# Bargains Bargains Bargains



## mcgrath111 (24 February 2017)

Hi All,

Wanting to create a thread where you see value approaching or where a stock has been heavily discounted.
As of late the two stocks I saw value we're in VOC and MYX, however aside from that I've found it extremely hard to find real good value / heavily discounted prices. 

Due to the lack of buying options, I've become extremely cash heavy.

Would love to see stocks that you believe are trading discounted at the moment; perhaps due to short term changes or market sentiment. 

Many thanks,


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## luutzu (24 February 2017)

mcgrath111 said:


> Hi All,
> 
> Wanting to create a thread where you see value approaching or where a stock has been heavily discounted.
> As of late the two stocks I saw value we're in VOC and MYX, however aside from that I've found it extremely hard to find real good value / heavily discounted prices.
> ...





Look into Mermaid Marines [MRM]


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## UMike (24 February 2017)

Really can't see too many.
Just Started a business so a lot of my sold stock is going into that....

Otherwise I'd be Cash heavy also.


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## Knobby22 (24 February 2017)

I've got one but haven't bought in yet.

I own a lot of MOC and I reckon they are very cheap at present.


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## tech/a (24 February 2017)

Great idea

Be fantastic to see Fundamental analysis in action.

Lots of technical stuff would be great to see the other
Form of analysis showcased


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## Knobby22 (26 February 2017)

I will explain why I believe MOC is cheap.
Mortgage Choice is a broker for home loans. As such, unlike the banks, there is no risk of bad loans and the ability to rewrite loans and get more fees (e.g. changing to fixed interest) and also getting fees as the loans continue. Mortgage Choice is independant unlike RAMS and Aussie Home Loans and has very effective management that has helped build trust in the market leading to a rising share of the market.

I bought in at around $1.90 expecting only very marginal growth but that has been proven wrong as the business has been able to expand through increasing the number of brokers and also selling insurance.
They also got rid of their HelpME Choose website which i was always against as in my view it acted against the business plus it made a loss. That has helped to the much improved returns recently but is a once off. (though the effect is a permanent improvement to the bottom line).

The reason it is a buy is:
Price as I am typing is $2.46.
yield about 7% fully franked! so you get tax back if structured correctly, 10% yield!!, Dividend 8.5c for interim, pretty safe bet it will be 9c for final. This is one of the best returns in the market.
So even if the price goes nowhere you will be getting a very safe return. That alone means to me the price is too low.

But as mentioned there is growth also. It's not amazing growth, it appears to me to be about 3 to 5%, depending on how profitable the insurance is and how many home loans are generated. If the governments, which are under pressure to help Gen Ys buy actually do something to help and shake out the investors a little, this could increase by more.

Risks - the only risk I can see is regulatory. There is a push to stop commissions, even though the mortgage broking industry has been shown to act better than the banks.

Mortgage Choice is well run with a great system that allows it to make decent profits while some of the smaller brokers are struggling to compete.


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## mcgrath111 (26 February 2017)

luutzu said:


> Look into Mermaid Marines [MRM]



An interesting one indeed, trading at book value I see from a quick glance. Definitely something Ill take a look intoeven if quite speccy.
Thanks!


Knobby22 said:


> I've got one but haven't bought in yet.
> 
> I own a lot of MOC and I reckon they are very cheap at present.



Ive always thought of MOC as a good business, but can't see it being cheap unless you're talking about cheap in relation to growth prospects?


tech/a said:


> Great idea
> 
> Be fantastic to see Fundamental analysis in action.
> 
> ...



Very true, the key to a winning formula if done correctly on either front

For me, Ill play devils advoce and say that BBUS is cheap given the events coming up in the US like the Fed etc.
Might have a small small play on it, to test of im correct. 

Anywhoo, back to stock searching and cash hoarding (funny considering how small my balance is lol) for the moment.


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## luutzu (26 February 2017)

mcgrath111 said:


> An interesting one indeed, trading at book value I see from a quick glance. Definitely something Ill take a look intoeven if quite speccy.
> Thanks!
> 
> Ive always thought of MOC as a good business, but can't see it being cheap unless you're talking about cheap in relation to growth prospects?
> ...





About 5 times under book value


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## mcgrath111 (26 February 2017)

luutzu said:


> About 5 times under book value



Dare I ask, what % of your portfolio is in MRM.


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## Muschu (26 February 2017)

mcgrath111 said:


> ..... For me, Ill play devils advoce and say that BBUS is cheap given the events coming up in the US like the Fed etc.
> Might have a small small play on it, to test of im correct..




BBUS [which I had never heard of] seems very illiquid.


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## Quant (26 February 2017)

I,m loathe to commentate on any of this , but i am not seeing any bargains mentioned here and some quite the opposite  , buyer beware DYOR   ...   seriously   ..... a bargain ????


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## Joe Blow (26 February 2017)

Just a reminder that the usual rules apply to a thread such as this one. Please don't nominate a stock without also explaining on what basis you believe it to a bargain. It doesn't have to be a long or detailed explanation, but it needs to be there so others can understand what your reasoning is.

A big thank you to those who have already taken the time to do this.


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## mcgrath111 (26 February 2017)

Knobby22 said:


> I will explain why I believe MOC is cheap.
> The reason it is a buy is:
> Price as I am typing is $2.46.
> yield about 7% fully franked! so you get tax back if structured correctly, 10% yield!!, Dividend 8.5c for interim, pretty safe bet it will be 9c for final. This is one of the best returns in the market.
> So even if the price goes nowhere you will be getting a very safe return. That alone means to me the price is too low.



Interesting, Thanks Knobby!



Muschu said:


> BBUS [which I had never heard of] seems very illiquid.



It is, and is just the inverse of the US market. High risk but how high can the market _reasonably _go?
Then again, the market isn't rational so it could keep chugging along against the fed and earnings._ 

W


Quant said:



View attachment 70098

	

		
			
		

		
	
 I,m loathe to commentate on any of this , but i am not seeing any bargains mentioned here and some quite the opposite  , buyer beware DYOR   ...   seriously   ..... a bargain ????  
	

		
			
		

		
	

View attachment 70097

Click to expand...


_DYOR is a given.
Unaware of why you hate to commentate on any of this? ...Does it grind your gears?


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## tech/a (26 February 2017)

Thought Id place these in a Watch list for my own curiosity.
From a technical view (As an aside) MOC and MRM are the
only charts of remote interest. Watching with interest.


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## luutzu (26 February 2017)

mcgrath111 said:


> Dare I ask, what % of your portfolio is in MRM.




personal account: 18%; super account: 15%.

I got unlucky getting into it too early, as it turned out, on the personal account and there's a capital lost at the moment.

On the super account, a whole lot luckier and winning by about 1/3.

I'd be happy to discuss it if you like, but yea, I do have an interests in it so do your own research etc.


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## waverider100 (26 February 2017)

STO LOOKS CHEAP


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## Joe Blow (26 February 2017)

I'll just quote this again:


Joe Blow said:


> Just a reminder that the usual rules apply to a thread such as this one. Please don't nominate a stock without also explaining on what basis you believe it to a bargain. It doesn't have to be a long or detailed explanation, but it needs to be there so others can understand what your reasoning is.






waverider100 said:


> STO LOOKS CHEAP




Hi waverider100, welcome to ASF and thanks for your contribution. Do you mind taking a minute or two to explain why you believe STO is a bargain? Thanks!


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## luutzu (26 February 2017)

Quant said:


> View attachment 70098
> 
> 
> 
> ...





Ben Graham wrote somewhere that sometime a company with low or negative earnings are considered dead when in fact it is very much alive and what's more, its book value and real assets are pretty much real.

I butchered his words, but yea, sometime the market focus too much on the company's earnings and completely ignore its assets.


It's obvious that MRM have a revenue and debt problem. But the problem aren't as dire as the market think it is.

Of the $390M+ in total debt, about $200M of that are MRM's normal capital structure - i.e. it has always had that debt on its book, and their bankers roll it over when they come due. Nature of business. 

The remainder are being paid from some operating income, savings, sales of vessels. 

And by my previous estimates, MRM can pay for the current debt coming due during the FY17. It's tight, but they'll make it.

If conditions does not improve after FY17, it's going to be in a bit of trouble. But that trouble can easily be resolved with around $170M in new equity. No more than that.

Taking that into consideration, the dilution still make MRM a bargain at, from memory, at least buying $1 for 50cents.


But given the improving oil prices, the already greenlighted projects MRM had bid for and due to start using its 2nd contracted vessel on INPEX around July [?]... I'm pretty sure there's no need for an equity raising.

But yea, will MRM go bankrupt? No.

Will the worst case scenario make the investment worthwhile? 100% upside isn't too bad. If we get luckier, it'll be a lot more than that.


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## mcgrath111 (26 February 2017)

After having a super quick look, (Clearly can’t add the depth of Luutzu) but a 2 minutes snapshot:

·         Trading significantly under book value.
·        If company went belly up, what would they actually get in a depressed oil market?
·        Riding on the wave of one commodity, no pun intended  …as such very high risk.
·        Management seem open about challenges and prepared to make the tough decisions. Cost cutting, debt reduction…  ‘Salaries frozen since July 2015 and no short or long term bonuses paid or vested for the past 2 years’.
·        Vessel sharing with woodside and ConocoPhillips, desperate times / desperate measures I guess.
·        Safety of operations has increased.
·        Cash has been continually dropping, quite worrying.
·        As mentioned debt seems like a 50/50 as to whether capital raising will be required.

Risk appears to be quite high. Is MRM at bargain price? It appears so based on the asset front; yet that being said I’d be intrigued to see what  comes from the Armortisation payment of 37.5m due 31st March 2017 (Previously deferred from 31st Dec 2016.) If it falls through, maybe they can sell it all on ebay? – Anyone in the market for a tugboat? 

http://oilprice.com/Latest-Energy-N...anker-You-Can-Buy-It-On-The-Chinese-Ebay.html


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## Fsnav9 (26 February 2017)

SAU - southern gold.

IMO very cheap. 12 mil market cap, gold producer. No debt. 1 mil cash in bank and receiving another 10-12 mil in profit distributions in the coming months. Aggressive drilling campaign planned in several projects in Australia and Korea.  Will be paying a dividend soon as well.


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## Value Hunter (27 February 2017)

I have looked at Mortgage choice (MOC). To me there is something seriously wrong with the management or the business model. If you look at 5 years plus of results, their earnings have been bumpy going up and down a bit from year to year with no clear underlying trend. Also there market share has been relatively stable\flat in the 3 to 4% range. If they can't do better (I mean stronger and more consistent earnings growth and rising market share) than this in the biggest housing boom of all time, imagine how they will fare when the housing market is weak? If a cyclical stock cannot put in very strong results during a boom, that is a worrying sign.


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## Knobby22 (27 February 2017)

Value Hunter said:


> I have looked at Mortgage choice (MOC). To me there is something seriously wrong with the management or the business model. If you look at 5 years plus of results, their earnings have been bumpy going up and down a bit from year to year with no clear underlying trend. Also there market share has been relatively stable\flat in the 3 to 4% range. If they can't do better (I mean stronger and more consistent earnings growth and rising market share) than this in the biggest housing boom of all time, imagine how they will fare when the housing market is weak? If a cyclical stock cannot put in very strong results during a boom, that is a worrying sign.



They are not affected by the boom in reality. They are effected by property changing hands. A crash would be quite good for them unlike the banks as they are not in any risk. *It is not a cyclical stock*. The previous management went into a lot of dubious schemes like the Help me choose one mentioned. The present management is a lot smarter. Don't you think its cheap on metrics alone?


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## skc (27 February 2017)

luutzu said:


> About 5 times under book value




Just to clarify... you are referring to MRM? It's unclear in your post as you quoted Mcgraph who mentioned only MOC and BBUS.


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## luutzu (27 February 2017)

skc said:


> Just to clarify... you are referring to MRM? It's unclear in your post as you quoted Mcgraph who mentioned only MOC and BBUS.





yea. 

Current price is $0.31 or so. NTA around $1.70


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## Value Hunter (1 March 2017)

Knobby22 said:


> They are not affected by the boom in reality. They are effected by property changing hands. A crash would be quite good for them unlike the banks as they are not in any risk. *It is not a cyclical stock*. The previous management went into a lot of dubious schemes like the Help me choose one mentioned. The present management is a lot smarter. Don't you think its cheap on metrics alone?




Knobby, I disagree with your assertion. *It is a cyclical stock. *It is affected by the volume of new mortgages + re-financings in the economy. Mortgage debt has been increasing strongly every year for the past many years and we have record levels of mortgage debt in the economy. Mortgage debt keeps hitting record highs in Australia every year. Just take a look at this graph:

https://edge.alluremedia.com.au/uploads/businessinsider/2016/02/APRA-Mortgaga-Debt.jpg

The graph is slightly old (ends late 2015) but a newer graph would still be trending in the same direction.

When house prices go up mortgage debt usually goes up (and you could even argue as many do, that the rise in mortgage debt is actually in large part necessary/responsible for an increase in house prices). If you buy a house for $1 million AUD and borrow $800,000 to buy it and two years later after house prices have gone up you sell the house for $1.25 million. The next guy who buys it puts up a deposit of $250,000 and borrows $1 million AUD to buy the same house. Suddenly mortgage debt on the same property has gone up. If you do not believe that mortgage broking is a cyclical industry just go back and look at would happened to the revenues earnings and share prices of mortgage brokers in the U.S., Spain, Ireland, etc during the GFC.

Another factor is that when house prices are falling usually banks tighten their lending criteria which makes it harder for people to take out a loan even if they wanted to. This results in not only a decline in the level of mortgage debt, but also due to tighter lending standards, generally means applicants will need to disclose more information and loans will take longer to process leading to higher costs per mortgage written for mortgage brokers and banks.

I am actually astounded that anybody could claim that lower house prices would be good for mortgage brokers. Its the most ridiculous argument I have ever heard!

My final word on this is ask any mortgage broker if they prefer to work in an environment where house prices are rising or an environment where house prices are falling? They will all unequivocally tell you that rising house prices is better for their business.


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## luutzu (1 March 2017)

luutzu said:


> yea.
> 
> Current price is $0.31 or so. NTA around $1.70




dropped to $0.25 today.

interesting...


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## Knobby22 (1 March 2017)

Value Hunter said:


> Knobby, I disagree with your assertion. *It is a cyclical stock. *It is affected by the volume of new mortgages + re-financings in the economy. Mortgage debt has been increasing strongly every year for the past many years and we have record levels of mortgage debt in the economy. Mortgage debt keeps hitting record highs in Australia every year. Just take a look at this graph:
> 
> https://edge.alluremedia.com.au/uploads/businessinsider/2016/02/APRA-Mortgaga-Debt.jpg
> 
> ...




Hi Value Hunter
Good point regarding credit growth but I still essentially disagree.
There is a lot of money tied up in investor loans that would be sold during a downturn.
With the ingress of owner buyers this would create a huge turnover which would go directly to the Mortgage Brokers bottom line.


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## Ves (1 March 2017)

Re MOC:  there's also an ASIC inquiry going on in the background regarding the remuneration structure of mortgage brokers.

One of the recommendations made in the Murray Review in 2014, if I understand correctly,  was the abolishment of trailing commissions.

If ASIC decided to disallow trailing commissions would companies like MOC be able to successfully restructure their fees? 

Also there's a trend in the last few years of borrowers going to mortgage brokers more and more.  I think almost 50% of people use a mortgage broker now for new loan originations  vs. around 40% 5-10 years ago  (sorry this is from my own memory, look it up if you want confirmation).

Obviously if the trend continues great for MOC and other brokers,  but mean reversion is also another risk and would obviously hit the top line.


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## Ves (1 March 2017)

I probably should also mention that investors in MOC would also need to keep a very close on the accounting practices used to calculate accounting profit in the Financial Statements.

Because of 'trailing commission' happens over a period of many years there is a need to forecast a) what trailing commission is likely to be received over the period of the loan,  b) when this should be included as profit and c) if any reassessment is required of future trailing commissions on loans from previous years.  They may also get clever and try to match expenses against the revenue stream...

It's interesting that CCP has also been mentioned in this thread.  Because a similar amount of 'faith' is required with their accounting practices.


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## Value Hunter (1 March 2017)

I think Credit Corp Group (ASX code: CCP) is a bargain. They have a strong track record and good management. If you listen to an interview (live-wire) with the CEO Thomas Beregi late last year, he said that in the medium term (let's just assume 5 years) he expects the Australian core debt buying business to be 40-45% of total of group earnings, with the consumer lending and U.S. debt buying division making up the rest. Assuming that earnings will at least be maintained in the Australian debt buying division (if not increased) and given that it currently comprises the vast, vast majority of group earnings, that means he is implying that profit will at least double in the next 5 years. My own in depth research agrees with such an implication.

Given the top end of the current forecast for 2017 earnings ($1.16 per share), the stock is trading on a price ($16.71) to earnings ratio of under 15 times. This for a quality well managed company paying half its profit as a dividend and that will also double profit in the next 5 years.


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## Knobby22 (1 March 2017)

Value Hunter said:


> I think Credit Corp Group (ASX code: CCP) is .



I agree. My third largest holding.


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## skc (1 March 2017)

luutzu said:


> yea.
> 
> Current price is $0.31 or so. NTA around $1.70




Current price 23c, NTA reduced to 87c on further write downs.

Interest coverage deteriorated to 0.9x... still has support of the lender and the fixed asset sale (at big discount to book) helps a bit.


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## Knobby22 (1 March 2017)

I agree Ves. MOC has been a bit conservative with the trailing commissions. Buyers have tended to hold the properties longer than accounted for leading to windfalls when adjustments have been made.
If trailing commissions were disallowed then this would effect the stability of the earnings.


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## craft (1 March 2017)

skc said:


> Current price 23c, NTA reduced to 87c on further write downs.
> 
> Interest coverage deteriorated to 0.9x... still has support of the lender and the fixed asset sale (at big discount to book) helps a bit.



MMA looks concerning to me.

NTA if a reasonable % can be realised at fire sale prices may be of some comfort to debt holders and the assets are clearly being liquidated at their behest now.


The large discrepancy between market price and NTA would be an indication for me that the market does not think MMA can cover its cost of capital to maintain its current business structure on an economic basis and probably won’t see out this current cycles low - or by the skin of its teeth at the best and have basically nothing to rebuild from.


For me the equity would only be interesting with a conviction that vessel utilisation rates are near to swinging upwards because MMA is hugely leveraged to that macro.


Nothing’s a bargain unless you know how the payoff should manifest and can position for and wait for it to playout.


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## luutzu (1 March 2017)

skc said:


> Current price 23c, NTA reduced to 87c on further write downs.
> 
> Interest coverage deteriorated to 0.9x... still has support of the lender and the fixed asset sale (at big discount to book) helps a bit.





The bases and slipway sold for about $16.9M below 2016 book value. They've earned about $1M over past six months... so selling at some 22 to 25% below book.

I guess that's a better deal than if they were to raise equity at some 20 cents on a dollar. Would mean massive dilution to existing shareholders. 25% discount for the bases is better than 80% discount on entire company. And it does mean being able to meet its debt obligation by end of this financial year; managed to push remaining debt to sept. 2019.

Would have been nice to have kept at least one base in Australia, but yea... desperate times.

With oil on its way back and oilers needing to extract further afields to keep up with depletion; that and apparently they'd lose their license after certain years of not doing anything with it. 

So MRM will survive the current thrashing. With dilution avoided, for now at least... Still reckon it's a bargain at some 30 cents of the written down dollar NTA.


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## Value Hunter (1 March 2017)

I forgot to mention that Credit Corp Group (CCP) is my largest holding. Its fair to disclose ones position in a stock when discussing it.


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## skc (1 March 2017)

luutzu said:


> So MRM will survive the current thrashing. With dilution avoided, for now at least... Still reckon it's a bargain at some 30 cents of the written down dollar NTA.




MRM is only surviving because of the grace of the lender. How do you work out the probability that such grace will continue?



craft said:


> MMA looks concerning to me.
> 
> NTA if a reasonable % can be realised at fire sale prices may be of some comfort to debt holders and the assets are clearly being liquidated at their behest now.
> 
> ...




I am actually surprised that MRM hasn't been folded by the lenders - there are enough PPE to pay back most of the debt you'd think. With negative cashflow and EBITDA<Interest, the longer this goes on the more lenders have to put in. Perhaps there are other considerations at play... often contracts have a change of control / solvency clause so appointment of administrator may mean the crew and boat are out of work (which makes selling them even more difficult). 

Another theory is that... the industry needs some of its major player to die. It has built the capacity for $80-100+ oil plus the LNG boom - so unless some player dies, no players can survive / thrive. The lenders can take a long view and strategically wait for the weaker hands to fold for the benefits of everyone else. I don't know enough about the other players to know whether MRM is the stronger or weaker hand. But the equity holders probably don't have much to cheer about either way.


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## luutzu (1 March 2017)

skc said:


> MRM is only surviving because of the grace of the lender. How do you work out the probability that such grace will continue?
> 
> 
> 
> ...




They just agreed to one payment at end of this financial year; the rest of the repayments will be pushed back to sept. 2019. So the lenders are already giving that grace, 100%.

Of the $390M total debt, $200M are just MRM's normal capital structure, rolling debt facility - as part of its operation. So not all the $390M debt are of the kind where they'll bankrupt MRM if it can't pay up.

That leave the $190M... of which $45M will be paid, then there's the $55M so far in vessel sales. Most of that would go towards repayment... so that leaves about $100M MRM need to pay within two and a half year.

Not an impossible requirement as oil prices pick up, demand for their services that's to follow.


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## skc (1 March 2017)

luutzu said:


> They just agreed to one payment at end of this financial year; the rest of the repayments will be pushed back to sept. 2019. So the lenders are already giving that grace, 100%.
> 
> Of the $390M total debt, $200M are just MRM's normal capital structure, rolling debt facility - as part of its operation. So not all the $390M debt are of the kind where they'll bankrupt MRM if it can't pay up.
> 
> ...




$200m just normal capital structure?! It may be debt with no fixed end date but it is still debt. It certainly still has periodic covenant tests and it can certainly bankrupt a company.

The $55m in vessel sales is not new money... it is the cumulative proceed from the sales programme. The majority of this proceed is already in the cash flow statement (FY16 $35m, H1 17 $12.4m) and balance sheet. 

So if you think MRM only needs to worry about $100m in debt you are off by a factor of 3 minimum. 

Vessel sales cashflow in H1 was $12.4m, lower than the $22.6m received in H1 FY16. At a time when balance sheet is stretched, this says something about the market for vessel disposal imo.

This is my last post on MRM... the thread's been derailed more than enough.


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## luutzu (1 March 2017)

skc said:


> $200m just normal capital structure?! It may be debt with no fixed end date but it is still debt. It certainly still has periodic covenant tests and it can certainly bankrupt a company.
> 
> The $55m in vessel sales is not new money... it is the cumulative proceed from the sales programme. The majority of this proceed is already in the cash flow statement (FY16 $35m, H1 17 $12.4m) and balance sheet.
> 
> ...





So a company must have zero debt? 

$200M was MRM's usual debt structure in the years before the Jaya acquisition. That's not to say that they don't have to repay it; but it is to say that the lenders expect to rollover those debt as MRM's ongoing capital structure. That was before the new half billion equity raising/debt for acquisition.

Sure that $200M is a bit of a stretch now given the now approx $500M non-cash impairment. But given that the bankers are happy, or accepting, of the $45M repayment and pushing the rest back 2.5 years, maybe they're not too worried about not getting their money back. No?

Yes, the $55M is not new, so were the $395M debt I was comparing it to in calculating its contribution to the debt reduction.

Remember too that MRM's new vessel capital expenditure is finished; the new vessels have all won contracts; two of which just started and will bring in operating cash in the H2F17.

Management is, for the first time since the oil crash, saying that they're seeing increased tendering activities; seeing more majors wanting long term contracts to lock in services at current record low prices. 

Anyway, who knows what the future holds. I did thought it's going to get bad two years ago when I first bought in, but didn't expect it to be this bad. So it could be a whole lot worst... but for my money, I'm holding and put in two orders. So let's hope it goes bad.


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## Quant (2 March 2017)

MRM , the moral of the story here is todays cheap is tommorows expensive , you just know this isnt going to end well   . Not a bargain more like reckless speculation , just my 2c


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## luutzu (2 March 2017)

Quant said:


> MRM , the moral of the story here is todays cheap is tommorows expensive , you just know this isnt going to end well   . Not a bargain more like reckless speculation , just my 2c




Got an order executed at $0.205 a share. Let's see how she goes ey.


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## Quant (2 March 2017)

luutzu said:


> Got an order executed at $0.205 a share. Let's see how she goes ey.



I hope it goes well for you


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## diver05 (19 March 2017)

Mermaid down to .215     .....  and sliding


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## luutzu (20 March 2017)

diver05 said:


> Mermaid down to .215     .....  and sliding




Hence, bargains bargains bargains.

In all seriousness, it's my opinions that MRM is a great bargain. While the future might work out very differently than what I am expecting, if MRM were to go under and I lose all my cash, I'd do it again in the future if another company presents the same set of metrics.

Let's put aside my (self-serving, delusional) thinking... there are two experienced offshore service vessel operators holding majority stake in MRM.

A Singaporean who used to start and operate a similar business, sold it off to some private equity years before... he now own about 15% of MRM.

A Qatari [?] OSV operator also own some 5% of MRM.

From memory, these two, presumably experienced, know what they're doing, business operator bought in last year at about $0.30 a share.

Then last week, a HK/Singaporean fund manager increased their holdings to about 6%.

--------

Yes, we shouldn't buy or sell based on some smart money's decision. But it might indicate that we're not total idiots who's gambling with their few bucks. 

Now let's go to our own reasoning....

*Will MRM Float
*
Yes it will survive the next 2.5 years.

The only thing hanging over its head was the ~$470M debt [that's total debt, ignoring the $200M capital structure/operating debt MRM and similar companies always have on its book as part of its cap structure, that and not having a lazy balance sheet].

The banking syndicate have agreed to a big principal repayment at end of June [some $45M], then have the rest settled in Sept.2019 [?].

This mean that the bankers are being owned by MRM... they're forced into a situation where if they push hard now, they'll lose everything. Hence the generous terms so that in two years they'll get their money back, with interests.

Will they get their money back by then?

Can't predict but it's looking a lot likely.

For one, oil is stabilising. Look like it will rise to a price where it's profitable again for oilers to drill offshore.

While that's not a guarantee, that US shalers will keep "glutting" the market and OPEC will get back to the price war again... Can these guys do it another year or two?

With Saudi waging wars in Yemen and Syria, contracted to buy billions more of arms... All gulf states and OPEC countries gutting social programmes and subsidies because the low oil price is pushing their finite resources and treasury to the bone. 

Can't keep that up for too much longer.


Then there's what MRM management is saying... They've been downright depressive to listen to the past couple of years but in the recent announcement are showing sign of some clearing ahead. 

There's the increased tendering activities; there's the fact that licenses will be revoked if oilers do not explore or work the fields they're licensed to. 

Activities is looking likely to be picking up within the next year.

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*TAKEOVERS*

Total assets when MRM bought out Jaya in 2013 [some 6 to 10 months before the oil crash] was about $1.3Billion.

MRM has since written down some $500million on its assets.

Its NTA after all these non-cash writedown is some $1.76 per share. A bit less once the bases are sold off and debt repaid.

It's now selling for $0.22, 23cents a share. Or around $80M for the entire company.

That's a target for a takeover if I ever see one.


BUT here's the good news...

With the sales of its two Australian bases and a slipway... Some are thinking that MRM is desperate it have to flog off its crown jewel. 

Maybe not.

In its heyday, the bases earn a fairly good margin. And it certainly does make it more enticing to clients if you tell them you can provide a one-stop logistic shop. 

But in recent years, the bases earn about $1 a year [or 6 months]. 
It's a very good price, given current condition, to be able to flog that off for $55M in one hit.

This make the bankers happy, avoid bankruptcy...

But more important, to my mind anyway, is it takes away the attractiveness of a potential raid.

For competitors wanting to expand into Australia on MRM's expense, getting in on the cheap, it's harder to make the case where there's no base to build any kind of economy of scales - there's just a HQ and loads of vessels.


Anyway, might work out alright. The money I put into this isn't my gambling money so let's hope it does work out.


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## Quant (23 July 2017)

6 months on and the majority of the bargains must be bigger bargains now


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## So_Cynical (24 July 2017)

Quant said:


> 6 months on and the majority of the bargains must be bigger bargains now




MRM is now 17c ~ the post above yours.


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