assets of the company.
> 
> In any event, looking at the transactions of that company when it was private is much of a muchness, DSH went bust because it had inventory problems. So what is it today that makes AHY the next DSH?




I did examined the timelines of when PEP and SCA got together, and could not work out where and what they do for that $224m equity. It's not in cash, it's not in transfer of tangible assets, and it's not in prior years because I do not remember reading them having had any history and ownership before 2011. In the 2011 report, there's nothing there to support their claims.

Also couldn't work out where they borrowed $235m from "related parties" that they have to return it - with zero interest. 

I couldn't see the borrowed cash going in, but it certainly went out. 

So maybe it's just me, or maybe they're lying. As an investor, I'd rather believe myself, even if I'm wrong.

-----

Why is AHY the next DSH?

It's a weak argument because I haven't bothered to analyse the 2014 and 2015 financials in detail to make the case.

But I have scanned thru them, and they do not look good.

Inventory level are also high - it's explained away as new factory and machinery disruption; cash flow not good; margin was poor and growth in most of its segments non-existence. The only bright spot for growth was its continence business.

It hasn't made much cash so where does it get the dole to pay dividends and fund the share buybacks?

It's facing tough times with Woolies and Coles, but are going to now sell to Aldi. That's not a smart strategic move. Coles and woollies will not allow Asaleo to be able to sell to Aldi at a low price and still survive. 


So yea, could put it down to weak conjectures and guesswork. but I'd rather that than doing forensic accounting from figures management I don't trust are providing.


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## Ves (11 October 2016)

luutzu said:


> So maybe what SCA put in to receive that 114m at $1 each  + the fees etc isn't the plant and tangibles. It could be the rights for Asaleo to be solve distributor to sell SCA's stuff.
> 
> The 96m that PEP "contributed", it's not tangible either. It's their skills or whatever, who knows.
> 
> All PEP put in was $125m in cash, for 15% interest on the 125m pref.shares. Note this $125m is a loan, convertible to shares... it's not equity.




Are you saying the Business Combinations figures in the Notes to the 2011 and 2012 financial statements are wrong? 

In particular Note 24. Business Combinations in the 2012 financial statements (http://www.asx.com.au/asxpdf/20140626/pdf/42qgggjf3gs73l.pdf) explains what happened fairly well.   It's on page 24 of the linked PDF.

It appears you are getting confused because PEP and SCA set up a new company PEPSCA Pty Ltd,  which is in effect a 50/50 joint venture.   This company was later renamed to Asaleo Care Limited.

In the month or two prior to the formation of PEPSCA Pty Ltd, PEP paid an amount to SCA to gain a share of ownership in SCA's Aus/NZ operations.  See here:  http://www.pep.com.au/media/4983/2011-11-04PEPannouncementonSCAHA-4.11.11.pdf  and here http://www.sca.com/en/media/press-r...-in-australasia-with-pacific-equity-partners/

Because SCA is a multi-national company it obviously has a lot of subsidiaries that it uses to operate in different jurisdictions.  

If a new company (PEPSCA) was not set up to combine the various subsidiaries it'd a bloody mess and a nightmare for the new investor (PEP) to keep track of it and tidy it up for the eventual IPO.


----------



## luutzu (11 October 2016)

Ves said:


> Are you saying the Business Combinations figures in the Notes to the 2011 and 2012 financial statements are wrong?
> 
> In particular Note 24. Business Combinations in the 2012 financial statements (http://www.asx.com.au/asxpdf/20140626/pdf/42qgggjf3gs73l.pdf) explains what happened fairly well.   It's on page 24 of the linked PDF.
> 
> ...




Not that confusing.


----------



## Ves (11 October 2016)

luutzu said:


> Not that confusing.



Did you also look at page 52 in the Report you linked that page from (2013 Annual Report)?

There is a break-down of assets, both tangible and intangible, that were acquired as part of the various transactions for the formation of the Joint Venture.


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## luutzu (11 October 2016)

Ves said:


> Did you also look at page 52 in the Report you linked that page from (2013 Annual Report)?
> 
> There is a break-down of assets, both tangible and intangible, that were acquired as part of the various transactions for the formation of the Joint Venture.




Yes I have and honestly it's meant to confuse people.

It make it appear that PEP already own SCAHH ($95.876m) and SCA owns SCAHAPL ($253.72m). So that would explain them both contributing equity through those two companies, combined it into what eventually became Asaleo.

But that's not true.

1. Those transaction occurred/finalised on 4th Jan 2012.
2. PEP only engaged in talks with SCA in late 2011 - in November. i.e. PEP does not already own anything from SCAHH or any toilet paper business they're combining.


If you look at note 23, p.45, on Contributed Equity. Note the 96m shares (and $96m) PEP contributed was 2 days before the transaction with SCAHH and SCAHAPL and all that assets and book value breakdown at note 30.

Further, the 114m shares to SCA for $128m contributed equity is for acquisition of the ANZ Brands from parent entity of SCA - note 23(b).(a).

So the two sub companies totalling $349m detailed at note 30... at best that is the $325m borrowings they repaid in cash in 2012. But more likely PEP only agrees to pay $125m for them as noted in note 30(b), p.53. After cash, they only paid $113m.


So my take is PEP only ever put in $125m into a shell company, acquire all the assets from SCA for $125m (net cash so $113m); make up all the other bs and they both take back $50m as "capital return", then that $325m "loan repayment"... all done with that initial $125m pref.shares plus the debt.

At IPO, that $125m pref. shares were repaid; the $44m coupon were repaid; the debt to bankers were repaid, the purchase of shares own by PEP etc. etc. were all paid and the new shareholders own a company with $20m in cash from the $360m or whatever that they raised from new share issue.


This is the same deal Anchorage pulled on DickSmith. Difference is Anchorage actually put up a net of $8m of its own cash... PEP simply lent its $125m for 15% and take some $500m home on top too.

Remember too that the current board and directors are the same crew that ran the show, brought it to market and pay themselves some $32m - one third of which they cashed out at IPO and at least the CEO cashed out half of what's left soon after IPO.

Now they want to buy the company back at practically the same price?

So if investors are lucky, SCA will try its best to keep Asaleo alive and ticking along. If unlucky, the share price could crash and SCA can privatise it for cheap. SCA will win either way. It's a matter of what will not upset enough shareholders to start suing.


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## galumay (11 October 2016)

My eyes are bleeding. Thats 5 minutes of my life I will never get back.


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## McLovin (11 October 2016)

luutzu said:


> Why is AHY the next DSH?
> 
> It's a weak argument because I haven't bothered to analyse the 2014 and 2015 financials in detail to make the case.




Thanks. That throws everything else in to contrast.


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## luutzu (11 October 2016)

McLovin said:


> Thanks. That throws everything else in to contrast.




Wow. That's the best you can come back with? 

Seriously, that's what you got out of all these? That since I haven't analyse and deconstruct the latest two financials, what I say isn't true?

And I'm the idiot?


So PEP walks into the room and tells you they just put up a $125m pref.shares at 15%; they've extracted already some $500m; and are asking you if you'd like to pay the equivalent of $1b.

McLovin then look at PEP and says that sounds awesome, but since I'm clever and all let me thoroughly examine your latest financial statements; check out that inventory level; do that forecast and discount models.


ah, genius at work.


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## luutzu (11 October 2016)

galumay said:


> My eyes are bleeding. Thats 5 minutes of my life I will never get back.




With that kind of arrogance and stupidity, I would think there are more things you will never get back.


I just freakin showed you how a bunch of financial engineers managed to turn a losing operation into a $1b pile of crap, unload it onto the market where people's life savings are going to be stolen... and you idiots takes it out on me?

Wow. With that kind of priorities, imagine the kind of damage you could have done if you're a bit smarter.


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## galumay (11 October 2016)

Of course, we are all idiots and you are a misunderstood genius....but maybe, just maybe.....

(apologies to Louis CK)

Luutzu, I imagine you are likely to dismiss any advice from me, but just in case, you might try practising some self reflection and consider avoiding the personal attacks, consider why your opinions seem to be so polarising and how it is that so many very successful, skilled and intelligent investors question your analysis. (and no I am not counting myself as one of them.)


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## McLovin (11 October 2016)

luutzu said:


> Wow. That's the best you can come back with?




What's the point? Everything you post is full of contradictions and a total lack of basic accounting knowledge and sooo long winded. I'm not going to argue the sky is purple with someone. As I said before I just hope your posts don't lead any newbies astray.

I'll leave you to it.


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## luutzu (11 October 2016)

galumay said:


> Of course, we are all idiots and you are a misunderstood genius....but maybe, just maybe.....
> 
> (apologies to Louis CK)
> 
> Luutzu, I imagine you are likely to dismiss any advice from me, but just in case, you might try practising some self reflection and consider avoiding the personal attacks, consider why your opinions seem to be so polarising and how it is that so many very successful, skilled and intelligent investors question your analysis. (and no I am not counting myself as one of them.)




Trust me, I know intelligence when I see one. You guys ain't it.

The only intelligent critique and sensible discussion I got are from Ves. At least Klogg knows he's not familiar with the company so don't want to discuss details after the initial queries.

But none of you so called experts read the dam document and already mouthed off about me not knowing what I'm talking about, then the personal insults. 

Yea, that's real maturity and intelligence.

I'm no genius, obviously. But I'm quite competent at what I do and know what I'm talking about when I look into it.
Have any of you spent a week analysing Asaleo's pre-IPO documents? Then what success or intelligence or genius make you guys know about Asaleo?

What, a rich, intelligent blah blah investor like you guys automatically know every company?

And how competent are you guys if you still follow Discounted Cash Flow modelling anyway? That's the dumbest bs ever invented by idiots who knows nothing about business investing.

I mean, some idiot academic use a formula for a controlled environment to value an entity whose future, and whose macro influences are anything but controlled or predictable... and you guys thought that's the smartest thing ever.

Imagine being so clever at being stupid. 

yea, this company is going to earn x, y, z; will grow at i,j,k for n,m,o years; then it will grow at a, b, c; interest rate will be this that what; risk-free therefore is alpha, beta, shieta... discount it all back today and it's worth between $5.29 to $5.42... and will not pay any higher - if all things work out as predicted.


See how stupid that is? And geniuses like you guys are buying it.


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## luutzu (11 October 2016)

McLovin said:


> What's the point? Everything you post is full of contradictions and a total lack of basic accounting knowledge and sooo long winded. I'm not going to argue the sky is purple with someone. As I said before I just hope your posts don't lead any newbies astray.
> 
> I'll leave you to it.




Have you spent 2 years working with two CFO, finance managers to develop an accounting software that tracks all financial transactions, produce financial statements and track financial performance on a multi-billion dollar project? 

Then spent two years researching the application of finance to business analysis and stock valuation, then wrote a dam application to put it into practice?

I don't know about finance because... because I don't buy the bs modern investing practises are preaching? You guys are more competent because you learn how to read financial statements and are all rich and old and wise?


How much damage could I ever do compare to the damage those academics you're following have done? DSH is already half a billion. AHY is being bought for $1B and highly recommended.... yeah, people should worry about my stupid accounting.


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## galumay (12 October 2016)

Oh well, I tried. None so deaf as those that will not listen. 

I think to save my bleeding eyes and scrolling button on the mouse I shall engage ignore mode.


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## craft (12 October 2016)

Luutzu you are unique.

Now you are being so obnoxious that I’m going to have to clear up what you so plainly don’t understand. Not for your benefit, because you have shown in the past you can’t learn but for the benefits of anybody that may be baffled by your bull****. 

SCA (its affiliates and Subsidiaries) provided the joint venture $711.295M of assets and $361.699 of Liabilities = Net Assets acquired of $349.596M

For those Net Assets SCA received 210M shares and $125M Cash

The 349.596M net assets less the $125M Cash gives the correct Contributed Equity figure reported of  $224.596M

SCA sold 50% of the joint venture to PEP that is they sold 105M shares for $112,298M (105M+half the 14.596M balancing figure) that money was paid by PEP to SCA nothing to do with the joint venture books.

As well as an equity holder through the ordinary 105M shares Pep become a financier of the joint venture through the 125M preference shares. Not dissimilar to how SCA had been an equity holder and a financier of SCAHAPL.

The convertible preference shares was used by the joint venture to pay the consideration to SCA for the value that wasn’t contributed as equity. This is the only cash part of the transaction that should have gone through the cash flow and it did.

Part of the liabilities incurred in the transactions was a 235M loan provided by SCA to what was originally a subsidiary. Nothing at all unusual in retiring this debt and replacing it with an external provider once the business become a joint venture.  It’s just a debt source swap.

None of this is endorsement of Asaleo – any opinion on that should be based on its current asset quality and post IPO financial structure.

If you want to be polite and don’t understand any of the above facts, more than happy to help you wrap your head around it, just break your questions down into small steps. (one step at a time)  If you are going to keep arguing black is white then I’ll leave you to it.


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## luutzu (12 October 2016)

craft said:


> Luutzu you are unique.
> 
> Now you are being so obnoxious that I’m going to have to clear up what you so plainly don’t understand. Not for your benefit, because you have shown in the past you can’t learn but for the benefits of anybody that may be baffled by your bull****.
> 
> ...






Yea, I'm the idiot around here. 

Let me get this straight... 

I, PEP, calls you, SCA, up and said ey, would you sell me half that net $349m of assets that's been losing you money all these time. And here's how I will construct and pay for that half:

1. I don't pay you for that half. 
2. I loan into our JV $125m. Since we're pals, I'll charge you only 15% (even though the market rate is 4% or 5% tops).
3. I'll load enough an extra $275m debt on it, repay you, repay me... 
4. I'll pay my best guys; we pay our consultants


then, then we take it to market for $1billion in two years.

You, SCA, says... I freaking love this.

But ey, what idiot would buy this losing piece of crap for $1b? 

There will be some, we got them lined up, don't worry about it.

Cool... 



So you and I sell it, pocket half a billion each - you, because you still want control over a company that will buy your products til kingdom come, hold on to some equity in Asaleo. 


Then get this... two years after having flogged it off "for cheap", you then start to borrow money to buy it back for practically the same price. 

yea, I am the idiot who just don't get it.

I really should do a detailed analysis of the current state of affairs because since the float, it was only this 2015FY that Asaleo made any profit; its sales are stagnant and declining; it just loaded up on another $100m of debt, bring that to what... $300m in debt or there about?


Ya, let's give the clowns who robbed investors and unload this crap on them the benefit of the doubt. 

btw, I got an opera house and a harbour bridge... I really love the bridge but will sell you the opera house. I've put billions of dollars into it ,but for you brother, you can take it off me for a mere $1billion. 

Call quick before I change my mind...


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## luutzu (12 October 2016)

craft said:


> Luutzu you are unique.
> 
> Now you are being so obnoxious that I’m going to have to clear up what you so plainly don’t understand. Not for your benefit, because you have shown in the past you can’t learn but for the benefits of anybody that may be baffled by your bull****.
> 
> ...




I'm not unique, i'm just as special as you are buddy.

Nope.

The 210m shares were not all for SCA. It was between PEP and SCA, with PEP the 96m and SCA the 114m shares. 
So that 105m shares sold to PEP is not accurate either.

The shares were split just before IPO, with new shares issued, bringing total of shares to be some 600m.

You may be right about the deal PEP and SCA struck where for $125m from PEP and SCA's ANZ/Fiji assets at net $349m above, bring the contributed equity they claim to that $224.59m.

But that's just all numbers financial engineers can imagined up, and forensic accountants to deal with. I mean, the $125m is a loan, not any contributed equity. It's redeemable convertible pref.shares, one that was redeemed at IPO. 

So its use was for Asaleo to purchase those two subsidiaries for $125m, where net of cash became $113m.

Now, the share and ownership in the new Asaleo as split between PEP and SCA in that 210m shares outstanding, that's just them negotiating who owns what and how much. The net asset for purchase to give whatever amount they can claim, that's just legal protection against the coming investigation.


*HOW MUCH FOR ASALEO?*

As an investor at or after the IPO, the value of Asaleo is somewhere between that $349m net asset and the $125m... all _after_ the debt PEP and SCA loads onto Asaleo, after the capital returned. i.e., at best, it's $100m - if I'm drunk and add a few extra zeros.

SCA basically sold its subsidiaries at book value of $349m. It take the $125m upfront; it then take part of the $50m capital return; and assume that $235 is just debt and accounted for in the net amount... so minus $50m.

Take away the $275m + interests in debt; take away the shares that was given away to mgt; maybe be nice to the workers and give their meagre $600k or whatever stocks that was given.

Still positive or already in the red? Sure ain't $1billion.



*CURRENT GLORY*


Since IPO, how has Asaleo performed? 

Made $2m profit first year, but be generous and allow that exchange difference and hedging, so say it's $20m profit. 

I know mgt don't count that IPO and management bonuses as real costs, but they're real cash... so where's the cash to pay dividends from? From new debt.

Where's the money to buy back the shares from? new debt.


Look at its inventory... are they mostly raw material that can't be used while the machines and plant were replaced? Nope. $17m of the $20m increased in inventory to $159m are finished goods they can't move.

Look at the cash cycle; the days payables dropping by some 11 days with receivable days constant but cash conversion day growing past 3 years. This points to deterioration and suppliers wanting cash upfront and not as willing to grant credit.


Anyway, it just got cheaper today... stock buy back is back online.


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## Ves (12 October 2016)

luutzu said:


> Since IPO, how has Asaleo performed?
> 
> Made $2m profit first year, but be generous and allow that exchange difference and hedging, so say it's $20m profit.




Where are you getting the $2m profit from?

I'm seeing about $100m of free cash flow (including tax, borrowing costs and significant capex to their production facilities) for the 2014 and 2015 years combined.


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## luutzu (12 October 2016)

Ves said:


> Where are you getting the $2m profit from?
> 
> I'm seeing about $100m of free cash flow (including tax, borrowing costs and significant capex to their production facilities) for the 2014 and 2015 years combined.




View attachment 68402


Ok, $2.89m instead of $2m as I remembered. But I was also being generous and assumed it was $20m.

It'd be hard to know what its FCF is in the usual manner... borrowings all over the place; should we trust their depreciation figures; are its capex maintenance and replacement as capital works etc.

So I'd just take its 2015 operating cashflow... net was $117 as they say, but you got to take out the GST component they need to pay, so that's -$13.9m; take a further $22m to pay the ATO since they've only paid $8.2m of their reported $30.37m tax expense. i.e. 117 - 13.9 - 22 = $81.1 cash from operations.

Might not be Free Cash Flow, generous enough I reckon for a two year old with dodgy history.


*WHAT THEY DID DURING 2015*

1. "Invest" $22.8m in new plan. We can be generous and refer to the note 2.2 and say the capital investment are not to repair but to improve and expand. So they spent $13.6m to grow. That leaves $9.2m of do or die capex.

2. Ignore share buy-backs and new $105m loan for now

3. Take away $56.7m dividends

i.e. $81.1 - 9.2 - 56.7 = $15.2m cash left from operation.

Interests and maybe some principals gotta be paid - that's at least $11m; new $13.6m investment to be made for growth; but why the share buy back? All $62m then, and extended to be $100m in total.


Money's cheap and the AHY share's a bargain so borrow the buy shares? Can simply re-finance existing facilities?


Anyway, it's a terrible business even though this FY2015 is its best year as far as the docs have shown. 

Running low on cash, need borrowing to live off, managed by a bunch of scoundrels. 

We can do other projections and guess works... at best it might tick along because SCA needs it to; might end soon.


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## Ves (12 October 2016)

I forgot to mention  there's another $25m of free cash flow in the first half of 2016 that you need to financially engineer to make this look like a company this is secretly going bust.

In fact,  by the end of 2016,  there will probably be another $40m-50m of free cash flow on top of that.

There's only so much GST or additional tax they can pay before the ATO starts sending their cheques back.


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## McLovin (12 October 2016)

Ves said:


> There's only so much GST or additional tax they can pay before the ATO starts sending their cheques back.




ATO is in on it.


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## Ves (12 October 2016)

McLovin said:


> ATO is in on it.



The stupid thing is,  if they're not actually making any money (or $2 million),  why would they be paying any tax, let alone $30m in tax?

Contradictions collapse...


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## craft (13 October 2016)

luutzu said:


> Nope.
> 
> The 210m shares were not all for SCA. It was between PEP and SCA, with PEP the 96m and SCA the 114m shares.
> So that 105m shares sold to PEP is not accurate either.




So Luutze, small steps let look at the *first* incorrect statement you make – Oh look there it is on the first line.

The 96M shares are made up of consideration to SCA of 71.7M for the SCAHH subsidiary and 24.3M for the non-cash component of the SCAHHPL subsidiary. Both originally paid as promissory notes but settled for equity by the joint Venture PEPSCA

The 114M shares are made up of 20.4M brand assets for SCAHH and 93.6M of brand assets for SCAHHPL.

Total shares issued to SCA 210M

PEP then acquired 50% of the existing ordinary shares of the joint venture company from SCA (makes sense for a joint venture doesn’t it?) for $105M plus there was a completion settlement agreement where PEP would have paid SCA another 7.3M on the 105M shares.

So both parties hold an initially 105M shares each.

There was a latter split where the equity was split according to existing holdings and you can see they both had equal numbers of shares at the IPO.

It’s all spelt out multiple times in all the reports.

Nobody here is saying AHY is necessarily a great company or that the business during its transformation to an IPO ready business under private equity wasn’t highly leveraged. Nobody is saying that capital extracted from the business prior to the IPO wasn’t maximised and nobody is saying that the fees paid to advisors were justifiable.

We are just trying to point out the mistakes in your facts that undermine your arguement.

If you really want to do a good analyse – *first get the facts straight*.  Look at things from the perspective of Funds employed.  Forget just concentrating on what the joint partners made out of the process.

Then ask the questions:

IF PEP as the private equity partner made a windfall gain was it because SCA sold the 50% to them cheaply to get a partner on board who could shape the business for an IPO?
Does the underlying business improvements during the transformation period justify the profits achieved?
Or did the public pay too much for the IPO.

If you want to label it the next DSH – make the case based on post IPO financial structure and  asset economic value - that's what has the potential to kill it - not just that it shared a similar heritage.


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## craft (13 October 2016)

Ves said:


> The stupid thing is,  if they're not actually making any money (or $2 million),  why would they be paying any tax, let alone $30m in tax?
> 
> Contradictions collapse...




Do you reckon you get a tax deduction for making a charitable donation to the ATO?


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## Ves (13 October 2016)

craft said:


> Nobody here is saying AHY is necessarily a great company



FWIW,  I think it's about a 6/10.    I have a look at it every now and then.  If the market throws up a decent price in terms of risk/reward I'd be interested.  Similar quality grade to something like Ansell.   

Unfortunately because the earnings profile is fairly stable,  they don't often come super cheap.


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## craft (13 October 2016)

From where Luutze first appeared on the scene at post 11 showing with his first line that he hadn't understood the prior P/E conversation - the rest of this thread should be moved out of the beginners lounge/renamed! To what though I'm not sure???


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## Ves (13 October 2016)

craft said:


> From where Luutze first appeared on the scene at post 11 showing with his first line that he hadn't understood the prior P/E conversation - the rest of this thread should be moved/renamed! To what though I'm not sure???



Just move them all to Asaleo's stock thread.  AHY.


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## luutzu (13 October 2016)

Ves said:


> I forgot to mention  there's another $25m of free cash flow in the first half of 2016 that you need to financially engineer to make this look like a company this is secretly going bust.
> 
> In fact,  by the end of 2016,  there will probably be another $40m-50m of free cash flow on top of that.
> 
> There's only so much GST or additional tax they can pay before the ATO starts sending their cheques back.




Yup. It's a great company that's why the company is buying it all back; and the mgt just spent about $100k from their $32m pay day to buy all they can at the same price they sold it for.


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## luutzu (13 October 2016)

McLovin said:


> ATO is in on it.




So the $693.717m from customers that's inclusive of GST, that does not include GST they have to pay?

The $554.637m payment to suppliers (and employees) that includes GST, there is or there is not GST they can claim from?

Dam, I must have paid GST all wrong all these years.


So no, the ATO aren't in on it, they just want that GST.


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## luutzu (13 October 2016)

craft said:


> From where Luutze first appeared on the scene at post 11 showing with his first line that he hadn't understood the prior P/E conversation - the rest of this thread should be moved out of the beginners lounge/renamed! To what though I'm not sure???




Should frame it man. To show how smart you guys are.

Yea, I'd feel real smart thinking nothing's wrong when a bunch of financial engineers want to sell me $1b worth of tissue and toilet paper. Something they lent $125m, load up on debt, pay themselves all handsomely, flog it off to me and use all my cash to pay all the debt and give them their bonuses and that $40m of interests on that $125m loan.

Let's get that spreadsheet out and start doing the analysis with first, a 2 stage DCF model; then a 5 stage I'm paid by the hour to pretend I am smart...


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## craft (13 October 2016)

luutzu said:


> Let's get that spreadsheet out and start doing the analysis with first, a 2 stage DCF model; then a 5 stage I'm paid by the hour to pretend I am smart...




Luutzu

You misinterpreted and misrepresented that discussion and the same here. 

Enough - you are an arrogant ********.


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## luutzu (13 October 2016)

craft said:


> So Luutze, small steps let look at the *first* incorrect statement you make – Oh look there it is on the first line.
> 
> The 96M shares are made up of consideration to SCA of 71.7M for the SCAHH subsidiary and 24.3M for the non-cash component of the SCAHHPL subsidiary. Both originally paid as promissory notes but settled for equity by the joint Venture PEPSCA
> 
> ...




I have already explained PEPSCA's version of the story; have also explained my version of their bs. 

And yes, I have admitted that simply looking at Asaleo's birth history is just conjecture, and maybe envy, right?. That one need to go thru and dissect the current state and use the language of accounting etc. etc. to make the case. Can't blame PEP for finding a diamond in the turd, polished the turd to show a genuine 1billion caret pink diamond and so got handsomely rewarded.

Yea, I know that. Why do you think I actually start analysing Asaelo's IPO? Maybe because I thought the market mispriced it for those prejudices.

And I have also said that after I analysed the two years financials prior to IPO; read the latest presentation and scan thru the latest two years financials.... guess what, it's still crap.

You guys said, no it's not, prove it. So with nothing better to do, I spent 5 minutes on the latest cash flow statement... and guess what, it's still crap.


Anyway, it just got a bit cheaper again today. Get ready to jump in if you think it's a bargain like the board of Asaleo.


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## luutzu (13 October 2016)

craft said:


> Luutzu
> 
> You misinterpreted and misrepresented that discussion and the same here.
> 
> Enough - you are an arrogant ********.




Unique and special people tend to be arrogant. Especially when they're right too.

What, you going to stop talking to me now? 'cause I don't know if I can take it a second time man.


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## skc (13 October 2016)

craft said:


> From where Luutze first appeared on the scene at post 11 showing with his first line that he hadn't understood the prior P/E conversation - the rest of this thread should be moved out of the beginners lounge/renamed! To what though I'm not sure???




I have a few suggestions:

- _Problem with trying to have a discussion on the internet around facts?_

- _Read first: before engaging debate with Luutze_

- _A guide to winning every internet discussion: never admit being wrong_

- _Understanding company financial statements: the toilet paper methodology_

- _The importance of stop loss when posting on stock forums_


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## Klogg (13 October 2016)

skc said:


> I have a few suggestions:
> 
> - _Problem with trying to have a discussion on the internet around facts?_
> 
> ...




Haha, love it. This ranks as the 2nd best post, behind premature accumulation.


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## luutzu (13 October 2016)

skc said:


> I have a few suggestions:
> 
> - _Problem with trying to have a discussion on the internet around facts?_
> 
> ...




Good advice.

But wait, wouldn't I need to be wrong first to then admit I'm wrong? Otherwise it'd be false.


Yes, the way to understand financial statements is to always take what's written and prepared for you at the words of god. Even if it's by the same crew who managed to spent literally zero dollar and get to flog it off for over $500m for themselves in two years. I  mean, it's not like financial engineers can use leeways to define and imagine earnings and costs and stuff and still be within the law.

btw, they have only "$282m" in debt even though they've drawn down $320m from a $350m debt facility. That's not technically a lie, but it's not like the cash on hand they've used to reduced a $320m debt to the banks are just sitting there not to be use for anything. GST repayment of $13m or something? New toilet paper and handwash for the offices?

What is a lie though, is why the $20m (12.5%?) increase in inventory they claimed as due to:

"Increase in inventory primarily due to increase in finished goods arising from stock build associated with nappy machine relocation and upgrade and Feminine Care machine upgrade, undersells in June and unfavourable FX on inventory" - p.13. HY16 prez.

What do they mean? They can't sell the finished goods. Noooo... They ramp up production to an extra $17m of new finished goods before shutting down the machines for a new efficient one.

Yah, ramped up all that with less human resources, machines old enough you need to repair and replace.

--------

From a strategic pov... say I'm a Coles or WOW executive and are going to war because Aldi and MTS are gaining on my market share. Then these Asaleo toilet paper guys are starting to supply to that German threat. What would I do? 

A. I wish Asaleo luck and hope they could give Aldi an even better deal than what I'm getting. OR
B. I push Asaleo so hard on its prices that it would not be able to pass onto Aldi anything that they'd be able to compete with me. 


If I'm Aldi, would I buy the same stuff at the same level as WOW or WES? Are my customers cost conscious or brand conscious when it comes to their toilet and tissue?


It's a business that's between a rock and a hard place, run my people who doesn't care much about shareholder interests and who, if honest, do not know how best to utilise cash and borrowings towards the business. Spending borrowed money on stock buyback when your major clients are at war, economic headwinds you are claiming... good luck with that.


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## galumay (13 October 2016)

skc said:


> I have a few suggestions:
> 
> - _The importance of stop loss when posting on stock forums_




I love that one, dont use them when investing, but when posting on the internet, well stop losses would have saved me several hours of my life I will never get back!!


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## luutzu (13 October 2016)

galumay said:


> I love that one, dont use them when investing, but when posting on the internet, well stop losses would have saved me several hours of my life I will never get back!!




kekeke

I thought stop-loss would be telling where PEP can shove their $1b request the moment you open the prospectus and found that they've only loaned $125m at 15% coupon for two years, load the heck out of Asaleo with debt, and want you to take it off them... after careful due diligence of course. 

I guess you can't really make $500m+ in two years without meeting a few highly paid maroon.


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## McLovin (13 October 2016)

luutzu said:


> I guess you can't really make $500m+ in two years without meeting a few highly paid maroon.




Queenslander!


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