# FGE - Forge Group



## ormond (30 September 2007)

Anyone had a look at this recent listing?
http://www.forgegroup.com.au/index.asp
Bought into recently and are wondering what others think?
Company comprises commercial building construction,civil contracting,steel fabrication,onsite services(maintenance),cabinet making,international construction(mining industry),engineering & construction(for mining & oil industries) and a marine maintenance division(royal australian navy).
Have bought a small holding recently and am thinking of adding but are wondering other members thoughts on this company?


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## Miner (1 October 2007)

I heard  Davagh (one of the company part of the group) went belly up in 2005 in South West.
The company is looking for reinforcement for its projects whihc is a good sign


Regards


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## michael_selway (1 October 2007)

ormond said:


> Anyone had a look at this recent listing?
> http://www.forgegroup.com.au/index.asp
> Bought into recently and are wondering what others think?
> Company comprises commercial building construction,civil contracting,steel fabrication,onsite services(maintenance),cabinet making,international construction(mining industry),engineering & construction(for mining & oil industries) and a marine maintenance division(royal australian navy).
> Have bought a small holding recently and am thinking of adding but are wondering other members thoughts on this company?




Earnings and Dividends Forecast (cents per share) 
2007 -- -- -- 
EPS 147.0 -- -- -- 
DPS 0.0 -- -- -- 

Will keep an eye on it

thx

MS


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## ormond (22 October 2007)

Very good announcement by this recently listed co.
Award of $35 mill. in contracts in west africa to Forge Group subsidaries Cimenco & Webb construction.
The new contracts have been secured with subsidaries of gold majors Goldfields & Newmont & canadian producer Golden star res. 
Very good price rise on a down day,up 10c to 83c.
I suspect this co will get more coverage over the next few months imo as expands its operations in africa.


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## michael_selway (22 October 2007)

ormond said:


> Very good announcement by this recently listed co.
> Award of $35 mill. in contracts in west africa to Forge Group subsidaries Cimenco & Webb construction.
> The new contracts have been secured with subsidaries of gold majors Goldfields & Newmont & canadian producer Golden star res.
> Very good price rise on a down day,up 10c to 83c.
> I suspect this co will get more coverage over the next few months imo as expands its operations in africa.




Hi looks good its business

*Earnings and Dividends Forecast (cents per share) 
2007 -- -- -- 
EPS 147.0 -- -- -- 
DPS 0.0 -- -- -- *

thx

MS


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## Pager (22 October 2007)

Forge was split out of the AI Group; the other half of the business is still listed as that.

I bought AI group for 16 cents about 2 years ago for a long term hold it had over  a 12% fully franked yield, the split reduced the number of shares by about a third and i then got about 50/50 for each separately listed company with AIE trading at  30 cents and FGE at 83 ive done very well.

Neither has announced any earnings of dividend guidelines as far as I know but both are very sound and well run businesses so I would expect them to deliver


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## ormond (29 October 2007)

Another very good announcement in the awarding of 18mil. of contracts in the commercial building div.
Southern cross care-Riverview aged care facility
Boddington gold mine co.-mill workshop
Alcoa world alumium-infrastructure upgrade
Dcsc-Dunsborough shopping centre stage 4
This co. with a market cap of about 45 mill. has has plenty more upside imo.
Don't know if they intend to pay a dividend next year?


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## Pager (29 November 2007)

Suspended today pending an announcement.

Any ideas?

In the past few months it has announced $65 million dollars worth of contracts which for the company size is massive; accordingly its share price has almost doubled, so im guessing any news may be good rather than bad.

I’ve held for a while so fingers crossed


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## michael_selway (29 November 2007)

Pager said:


> Suspended today pending an announcement.
> 
> Any ideas?
> 
> ...




Wow not bad at all

Forge Group Limited (FGE), a wholly owned subsidiary of aiLimited, was the result of the demerger of aiConstruction division from aiLimited. The company provides engineering solutions to various industry sectors including oil and gas; mining and mineral processing; water storage; raw water, waste water, vacuum sewage; process plant; and defence/ marine engineering.


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## Pager (30 November 2007)

Announced another acquisition and stock jumped 30% when trade resumed 

Also said it expects revenue of $100 million this year but rising to over $200 million in 2008.

Market must like what its doing.


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## ormond (30 November 2007)

What a great day for FGE shareholders as this co. has kept the good news coming.Now my largest holding and think there will be more news on the african mining construction front soon imo.
A long term stock for sure.


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## michael_selway (30 November 2007)

Pager said:


> Announced another acquisition and stock jumped 30% when trade resumed
> 
> Also said it expects revenue of $100 million this year but rising to over $200 million in 2008.
> 
> Market must like what its doing.




This stock is crazy, should lhave bought it earlier

Even at 1.4 PE is only 8 and that is only 1 yr forward EPS (2008 CY)

Forge Group Limited (FGE), a wholly owned subsidiary of aiLimited, was the result of the demerger of aiConstruction division from aiLimited. The company provides engineering solutions to various industry sectors including oil and gas; mining and mineral processing; water storage; raw water, waste water, vacuum sewage; process plant; and defence/ marine engineering.


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## ormond (11 January 2008)

Nice to see green in a sea of red!
Suspect there could be more news soon imo.
Thr chart looks very good at the moment and sellers have all but dried up.


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## michael_selway (12 January 2008)

ormond said:


> Nice to see green in a sea of red!
> Suspect there could be more news soon imo.
> Thr chart looks very good at the moment and sellers have all but dried up.




Yeah interstign to see if there is any news next week

thx

MS

Business Description 
Forge Group Limited (FGE), a wholly owned subsidiary of aiLimited, was the result of the demerger of aiConstruction division from aiLimited. The company provides engineering solutions to various industry sectors including oil and gas; mining and mineral processing; water storage; raw water, waste water, vacuum sewage; process plant; and defence/ marine engineering.


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## Pager (25 March 2008)

Its latest aquasition (Abesque) announced another contract it had won with Hillgrove copper.

SP has been going lower though with the rest of the market, thought it may bounce today but no down another 9 cents to 71 cents 

Any ideas ?


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## Pager (16 September 2009)

One of the few stocks i held through all the carnage and fell to about 20 cents in March , but has since been going gangbusters and closed today at $1-49 , signed a few more good contracts and will pay a 3 cent dividend.

Happy days


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## ROE (18 September 2009)

Pager said:


> One of the few stocks i held through all the carnage and fell to about 20 cents in March , but has since been going gangbusters and closed today at $1-49 , signed a few more good contracts and will pay a 3 cent dividend.
> 
> Happy days




Good company... I'm impressed with their capital management and management view on cash and debt 

I got some I look to get a lot at the right price


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## tonza (19 September 2009)

This is another company that single handedly disproves the efficient markets hypothesis. The fundamentals didnt change despite the global financial crisis yet the share price got absolutely punished. 

Management is forecasting strong revenue growth for FY10 - 200+ million (up from $169 million in FY09).

Trades on PE multiple of roughly 7. Has very conservative debt levels, strong cash flows and low capex.

I am seeing a lot of value in this sector at the moment. Another similar and similarly interesting company is NRW Holdings (NWH) - might start a thread with a run down of that one.


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## ROE (19 September 2009)

tonza said:


> This is another company that single handedly disproves the efficient markets hypothesis. The fundamentals didnt change despite the global financial crisis yet the share price got absolutely punished.
> 
> Management is forecasting strong revenue growth for FY10 - 200+ million (up from $169 million in FY09).
> 
> ...




I have dozen of them they all prove Mr Market is wrong Big Time 

FLT, XRF, WWA, DMP, NVT,CCP,CCV,WDC, FBU
CAB yet to be proven 
SSM yet to be proven


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## tonza (25 September 2009)

FGE closed down 8.49% this morning at $1.51. Took the opportunity to top up my holdings. 

I read an article in the Australian regarding FGE (it brought to my attention something that I don't think I read whilst researching the company). An analyst with Foster Stockbroking points out that the company already has a $170m on the forward orders books (last years revenue was $169m) and has another $300m in the pipeline...

The company has already won a project at Gorgon, albeit small, but the analyst in the article expects them to win more work there. In my opinion, getting a foot in the door of an LNG project is good news for the company because it should position them well within the expansion of the LNG industry.

The article makes a mention of Forge's plans for a partnership with a larger player to underwrite the growth of the company but doesnt offer any new news in that department. Can't wait to hear more on that front. 

Here is the link: http://www.theaustralian.news.com.au/story/0,25197,26072416-30538,00.html


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## tonza (30 October 2009)

Company just released an announcement regarding the award of another contract on the Gorgon project - $12m tank refurb job. Keep 'em coming.


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## suhm (4 November 2009)

I was a little worried yesterday, went into a trading halt pending an update on earnings on melbourne cup day. Pleasant surprise though they forecast that 1st half earnings would be up 135%.


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## Ozymandias (18 November 2009)

I'm surprised at how little FGE has been rerated since their earnings forecast upgrade announcement. If their performance in the second half is similar, this would be a 55% increase in NPAT. Yet the stock has only rerated a small fraction of that, an now has pulled back slightly.

Is this just a case of investors being cautious and waiting for the audited figures, or are there other risks or factors I'm not seeing here?


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## Ozymandias (3 December 2009)

It's been nice to see some upward movement lately, but can anyone explain to me why there are so many 1, 2 or 3 volume transactions, always at a discount to the transactions of actual volume?

Is this someone's attempt to buy cheaply after pushing the price down slightly - thereby catching out some who place an order at market value?


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## ROE (3 December 2009)

This is a decent stock it mirror WOR in its early day...Maybe it may reach as high as its fore father  

Great management, excellent capital allocation, They treat debt like the way I would take on debt....take it on when you needed then pay it down fast with free cash flow and become debt free and only take them on again when you can generate decent return on capital.

1 bagger so far 10 more to go


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## adds4 (4 February 2010)

Announced another profit upgrade. The 6 month profit forcast is now 15m, thats the whole of last yrs profit. Amazing. Still got 6 months to go. The margins they generate are just about staggering. I surpose the consolidation into one building has helped overheads, but the key for me is, they seem to own all the necessary cranes and equipment to undertake the work and so generate high margins because of no rental costs. Would be nice to hear some more contracts won, been quiet on this front the last few months. I surpose you can get all the contracts. Its better to not buy new work, but actually win it with a healthy profit.


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## Ozymandias (4 February 2010)

Very pleasing surprise today. Interesting to note that the revenue has only increased 16%, while the profit has soared 184%! There is only so far they can cut costs and expand their margins, so I doubt this pace of profit growth will last for long.

Disclosure: I am a very happy holder


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## Ozymandias (24 February 2010)

This latest development seems a bit barmy to me. I can understand FGE offering CLO newly issued shares at a discount as an incentive for CLO, but surely CLO doesn't expect shareholders to sell at a discount to the market?

I'm quite surprised that the major shareholders have gotten on board to sell at a discount. But given that they only hold around 42%, and CLO needs 31% minimum, I can't see how they can get it over the line barring a major slip in the share price...

Does anyone have any thoughts on this?


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## Ozymandias (24 February 2010)

Ozymandias said:


> But given that they only hold around 42%, and CLO needs 31% minimum, I can't see how they can get it over the line barring a major slip in the share price...




Whoops, scratch that, with the new shares issued at $1.90, plus the major shareholders giving up half of theirs, they'll get what they need without the minor shareholders.


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## ROE (24 February 2010)

Vote No .. Raw deal for FGE I dont like it I aint selling and I aint voting yes 
and to add salt to the injury FGE report on the same day

"NPAT exceeds previous corresponding period by 192%"

FGE is a better company though smaller
Great project management
Great Capital Allocation
Great at managing their cash flow and keep debt under control.

what CLO got to show??


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## Ozymandias (24 February 2010)

The terms of the alliance seem pretty airy too. FGE being their contractor of choice is probably the biggest benefit, but unless there are solid obligations for CLO to give work of particular types to FGE, I'll be very unimpressed.

I hope we see some clarification and detail on the benefits coming out soon. The market wasn't happy about this announcement...


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## Pager (22 March 2010)

Ozymandias said:


> The terms of the alliance seem pretty airy too. FGE being their contractor of choice is probably the biggest benefit, but unless there are solid obligations for CLO to give work of particular types to FGE, I'll be very unimpressed.
> 
> I hope we see some clarification and detail on the benefits coming out soon. The market wasn't happy about this announcement...




Market seems pretty happy now, been making new highs and up another 6 cents today 

And if i understand correctly if The alliance with CLO receives the yes vote it will mean current shareholders will receive an offer from CLO to buy 50% of there holdings, not sure how it will work but surely they will need to make it worthwhile so maybe a premium is being factored into the SP ?.


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## Ozymandias (23 March 2010)

Pager said:


> if The alliance with CLO receives the yes vote it will mean current shareholders will receive an offer from CLO to buy 50% of there holdings, not sure how it will work but surely they will need to make it worthwhile so maybe a premium is being factored into the SP ?.




Nope, it's $2.10, take or leave it. And lets face it, no one is going to take it! Except of course, the major shareholders, who signed on when the SP was much lower. Which is exactly why CLO doesn't need to up their offer - they can get all they need from the major shareholders, who must be feeling pretty green right now.


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## Jimminy (23 March 2010)

it was all about CLO getting 30%....the bar was set at $2.10 and both CLO & FGE never expected shareholders to sell at that. It was offered to shareholders because for a partial takeover it must be.

CLO & FGE have what they need from the major shareholders, and those major shareholders obviously see the value in the medium to long term in the strategic alliance.

By achieving the 30% CLO also get 2 Directors on the board, and trust me, the intent would never have been to hand over the reins to CLO hence why $2.10 was set.

It really is a win win and hence why the sp has started to trek northwards.

The next decade for this co. could be quite something and I am on for the ride.


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## tonza (6 April 2010)

FGE is back in play with a competing offer on the table. Announcement states that it is an ASX100 company. UGL?


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## tonza (15 April 2010)

As expected, the Forge directors advised shareholders against accepting Clough's partial takeover offer. An independent analyst report released by the company states the value of FGE stock be in the range of $3.74 - $4.13; which I think is very conservative. 

At a current price of $2.85 this is a top quality company available at a bargain price. Worth a look for all you value seeking, long-term, fundamental investors and warren buffett wannabees.


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## robusta (15 April 2010)

FGE is my biggest holding 33% of my portfolio.

Any company that can retain a large % of earnings and have a ROE of around 30% with exposure to mining construction should be in for a few more good years to come.


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## Pager (16 April 2010)

There's been no further news on the new offer to Forge as far as im aware, received my offer documents from CLO today but at an offer price of $2-10 verses the current SP of $2-90 they gotta be kidding :

Been quite volatile this week, on the up again today so should be interesting the next few weeks as CLO wont be getting very many if any acceptances apart from those they have already agreed, although i think they weren't really expecting any, as has been posted they got what they wanted but had to give all shareholders the opportunity to participate.

Hopefully this new bidder will show there hand in the not too distant future.


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## robusta (16 April 2010)

Forget about a new bidder showing themselves CLO already has 19.99 % of FGE and the directors have made a commitment to sell 50% of their holdings to CLO to trigger the strategic alliance.
The independant experts value in the targets statement valued the company in the range of $3.74 to $4.13 per share!!!!!
This company with it's ability to retain a large portion of earnings and earn a high ROE on those earnings is IMO worth a whole lot more than the above valuations.


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## tonza (16 April 2010)

Yes, Forge is my largest holding too. 

I am pretty sure negotiations with the mystery bidder have ceased. Maybe they'll approach again in the future. 

Forge is also a very, very cashed up company now. In the half year report the company reported that it was sitting on roughly $39m of cash and they just raised another $20m. That is an absolute war chest for a company with a market cap circa $230m. If management can put it to work at current levels of ROE we are set.


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## Pager (17 August 2010)

Reported a 89% jump in profit today  and a final dividend of 5 cents up from 3 cents last year 

Maybe see another push higher as its been trading around $3 for awhile know, closed at $3-25 so maybe will get up to the independent valuation area around $4 in the near future.


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## ROE (17 August 2010)

Another super stars on the rise
these boys put their big brother to shame 
in earning power and capital allocation


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## robusta (17 August 2010)

I have just read Value Able by Roger Montgomery and have come up with a conservative intrinsic value of $4.54 for this stock. I am very happy this is my largest holding - wish I could find more companies with a satasfactory ROE with the ability to retain a large share of earnings.
Just like a compounding machine!!!!!


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## walsh12 (18 August 2010)

robusta said:


> I have just read Value Able by Roger Montgomery and have come up with a conservative intrinsic value of $4.54 for this stock. I am very happy this is my largest holding - wish I could find more companies with a satasfactory ROE with the ability to retain a large share of earnings.
> Just like a compounding machine!!!!!




I just read his book as well and found it really useful. I too have valued FGE but am unsure if I have calculated IV correctly as I have been practicing using annual reports not interim. Instead of using statistics from annual reports do I just use the ones from interim? Also do you mind sharing what RR you used?

Thanks,

Adam


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## ROE (18 August 2010)

dont forget the margin of safety from Uncle Ben Graham 

Want to see another sleeper super star in a few years like NVT,FGE ..mark my word...check out CC something  it's not CCP a bit of digging you should find it...

to make the most money you need to find these sleeper super stars when no one notice.

but it boast the cash flow, the dividend and the balance sheet most
of their big brother cant seem to manage properly..


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## Pager (18 August 2010)

ROE said:


> dont forget the margin of safety from Uncle Ben Graham
> 
> Want to see another sleeper super star in a few years like NVT,FGE ..mark my word...check out CC something  it's not CCP a bit of digging you should find it...
> 
> ...





I will take a guess and another stock i already hold........................

CCV ?


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## robusta (18 August 2010)

G ' day Adam
I agree Roger's book is really handy.
I went ultra conservative when working out the IV for FGE
RR = 10%
ROE 2011 = 20% (i know this is conservative but not sure if the can keep up stella results when looking for bolt on aquisitions)
Pay out ratio 20% (I know this is much higher than historical but I figure this adds to my margin of safety.
2011 Equity per share $1.425
Using the tables in Value Able this gives me a IV of $4.54 end of FY 2010 / 2011. 
However in a recent post by Roger he seems to have a value of $4.62 and it reads like this maybe current.
Anyway I have filled up my portfolio with this stock and will not be selling in a hurry.


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## andrew08 (28 August 2010)

robusta said:


> G ' day Adam
> I agree Roger's book is really handy.
> I went ultra conservative when working out the IV for FGE
> RR = 10%
> ...





Good to see some others here using Roger's valuations. I've got it at $4.08 rising to $4.86 in FY10/11. I'm using 12% RR and 25% ROE. Due to the amount of competition in this area i dont believe a 10% RR is able to be used. 

Just wondering where you found the forecast EQPS for 2011 as it's not listed on my brokers site? Do you have 2012 also?


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## craigj (28 August 2010)

there is a lot of tipsters very keen on this company and with good reason
went to the traders expo last month and it was a top 10 stock with 3 different groups including Roger


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## robusta (29 August 2010)

andrew08 said:


> Good to see some others here using Roger's valuations. I've got it at $4.08 rising to $4.86 in FY10/11. I'm using 12% RR and 25% ROE. Due to the amount of competition in this area i dont believe a 10% RR is able to be used.
> 
> Just wondering where you found the forecast EQPS for 2011 as it's not listed on my brokers site? Do you have 2012 also?




When I first got into this company about 6 months ago a broker from WA started ringing every couple of months and sending me valuations.
They have 2011 equity @ $115 800 000 and 2012 @ $133 800 000
To get $1.425 EQS I simply worked on $114 000 000 equity and 80 000 000 shares.


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## Garpal Gumnut (29 August 2010)

walsh12 said:


> I just read his book as well and found it really useful. I too have valued FGE but am unsure if I have calculated IV correctly as I have been practicing using annual reports not interim. Instead of using statistics from annual reports do I just use the ones from interim? Also do you mind sharing what RR you used?
> 
> Thanks,
> 
> Adam




Just be very careful with estimation of value, it is fraught with danger and the graveyards of investing are littered with the headstones of funnymentalists given the wrong information, remember HIH.

Getting back to the situation as it is now, on a technical basis I note FGE is in a nice uptrend. Follow the trend. 

However the recent expo or whatever it was has induced some to invest and more able operators have sold in to this. 

Look at the chart at $1.50. It tries to break through, cannot, and then it acts as support as it goes on up.

Same at $2.

Now its gone through $3 and I'd suspect it will retrace as the sellers have gone, and the buyers have all been to the expo.

So it may be wise to wait until it comes back to $3.

It should keep on going up though, its a very healthy trend atm.


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## robusta (29 August 2010)

I don't know anything about Technical ananalys but have to agree that caution should be used when valueing companies.
Look at FGE ;
Heaps of cash to be spent on, bolt on aquisitions (these could be good, bad or indifferent), increased dividends or organic growth
A predicted boom in the resource sector, this should fill up order books but who the hell knows for sure.
Capital raisings for takeovers.
There must be more varieables I havent thought of but the bottom line is you can look at Equity Per Share and ROE growth into the future but it is just a prediction and you had better find a nice margin of safety.


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## Aido (29 August 2010)

Thought I'd throw my 2cents in here.

Another one using Roger's valuation methodology.

I used an ROE of 30%, as from looking around the large construction/engineering companies seem to be getting around 30%. Working in the industry it's typical to throw on 20% on job estimates, so I don't think 30% is unreasonable for more sophisticated companies. I used 14% IRR as I believe this accommodates an adequate risk premium in regards to the company looking for acquisition (they did acquire webb in 2007 and seemed to have done quite well with that), as well as any exchange rate fluctuations. Plus, I just feel a rapidly growing company like this demands a high risk premium, especially when they are benefiting substantially from economies of scale. Payout ratios I used as calculated, increasing to around 15% in 2010/2011.

I came to $4.47 for a current valuation and $4.66 for 2011. Which seems very conservative to me. I am considering lowering my IRR to 13% for 2011 which equates to $5.30~ depending on future information. Either way, I purchased at substantial deductions to my IV estimates.

Happy so far.


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## robusta (29 August 2010)

Can't argue with your logic AIDO, I used a lower RR but also a lower ROE to come up with a value pretty close to yours. I think the main thing is to be conservative, wait for opportunity to buy, or in my case watch for sp to increase to intrinsic value and then think about re-evaluating the company for future rises in IV.


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## robusta (1 September 2010)

Another good day for FGE SP up 4%, I wonder if it is broker driven, new contracts on the way or just SP catching up to intrinsic value?


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## Pager (9 November 2010)

The good news just keeps coming and the SP hit $4-74 today, up about 130% for the year so far, on top of 2009,s triple didgit gains 


Heres todays announcement



The Board wishes to advise that the Company forecasts net profit before tax for the half year ending 31st
December 2010 to be in the range of $25m - $27m. This represents an improvement on the previous
corresponding period (pcp $19.04m) of up to 42%.


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## noie (9 November 2010)

Pager said:


> The good news just keeps coming and the SP hit $4-74 today, up about 130% for the year so far, on top of 2009,s triple didgit gains
> 
> Heres todays announcement
> 
> ...




Yes more good news, great company progress..
In my opinion , they have made one mistake, (as did I)
and that was the deal with Clough, (and i chose CLO instead of FGE)

I'm interested in new projects over the next 6 months.


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## ROE (9 November 2010)

These quality small caps put their big brother to shame 

Double bonus today, CCP came out with another profit upgrade and 
stick to its gun about double dividend payout this year.

next TGA and CCV will come out with their hahahah


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## robusta (9 November 2010)

ROE said:


> These quality small caps put their big brother to shame
> 
> Double bonus today, CCP came out with another profit upgrade and
> stick to its gun about double dividend payout this year.
> ...




That is a good list of companies ROE. I hold FGE and have CCP, TGA and CCV on my watchlist, good luck to you.


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## robusta (7 January 2011)

Another new contract recently won. Great to see the new electrical and instrumentation division doing well - got to love that organic growth 

http://www.asx.com.au/asxpdf/20110107/pdf/41w2p5msclthsz.pdf


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## So_Cynical (8 January 2011)

robusta said:


> Another new contract recently won. Great to see the new electrical and instrumentation division doing well - got to love that organic growth
> 
> http://www.asx.com.au/asxpdf/20110107/pdf/41w2p5msclthsz.pdf




Yep noticed this ann today...is this the old BHP plant? the one that will realisticly, probably never re-open. :dunno:


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## Miner (8 January 2011)

So_Cynical said:


> Yep noticed this ann today...is this the old BHP plant? the one that will realisticly, probably never re-open. :dunno:




FGE owns Cimmco who are a growing fabricator / installer for EPCM works.
I do not think FGE has any connection with now defunct BHP Engineering. It was Hatch who had most of old BHP Engg people.


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## robusta (8 January 2011)

So_Cynical said:


> Yep noticed this ann today...is this the old BHP plant? the one that will realisticly, probably never re-open. :dunno:




Yep this is the Ravensthorpe nickel operation BHP sold about a year ago after taking a $3 billion bath for $340 mil.

http://www.couriermail.com.au/news/...e-nickel-project/story-e6frergx-1225808829899

This is a example of why I like to invest in the "pick and shovel" suppliers rather than the miners themselves. If even BHP can make a $3 billion loss on a project like this. I see a whole lot less risk investing in the company with a contract to build the plant rather than the producer who is often totally reliant the price of a particular commodity.


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## fanger (8 January 2011)

robusta said:


> Another new contract recently won. Great to see the new electrical and instrumentation division doing well - got to love that organic growth
> 
> http://www.asx.com.au/asxpdf/20110107/pdf/41w2p5msclthsz.pdf




It is good news but this stock is having a hard time pushing past the $5 mark. I'm glad I own it thou!


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## So_Cynical (8 January 2011)

robusta said:


> This is a example of why I like to invest in the "pick and shovel" suppliers rather than the miners themselves. If even BHP can make a $3 billion loss on a project like this. I see a whole lot less risk investing in the company with a contract to build the plant rather than the producer who is often totally reliant the price of a particular commodity.




With Nickel trading at around 25K USD/tn, Nickel is once again a very profitable commodity to mine and any price upside from here is pure profit...that's why everybody should have some portfolio exposure to miners, buying quality miners at a low point in there price cycle somewhat de-risks them.

Personally i probably need to include/add 1 or 2 mine service providers to the portfolio, but then the reason why i don't like the service providers in general is that the moment a company wins a contract is the very moment the clock starts ticking on them losing that contract...when a miner has 25 years worth of nickel in the ground and a 2 billion dollar plant next door to that nickel then that's a certainty..and very low risk.

Just want to point out that i do consider Ravensthorpe to be high risk when compared to MRE - Minara.


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## Miner (8 January 2011)

So_Cynical said:


> With Nickel trading at around 25K USD/tn, Nickel is once again a very profitable commodity to mine and any price upside from here is pure profit...that's why everybody should have some portfolio exposure to miners, buying quality miners at a low point in there price cycle somewhat de-risks them.
> 
> Personally i probably need to include/add 1 or 2 mine service providers to the portfolio, but then the reason why i don't like the service providers in general is that the moment a company wins a contract is the very moment the clock starts ticking on them losing that contract...when a miner has 25 years worth of nickel in the ground and a 2 billion dollar plant next door to that nickel then that's a certainty..and very low risk.
> 
> Just want to point out that i do consider Ravensthorpe to be high risk when compared to MRE - Minara.




Process wise my understanding RNO was a hot potato for BHPB and they happy to book losses.
How well FQM does with the faulty process is a question mark unless their purchased price has made allowance for it.

strange with BHPB however that they failed in HBI plant and just wrote it off. Any common person would have found the plant was a failure.

reading various notes available from public domain I understand BHPB  did not have enough material analysis done process wise and installed the plant.

Olympic Dam  I understand is having severe problems .

Funny is the investors still happy with lot of diggiing and dealing of soil

Returning to Cimmeco and FGE - I think it will be a high risk for me in case CIMMCO / FGE has undertaken any process warranty. 

Disclaimer : I have not read the contract or their scope of works however and DNH. So please DYOR. I could be very wrong and ready for correction


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## robusta (9 January 2011)

fanger said:


> It is good news but this stock is having a hard time pushing past the $5 mark. I'm glad I own it thou!




Next profit upgrade or half yearly report should do the trick.



So_Cynical said:


> With Nickel trading at around 25K USD/tn, Nickel is once again a very profitable commodity to mine and any price upside from here is pure profit...that's why everybody should have some portfolio exposure to miners, buying quality miners at a low point in there price cycle somewhat de-risks them.




The trouble I have personally investing in miners is trying to find a value for them. 

First of all you need to predict the future commodity price, this involves looking at the demand and also factoring in any extra or less future supply.

Then you need to look at individual projects and factor in any specific risk's and the cost of extraction along with the usual management risk's.

I am not smart enough to work all this out.




So_Cynical said:


> Personally i probably need to include/add 1 or 2 mine service providers to the portfolio, but then the reason why i don't like the service providers in general is that the moment a company wins a contract is the very moment the clock starts ticking on them losing that contract...when a miner has 25 years worth of nickel in the ground and a 2 billion dollar plant next door to that nickel then that's a certainty..and very low risk.
> 
> Just want to point out that i do consider Ravensthorpe to be high risk when compared to MRE - Minara.




66.2% of my portfolio are mining service, energy service and civil engineering (FGE, MCE and MND) I consider these companies give me indirect exposure to ; coal, oil, iron ore, copper, gold, rare earths, nickel, potash, infrastructure, uranuim, LNG, platinum....

While I have no direct exposure to any particular commodity I do have a strong view that recent high prices will make more projects economical and there should be a strong pipeline of contracts for these companies.


----------



## skc (9 January 2011)

With so much rain recently I am surprised only 1 contractor (AJL) has issued a profit downgrade....


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## drlog (12 January 2011)

Ok, so I looked in commsec today and saw this for FGE:

EPS	39.7	40.3	43.6	48.7
DPS	7.0	7.0	7.0	7.0

WTF!? The guidance for the first half year (from the company) is up 42% according to their announcement on 09/11/2010. It's not 1.5% profit growth!

Sure, the profit could fall for the second half of the year but I highly doubt that. I think the consensus (of 1 guy) is on drugs.

*End of rant* 

I'm a happy holder.


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## robusta (12 January 2011)

drlog said:


> Ok, so I looked in commsec today and saw this for FGE:
> 
> EPS	39.7	40.3	43.6	48.7
> DPS	7.0	7.0	7.0	7.0
> ...





Well they finally put up a forecast for FGE. Maybe this one may suprise the analyst on the upside.


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## adds4 (13 January 2011)

sme very strong volume today, and the price has broken the 5.00 historical mark. has hit 5.15 so far today. Looks like some brokerage houses has rerate the stock. Wonder if comsec is one of them. There p/e forcasts are wrong, especially after the company has preddicted strong earnings growth.


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## robusta (13 January 2011)

fanger said:


> It is good news but this stock is having a hard time pushing past the $5 mark. I'm glad I own it thou!




$5.22 close today. That happened a whole lot faster than I thought.


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## fanger (14 January 2011)

robusta said:


> $5.22 close today. That happened a whole lot faster than I thought.




Yes I agree, I wasn't expecting it to do it so soon either but nor was I expecting it to smash through the $5 mark so easily.


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## Intrinsic Value (14 January 2011)

I was hoping the price would stay under 5 dollars for a little while longer so I could load up on some more.

My IV for Forge this year is over 7 dollars.

Happy days ahead  for Forge investors.


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## robusta (14 January 2011)

When CLO became a strategic shareholder of FGE the justifications were:

1) The use of CLO back office and contacts to reduce project risk and increase % of jobs won.

2) To become CLO contractor of choice and enter into joint venture projects with CLO.

IMO #1 has probably worked but is hard to quantify.

I have seen no evidence of #2 ....yet


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## prawn_86 (14 January 2011)

Intrinsic Value said:


> My IV for Forge this year is over 7 dollars.




Welcome to ATF IV 

Care to share how you came to this conclusion with a few basic facts and figures? We have seen you post a few targets in various threads but have not stated or shown you analysis (which is an important part otherwise people could just say anything).


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## Pager (14 January 2011)

Well good luck to all who still hold, i bought when this was the AI group and 10 cents, then topped up at 47 cents after it Split into FGE and AIE, but sold 80% of the holding today 

Held back at my $3 target that became the $4 target and then $5, for no particular reason other than luck only comes in 3,s 

Still hold AIE which has gone from about 20 cents to 5  but will continue to hold as its a well run little company that hopefully will emulate its other half and go to $5 but maybe thats wishfull thinking


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## Value (14 January 2011)

Pager said:


> Well good luck to all who still hold, i bought when this was the AI group and 10 cents, then topped up at 47 cents after it Split into FGE and AIE, but sold 80% of the holding today
> 
> Held back at my $3 target that became the $4 target and then $5, for no particular reason other than luck only comes in 3,s
> 
> Still hold AIE which has gone from about 20 cents to 5  but will continue to hold as its a well run little company that hopefully will emulate its other half and go to $5 but maybe thats wishfull thinking




Well done Pager.
I have never experienced such capital growth. Not even close.
Incredible growth.


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## adds4 (15 January 2011)

i too bought this at 50 cents, sold some at 2.50, and continue to hold the rest. My first 10 bagger, and because they pay dividends will continue to hold. I'm free carried and taken some profit. So what happens now is just a bonus for me. $7 is not out of the question. EPS should be about 50 cents. Therefore a Pe of 14 is not out of the question, for a growth stock, usually the PE is between 15 and 20


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## ROE (15 January 2011)

adds4 said:


> i too bought this at 50 cents, sold some at 2.50, and continue to hold the rest. My first 10 bagger, and because they pay dividends will continue to hold. I'm free carried and taken some profit. So what happens now is just a bonus for me. $7 is not out of the question. EPS should be about 50 cents. Therefore a Pe of 14 is not out of the question, for a growth stock, usually the PE is between 15 and 20




Well done  I got in around $1 and I'm out recently  hope this one turn out to be a winner for the lot of you....

Still cant figure out why the founder selling their stakes to CLO so cheap so soon..
that really bugger me up and make me lost love in this stock  

Why? why? why? hehehe they could have kept the stake, increase dividend payout


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## Intrinsic Value (17 January 2011)

prawn_86 said:


> Welcome to ATF IV
> 
> Care to share how you came to this conclusion with a few basic facts and figures? We have seen you post a few targets in various threads but have not stated or shown you analysis (which is an important part otherwise people could just say anything).




Actually it is a bit more than that, see below, I used a spreadsheet someone else posted on here and plugged in the figures ...please feel free to disagree.


Enter in Require Return between 8%  and 14%	10


Year	2011

Enter the Values From Comsec/Yahoo in Pink	
Starting Equity Per Share (Book Value per Share)	1.19

Forecast Earnings Per Share (EPS)	0.403

Forecast Dividends Per Share (DPS)	0.07

Calculated Forecast Equity Per Share	1.523

Forecast Earnings Per Share	0.403

Shares Outstanding	78.8

Forecast Net Profit	31.7564

Net Profit	31.7564
BOY Equity	93.772
EOY Equity	120.0124
Average Equity	106.8922
Forecast Return on Equity (Using the average equity value)	29.71%

Pay Out Ratio 	0.17369727

Company Intrinsic Value	$8.50


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## robusta (17 January 2011)

Intrinsic Value said:


> Actually it is a bit more than that, see below, I used a spreadsheet someone else posted on here and plugged in the figures ...please feel free to disagree.
> 
> 
> Enter in Require Return between 8%  and 14%	10
> ...




Hope you are right but I am not so sure they can maintain this rate of organic growth to keep the ROE ~30% and the payout ratio so low. 

Also they have a stated goal of pursuing a bolt on aquisition I will be watching them like a hawk and hoping they do not overpay.

Having said that I believe FGE has a lot more growth ahead sp but is probably getting fairly close to iv. I will have a good look at the 1/2 year report with interest.


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## Intrinsic Value (18 January 2011)

robusta said:


> Hope you are right but I am not so sure they can maintain this rate of organic growth to keep the ROE ~30% and the payout ratio so low.
> 
> Also they have a stated goal of pursuing a bolt on aquisition I will be watching them like a hawk and hoping they do not overpay.
> 
> Having said that I believe FGE has a lot more growth ahead sp but is probably getting fairly close to iv. I will have a good look at the 1/2 year report with interest.




Things can change very quickly but for me it is a stock to hold and not sell until I see something better out there or circumstances change for the worse for FGE.


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## kermit345 (18 January 2011)

I've been putting a lot of time and effort into my own spreadsheet and trading plan recently. Forge has basically ticked all boxes in regards to my plan and within my spreadsheet which has a rating system within the spreadsheet.

The intrinsic value my spreadsheet came up with is approx $7.10 (from memory, i'm at work currently - was definitely above $7.00 anyway) as a current valuation, and the 12-month target was above that as well.

In terms of the recent movement through the $5.00 mark, volume was up and it pushed through a resistance area with relative ease, which if had i had the spare cash would have triggered me to buy into Forge.

So I think there is plenty of potential upside here, however must agree with robusta, now that they are in a good position its important that management don't squander it.


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## stud_ming (2 February 2011)

Hi everyone

Kermit: My valuation for FGE at 2010 is quite similar to yours at $7.33 (my calculations below). I've used a RR of 14%. Are you calculations similar?

Current Shares on Issue	                78,759,014
Beginning Equity (Last year's ending)	48,782,590
Ending or current Equity	                93,375,523
Net Profit After Tax	                        29,450,235
Dividends Paid	                                 3,418,888

Current Earnings Per Share (EPS)	                       0.374
Current Dividends Per Shares (DPS)	                       0.043
Payout Ratio	                                              11.61%
Ending or Current Equity / Current Shares (EQPS)	1.19
Return on Equity (Using Starting Equity)	               60.37%
Return on Equity (Using Average Equity)	                41.43%

Select ROE	                                                     40.00%

Company Intrinsic Value	 $7.33 


and my 2011 valuation (using Comsec forcast figures only came out to $5.51. I can't seem to figure out where I went wrong. Also using a RR of 14%

Current Shares on Issue (Assuming No Buy Back/Split)	78,759,014
Forecast Beginning Equity (Last year's ending)	                93,375,523
Forecast Ending or current Equity	                               119,602,275
Forecast Net Profit After Tax	                                        31,739,883
Forecast Dividends Paid	                                                  5,513,131

Forecast Earnings Per Share (EPS)	                                  0.403
Forecast Dividends Per Shares (DPS)	                           0.070
Forecast Payout Ratio	                                                  17.37%
Forecast Ending or Current Equity / Current Shares (EQPS)	    1.52
Calculated Return on Equity (Using Starting Equity)	           33.99%
Calculated Return on Equity (Using Average Equity)	             29.81%

Select ROE	30.00%

Future Intrinsic Value	 $5.51 

I hope someone can comment on my calculations and figures as I am very eager to get this down and I can't seem to figure out where I went wrong.

Thanks all.


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## drlog (3 February 2011)

stud_ming said:


> Hi everyone
> 
> Current Shares on Issue (Assuming No Buy Back/Split)	78,759,014
> Forecast Beginning Equity (Last year's ending)	                93,375,523
> ...




The problem is with commsec's forecast EPS. If you look at Forge's profit guidence:

http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01118654

you will see that they are anticipating more than 1.5% growth. I would (loosely) expect that the ROE will be closer to 40% rather than 30%. Roger's method is very sensitive to ROE which is why the IV has gone down when you assume the ROE dropped from 40% to 30%.

We will see what happens within the next few weeks! Bring on the reporting season


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## kermit345 (3 February 2011)

Your forecast has also included an assumption that equity has increased quite considerably which I would guess has a pretty major impact on the valuation.

I don't actually use Roger Montgomery's valuation techinique (which it looks like you do) so can't really comment on where you may be going wrong.

In terms of the figures I used for current valuation, I use rounded numbers and used the following to make up parts of my valuation technique:

NPAT: 29,500,000
SH Equity: 93,400,000
EPS: 39.7c
DPS: 7.0c
Cash Assets: 51,921,000
Debt: 11,900,000

Thats the basics of the elements I use. Of I remember, i'll take a look at my spreadsheet on my lunch break at home and see what else I can post. Can also give you my exact IV and forecast IV as well.


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## drlog (3 February 2011)

kermit345 said:


> Your forecast has also included an assumption that equity has increased quite considerably which I would guess has a pretty major impact on the valuation.
> 
> I don't actually use Roger Montgomery's valuation techinique (which it looks like you do) so can't really comment on where you may be going wrong.
> 
> ...




I would suggest that next year's beginning equity would be around 119,602,275 considering the forecast profit and the low payout ratio. I actually expect equity to be higher than that because I expect NPAT to be higher than 31,739,883!

So, the way stud_ming calculated next year's equity was:

Last years equity + NPAT * (retained percentage) = next years equity

93,375,523 + 31,739,883 * (1 - 0.1737) = 119,602,188.32

I think that is quite reasonable. FGE should be a compounding machine for a few years to come!

kermit345, I am interested to see your IVs for FGE.

Disclosure: I hold.


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## kermit345 (3 February 2011)

Ok i'm at home now, my valuations are as follows:

Current Valuation : $7.40
Future IV : $9.01

The figures i've used are as previously quoted, my ROE last year, this year and next year have been consistent at around 31-32%. My future estimated shareholders equity is approximately $116 million.

Also even though this won't mean much to anyone on here, in my valuation spreadsheet which applies value ratings to companies by comparing their financials in a value investing manner, FGE scored 83.51%.

I'm seriously looking at investing in Forge now, but i'm tossing up between this and MML.


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## stud_ming (3 February 2011)

Hi Kermit and Drlog. Thanks for helping me out.

I have now upgraded my profit forecast for 2011 by 40% and this now brings my intrinsic value to $7.94.

Still using 14%. These are my upgraded calculations.

Current Shares on Issue (Assuming No Buy Back/Split)	78,759,014
Forecast Beginning Equity (Last year's ending)	93,375,523
Forecast Ending or current Equity	129,092,721
Forecast Net Profit After Tax	41,230,329
Forecast Dividends Paid	5,513,131

Forecast Earnings Per Share (EPS)	0.523
Forecast Dividends Per Shares (DPS)	0.070
Forecast Payout Ratio	13.37%
Forecast Ending or Current Equity / Current Shares (EQPS)	1.64
Calculated Return on Equity (Using Starting Equity)	44.16%
Calculated Return on Equity (Using Average Equity)	37.07%

Select ROE	35.00%

Future Intrinsic Value	 $7.94 

Kermit: May I ask what sort of calculations you use? and my friend did very well on MML. He bought 12k worth at 60cents and is still holding atm which brings his holding value to $120K. May also ask what your valuation of them is atm?


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## kermit345 (4 February 2011)

wow I did a big reply and my browser crashed....

When you say still using 14% do you mean required rate of return or something else?

My equation or formula is something i've developed over the last 6-12 months myself through trial and error to get it where it is now. I'm a bit like Roger and don't want to disclose my exact equation but I can tell you the components that make up the essence of it. It basically revolves around, EPS, DPS, growth and required rate of return. 

I then apply premiums or discounts based on management, sector and debt. I think my valuation method seems to work as i've identified a lot of the same stocks as Roger and seem to get valuations reasonably close to a lot of others i've talked to interested in value investing.

My valuations for MML are as follows:

Current Valuation $9.19
Forecast IV $10.93

If you'd like to discuss other value stocks further feel free to PM me as I don't want to hijack the FGE thread.

Cheers


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## stud_ming (4 February 2011)

Interesting. I wish I studied Finance instead of Accounting at Uni. Oh well, there's always time to learn again.

Yes, I was talking about the RR.

I am currently looking at topping up my FGE holdings again. One thing that I am a bit confused about is what's the entry point for doing so (I have no idea about technical analysis) and the Margin of Safety and Future Value on Roger's blog (See below). 

http://blog.rogermontgomery.com/wp-content/uploads/2010/12/Valueable-Graduate-
Class-of-2010-and-Roger-Montgomery-reveal-their-top-A1-stock-picks-for-2011.jpg


Safety Margin was identified at 47% and the future value at 31%. Does that mean the intrinsic value of Forge is estimated to be around $8.74 (Safety Margin of 47%) and there is room for more growth at 31%. 

Pardon my ignorance but all this is quite new to me. Thanks in advance for the help. 

and I will PM you at a later stage when I know more about MML and discover other shares.


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## kermit345 (4 February 2011)

Hi stud,

The link you posted didn't work so you may want to try doing it again using the link button (little earth picture with the chain/link with it). 

Your guess is as good as mine regarding the safety margin etc that they have identified but the way your stating it sounds right to me. I'm finalising my Commerce and Applied Finance double degree however i've learnt more by reading forums and websites then I have through uni. 

I'm very weak at the technical analysis side of things as well and still learning quite a bit. Although for me the most recent buy signal was when it broke through the $5.00 resistance level. Because it keeps setting new highs now, its hard to gauge what is a good entry level. Because the consensus amongst value investors seems that the target is $7.00+, since its in a good uptrend now i guess any time is the right time to buy. Disclaimer: Not advice, just my point of view.

Back to MML for a second, I think there was also a good buy signal for MML recently too, when it dipped to around $6.50 briefly, which is close to its resistance of recent months AND its the bottom of the 6 month trend channel on close. If I had the cash, i would've bought at this point, seems i missed out for now .


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## stud_ming (4 February 2011)

here's that link again. 

One thing I am finding challenging about value investing is the RR and discounts. Even though my valuations are around the low and high $7 mark for 2010 and 2011. Others have came in with much lower figures. At $5 - $6 which is quite scary.

I guess overtime as I read and understand more. I will be able to confidently value a company.

and are there any subscriptions and newsletters that anyone could recommend?


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## Intrinsic Value (4 February 2011)

stud_ming said:


> Hi Kermit and Drlog. Thanks for helping me out.
> 
> I have now upgraded my profit forecast for 2011 by 40% and this now brings my intrinsic value to $7.94.
> 
> ...




Your Forecast Net Profit  is much higher than my estimate. Where did you get that figure from? 41,230,329

I also think the RR of 14 is too high but that is always going to be subjective.


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## kermit345 (4 February 2011)

I use an RR of 10.5% which is probably too low as well, but as you say Intrinsic Value, it depends a bit on personal preference. Also for comparisons sake I think my equation seems to come out with similar figures as other people using the 10.5% so thats why i'm sticking with it.

In terms of your valuations for forge stud, i wouldn't be too worried that your IV's are in the $7 range, thats where mine is and i've seen others around this mark. Some people are always going to be more cautious or aggressive then others which will inadvertently effect the valuation.


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## Intrinsic Value (4 February 2011)

kermit345 said:


> I use an RR of 10.5% which is probably too low as well, but as you say Intrinsic Value, it depends a bit on personal preference. Also for comparisons sake I think my equation seems to come out with similar figures as other people using the 10.5% so thats why i'm sticking with it.
> 
> In terms of your valuations for forge stud, i wouldn't be too worried that your IV's are in the $7 range, thats where mine is and i've seen others around this mark. Some people are always going to be more cautious or aggressive then others which will inadvertently effect the valuation.




Well my figures taken from Commsec website indicate EPS of .403 for 2011 compared to Forecast Earnings Per Share (EPS) of 0.523.

I was wondering where that figure had come from?


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## stud_ming (4 February 2011)

Based on their last announcement, their half yearly profit had increased by 40%. I just increased last year's next profit by 40%. Probably not the best method but I did not like Comsec's forecast which was only 1.5% of last year's next profit.

I was using RR of 14% to be conservative which scares me because I still get a value in the high $7. Oh well, I bought more in today. *crosses fingers*

Bring on the reporting season.


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## hardcoremike (6 February 2011)

Hi all
Was wondering what the difference is between Current Valuation and Forecasted IV?


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## drlog (8 February 2011)

hardcoremike said:


> Hi all
> Was wondering what the difference is between Current Valuation and Forecasted IV?




The idea behind IV is that it applies to a year of company performance. The current Valuation is based on the latest financial report. The Forecasted IV is "what do I think the IV will be after their next report". Since you can not possibly know with complete accuracy what the next IV will be, it based on forecast profit values.

Speaking of forecast profit values - go and look at FGE's profit guidance - They are basically saying "we had it wrong before, lets just add a few more million to NPBT for the last 6 months".

What an awesome company!


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## kermit345 (8 February 2011)

Seriously kicking myself that I didn't have the funds to get in when it pushed through the $5.00 resistance. I still think the upside here is significant, i keep waiting while I accumulate some funds to get in and hoping for some kind of a small correction to make my move, but its just not happening.


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## Intrinsic Value (8 February 2011)

drlog said:


> The idea behind IV is that it applies to a year of company performance. The current Valuation is based on the latest financial report. The Forecasted IV is "what do I think the IV will be after their next report". Since you can not possibly know with complete accuracy what the next IV will be, it based on forecast profit values.
> 
> Speaking of forecast profit values - go and look at FGE's profit guidance - They are basically saying "we had it wrong before, lets just add a few more million to NPBT for the last 6 months".
> 
> What an awesome company!




Yep they are my portfolio favourite.

I only wish there were more companies like FGE out there.

In the last few weeks when I was thinking of buying more FGE they have jumped significantly.

However I still think they a good buy even at todays price.


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## robusta (8 February 2011)

drlog said:


> The idea behind IV is that it applies to a year of company performance. The current Valuation is based on the latest financial report. The Forecasted IV is "what do I think the IV will be after their next report". Since you can not possibly know with complete accuracy what the next IV will be, it based on forecast profit values.
> 
> Speaking of forecast profit values - go and look at FGE's profit guidance - They are basically saying "we had it wrong before, lets just add a few more million to NPBT for the last 6 months".
> 
> What an awesome company!




Have to agree with you there. As my largest holding (34.4% of portfolio) I am now switching my thinking and watching FGE very closely with a view to taking some profits - no rush however.


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## fanger (8 February 2011)

Intrinsic Value said:


> I only wish there were more companies like FGE out there.




MCE - Matrix Composites & Engineering is up there with FGE.


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## Intrinsic Value (8 February 2011)

fanger said:


> MCE - Matrix Composites & Engineering is up there with FGE.




I also hold Matrix


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## tinhat (9 February 2011)

Intrinsic Value said:


> I also hold Matrix




I also hold MCE. Forge is definitely my favourite stock right now, and over the past couple of months I've been increasing my position in my best performing stocks such as FGE, EQN and MML.

I'm gobsmacked every time I look at a chart of FGE or MML and realise that you could have picked them both up for around the $0.50 mark two years ago. We live during interesting times.

I'm looking forward to their report next Tuesday. I believe the share price could have a long way to go up yet and I'll be keen to look at the figures.


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## adds4 (12 February 2011)

tinhat said:


> I also hold MCE. Forge is definitely my favourite stock right now, and over the past couple of months I've been increasing my position in my best performing stocks such as FGE, EQN and MML.
> 
> I'm gobsmacked every time I look at a chart of FGE or MML and realise that you could have picked them both up for around the $0.50 mark two years ago. We live during interesting times.
> 
> I'm looking forward to their report next Tuesday. I believe the share price could have a long way to go up yet and I'll be keen to look at the figures.




I was one of them picking them up for 50 cents. I told my mates dad to sell everything, and invest in fge. His reply was he likes to invest in penny dreadfulls because they give you a better return short to medium term. Oh dear, should have taken my advice, only doupled his money so far, and doesnt get the 50% cpaital gains discount if he sold now.

My dumb think was to sell some out last yr, to recover all my losses from the gfc


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## VSntchr (15 February 2011)

Didnt even realise this one reported today...I guess you dont need to worry with companies like forge...I wouldnt care if the market closed for a year with this stock!

Anyway, the report slightly beats earnings guidance..which was already upgraded from a previous earnings guidance...so two upgrades you might say..this is the same as CCP..excellent companies will continue to under promise and over deliver...for this reason I picked up another couple of hundred today. I know that the price has run hard recently, but thats irrelevant if your a value investor..what matters is that this stock is still largely undervalued (although it is catching its value..its a hard fought race!  )


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## drlog (15 February 2011)

VSntchr said:


> Didnt even realise this one reported today...I guess you dont need to worry with companies like forge...I wouldnt care if the market closed for a year with this stock!
> 
> Anyway, the report slightly beats earnings guidance..which was already upgraded from a previous earnings guidance...so two upgrades you might say..this is the same as CCP..excellent companies will continue to under promise and over deliver...for this reason I picked up another couple of hundred today. I know that the price has run hard recently, but thats irrelevant if your a value investor..what matters is that this stock is still largely undervalued (although it is catching its value..its a hard fought race!  )




A nice doubling of interim dividend as well. I don't think you could really say that they "beat the upgraded forecast" since it went from "30 mil" to 30,222,152 which is higher than 30 mil but only by a comparatively small amount. Who really cares though, all FGE holders would be happy today.

They are still trading below IV but they are a large enough part of my portfolio so I'm only holding - you would have to be bonkers to sell!


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## fanger (15 February 2011)

drlog said:


> A nice doubling of interim dividend as well.




I was hoping for more on the dividend front since its having a great year on earnings, sure its nice its doubled but FGE's dividend yield is very low, only around the 1%. If you look at a similar company like MND who pay out around 4.5% yeild.


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## kermit345 (15 February 2011)

tinhat said:


> I also hold MCE. Forge is definitely my favourite stock right now, and over the past couple of months I've been increasing my position in my best performing stocks such as FGE, EQN and MML.
> 
> I'm gobsmacked every time I look at a chart of FGE or MML and realise that you could have picked them both up for around the $0.50 mark two years ago. We live during interesting times.
> 
> I'm looking forward to their report next Tuesday. I believe the share price could have a long way to go up yet and I'll be keen to look at the figures.




Over the last week i've bought some FGE and MML, they have had a great long and hard run to where they are now, but my intrinsic values and forecast values are still offering some margin of safety on the current prices.

In terms of the dividend, I wouldn't be too disapointed with the low dividend yield, as if they can deploy the increasing cash funds they are holding onto with projects that yield the same returns on equity they have produced so far, then surely that is better then having a 4% dividend yield to keep punters happy?

I know i'd much rather them deploy the funds and continue their extraordinary growth. Sounds like they are looking at making acquisitions but are on the cautious front. Lets just hope they make a sound decision and don't overpay or acquire something that cannot aid with the organic growth of the business as a whole.

To date management have done close to everything right, if it continues, then there is no reason for the trend to stop anytime soon.


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## Intrinsic Value (16 February 2011)

kermit345 said:


> Over the last week i've bought some FGE and MML, they have had a great long and hard run to where they are now, but my intrinsic values and forecast values are still offering some margin of safety on the current prices.
> 
> In terms of the dividend, I wouldn't be too disapointed with the low dividend yield, as if they can deploy the increasing cash funds they are holding onto with projects that yield the same returns on equity they have produced so far, then surely that is better then having a 4% dividend yield to keep punters happy?
> 
> ...




Agree 100 percent.

I don't care about the dividends as long as they keep running the company well and the share price keeps rising.

I also think FGE is still below intrinsic value. 

There are not many value investment opportunities still out there. 

I think FGE and MCE are two that are still worth getting into even at their current levels.


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## VSntchr (16 February 2011)

Just fully read through the latest report in its entirety. Had no idea about expansion into West Africa...I hope they can manage that well.

I dont like all this talk of earnings accretive acquisitions..anyone can buy something that will add a few cents to the EPS...what we really want is an excellent addition to the business at a fair (bargain) price.

Other than that the company appears to be going from strength to strength with its operations and looks to be building a bigger and bigger name within the industry.

With all the capex undertaken over the last 3 years Forge will be very appealing to potential customers as it will have modern equipment.

The diversifying of income streams (west africa and non resource based revenue) is also important as it reduces the reliance on the Aussie mining boom.

Next few years look very exciting...lets hope the price doesnt overshoot the value tooo far so that we can hold and compound our returns 

Well they were my thoughts after reading..just thought I'd share


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## robusta (17 February 2011)

My favourite part of the interim report (after NPAT);

"....we are particularly fastidious with M&A prerequisites. The target must fit. We will not make it fit. We have managed our growth to date without the impost of goodwill impairment or taking on debt or people that are not culturally aligned to the Forge philosophy of propriietorship and we wish to preserve these benefits as we continue to grow the company.

With such strong cash reserves simply earning interest, there is increasing pressure on the executive and the Board to fast track an earnings accreditive acquisition. Shareholders, however can rest assured that this will be done in a responsible manner with long term benefits to shareholders being the major determining factor in the decision making process."


WOW that makes me sleep a whole lot better.


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## kermit345 (18 February 2011)

robusta said:


> My favourite part of the interim report (after NPAT);
> 
> "....we are particularly fastidious with M&A prerequisites. The target must fit. We will not make it fit. We have managed our growth to date without the impost of goodwill impairment or taking on debt or people that are not culturally aligned to the Forge philosophy of propriietorship and we wish to preserve these benefits as we continue to grow the company.
> 
> ...




I was pretty pleased with that part as well robusta. Of course all companies are going to say they will make acquisitions that align with their philosophy etc etc, however this comment from FGE was very stern and strong I thought.

Also consider this, the $69 mill earning interest now, is deployed into an acquisitions or venture that even earns a return on equity of just 15%, that is still better then what they would be getting on the interest now, so while it wouldn't be a 'great' acquisition, it would still keep the FGE train rolling at impressive returns.

More then happy I bought in now.


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## adds4 (19 February 2011)

worrying part for me was the result from webb. They arent making money, and havent really picked up many contracts. Its is a far away place africa, and this could distract managment away from looking after our booming australian market. Might have to add an aquisition to africa to give scale, or exist the business. Peoples thoughts


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## robusta (20 February 2011)

kermit345 said:


> I was pretty pleased with that part as well robusta. Of course all companies are going to say they will make acquisitions that align with their philosophy etc etc, however this comment from FGE was very stern and strong I thought.
> 
> Also consider this, the $69 mill earning interest now, is deployed into an acquisitions or venture that even earns a return on equity of just 15%, that is still better then what they would be getting on the interest now, so while it wouldn't be a 'great' acquisition, it would still keep the FGE train rolling at impressive returns.
> 
> More then happy I bought in now.




I see your point about getting that cash to work but I am much happier fot FGE to wait for the right fit. ROE is still ~40% even with that extra cash sitting on the ballance sheet. 

I am more than happy to give FGE the benifit of time to find the right aquisition but would prefer them to pay out the money instead of making a overpriced takeover. 



adds4 said:


> worrying part for me was the result from webb. They arent making money, and havent really picked up many contracts. Its is a far away place africa, and this could distract managment away from looking after our booming australian market. Might have to add an aquisition to africa to give scale, or exist the business. Peoples thoughts




The Australian market will not boom forever. The Webb result was explained away due to "project run off". Webb has recieved letters of intent for approx $10m of work in Sierra Leone when you compare this to revenue for the half year off $1.36m I am happy to give them some time.


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## kermit345 (21 February 2011)

robusta said:


> I see your point about getting that cash to work but I am much happier fot FGE to wait for the right fit. ROE is still ~40% even with that extra cash sitting on the ballance sheet.
> 
> I am more than happy to give FGE the benifit of time to find the right aquisition but would prefer them to pay out the money instead of making a overpriced takeover.




Totally agree 100%, just mean that even if they take their time and make an acquisition which turns out to only yield a 15% ROE, its still better then a bank account.

I am definitely looking forward to what they can achieve with these funds.


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## VSntchr (4 March 2011)

Personally if they make an acquisition that only yields ROE of 15% id be quite disappointed. Whilst the shares are still below my estimate of IV I would rather them buy back the shares.

Anything under 15% ROE for an acquisition and id prefer a dividend as I am confident of achieving 15% return from investing.

I do see your point however.


Anyway, on another note - FGE along with many others have been added into the ASX300 today. Seems to have solidly spurred the buyers which are hoping to get on board before the funds do on the 18th(ish).

Currently sitting on 156% on my first purchase price 36% on my second and level on my third (about a month ago).

Will continue to watch intently with interest~!


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## Ozymandias (4 March 2011)

VSntchr said:


> Anyway, on another note - FGE along with many others have been added into the ASX300 today. Seems to have solidly spurred the buyers which are hoping to get on board before the funds do on the 18th(ish).




Why will they be buying in around the 18th?


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## VSntchr (4 March 2011)

In reply to last post on previous page:

Because fund managers have certain funds which are designed to track the indicies.
So once the stocks that comprise the indicies change (18th), they are forced to rebalance their holdings of securities.


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## robusta (4 March 2011)

It will be nice to welcome all the index funds to the share register.


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## robusta (8 March 2011)

Transition underway to a larger and more independant board.

http://www.asx.com.au/asxpdf/20110308/pdf/41x9jznkls0ztq.pdf

Not so sure I like independant boards, I like directors to have some skin in the game.

Thought John Smith might be interested after he has finished with Clough.


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## VSntchr (8 March 2011)

robusta said:


> Transition underway to a larger and more independant board.
> 
> http://www.asx.com.au/asxpdf/20110308/pdf/41x9jznkls0ztq.pdf
> 
> ...




Yeah, whats the need for an independent board? So management can solely focus on running the business? How can they properly run the business without controlling everything that happens?

I dunno, but it feels like shareholders lose a lot of control with an independent board...but I know very little on the subject so I could be completely wrong...


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## fanger (15 March 2011)

VSntchr said:


> In reply to last post on previous page:
> 
> Because fund managers have certain funds which are designed to track the indicies.
> So once the stocks that comprise the indicies change (18th), they are forced to rebalance their holdings of securities.




Excellent news I've been picking up more FGE over the last couple of days.


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## moreld (15 March 2011)

VSntchr said:


> Because fund managers have certain funds which are designed to track the indicies.
> So once the stocks that comprise the indicies change (18th), they are forced to rebalance their holdings of securities.




http://www.fusioninvesting.com/2011/03/does-index-inclusion-lead-to-higher-share-prices/ 

I often see this incorrect view put forward, so am posting this here as a to be expanded work in progress.

If you think about it then simply buying any companies that have been included in an index would result in market out-performance, because they the stock has to go up because indexers have to buy them. People’s next thought is that indexers buy ahead of the change date. Well then same thought goes, buying as soon as announced would lead to out-performance. Or one step further buying on anticipation of the announcement would lead to out-performance.

The reality is index funds do not buy every share in an index. There is absolutely no need for them to do so to mirror the performance of the index. Indexers buy a representative sample of the index. This generally comprises all the top companies and a selection of mid/smaller companies by industry.

There are also small cap fund managers who don’t wish to own stocks once they are included in an index.


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## nioka (16 March 2011)

robusta said:


> Not so sure I like independant boards, I like directors to have some skin in the game.




I don't like it though when one director has majority control of the company. Check out the ownership of FGE.


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## skc (16 March 2011)

robusta said:


> Transition underway to a larger and more independant board.
> 
> http://www.asx.com.au/asxpdf/20110308/pdf/41x9jznkls0ztq.pdf
> 
> ...






VSntchr said:


> Yeah, whats the need for an independent board? So management can solely focus on running the business? How can they properly run the business without controlling everything that happens?
> 
> I dunno, but it feels like shareholders lose a lot of control with an independent board...but I know very little on the subject so I could be completely wrong...




Independent doesn't mean they don't have skin in the game. It just means they have no other job in the company apart from their directorship. The CEO, COO and CFO who are also on the board are not independent director. 

What's wrong if all directors are inside directors and the CEO is the Chair? Well no one will be able to dismiss the CEO for starters even if he did something stupid...

Management with total control of a company's direction also may not be a good thing. An outsider's independent viewpoint can be very valuable... 

There are pros and cons to each so a balance is probably the way to go.


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## Richard Hill (26 March 2011)

nioka said:


> I don't like it though when one director has majority control of the company. Check out the ownership of FGE.




Usually I'd agree somewhat with that comment but as Clough has an interest and the board is moving to become more independant in line with sound corporate governance, I don't think this one is too much of an issue.

I'm looking to pick some of these up, even as much as this one's grown, as the whole construction industry is beginning to ramp up, especially WA & QLD, with major mining and resource projects like RIO, BHP, CHEVRON etc seeming to be on the move. 

With the added dollars coming back into the economy this one along with the majors like Monos, UGL, LEI, DOW(If they get over their trains) etc they're sure to start benefitting from the increased project work.

Also with a lot of share prices on the majors probably being under valued still, there's hopefully going to be a lot of legs on the engineering and construction companies. As long as Japan's situation doesn't curb iron ore buying too much that is and have a flow on effect to the iron ore & LNG companies.

Just my  though and not based on anything other than pure optimism that the construction game appears to be moving again.


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## nioka (26 March 2011)

Bear in mind that there is a concerted effort to stop Forge getting the Crown deposit from Lynas for a song. Many believe that Curtis is using his influence to get the Crown deposit from Lynas at "mates rates". Should Lynas shareholders veto the sale then forge has nothing much at all. My thoughts are that it is possible that the sale will be stopped. I know that ASIC are being asked to intervene in the transaction and that major shareholders are being alerted to the facts that Curtis has a conflict of interest here as do many others. they are also being alerted to the fact that the "independent" valuers also have connections to Curtis. I also have been told that Oliver Curtis the son of Nick Curtis is also involved and that he has come to the attention of ASIC in the past for insider trading. I am checking out all these facts as I am a holder of a fair amoun of Lynas shares and dont want to be "dudded" there. 

So I urge caution and do plenty of research. Remember that if the deal comes off Nick Curtis will have a majority holding in Forge. DYOR.


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## Richard Hill (26 March 2011)

HAHA, I love it. DYOR .... and keep researching. Sorry I shouldn't laugh as several media announcements have made the same error. 

This stock FGE is Forge Group Pty Ltd, a construction & engineering company. This is a Perth based company.

The stock you refer to is FRG. Forge Resources Limited which is a mineral resource exploration comopany. This company is based in Sydney. 

As far as I can tell they are two very separate entities and have no connection other than a coincidence that the both contain Forge in their name.


Indeed DYOR.


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## VSntchr (26 March 2011)

nioka said:


> Bear in mind that there is a concerted effort to stop Forge getting the Crown deposit from Lynas for a song. Many believe that Curtis is using his influence to get the Crown deposit from Lynas at "mates rates". Should Lynas shareholders veto the sale then forge has nothing much at all. My thoughts are that it is possible that the sale will be stopped. I know that ASIC are being asked to intervene in the transaction and that major shareholders are being alerted to the facts that Curtis has a conflict of interest here as do many others. they are also being alerted to the fact that the "independent" valuers also have connections to Curtis. I also have been told that Oliver Curtis the son of Nick Curtis is also involved and that he has come to the attention of ASIC in the past for insider trading. I am checking out all these facts as I am a holder of a fair amoun of Lynas shares and dont want to be "dudded" there.
> 
> So I urge caution and do plenty of research. Remember that if the deal comes off Nick Curtis will have a majority holding in Forge. DYOR.




I think your thinking about a different Forge group, this thread is about a different company!


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## nioka (26 March 2011)

VSntchr said:


> I think your thinking about a different Forge group, this thread is about a different company!




My apologies. I have the wrong company. I was thinking about FRG Forge Resources. I'm surprised that someone hasn't pulled me up earlier on. Big, big mistake.


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## VSntchr (29 April 2011)

Good to see this one on the cheap again.
Lots of talk about MCE but I prefer forge at current prices.

Very good ROE even with a ton of cash at bank. Once they put that cash to work we can expect a much better return than what it would be currently earning. 

Peter Hutchinson is a smart guy and I cant see him making a stupid acquisition so I have relative confidence that a good purchase (if any) will be made.

I think his decision to find a new managing director is a very selfless decision with the companies best interests at heart. Alot of others in many other companies are not at the top job for the best interests of shareholders but merely so they can boost their ego's and wallets...I think Peter is different.

Anyway I found today a good day to top up.

Seems that the market is correcting as more people worry about the strong dollar? is this right?

I can't see any direct effects of this on forge, except that it may affect the companies which it services...but really I cannot see these companies stopping their activities...if the purchasers stop buying..our major export will fall...and if that happens...the dollar will also fall...so really there is a safety net there in my mind. Plus..there is already a shortage of commodities, if we stopped mining it would be out of control...

anyway just a bunch of my random thoughts that I thought might spark some further insights!...


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## Intrinsic Value (29 April 2011)

VSntchr said:


> Good to see this one on the cheap again.
> Lots of talk about MCE but I prefer forge at current prices.
> 
> Very good ROE even with a ton of cash at bank. Once they put that cash to work we can expect a much better return than what it would be currently earning.
> ...




I have been on holidays for the last two weeks and checked the share price today and noticed that it had slipped under 6 dollars. 

Has there been any news that one should know about it?

If not it should be an ideal time to top up with some more FGE.


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## VSntchr (20 May 2011)

Earnings upgrade! Expecting 25 - 27 mil for the second half. Very impressive, up on 19m from PCP and 21m in first half.

I see FGE almost more undervalued now than it was at $4 (keeping in mind what we knew then).

Loving that i've been aggressively topping up


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## drworm (20 May 2011)

VSntchr said:


> Earnings upgrade! Expecting 25 - 27 mil for the second half. Very impressive, up on 19m from PCP and 21m in first half.
> 
> I see FGE almost more undervalued now than it was at $4 (keeping in mind what we knew then).
> 
> Loving that i've been aggressively topping up




Watch out dude. "pre tax" 25 - 27 mil.


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## skc (20 May 2011)

VSntchr said:


> Earnings upgrade! Expecting 25 - 27 mil for the second half. Very impressive, up on 19m from PCP and 21m in first half.
> 
> I see FGE almost more undervalued now than it was at $4 (keeping in mind what we knew then).
> 
> Loving that i've been aggressively topping up




$25-27m BEFORE tax = $17.5 to $19m AFTER tax. H1 NPAT $21m AFTER tax. A pretty significant half-on-half fall!

Revenue was $204m in the first half, and only $200m in the update. Corresponding figures from last year was $112m and $135m. So half-on-half top line growth was 20%, 51%, -2%...

This may be an one-off but if that's the end of their growth then the current PE of 16 (EPS = 40c) is starting to look stretched. 

I am actually surprised that the share price didn't fall after the announcement


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## VSntchr (20 May 2011)

skc said:


> $25-27m BEFORE tax = $17.5 to $19m AFTER tax. H1 NPAT $21m AFTER tax. A pretty significant half-on-half fall!
> 
> Revenue was $204m in the first half, and only $200m in the update. Corresponding figures from last year was $112m and $135m. So half-on-half top line growth was 20%, 51%, -2%...
> 
> ...




WOAH! I totally missed the BEFORE tax part....really should have seen that. You sure its not a mistake??? I really dont think they would state 26% growth by using a comparison of after tax figures...
Kinda vital if it is a mistake!


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## skc (20 May 2011)

VSntchr said:


> WOAH! I totally missed the BEFORE tax part....really should have seen that. You sure its not a mistake??? I really dont think they would state 26% growth by using a comparison of after tax figures...
> Kinda vital if it is a mistake!




Everyone of their past earnings upgrade has been before tax so there was certainly no intention to deceit. 

I've made that same mistake before - luckily it's a mistake that you should only make once!


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## zac (20 May 2011)

So whats the reality of this,
Reading the threads it has me confused.
Theres a post commenting on the excitement of it and how the shares are severely undervalued, then theres a post saying its a negative.
Whats the deal?


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## VSntchr (20 May 2011)

skc said:


> Everyone of their past earnings upgrade has been before tax so there was certainly no intention to deceit.
> 
> I've made that same mistake before - luckily it's a mistake that you should only make once!




haha yeah, well lets hope so anyway!

Just updated my figures in my model and I still see fge as undervalued even despite this...however, as you suggested, the important thing to consider is whether the growth is set to continue, or if its over?


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## skc (20 May 2011)

zac said:


> So whats the reality of this,
> Reading the threads it has me confused.
> Theres a post commenting on the excitement of it and how the shares are severely undervalued, then theres a post saying its a negative.
> Whats the deal?




Your choices are:
- Listen to the dog that can use a computer
- Listen to the roadsign
- Make your own assesment and decision


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## VSntchr (20 May 2011)

skc said:


> Your choices are:
> - Listen to the dog that can use a computer
> - Listen to the roadsign
> - Make your own assesment and decision




You just made my day! haha


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## robusta (20 May 2011)

skc said:


> $25-27m BEFORE tax = $17.5 to $19m AFTER tax. H1 NPAT $21m AFTER tax. A pretty significant half-on-half fall!
> 
> Revenue was $204m in the first half, and only $200m in the update. Corresponding figures from last year was $112m and $135m. So half-on-half top line growth was 20%, 51%, -2%...
> 
> ...




Revenue and profits may be a little lumpy due to project timing and weather, I would however like to see some new project wins in the near future.


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## VSntchr (25 May 2011)

Interesting price action with FGE since the market update. Its hard to tell whether the price drop is inline with the current market situation or if its specific to the company. For the most part Id say its the general market sentiment...I guess those ultra conservative analyst estimates for full year earnings don't look so ultra conservative anymore.

Still, the company has a target of achieving $500m FY revenue ASAP so they are still striving for growth - as Robusta points out, this may just be a bump in the road. I guess the key will be to keep an eye on the order book. 
Also we have to keep in mind that forge has a massive amount of cash sitting idle that will be put to work sooner or later, which will result in a material increase in earnings. For example...assume they are currently getting 5% interest on the money...if they can use the funds to get a return of 15%...thats an extra 10%. Considering that they have around $70m in cash (for memory from the last report) which may be larger by the next report...this would give FGE an extra $7m PBT....

FWIW contacting forge by email is extremely difficult - the email address they provide doesn't work (I get a returned to sender, failed communication attempt, every time!)..kind of annoying but I guess I wouldn't gain much extra information by contacting them anyway.


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## skc (25 May 2011)

VSntchr said:


> Also we have to keep in mind that forge has a massive amount of cash sitting idle that will be put to work sooner or later, which will result in a material increase in earnings. For example...assume they are currently getting 5% interest on the money...if they can use the funds to get a return of 15%...thats an extra 10%. Considering that they have around $70m in cash (for memory from the last report) which may be larger by the next report...this would give FGE an extra $7m PBT....




Not sure all that cash is idle. Payables $57m. Tax liability $10m. Debt ~$6m. So total ~$73m. Less say 3/4 of account receivables $24m. Meaning probably only $20m or so is truely idle (conservatively).


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## zac (25 May 2011)

Ive been confused by this thread and as im new to investing you will have to excuse my ignorance.
Anyway I was reading announcements and news articles last night on FGE and they revised not so long ago a higher profit than anticipated.
I dont get why the share price is so low if thats the case.

Also, does anyone have any estimates on Intrinsic Values for upcoming years?


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## VSntchr (25 May 2011)

zac said:


> Ive been confused by this thread and as im new to investing you will have to excuse my ignorance.
> Anyway I was reading announcements and news articles last night on FGE and they revised not so long ago a higher profit than anticipated.
> I dont get why the share price is so low if thats the case.
> 
> Also, does anyone have any estimates on Intrinsic Values for upcoming years?




Would you mind providing us with a link to these news articles, id be interested to read!

I think FGE is worth around $7.80 if they can hit NPAT $39m this year.


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## zac (25 May 2011)

Sorry I dont have the link, it was just browsing. I didnt place much significance of it as it was something similar to mentioned on here.
im just trying to work out the movements.

With Matrix for example im happy with their business model and future projections that although I bought them at just under $9, when the SP went under $8 I bought more.
FGE im not too sure about.

With a 12% RR I have FGE at $7.30 although I bought the shares with my 10%RR estimations. Im not sure if its a bad habit and I should use 12 instead of 10 from now on.
I always use a 25% margin of safety minumum though.

*Edit* As I said previously, im very new to investing, so please excuse my ignorance if anything comes across as silly or stupid.


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## Risk Chaser (25 May 2011)

made a limit order for $5.80 now we play the waiting game


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## Intrinsic Value (25 May 2011)

Risk Chaser said:


> made a limit order for $5.80 now we play the waiting game




I think they are still good value in a market where there are not many companies trading at a discount to their intrinsic value.

My IV is 7.55 using a RR of 13percent. I have earnings per share at 45.6 as per Commsec.


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## kermit345 (31 May 2011)

Looks like RiskChasers order would have got filled, what are other doing with FGE at the moment. Everyone's IV's seem to be in the realm of at least $7+ which leads anyone and everyone to believe their is money to be made on FGE.

Are people buying at the moment? I can't see there is any major reason for concern besides the lack of updates regarding major contracts but as long as they are still operational and meeting their profit guidance they must have a reasonable amount of work on.

Any continued weakness towards the $5.00 mark really become apitising. I'm looking to round up some funds a get in shortly if it hovers around here for a little bit.

Question: Could the weakness be due to people booking major profits before EOFY as anyone that's followed Roger Mongomery would have large gains to date and may be taking profits?

Thoughts?


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## Intrinsic Value (31 May 2011)

kermit345 said:


> Looks like RiskChasers order would have got filled, what are other doing with FGE at the moment. Everyone's IV's seem to be in the realm of at least $7+ which leads anyone and everyone to believe their is money to be made on FGE.
> 
> Are people buying at the moment? I can't see there is any major reason for concern besides the lack of updates regarding major contracts but as long as they are still operational and meeting their profit guidance they must have a reasonable amount of work on.
> 
> ...




The further it goes down the more attractive it looks.

It is now trading around 30 percent discount to its IV i think. I will definitely buy more but will wait til the downward trend stops. If it hits 5 dollars then it is a very good buy i reckon.

Who knows the reason why it is going down? End of financial year. Market jitters etc


----------



## VSntchr (31 May 2011)

I sold 80% of my FGE at $6.28 after their latest update. 
My initial buy in was at $2.50, so it felt good to lock in a very nice gain.

Since then I probed the company for insight into current operations...I was told that they are still winning contracts...just no major ones worth announcing for a little while. they said that while competition has increased, so to has the amount of work going around. They also mentioned that they still have quite alot of work in the backlog so they have no worries about running out of work...
I think they have received a few calls from investors as it sounded like I was not the first to make such queries

I have since re-allocated my capital back into FGE (and gained ~$0.80+ per share in the process )


----------



## zac (31 May 2011)

Nice work with getting real value out of FGE.

I cant see that too many fundamentals have changed altho IV would have decreased a little.
Im just hopeful in the new financial year that FGE trades around its value.
FGE hasnt been the only company of late falling.

I snapped up some CCV this morning.


----------



## skc (31 May 2011)

Intrinsic Value said:


> The further it goes down the more attractive it looks.
> 
> It is now trading around 30 percent discount to its IV i think. I will definitely buy more but will wait til the downward trend stops. If it hits 5 dollars then it is a very good buy i reckon.
> 
> Who knows the reason why it is going down? End of financial year. Market jitters etc




Do you mind disclosing the discount rate and EPS growth rate you use for coming up with a IV of $7+. I think the market is doubting the EPS growth rate. A small change there will create a lot of gyration in the share price.

With announced profit guidance coming in at 40c EPS, current price of $5.3 isn't expensive compared to its peers but isn't a screaming bargain either. Although FGE does have a history of beating its own forecast...


----------



## VSntchr (31 May 2011)

skc said:


> Do you mind disclosing the discount rate and EPS growth rate you use for coming up with a IV of $7+. I think the market is doubting the EPS growth rate. A small change there will create a lot of gyration in the share price.
> 
> With announced profit guidance coming in at 40c EPS, current price of $5.3 isn't expensive compared to its peers but isn't a screaming bargain either. Although FGE does have a history of beating its own forecast...




Consensus estimates are much higher than 40c based on what I've determined???

Even commsec has 45.6c?

NPAT is looking like being 37 - 40m
this would be EPS of 44.5c - 48c


----------



## skc (31 May 2011)

VSntchr said:


> Consensus estimates are much higher than 40c based on what I've determined???
> 
> Even commsec has 45.6c?
> 
> ...




Sry took the wrong shares on issue number. You are quite right EPS ~45-48c. PE~11-12 which makes it on the cheap side now.

$4.8-5 is good technical support level. Might swing a trade if it gets there...


----------



## zac (31 May 2011)

Looks like its now swinging back up.
Im new to investing but im thinking of dabbling in some swing trading to make a few hundred bucks here and there with the swings of the market.
ie it was at 5.16 not long ago and sell say when it gets above 5.50.

Then the question is what if it kept going down, and to be honest because its below IV it doesnt faze me as i'd have been happy to buy anyway.


----------



## skc (31 May 2011)

zac said:


> Looks like its now swinging back up.
> Im new to investing but im thinking of dabbling in some swing trading to make a few hundred bucks here and there with the swings of the market.
> ie it was at 5.16 not long ago and sell say when it gets above 5.50.
> 
> Then the question is what if it kept going down, and to be honest because its below IV it doesnt faze me as i'd have been happy to buy anyway.




Keep your swing trading and investment separate imo. Trade the chart, or invest on the IV gap. 

Not "I will swing trade and if it doesn't work then I will call it an investment". A recipe for trouble imo...


----------



## zac (31 May 2011)

skc said:


> Keep your swing trading and investment separate imo. Trade the chart, or invest on the IV gap.
> 
> Not "I will swing trade and if it doesn't work then I will call it an investment". A recipe for trouble imo...




Ah ok, thanks for the heads up.
I think for now until I get a better understanding of 'reading the tape' market depth, course of sales etc I will stick to my value investing and longterm venture.


----------



## Intrinsic Value (31 May 2011)

VSntchr said:


> Consensus estimates are much higher than 40c based on what I've determined???
> 
> Even commsec has 45.6c?
> 
> ...




I am using Commsec EPS also 45.6 and with a RR of 13 percent get around 7.50 as the IV for FGE. 

If it goes down to 5.00 then the MOS would be 50percent which is very attractive. I almost pulled the trigger today when I saw it around 5.20. Anything at current levels looks like a good buy. The fundamentals haven't changed from what I have seen. Still I think it might be prudent to be patient a little bit longer on this one and see if it gets to 5.00.


----------



## tinhat (31 May 2011)

It's not when you buy, it's when you sell! Looking at the chart with hindsight I don't know why I didn't sell when they reached $7 back in April.

I received an email from Lincoln Indicators today. They had a telephone conversation with Chief Financial Officer Andrew Bell and he told them there was no material info that the company was withholding from the market, and that they were tendering like crazy and that the mining boom was only "now beginning to bite" and that he considers the company to still be in a phase of significant growth. So fingers crossed.

Topped up my holding today. Catching falling knifes - eek. Watch out for the big market crash everyone. I'm fully invested! Yikes.


----------



## oxygen (2 June 2011)

I am generally a value investor but also really like the look of this at $5 on a chart. It proved quite strong resistance for a while and should become support in the short term.  Dow down 279 overnight so today could be the day to buy more.


----------



## InvisbleInvestor (6 June 2011)

Contract Award announcement followed by a drop in the SP. Am I missing something here?

-4.81% drop today, any value investors finding good value? It definitely ticks the boxes for me.


----------



## zac (6 June 2011)

InvisbleInvestor said:


> Contract Award announcement followed by a drop in the SP. Am I missing something here?
> 
> -4.81% drop today, any value investors finding good value? It definitely ticks the boxes for me.




Its funny how a lot of the share market is going lately.
Im noticing some companies I consider really good to be dropping substantially in value.
Seems there's a fair bit of fear in the market at the moment.
Im trying to take advantage and snap up a bargain.


----------



## Intrinsic Value (7 June 2011)

FGE hit my target this morning got in just over 5 dollars.

It could well go lower but I am happy with this price.

I also bought MCE Matrix under 7 dollars which again represents pretty good value.

I have plenty of cash left for more bargains in the next week or so.


----------



## InvisbleInvestor (7 June 2011)

I've been tracking this today and have only seen it drop lower and lower. No point getting in if its going to keep going down. When it begins to rise I'll definitely buy in. But seeing as its down 2.5% today alone, I'm happy to wait.


----------



## Risk Chaser (7 June 2011)

InvisbleInvestor said:


> I've been tracking this today and have only seen it drop lower and lower. No point getting in if its going to keep going down. When it begins to rise I'll definitely buy in. But seeing as its down 2.5% today alone, I'm happy to wait.




topped up more today at $5.01, Wish i had more cash for the spending spree to come


----------



## VSntchr (28 June 2011)

Good to see a contract win for the African division...~$50m...

That makes a few contract wins this month now...


----------



## Intrinsic Value (28 June 2011)

VSntchr said:


> Good to see a contract win for the African division...~$50m...
> 
> That makes a few contract wins this month now...




It will be interesting to see their results.

I am expecting good things.


----------



## Tyler (2 July 2011)

Done a bit of research into FORGE (but not enough)
EPS HY = 25c approx
FGE came out with profit guidance for the second half of the year approx 32c

Therefore, Full year EPS should be clost to about 57c above the estimates at Bell direct of approx 45c. 

This puts the company on a p/e of just under 10 & ROE above 30% which is very good. Value would be above $7, & rising.

However, can someone explain to me if FGE has any sustainable competitive advantages? Are they able to raise prices (dont think they can cause they dont choose the price, there have to accept a contract?)

Thanks
Tyler

- Holds CCV & DGX


----------



## InvisbleInvestor (3 July 2011)

Tyler said:


> Done a bit of research into FORGE (but not enough)
> EPS HY = 25c approx
> FGE came out with profit guidance for the second half of the year approx 32c
> 
> ...




I don't think their moat is as large as, say, Matrix. However they do have their unique Forge Hub Model which can very well let them increase prices. If a client wants all the work completed by one company and not have to use several, I'm sure they would be willing to pay more for it.


----------



## adds4 (10 July 2011)

Has any of the contracts for building mines, gone over budget. I cant find one. Lynas maybe? Looks like forge will become contractor of choice if this continues. With mine development costs increasing, and competitors having cost blowouts on other projects, fge business model will prosper. Soon the majors will be looking to fge to do work for them, on a bigger scale

Does anybody think, fge will try a reserve takeover of clough one day?


----------



## robusta (10 July 2011)

adds4 said:


> Has any of the contracts for building mines, gone over budget. I cant find one. Lynas maybe? Looks like forge will become contractor of choice if this continues. With mine development costs increasing, and competitors having cost blowouts on other projects, fge business model will prosper. Soon the majors will be looking to fge to do work for them, on a bigger scale
> 
> Does anybody think, fge will try a reserve takeover of clough one day?




I am more worried about CLO taking over FGE, they are currently selling their marine assets and have stated a fair slice of their income comes from FGE holdings.

http://www.theaustralian.com.au/bus...l-on-marine-unit/story-e6frg906-1226089259711


----------



## adds4 (16 July 2011)

robusta said:


> I am more worried about CLO taking over FGE, they are currently selling their marine assets and have stated a fair slice of their income comes from FGE holdings.
> 
> http://www.theaustralian.com.au/bus...l-on-marine-unit/story-e6frg906-1226089259711




Clough doesnt have the financial muscle anymore for a takeover, with a low pe, and forge having a higher pe. Chance of a takeover are zero. More likely a sale by clough of forge shares


----------



## Intrinsic Value (10 August 2011)

Does anyone know when FGE results are due out?

I thought it was this week?


----------



## robusta (10 August 2011)

robusta said:


> I am more worried about CLO taking over FGE, they are currently selling their marine assets and have stated a fair slice of their income comes from FGE holdings.
> 
> http://www.theaustralian.com.au/bus...l-on-marine-unit/story-e6frg906-1226089259711




Just talk but CLO may be looking. 

At the end of this article.

http://www.businessspectator.com.au...ctEast-Sundance-pd20110809-KJSSS?OpenDocument


----------



## fanger (11 August 2011)

Intrinsic Value said:


> Does anyone know when FGE results are due out?
> 
> I thought it was this week?




I think its out on the 16th


----------



## robusta (14 August 2011)

FGE to report on Tuesday and should be extremely interesting. FGE for the half year were sitting on a nice pile of cash ~ $69,000,000 up from ~ $39,000,000 the pcp, upgraded guidence for the half year is for NPAT of $25m-$27m. 

FGE has been very disciplined in the search for new aquisitions and up until this point and has not found a suitable candidate.

The question I want answered is will a larger dividend pay out ratio signal the growth of FGE is slowing down or will it signal CLO building a war chest to take over FGE?

* CLO has 33.58% of FGE and would thus benefit from a larger dividend pay out ratio or special dividend.
* Mr Neil Siford the CFO of CLO has just been appointed to the board of FGE as a non-executive director.

I will be reading the annual report with interest Tuesday night.


----------



## notting (14 August 2011)

How did the loss of the RIO contract effect these guys books?


----------



## robusta (14 August 2011)

notting said:


> How did the loss of the RIO contract effect these guys books?




Did not know they even had a RIO contract. FGE however keep on announcing contract wins and increase earnings every year, so far....


----------



## robusta (14 August 2011)

notting said:


> How did the loss of the RIO contract effect these guys books?




Sorry my mistake is this the one?

http://www.forgegroup.com.au/announcements/41z7psjdhhynmt.pdf

I was not aware they lost this job and can not find any information on it.


----------



## notting (14 August 2011)

robusta said:


> Sorry my mistake is this the one?
> 
> http://www.forgegroup.com.au/announcements/41z7psjdhhynmt.pdf
> 
> I was not aware they lost this job and can not find any information on it.




I was under the impression there were a few.  Perhaps it was not as significant as it might sound for FGE. I'm sure Roger will know.


----------



## robusta (14 August 2011)

notting said:


> I was under the impression there were a few.  Perhaps it was not as significant as it might sound for FGE. I'm sure Roger will know.




Maybe, but I am also fairly sure the market should know, they have to continuously disclose anything of a material nature.

I am more interested at the moment in what they are going to do with the ~$1.00/share cash they are sitting on.

Also I am interested in seeing FGE win some larger contracts and also some JV with CLO, that was the main reason for giving 30% of the company away at a massive discount afterall.


----------



## notting (14 August 2011)

Don't worry. It's disclosed. 
I don't know alot about it.  That's why I was asking.
It was just something I heard that made my ears prick up a little while ago.  
It's probably still a belter.


----------



## fanger (15 August 2011)

robusta said:


> FGE to report on Tuesday and should be extremely interesting. FGE for the half year were sitting on a nice pile of cash ~ $69,000,000 up from ~ $39,000,000 the pcp, upgraded guidence for the half year is for NPAT of $25m-$27m.
> 
> FGE has been very disciplined in the search for new aquisitions and up until this point and has not found a suitable candidate.
> 
> ...




We all know forge has been a good company but what is it worth? Ever since the a share price hit the $7 mark its been in slow decline.


----------



## VSntchr (15 August 2011)

fanger said:


> We all know forge has been a good company but what is it worth? Ever since the a share price hit the $7 mark its been in slow decline.




I think its worth around $7 FWIW.

I hadn't heard anything about losing a contract...don't know where that has come from? Any more info on that?


----------



## craft (15 August 2011)

VSntchr said:


> I think its worth around $7 FWIW.




What is the basis for concluding it's worth $7?


----------



## VSntchr (15 August 2011)

craft said:


> What is the basis for concluding it's worth $7?




A (so far) consistent ROE of 30%, pay-out ratio increasing in coming years 25% currently adopted and a conservative required return.


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## craft (15 August 2011)

VSntchr said:


> A (so far) consistent ROE of 30%, pay-out ratio increasing in coming years 25% currently adopted and a conservative required return.




ROE for the last 4 FY Results, 17.90, 18.58, 31.94, 33.28

ROE for the last 4 HY Results             14.73, 13.62, 24.29, 19.02

Last half yearly has already shown a decrease in ROE and current forecasts show a continuation. Do you think 30% is a conservative enough estimate for an entire cycle or are you forecasting and playing earnings momentum?

If you are using the formula that I think you are then you are implying a growth rate of  22.5%  Does that sound consistent with the overall picture and growth in mining infrastructure spend or are you forecasting and playing FGE gaining market share?

Do you know how far into the future these assumptions are implied to last by the valuation formula you are using? Do they match your assumptions for the business?


----------



## skc (15 August 2011)

Very crafty comments.

Few 'value investors' understands that the underlying premise of their valuation technique implies perpetual growth. I noted a few months back that FGE's growth is tapering at best. And a simple 10-12x PE puts current price as fair and not cheap. Although FGE is a small enough fish in a large industry and it isn't inconceivable that they can continue the growth, but those who think they are buying with a high margin of safety is giving management too much benefit of the doubt imo. It is dangerous to do this with engineering companies in particular - few go through their lifecycle without major blowups once in a while. 

Look around the forum long enough and you will the same mistake being made all over the place... JBH was a great examples.



skc said:


> $25-27m BEFORE tax = $17.5 to $19m AFTER tax. H1 NPAT $21m AFTER tax. A pretty significant half-on-half fall!
> 
> Revenue was $204m in the first half, and only $200m in the update. Corresponding figures from last year was $112m and $135m. So half-on-half top line growth was 20%, 51%, -2%...


----------



## robusta (15 August 2011)

fanger said:


> We all know forge has been a good company but what is it worth? Ever since the a share price hit the $7 mark its been in slow decline.




So has the rest of the market - some days not as slow a decline as others.



craft said:


> ROE for the last 4 FY Results, 17.90, 18.58, 31.94, 33.28
> 
> ROE for the last 4 HY Results             14.73, 13.62, 24.29, 19.02




A lot of fluctuation there craft, maybe I am slow but hard to spot a pattern yet IMO.




craft said:


> Last half yearly has already shown a decrease in ROE and current forecasts show a continuation. Do you think 30% is a conservative enough estimate for an entire cycle or are you forecasting and playing earnings momentum?




For my valuation I have been using a ROE of 25% - just to hopefuly err on the conservative side.



craft said:


> If you are using the formula that I think you are then you are implying a growth rate of  22.5%  Does that sound consistent with the overall picture and growth in mining infrastructure spend or are you forecasting and playing FGE gaining market share?




A growth rate somewhere near ROE does not sound too unreasonable to me.



craft said:


> Do you know how far into the future these assumptions are implied to last by the valuation formula you are using? Do they match your assumptions for the business?




Hard to predict the future IMO, it seems even economists and analyst can get it wrong sometimes , but a business with; good margins, solid cash flow, low debt, decent ROE and with lots of work in hand may just do OK through the business cycle. The question I am constanly asking myself is, is FGE that business? Tomorrow night may give me some answers.


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## adds4 (16 August 2011)

robusta said:


> Sorry my mistake is this the one?
> 
> http://www.forgegroup.com.au/announcements/41z7psjdhhynmt.pdf
> 
> I was not aware they lost this job and can not find any information on it.




I dont think it was this contract. Just some minor contract from what i can gather. Didnt effect them getting the bigger contract. In business some times you cant do every job


----------



## notting (16 August 2011)

Scary what can happen when you ask a little question
There does seem to be a fair bit of work around over there in WA.

What I heard was that RIO had opted to build their own shacks for workers rather than pay Forge who where perhaps getting a little expensive.
It was a comment from some analyst on TV, I think!

Not inside information yet to be announced!!!

I thought you guys following it closely would be all over it if it was substantial.
Seems substance is lacking.


----------



## McLovin (16 August 2011)

skc said:


> Very crafty comments.
> 
> Few 'value investors' understands that the underlying premise of their valuation technique implies perpetual growth.




And then they dismiss DCF as trying to forecast too far into the future.


----------



## adds4 (16 August 2011)

notting said:


> Scary what can happen when you ask a little question
> There does seem to be a fair bit of work around over there in WA.
> 
> What I heard was that RIO had opted to build their own shacks for workers rather than pay Forge who where perhaps getting a little expensive.
> ...





Just wondering, with what building licence are rio going to use?, which trades, managers, what tools etc. You cant sign a contract and rip it up because you feel it is too expensive, that would be breach of contract. Nothing wrong we being expensive, thats how you make profit in the building industry. Maybe next time rio may not use forge, thats the only outcome i can think of


----------



## skc (16 August 2011)

McLovin said:


> And then they dismiss DCF as trying to forecast too far into the future.




But their ideal holding timeframe is *Forever*.


----------



## notting (16 August 2011)

adds4 said:


> Just wondering, with what building licence are rio going to use?, which trades, managers, what tools etc.



Yes, I found it rather odd sounding too. Hence the question.


----------



## adds4 (16 August 2011)

notting said:


> Yes, I found it rather odd sounding too. Hence the question.




If the contract had a dispute on it, forge would be required to disclose it to the asx. The full yr report will outline any problem contracts, if there are any. What you may find is rio, invited the partners to bid for more work, and found forge to be too high compared to competitors. But what you find in the mining services industry, some times price, is overlooked a bit, becuase project delivery times are muc much more important, because missing those targets can sometimes cost 10 to 100 of millions in lost production


----------



## kermit345 (17 August 2011)

So i've had a quick flick through the preliminary final report for Forge, and firstly just want to say that they do a good job of giving all the necessary details both in written and graphical format, ESPECIALLY compared to other companies.

I've only had a quick look so couldn't tell precisely if the result was good, bad or on par. But on the face of it seemed to be on the about par area, maybe leaning towards good slightly due to contracts looking likely to increase which hopefully means EPS etc will continue to increase. They are also starting to build a mountain of cash which means acquisition doors will continue to open up, just hope they do find something in the short to medium term which will increase returns as i wouldn't like to just be earning interest rates on those funds for too long.

The new EPS and DPS figures give me a preliminary valuation of around $8.20 but i'd need to look at it more closely once i'm not at work.

Interested in the views of others, but I think given FGE's current price it is undervalued, but i'm a little worried that contract expansion may slow down, so hopefully they can make a value accreditive acquisition.

Thoughts?


----------



## notting (17 August 2011)

kermit345 said:


> just hope they do find something in the short to medium term which will increase returns as i wouldn't like to just be earning interest rates



 Organic growth tends to be healthier in the longer term than swallowing steriods. 
A large project could require large funding, I'd prefer them to be showing patience and poise though there are plenty of bargains about at present!
Thanks for the update Kermi, it's helped me not forget about them.


----------



## Intrinsic Value (17 August 2011)

Just had a quick look at the headline figures.

It looks pretty promising.

Will take a detailed look tonight.


----------



## McCoy Pauley (17 August 2011)

The preliminary final report was coupled with an announcement of a $30 million contract win, which would (for obvious reasons) not figure in the report's figures.

Encouragingly, Forge managed to grow its order book by $50 million in the space of five months ($275 million at February 2011, compared to $325 million at July 2011).

I suppose one issue to be cautious about is the increasing cost of employing staff and contractors to fulfil Forge's orders.  The increasing scarcity of skilled workers in the resources sector is no secret.

I have a value of roughly $10-$11/share, based on the figures released in the preliminary final report, but I would look to discount those a little bit to take into account rising costs in FY12.  The report gives no guidance on Forge's expected performance in FY12.


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## adds4 (17 August 2011)

great result. In particular, the worse performing company in the group webb construction, is starting to get some traction, with a couple of contract awards, and being short listed for some iron ore work, gold and copper work as well. Webb is setting up an office in south africa, which should see the tenders increase

I dont want fge to buy another company just for the sake of buying one. Its better if the money is keep in the bank because fge will have to overpay for any aquisition. Leave the war cheast in place so when another down turn occurs, which it always does. Fge will have the cash ready to aquire a business on the cheap. At the same time the money can be used for organic growth anyway


----------



## robusta (17 August 2011)

Looks like same old, same old from FGE, I am very happy with this result and many of my questions are being answered.

1) What are they going to do with all the cash?
Nothing!! 
This is my favourite part, FGE is looking at acquisitions and have been for over a year now but refuse to overpay or buy something that is not a perfect fit, I wish corporate Australia would take note.
So it is more of the same for now - organic growth, with plenty of working capital in hand to fund major projects.

2) Is FGE going to ever win any larger contracts?
Maybe.
The Clough Forge entity being created seems to be a step in the right direction, and it if the first evidence on a positive from the CLO spp I have seen to date.

3) Is FGE growth slowing?
No
Plenty of work in hand, large order book and growth into Africa seems positive to me. The FGE hub concept seems to be working, FGE wins contracts through the entire cycle of a mines life and with customers like Lynas, BHP, Chevron, Woodside and Sandfire. FGE is definately getting a solid reputation in the industry.

Add to the above excellent; ROE, cash flow, solid growth and no net debt I am happy to hold FGE in both my SMSF and personal portfolio.


----------



## McLovin (17 August 2011)

Interesting the company made no reference to the 100% increase in employee expense (from 31% to 37% of revenue). Has this been flagged previously?


----------



## adds4 (18 August 2011)

McLovin said:


> Interesting the company made no reference to the 100% increase in employee expense (from 31% to 37% of revenue). Has this been flagged previously?




costs have been going up. Every other engineering company has had the same happen. Profit after tax is still 12% of revenue


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## McLovin (18 August 2011)

adds4 said:


> costs have been going up. Every other engineering company has had the same happen. Profit after tax is still 12% of revenue






38,832/424,673 <> 12%. Net profit margin has contracted from 12% to 9%. If labour costs are rising, then why hasn't the company made some reference to that and outlined ways it is mitigating that effect (like being able to pass the cost on), or at the very least acknowledged it is occurring. 

Is this expected to continue? I mean if you are sitting here this time next year and NPM has contracted a further 3 points, their going to need some serious headline growth to lift the bottom line.


----------



## Ozymandias (20 August 2011)

The net profit margin in FY2009 was 9.2%. FY2008, 6.1%. Obviously we don't want to go back there, but it wouldn't be the end of the world, or Forge.

I haven't done a detailed analysis, but it is interesting to note that over the past three years, as a % of revenue the raw materials and consumables expense has gone right down, and the employee expense right up.

Also, since 2009, construction work revenue (Webb, Cimeco) has gone up 2.3x. Engineering work (Abesque) has gone up 5.3x, more than double the growth rate.

A greater % of Forge's revenue is coming from on paper design and engineering work, and a lesser % from actual construction. Which explains the shift in raw materials vs. employee expenses.

Nothing to worry about there IMO - it's all part of Forge's 'whole of life' strategy.


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## McLovin (20 August 2011)

Ozymandias said:


> The net profit margin in FY2009 was 9.2%. FY2008, 6.1%. Obviously we don't want to go back there, but it wouldn't be the end of the world, or Forge.
> 
> I haven't done a detailed analysis, but it is interesting to note that over the past three years, as a % of revenue the raw materials and consumables expense has gone right down, and the employee expense right up.
> 
> ...




Thanks for the explanation. Would the decreasing raw materials cost be related to the growth in engineering and design or things like the strengthening AUD? 

I don't think a NPM back at 6% would be the death of FGE, but many/most people have built valuations on current margins. Considering that margins are probably the most mean reverting ratio, are the current margins historically high or about average?


----------



## Ozymandias (21 August 2011)

McLovin said:


> Thanks for the explanation. Would the decreasing raw materials cost be related to the growth in engineering and design or things like the strengthening AUD?




Both, but just off the top of my head without looking at any figures, I would expect the increase of the price of steel to offset any savings they would get from the high AUD.



McLovin said:


> I don't think a NPM back at 6% would be the death of FGE, but many/most people have built valuations on current margins. Considering that margins are probably the most mean reverting ratio, are the current margins historically high or about average?




2011: 9%
2010: 12% 
2009: 9.2%
2008: 6.1%

Average, but that's only four points to go on. For better detail, you'd need to split it down to HYs, see how much they fluctuate.


----------



## robusta (24 August 2011)

Nice to see the Clough Forge JV start to pay some dividends.

http://www.asx.com.au/asxpdf/20110824/pdf/420lch78czzk8y.pdf


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## VSntchr (30 August 2011)

Pretty big contract win (all but certain) for the Cimeco division. $200m...order book must be stacking up nicely now...


----------



## adds4 (30 August 2011)

wow. A 200m contract from fmg. Thats like 50% of last yrs revenue. This share is going to rocket. The growth in revenue and contract values over the last few yrs is staggering. How do managment do it. Hope fge can maintain the profit margins on these bigger jobs


----------



## Intrinsic Value (30 August 2011)

adds4 said:


> wow. A 200m contract from fmg. Thats like 50% of last yrs revenue. This share is going to rocket. The growth in revenue and contract values over the last few yrs is staggering. How do managment do it. Hope fge can maintain the profit margins on these bigger jobs




That is the big problem trying to maintain the profit margins especially on these big jobs.

I worked for UGL and am now working for another Perth based engineering company and I deal with the major projects on the SAP side helping the business with invoicing and month end processes and so many big projects turn to disaster for a variety of reasons.

The problem is that firstly management dont negotiate the terms of the contract very well with the customer. They promise and can't delivery and the customer has all sorts of KPIs built into the contract that make it difficult to manage the project.

Secondly it is hard to get the right people read expertise on the management side and on the admin side to manage these projects. 

Hopefully FGE wont fall into the same trap as many of the other companies that i have worked for and they can successfully manage these bigger type projects.


----------



## adds4 (30 August 2011)

i'm expecting margins to slip a bit on the larger contracts. What fge has advantage over other engineering companies is it owns all the equipment, so doesnt need to hire. It has low fixed costs, like admin, rents, corporate overheads etc. And a very capable workforce.

With the higher revenue, even with a slip in margins, fge will still increase profits significantly. And more importantly put more cashflow in the bank, so the war chest increases for an aquisition. I recon clough better watch out, because fge might swallow them. The profit margins at clough are only 5% compared to 10% for forge. Clough would have plenty of fat fge exec's could trim, and  a skilled workforce that fge could use. Clough doesnt have the marine division anymore, so fge and clough are a better fit.

Once fge's p/e is more than cloughs. The takeover will happen, because it will be earnings accretative, and the investment community will be happy with the deal


----------



## robusta (30 August 2011)

adds4 said:


> i'm expecting margins to slip a bit on the larger contracts. What fge has advantage over other engineering companies is it owns all the equipment, so doesnt need to hire. It has low fixed costs, like admin, rents, corporate overheads etc. And a very capable workforce.
> 
> With the higher revenue, even with a slip in margins, fge will still increase profits significantly. And more importantly put more cashflow in the bank, so the war chest increases for an aquisition. I recon clough better watch out, because fge might swallow them. The profit margins at clough are only 5% compared to 10% for forge. Clough would have plenty of fat fge exec's could trim, and  a skilled workforce that fge could use. Clough doesnt have the marine division anymore, so fge and clough are a better fit.
> 
> Once fge's p/e is more than cloughs. The takeover will happen, because it will be earnings accretative, and the investment community will be happy with the deal




I hope not I would not like to see FGE load up on debt or dilute the shareholders to swallow CLO.

On another subject I wonder where all that doom and gloom from earlier this month went.


----------



## adds4 (31 August 2011)

robusta said:


> I hope not I would not like to see FGE load up on debt or dilute the shareholders to swallow CLO.
> 
> On another subject I wonder where all that doom and gloom from earlier this month went.




Sorry but clough is lining up fge for a takeover. A reverse takeover would be better  for us because that means fge's board will control the merged company. 

You dont have to take over a company with debt or cash, you can use script, or a compination of script and cash


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## adds4 (19 September 2011)

Is fge undervalued? Fge has a price earnings of 10 PE. The market is 12 PE. Wouldnt you think fge would at least be the market PE. Considereing the market stocks are only expected to grow by 10 %. And forge has grown between 30 - 50 % the last few yrs. Usually companies with a growth rate of 30%+ have a price earning more closer to 20 than 10. Wierd


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## drlog (19 September 2011)

adds4 said:


> Is fge undervalued? Fge has a price earnings of 10 PE. The market is 12 PE. Wouldnt you think fge would at least be the market PE. Considereing the market stocks are only expected to grow by 10 %. And forge has grown between 30 - 50 % the last few yrs. Usually companies with a growth rate of 30%+ have a price earning more closer to 20 than 10. Wierd




Yes, you make an excellent point. I would say FGE is undervalued. It is as though the market is forecasting a flat profit this year. However, they have announced enough contract wins so I think the earnings will rise. Disclaimer: I have held for a while.


----------



## fanger (20 September 2011)

adds4 said:


> Is fge undervalued? Fge has a price earnings of 10 PE. The market is 12 PE. Wouldnt you think fge would at least be the market PE. Considereing the market stocks are only expected to grow by 10 %. And forge has grown between 30 - 50 % the last few yrs. Usually companies with a growth rate of 30%+ have a price earning more closer to 20 than 10. Wierd




The whole market is undervalued not just forge. Everything is trading on fear becuase of the eurotrash.


----------



## skc (20 September 2011)

fanger said:


> The whole market is undervalued not just forge. Everything is trading on fear becuase of the eurotrash.




Undervalue is a relative term isn't it...

With BHP trading at forward PE 9.5 it is hard to say what is undervalued. The like of Forge cannot really keep power ahead without commodity boom, and if the commodity boom will power ahead than you would probably say BHP is cheaper and safer.

FGE is certainly 'undervalued' on a longitudinal basis. i.e. compared to earning multiples achievable in boom times. But when will that be and what earnings will they have at that time?


----------



## McLovin (20 September 2011)

skc said:


> Undervalue is a relative term isn't it...
> 
> With BHP trading at forward PE 9.5 it is hard to say what is undervalued. The like of Forge cannot really keep power ahead without commodity boom, and if the commodity boom will power ahead than you would probably say BHP is cheaper and safer.
> 
> FGE is certainly 'undervalued' on a longitudinal basis. i.e. compared to earning multiples achievable in boom times. But when will that be and what earnings will they have at that time?




Indeed. 6 Months ago the market was willing to pay a much bigger premium in the mining services space, that has all changed now with the realisation that these are not, despite what some may think, sure things but lumpy contracting businesses.


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## zac (20 September 2011)

Theres a company ive shares in with a PE Ratio thats in the vicinity of 6 right at the moment.
I bought it at a few cents more than what its worth now as it was hugely under my estimated Intrinsic Value for it.
Over the last 11 years its had a steady increase in EPS and Dividend.

This is the part I dont get and I guess its market fear, but If you were to buy the share at todays price and regardless of any capital growth, the yearly dividend payout makes the return of 10%.
Pretty damn good considering;
a) Much higher return than the banks, &
b) Dividend is 100% Franked


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## adds4 (12 October 2011)

zac said:


> Theres a company ive shares in with a PE Ratio thats in the vicinity of 6 right at the moment.
> I bought it at a few cents more than what its worth now as it was hugely under my estimated Intrinsic Value for it.
> Over the last 11 years its had a steady increase in EPS and Dividend.
> 
> ...




whats the company called with a pe of 6?


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## adds4 (15 October 2011)

Earnings upgrade should be coming out the next month. Forge have a habit of upgrading profit and annoucing a couple of contract wins this time of yr. Oct/nov and mar/april every year the earnings upgrades come out. Usually get some great share price movement in those months


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## robusta (21 October 2011)

Well this is interesting

http://www.asx.com.au/asxpdf/20111021/pdf/421xk3s703k7yl.pdf

Page 25 of the presentation FGE may have finally found a business worth buying.


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## adds4 (21 October 2011)

robusta said:


> Well this is interesting
> 
> http://www.asx.com.au/asxpdf/20111021/pdf/421xk3s703k7yl.pdf
> 
> Page 25 of the presentation FGE may have finally found a business worth buying.




I hope its a company like calibre global, the cfo's old employer, calibre would be a perfect fit. Its owned by a hedge fund, who no doubt would want to unload their investment for a profit. That would be a company transforming transaction, the company would definitely become a teir 1 contactor over night, with access to calibre globals workforce and sales


----------



## adds4 (21 October 2011)

adds4 said:


> I hope its a company like calibre global, the cfo's old employer, calibre would be a perfect fit. Its owned by a hedge fund, who no doubt would want to unload their investment for a profit. That would be a company transforming transaction, the company would definitely become a teir 1 contactor over night, with access to calibre globals workforce and sales




The hedge fund is first reserve corporation


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## robusta (5 January 2012)

Now this is interesting

http://au.news.yahoo.com/thewest/bu...7/clough-sidesteps-inflated-forge-stake-deal/

Wonder how CLO's 33% stake in FGE will play out?


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## robusta (12 January 2012)

At last !!!

http://www.asx.com.au/asxpdf/20120112/pdf/423qmw7g26y4jj.pdf

They have found something to buy - hope it is good as FGE is still my largest holdong in SMSF.


----------



## The Trooper (12 January 2012)

robusta said:


> At last !!!
> 
> http://www.asx.com.au/asxpdf/20120112/pdf/423qmw7g26y4jj.pdf
> 
> They have found something to buy - hope it is good as FGE is still my largest holdong in SMSF.




Still in trading halt after the new CEO announcement. Either you are right or they haven't woken up in Perth yet!


----------



## timster (12 January 2012)

robusta said:


> At last !!!
> 
> http://www.asx.com.au/asxpdf/20120112/pdf/423qmw7g26y4jj.pdf
> 
> They have found something to buy - hope it is good as FGE is still my largest holdong in SMSF.




I too have FGE in my SMSF, one of 11 stocks i hold.  Hoping that can kick up towards $7-8.


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## adds4 (12 January 2012)

Looks like i was right. Forge will take over clough. Not clough taking over forge. The sale of the marine business makes clough more appealing to forge.

"Clough’s major shareholder, South African Murray & Roberts, which holds a 62 per cent stake, said it was looking to sell all or part of their share"

"Last week, Perth engineering firm Clough, which owns a 33.4 per cent stake and joint venture with Forge, was rumoured to be a takeover target."


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## robusta (13 January 2012)

adds4 said:


> Looks like i was right. Forge will take over clough. Not clough taking over forge. The sale of the marine business makes clough more appealing to forge.
> 
> "Clough’s major shareholder, South African Murray & Roberts, which holds a 62 per cent stake, said it was looking to sell all or part of their share"
> 
> "Last week, Perth engineering firm Clough, which owns a 33.4 per cent stake and joint venture with Forge, was rumoured to be a takeover target."




Dont you think CLO would be in a trading halt by now if that was the case?


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## skc (13 January 2012)

robusta said:


> Dont you think CLO would be in a trading halt by now if that was the case?




Exactly. If Murray & Roberts sell its CLO stake, corporate laws in Australia dictates (I think) that it must make a full takeover offer for the rest of CLO, and may trigger a downstream offer for FGE as well.


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## robusta (13 January 2012)

Well there it is FGE to buy CTEC

http://www.asx.com.au/asxpdf/20120113/pdf/423rbzpt9fqcvm.pdf

On first reading it seems like a good fit.


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## drworm (13 January 2012)

robusta said:


> Well there it is FGE to buy CTEC
> 
> http://www.asx.com.au/asxpdf/20120113/pdf/423rbzpt9fqcvm.pdf
> 
> On first reading it seems like a good fit.




Looks like daylight robbery. It's probably looking like a P/E of 4 with a $600m book order (larger than FGE's!) all for $40m.

Might have got away with it as CTEC needed cash backing for a few projects and FGE is holding a large chest.


----------



## fanger (18 January 2012)

I sold out of my fge today, looks like its running out off puff. Hopefully pick it back up around the $4.50 to $4.80 mark.


----------



## fanger (1 February 2012)

fanger said:


> I sold out of my fge today, looks like its running out off puff. Hopefully pick it back up around the $4.50 to $4.80 mark.




Oh boy I don't think I could have been more wrong, FGE has smashed threw resistance at $5.50 and is having a bumper day.


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## VSntchr (1 February 2012)

Results out soon and with MNDs announcement things are looking positive for FGE....


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## skc (1 February 2012)

VSntchr said:


> Results out soon and with MNDs announcement things are looking positive for FGE....




Yes I think most mining services firm should produce pretty good results. MND, NWH, ASL, BLY, IMD, MAH and even LEI all released good/better profit guidences. This list is just off the top of my head.

Having said that FGE should be releasing an update around now if the result was to deviate too much from earlier guidence.


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## VSntchr (16 February 2012)

Very busy day today  but in the quick glance i had of the report...I noticed FGE's order book is now $1.2 BILLION!!!


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## skc (16 February 2012)

VSntchr said:


> Very busy day today  but in the quick glance i had of the report...I noticed FGE's order book is now $1.2 BILLION!!!




Rising costs means that a 10% increase in revenue resulted in 0% increase in net profit.

Interesting to read that cash receipt this period is only 67% of revenue (as opposed to 113% pcp), yet cash payments is only 50% of revenue (as opposed to 97% pcp).

Neither of these numbers feel sustainable.


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## drlog (16 February 2012)

VSntchr said:


> Very busy day today  but in the quick glance i had of the report...I noticed FGE's order book is now $1.2 BILLION!!!




Yes, well the market doesn't like it very much...I guess it's the flat NPAT that is the issue? I agree with you though, I think the market is wrong in this case! An enormous order book.


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## tinhat (17 February 2012)

Dang - I almost took out my profits on Monday!


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## Intrinsic Value (17 February 2012)

tinhat said:


> Dang - I almost took out my profits on Monday!




Ditto I was going to sell when it hit 6.20 but decided to wait til the results came out.

Still tracking a profit but could have sold and bought back in at the lower price


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## fanger (17 February 2012)

Seeing I sold out to early this recent pullback will give me a chance to get back in.


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## Intrinsic Value (14 March 2012)

fanger said:


> Seeing I sold out to early this recent pullback will give me a chance to get back in.




Forge is forging ahead again. My favourite stock for a long time now. Looks like it is back in favour especially given its big order book.


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## tinhat (15 March 2012)

I've been dollar averaging down the past two weeks and I'm completely out of FGE now. I really like this company. Maybe on this current upswing it will get over $7. Let's hope so. I have to take some money off the table at the moment so am happy to step off and take my profits at this stage. I might jump back in again in the future when there is an opportunity to do so.


----------



## fanger (15 March 2012)

fanger said:


> Seeing I sold out to early this recent pullback will give me a chance to get back in.




Didn't end up getting back into FGE and the pullback, I bought KCN instead.


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## Intrinsic Value (28 March 2012)

Another contract win for FGE 128 m with FMG. Nice spike in share price today.


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## ENP (25 April 2012)

FGE and all other mining service type stocks are linked ultimately to the demand for mining products. Iron, copper, etc.

If economies overseas are going to buy less metals for construction, there will be less mining and therefore less work for the likes of FGE. 

Am I right? 

So then the only reason someone would buy FGE now would be that they think the mining industry and the demand for it's products will grow significantly in the future. 

However, with the Australian economy slowing, China slowing and other big purchases of Australias mining products slowing, would it be a wise move to stay out of mining in general and go to an industry that will always be in need, even if economies are at a stand still (food, toothpaste, etc)


----------



## StumpyPhantom (9 May 2012)

Does anyone have any view (fundamental or technical) on FGE's big slide since ENP's last post in late April?

The news announcements have only been good ones.  The other 2 theories are that it's having indigestion from its recent CTEC acquisition, or a million sellers viewed ENP's last post above


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## McLovin (9 May 2012)

Mining services is on the nose at the moment. They're all getting hammered.


----------



## kermit345 (9 May 2012)

I think its a combination of the whole market getting hammered today and monday along with people weighing up the balance of FGE being a great position now vs where will FGE be in 5-10 years time when mining investment is thought to slow considerably.

Theres been some interesting articles all over the place recently regarding mining services companies and they've all varied from bearish to bullish. I think a lot depends on your time-frame and the direction you think FGE will take in the next 5-10 years. This also includes where you think mining investment is heading.

My view is FGE is a great company poised to make lots of money in the next 2-5 years or more but its a timeframe longer than that which can become of concern. So on a fundamentals basis when it next bottoms and reverses could be a good entry point if you have a 2-5 year investment timeframe.


----------



## skc (9 May 2012)

kermit345 said:


> My view is FGE is a great company poised to make lots of money in the next 2-5 years or more but its a timeframe longer than that which can become of concern. So on a fundamentals basis when it next bottoms and reverses could be a good entry point if you have a 2-5 year investment timeframe.




Mining services are exemplary cyclical stocks but I think the cycles are much quicker these days. There'd probably be a low in the next 2-5 years imo.

When the mining investment tap is turned off all mining services will drop like stones - the same as in 2008. Those that run mines are probably less affected than those building new mines. There is a small natural hedge however in that input costs, particularly labour salary, will fall as well... but it won't be pretty.


----------



## Nutmeg (9 May 2012)

For anyone bearish on mining and by extension mining services, you might find sobering this presentation by BHP on its long term outlook to the extent that it applies to iron ore: http://www.bhpbilliton.com/home/investors/reports/Documents/2012/120320_AJMConference.pdf

One theme that emerges from the presentation is that, contrary to popular perception, China still lags the USA (as the model developed economy) on important development comparables.  For instance, China is still overwhelmingly a rural society with less than half its population living in urban areas.  That is predicted to rise to over 60% of the population living in urban areas by 2030.  Similarly, car penetration in China in 2010 per 1000 of the population was equivalent to that of the USA in 1916.  In short, China would appear to still have a long way to go before it looks like the US, Australia or Europe. 

BHP is optimistic about resource demand because it takes such a long term view.  The case that it makes for that demand's steady rise is nevertheless pretty compelling.


----------



## jank (15 May 2012)

Lots wipped off this lately. Thinking of selling to come out with a little bit of profit and maybe re-enter when it hits the bottom. Might be over sold though.


----------



## CanOz (15 May 2012)

Still above the 200 MA and the major trend line. I wouldn't have stuck around this long (total benefit of hindsight!), but a good bailout might be a close below the major TL.


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## jank (1 June 2012)

Dropped past 4.80 probably due to the slowdown in the Chinese PMI.
Might be a nice entry point, no?


----------



## oldblue (1 June 2012)

jank said:


> Dropped past 4.80 probably due to the slowdown in the Chinese PMI.
> Might be a nice entry point, no?




Or maybe, not.

Downtrend seems to be still in place; RSI is weak; Volumes not great.

I'd wait and watch for a bit.


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## Intrinsic Value (1 June 2012)

Fundamentals are still very impressive. It might well go lower but who can ever pick the exact bottom.

Medium term if you buy now I think you will do quite well.


----------



## skc (1 June 2012)

Intrinsic Value said:


> Fundamentals are still very impressive. It might well go lower but who can ever pick the exact bottom.
> 
> Medium term if you buy now I think you will do quite well.




BHP scaling back $80B worth of capex doesn't worry you?

Less work = more competition = less margin = lower profits... Difficult to forecast exact numbers but the macro headwind shouldn't be ignored.

Personally I'd sit back and wait for the carnage to unfold, and pick off the survivors 3/4 years from now. FGE is likely to be a survivor given its track record and balance sheet strength. But if the total mining capex has peaked, I think there'd be lower prices ahead. 

Alternately, you can buy FGE and short a weaker stock in the same sector in search of outperformance in a sector that's trending down overall.


----------



## Ves (1 June 2012)

skc said:


> Less work = more competition = less margin = lower profits... Difficult to forecast exact numbers but the macro headwind shouldn't be ignored.



 A few of us made this comment a few months ago too. Pretty sure it was in robusta's thread.


----------



## craft (2 June 2012)

craft said:


> ROE for the last *5* FY Results, 17.90, 18.58, 31.94, 33.28, *31.20
> *
> ROE for the last *5* HY Results             14.73, 13.62, 24.29, 19.02, *15.22*
> 
> ...




Just updating this post with latest numbers.

I held FGE and sold late march 2011 conserned that profitability looked like it was starting to come off and industry margins were cyclically high. Premature as usual and didn't see the resurgence in march/april this year on the horizon so my thoughts can be taken with a grain of salt - but I still hold concerns that these mining service companies are overvalued on a full cycle profitability basis.


MND has a longer record (1990-2011) to get a feeling for  how good the last half dozen years or so have been for the industry.  10.31%  11.65%  19.89%  18.58%  21.60%  20.19%  23.00%  25.14%  26.02%  26.44%  27.84%  13.25%  17.17%  20.73%  21.72%  36.14%  47.31%  66.77%  64.97%  60.57%  57.68%  49.20%


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## So_Cynical (2 June 2012)

Its a service stock and goes up and down on contract wins and general mining sentiment.

BRIC and world growth positive = Yes 

BRIC & World growth Negative = No

FGE is not an exact proxy, but nothing is...its always just a punt on where the SP is at any particular time.


----------



## Intrinsic Value (2 June 2012)

skc said:


> BHP scaling back $80B worth of capex doesn't worry you?
> 
> Less work = more competition = less margin = lower profits... Difficult to forecast exact numbers but the macro headwind shouldn't be ignored.
> 
> ...




True about BHP I am working as an independent contractor for them at the moment in Singapore and they just slashed half our project team and delayed the next rollout citing falling commodity prices and euro concerns. Many people not happy with them as they got a lot of people over here and they spent substantial amounts of their own funds to relocate and then were told after only a few weeks of a one year contract that they were no longer needed.

So you could just take the view not to buy anything and wait. Regardless of what you do i would be keeping most of my money in cash because there could be some very good opportunities in the next 12 months.


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## skc (2 June 2012)

Intrinsic Value said:


> True about BHP I am working as an independent contractor for them at the moment in Singapore and they just slashed half our project team and delayed the next rollout citing falling commodity prices and euro concerns. Many people not happy with them as they got a lot of people over here and they spent substantial amounts of their own funds to relocate and then were told after only a few weeks of a one year contract that they were no longer needed.
> 
> So you could just take the view not to buy anything and wait. Regardless of what you do i would be keeping most of my money in cash because there could be some very good opportunities in the next 12 months.




Really they can do that? Isn't a contract a CONTRACT? And I can't believe they don't pay for relocation...


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## Huskar (2 June 2012)

skc said:


> Really they can do that? Isn't a contract a CONTRACT? And I can't believe they don't pay for relocation...




The contract of employment is actually a unique type of contract so you might say a contract is not always a contract...

The important distinction is between a contract of service and a contract for services. The former (of service) gives rise to an employer/employee relationship; the latter (for services) gives rise to a principal/independent contractor relationship. 

Employment law is almost entirely concerned with the employer/employee relationship on the basis that an independent contractor is "self-employed" and can look after themselves.

There are significant benefits and rights for an employee. An independent contractor on the other hand has very few rights, for example they have no right to various forms of leave and have minimal protection from dismissal.

Employers will try to structure their workforce so that they are contractors but even if both parties agree that the contract is for services the court might still say that the relationship is one of employer/employee (for example, if you work wholly or mostly for the same employer for a certain period of time).

BHP has hired these workers as short-term contractors and so can terminate freely.

Whether or not it is legally okay still not a good look for this multinational brand.

My


----------



## Intrinsic Value (2 June 2012)

Huskar said:


> The contract of employment is actually a unique type of contract so you might say a contract is not always a contract...
> 
> The important distinction is between a contract of service and a contract for services. The former (of service) gives rise to an employer/employee relationship; the latter (for services) gives rise to a principal/independent contractor relationship.
> 
> ...




What you say is basically right. I have a one month notice period on my contract which is more than some who only have two weeks.

I would have been really dirty if i was one of the people who were cut. Housing here costs a fortune so even thou we are very well paid if you get cut with only a months notice you are going to be losing a lot because air fares , leases, kids school fees etc are all paid by the contractor. On top of that it takes ages to get paid. I am owed three months at the moment as BHPs AP are very slow. Additionally i spent 40k before i even got paid.


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## Intrinsic Value (2 June 2012)

Huskar said:


> The contract of employment is actually a unique type of contract so you might say a contract is not always a contract...
> 
> The important distinction is between a contract of service and a contract for services. The former (of service) gives rise to an employer/employee relationship; the latter (for services) gives rise to a principal/independent contractor relationship.
> 
> ...




Correct. Notice period is typically two weeks or a month and all upfront costs are borne by the contractor. Additionally you are likely to have to wait at least three months before your first pay. I spend 40k before i got any money back.

Taking BHP would be a waste of time and even worse would kill your chances of more contracts down the road.


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## So_Cynical (21 July 2012)

skc said:


> BHP scaling back $80B worth of capex doesn't worry you?
> 
> Less work = more competition = less margin = lower profits... Difficult to forecast exact numbers but the macro headwind shouldn't be ignored.
> 
> Personally I'd sit back and *wait for the carnage to unfold*, and pick off the survivors 3/4 years from now.




That's a fairly damming assessment "carnage to unfold" i don't believe that there will be "carnage" otherwise i wouldn't be Low cost averaging into a long term stock portfolio...so assuming the world doesn't end or even come close to it...is the current SP of Forge an opportunity?

I was trawling thru the ASX300 tonight making a short list of stocks and FGE came up as a candidate (falling/substantially lower SP) the miners and the services stocks look to be getting over sold, If China and the other BRIC country's can bounce back even a little then this period of time could very well just look like a period of irrational pessimism.
~


----------



## Ves (21 July 2012)

So_Cynical said:


> That's a fairly damming assessment "carnage to unfold" i don't believe that there will be "carnage" otherwise i wouldn't be Low cost averaging into a long term stock portfolio...so assuming the world doesn't end or even come close to it...is the current SP of Forge an opportunity?
> 
> I was trawling thru the ASX300 tonight making a short list of stocks and FGE came up as a candidate (falling/substantially lower SP) the miners and the services stocks look to be getting over sold, If China and the other BRIC country's can bounce back even a little then this period of time could very well just look like a period of irrational pessimism.
> ~



The current share price of FGE does not represent belief that "the world will come to end" (P/E is still 9.5 on trailing earnings) but the fact that the market thinks earnings growth has come to a cyclical peak. The sector has headwinds, massive competition and cost blow outs.


----------



## Intrinsic Value (3 August 2012)

I notice today FGE has announced an increase in forecast net profit of some 24 odd percent to 70m on revenue of 770m.

Slight rise in share price of the back of this announcement.


----------



## Intrinsic Value (3 August 2012)

Ves said:


> The current share price of FGE does not represent belief that "the world will come to end" (P/E is still 9.5 on trailing earnings) but the fact that the market thinks earnings growth has come to a cyclical peak. The sector has headwinds, massive competition and cost blow outs.




I think that is a fair comment about the state of mining services companies but not all mining services companies are the same and that is why I still think FGE represents good value in the medium to long term despite macro economic concerns.


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## Intrinsic Value (16 August 2012)

Intrinsic Value said:


> I think that is a fair comment about the state of mining services companies but not all mining services companies are the same and that is why I still think FGE represents good value in the medium to long term despite macro economic concerns.




It seems that FGE is well out of favour at the moment. Results look good and I think the share price still has plenty of upside. 

Nice increase in net profit. Plenty of cash. Healthy order book. 

A bit of a spike is share price today.

Hopefully it signifies a run.

Still holding should have probably sold out at high 6s and got back in again!


----------



## skc (16 August 2012)

Intrinsic Value said:


> It seems that FGE is well out of favour at the moment. Results look good and I think the share price still has plenty of upside.
> 
> Nice increase in net profit. Plenty of cash. Healthy order book.
> 
> ...




The sector has gone from "Totally unloved" to "Somewhat unsure but the numbers aren't so bad". Good FY12 results appear pretty well supported thus far with the stocks delivering on expectation being rewarded quite handsomely... BKN, DOW, FGE, BOL and MIN.

The two negatives have been UGL and SAI. UGL didn't fall nearly as much as its peers in the last few months, so there were plenty of baked in expectations coming out. SAI was also trading at a pretty high multiple so it was setting up for a fall.

Still quite a few results to come yet so the question is whether to get a position now to pre-empt a result, or buy on confirmation.


----------



## notting (16 August 2012)

It was an interesting whatching many analysts flip from talking up the merits of owning the contracted diggers rather than the mine owners because the work would, I donno, go on regardless of gyrations in resource prices.  Seem to be singing a different tune now as all these little hard working things have been spanked as much lately.
China's still looking pretty scary if you ask me.
I reckon they are still very nervous about inflation and the Arab springs. Hence no broad brush stimulus.
May they live in interesting times!


----------



## tinhat (17 August 2012)

I got out of FGE at a good time - a rare good timing for me. I haven't looked over FGE numbers recently, I haven't looked over any annual reports recently - too busy trying to make money by conventional means. Yet, DCG and BOL - I made some comments recently about those companies in their respective threads. I find it strange that anyone looking at FGE is not also looking at DCG and BOL which both have merits.


----------



## yoelowen (19 August 2012)

I admit to being only a beginner investor but there was a few red flags that the report brought up for me:

The extra cash appears to just be them not having paid there payables.......if compared to last year

The acquisition seems to be a great one (diversification etc), but I cant figure out whether they have paid that 16-18m already they owe on the acquisition (this year and next) or not and if not how it will show up on the HY12 statement. It appears if you take out CTEC then growth is quite modest, and there is also a -10mil loss under the name of forge group holdings...that could of been used to hide operating costs of the other divisions?

Capex in the cashflow statement was also unusably high? (cant seem to figure out why)

overall it appears to be a solid company but I start to question the future when the books look like they have been cooked a little. That and the fact that China seems like its slowing down is enough for me to stay out at the moment. I would love to get other opinions. 

I got out of FGE at $4.50 but i rode it allthe way up (and down) from $3.90 or thereabouts. Cant seem to get my timing right at all.


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## tinhat (3 September 2012)

I'm not much of a reader of financial reports. While the CTEC acquisition has diluted return on assets substantially, return on equity is holding up nicely.  I bough back in today at 4.18 based on the announcement of the latest RIO contract for a power station at Cape Lambert. The CTEC acquisition has turned out to be the great deal it looked like it had the potential to be at the time and should provide good synergies (flow on business) for the rest of the group.

Anyway, back in with a much smaller holding this time but strapped in for $7 target price.


----------



## notting (3 September 2012)

tinhat said:


> I bough back in today at 4.18 based on the announcement of the latest RIO contract for a power station at Cape Lambert.
> Anyway, back in with a much smaller holding this time but strapped in for $7 target price.




You baught in on an announcement.  Bit dangerous.  I'd have a stop just below 4 and be looking to take some off at 5.


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## Intrinsic Value (3 September 2012)

tinhat said:


> I'm not much of a reader of financial reports. While the CTEC acquisition has diluted return on assets substantially, return on equity is holding up nicely.  I bough back in today at 4.18 based on the announcement of the latest RIO contract for a power station at Cape Lambert. The CTEC acquisition has turned out to be the great deal it looked like it had the potential to be at the time and should provide good synergies (flow on business) for the rest of the group.
> 
> Anyway, back in with a much smaller holding this time but strapped in for $7 target price.




I bought some more on Friday before I heard the announcement today.

Still well undervalued IMHO. 

The fundamentals of this company are not currently being reflected in the share price.

But things will turn around I am sure.

I am holding medium term so not worried about short term flucuations as long as they are continue to deliver strong results.


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## So_Cynical (3 September 2012)

IMD - IMDEX
NFK - NORFOLK 
SDM - SEDGMAN
EHL - EMECO
AJL - AJ LUCAS

All closed at a new 52 week low today...The sector has the serious wobbles, one thing i do like about Value investors is their willingness to back their judgement.  i must admit to being a little afraid myself.


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## So_Cynical (5 September 2012)

Forge got to $3.75 today  somehow impressive, well the recovery back to the 3.95 close was.

Any of the value brigade jumping in???


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## Ves (6 September 2012)

So_Cynical said:


> Any of the value brigade jumping in???



I had a think about this.

Here's an exercise:  pick some of the popular mining services companies.  Make a list of their EBIT / EBITDA    and EBIT  / EBITDA margins in about 2005-2007 period.

Now have a look at them in the current set of figures. Most of them, if not all of them, even the serially poor performing companies before this period, are much higher in the last financial reports for 2012.

Most of them are substantially higher.  Some of these companies have grown EBITDA by as much as 5-8 times in only 5 or 6 years.   Then you realise that very few of these businesses are truly scalable.   To get this far they relied on massive amounts of capex, or large acquisition binges  (or worse mountains of debt) to grow.  Expanding margins in the super-cycle helped this.

The scary thing is this, 2012 could be the peak of this part of the cycle, or in fact the whole super cycle, yet analysts predictions for most mining services companies show further margin expansion for 2013.  For those that have changed, the margins are only slightly less than 2012.  Compare these to the bottom of the cycle.  The gap is astonishing. 

Most of these companies, except those with scalable business models that can still produce hearty cash flow under the stresses of the cycle and maintain fairly good margins are going to get hit with the ugly stick many times yet.   For instance, Forge's equity has gone up almost 11 times from the 2007 base, and revenues have increased about 10.  It doesn't look scalable to me! What I really mean by this is that there is very little variable costs in these types of businesses... they're smoke if things slow down.

Forge's EBITDA margin was 6.4% in 2007. 

It peaked at about 18% in 2010.   It was about 11% in 2012.  I don't think there is any competitive advantage in its business model, and I don't think the current margins are sustainable.  I would expect a lot of mean reversion if the cycle continues to cool.

P/E ratio is useless for cyclical companies, because there is always a large question over the robustness of the 'E.'

Value investing isn't about buying companies just because they have fallen 50%.


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## So_Cynical (6 September 2012)

Ves said:


> P/E ratio is useless for cyclical companies, because there is always a large question over the robustness of the 'E.'
> 
> Value investing isn't about buying companies just because they have fallen 50%.




Good post, well summed up...yes i know value investing isn't about buying companies just because they have fallen x% however i do know that FGE is a darling of the value brigade as was MCE before the robustness of there 'E.' was proven to be dodgy.

Its just that i can see that there will be good money to be made in this sector if investors can get the timing right, but i have to admit that im very uneasy with how one goes about choosing that time etc.


----------



## craft (6 September 2012)

So_Cynical said:


> however i do know that FGE is a darling of the value brigade as was MCE before the robustness of there 'E.' was proven to be dodgy.




Not all value investors - just one particular strand that are armed with a secret formula for valuation and a fondness for extrapolating recent results. (and just quietly – that’s not really value investing)


It’s an interesting read to go back through these threads.


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## McLovin (6 September 2012)

Ves said:


> I had a think about this.




Nice post V.


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## craft (6 September 2012)

McLovin said:


> Nice post V.




Yes

Almost reads like it should be be signed off with 

Prudent Investing.


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## Intrinsic Value (7 September 2012)

craft said:


> Not all value investors - just one particular strand that are armed with a secret formula for valuation and a fondness for extrapolating recent results. (and just quietly – that’s not really value investing)
> 
> 
> It’s an interesting read to go back through these threads.




You cant compare FGE to MCE.

FGE has far superior management and balance sheet to MCE. FGE also has a nice cash reserve and no debt.

There is huge paranoia going around at the moment about the mining boom being over and the sky falling in.

For quality mining service companies this could be a bonus as some others go by the wayside.

The iron ore price is down at the moment but I dont see it being a long term thing.

China stockpiles are dwindling and sooner or later they will get active again.

Of course mining services companies are more risky than many other sectors because of the nature of the business itself. But the rewards are also greater.

I bought into FGE when it was just over 2 dollars a few years back and then sold half then bought more then sold more and just recently bought more. And if it goes a bit lower i might buy more again.


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## Ves (7 September 2012)

McLovin said:


> Nice post V.



I think between craft, yourself and a few others, and even a post I made late last year in one of these threads, the talk has always been about margin reversion. Well spotted perhaps craft, Cam at HC is a good guy.


----------



## Ves (7 September 2012)

craft said:


> Not all value investors - just one particular strand that are armed with a secret formula for valuation and a fondness for extrapolating recent results. (and just quietly – that’s not really value investing)



I actually have a "nostalgia" for this company because I did use one of those secret formulas to value it when I first started. I am fairly certain it was the first one I ever did!  I think I posted about it amongst my first posts, the result was something like $8.50 a share.

I never made a purchase because it didn't seem logical...

The problem is, as you discussed in the TGA thread, and we discussed also about PMV, is that past ROE and current ROE do not always belie what the future will be!  

In a boom the returns in a competitive industry (and I believe this one mostly is) can be magnified by many degrees. My opinion, and I am sure many others share it is that once the super-cycle recedes and margins / profitability starts to regress back to the mean  (there's a few mining services stock that have been listed for a long time to compare) most of these companies will have ROE much, much closer to the weighted average cost of capital of the market.

Therefore, my assumption would be you cannot and should not put their ROE in a secret formula that includes a "perpetuity" calculation. You shouldn't assume infinite life of a company, especially in a competitive industry!   Refer to the TGA thread of how to value a company with cost of capital that signifies a competitive industry..

I think this will occur in a combination of two ways with companies like FGE:

a)  they will continue to expand (because no one likes stagnant revenues / profits) and they will either make dilutive acquisitions or receive diminishing returns on their capex / retained earnings / and possibly capital raisings to fund these.  If revenues are growing at the same pace as equity in a boom, then surely it would be far less in the future...

b)  Margins and profitability indicators will regress back to historical mean levels

IV  -  I am not sure where you are reading that China's iron ore stock piles are dwindling...  I am reading the opposite.  I don't trust much of what I read about China... especially from their government sources.


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## Ves (7 September 2012)

I will also say that high margins in any industry invite more competition...  so, in essence it could be a double whammy.  These things can take a while to be felt, of course, so be careful when making assumptions in any valuation!


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## tinhat (7 September 2012)

Well I've not let the trend be my friend in buying back into this one at this time and I've marked notting's words about buying on an announcement. I don't have a stop loss in place at the moment. I've missed the bottom on this stock by a few days.

I think revenue and profit forecasts are looking pretty good for FY13 and FY14.

I don't know how long I will hold FGE for, I might consider selling if it gets to $5 in the short term. I also think that MIO, MND and DCG might be better long term buys in the mining services sector. I hold DCG and if I take profit on my BOL shares (got within a wisker of my ask price earlier this week) I will buy some MND if the price stays around or below $20.


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## skc (7 September 2012)

tinhat said:


> I think revenue and profit forecasts are looking pretty good for FY13 and FY14.




Every analyst report I've read seem to suggest the same thing for most mining service stocks. But it didn't stop the share price plunging...

Anyway, say FGE in FY15 half its earning (it can happen easily if revenue falls 25% and margin also falls by 25% - which are still no where near cycle lows) to 30cps. Apply a PE of say 10 and discount it back to today using 10% the share price would be $2.50.

This is not my estimate of what happens in FY15, it is just how I'd frame my thinking. i.e. If I buy them below $2.50 I am reasonably well placed even if the revenue and margin are each down 25%. You can then tune your buy price to align with your own expectation of the future...


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## McLovin (7 September 2012)

Intrinsic Value said:


> The iron ore price is down at the moment but I dont see it being a long term thing.
> 
> China stockpiles are dwindling and sooner or later they will get active again.




I read about Chinese demand all the time. For some reason I never read about supply. It's almost as though iron ore markets exist with static supply but continously expanding demand. What happens when those new iron ores mines in Africa and Mongolia come online? You can buy a lot of miners at "less than $2 per day".


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## McCoy Pauley (7 September 2012)

Ves said:


> I will also say that high margins in any industry invite more competition...  so, in essence it could be a double whammy.  These things can take a while to be felt, of course, so be careful when making assumptions in any valuation!




Very true, and this is where an assessment of barriers to entry into the market needs to be made.  If there is open slather on competition, then high margins will be compressed violently and quickly as competitors move in to make their own buck out of the market.

But if the barriers to entry are high, then capacity for new competitors to come into the market and steal away customers from the incumbents will be low, which should mean margins stay higher for longer.  I'm not sufficiently familier with Forge's operating patterns to even guess about the barriers to entry.  However, given that Forge and its currently listed competitors (like Monadelphous, Worley-Parsons, Leighton Holdings, Cardno, MACA, etc, etc) all survive on their capacity to win tenders for contracts and then to deliver on those contracts (to establish a track record), on the face of it, it can be difficult for new entrants to win work away from established players, but the number of established players in the market means that in the long run, as management changes over time, a company with high margins now in the engineering space may not have those margins in the long term.


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## Ves (7 September 2012)

McCoy Pauley said:


> Very true, and this is where an assessment of barriers to entry into the market needs to be made.  If there is open slather on competition, then high margins will be compressed violently and quickly as competitors move in to make their own buck out of the market.
> 
> But if the barriers to entry are high, then capacity for new competitors to come into the market and steal away customers from the incumbents will be low, which should mean margins stay higher for longer.  I'm not sufficiently familier with Forge's operating patterns to even guess about the barriers to entry.  However, given that Forge and its currently listed competitors (like Monadelphous, Worley-Parsons, Leighton Holdings, Cardno, MACA, etc, etc) all survive on their capacity to win tenders for contracts and then to deliver on those contracts (to establish a track record), on the face of it, it can be difficult for new entrants to win work away from established players, but the number of established players in the market means that in the long run, as management changes over time, a company with high margins now in the engineering space may not have those margins in the long term.



+1

But not only that employees and those they provide services too do everything they can to force prices / wages to move in their favour.  They're already doing so.  If miners cannot afford projects because of exhorbitant costs or cash flow issues, they just cancel them.


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## tinhat (7 September 2012)

McLovin said:


> I read about Chinese demand all the time. For some reason I never read about supply. It's almost as though iron ore markets exist with static supply but continously expanding demand. What happens when those new iron ores mines in Africa and Mongolia come online? You can buy a lot of miners at "less than $2 per day".




Not to change this into an iron ore topic, but I think the thing you need to look at for a commodity is marginal cost of production - which FMG, AGO, MGX etc shareholders are finding out.


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## McLovin (7 September 2012)

tinhat said:


> Not to change this into an iron ore topic, but I think the thing you need to look at for a commodity is marginal cost of production - which FMG, AGO, MGX etc shareholders are finding out.




I've seen anything from $20 to $60 quoted as being cash costs for ore in Africa. I admit, I don't spend much time on mining generally but we do seem to take an overly domestic view of iron ore, as though we are the supplier and China is the customer. Aren't BHP and RIO are operating down around the $40-$50/tonne mark, if I'm not mistaken?


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## tinhat (7 September 2012)

McLovin said:


> I've seen anything from $20 to $60 quoted as being cash costs for ore in Africa. I admit, I don't spend much time on mining generally but we do seem to take an overly domestic view of iron ore, as though we are the supplier and China is the customer. Aren't BHP and RIO are operating down around the $40-$50/tonne mark, if I'm not mistaken?




That's what I've heard. BHP about $40 and RIO a bit lower than that whereas the second tier producers are up around $80.

You've got to wonder at what stage the RBA becomes worried that the AUD is not adjusting to the terms of trade. The RBA could fix the problem any time it wanted to by cutting rates and stemming the carry trade. If it is worried about fuelling a property bubble then there is a solution for that too. We could go back to housing credit rationing like we use to have a long time ago to regulate the supply of credit to housing.


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## McLovin (7 September 2012)

African ore...



> Most disclosed estimates of operating costs for west and central African iron ore
> projects tend to be relatively low due to low labour costs and the high grade ore,
> which requires little processing. African Free On Board7 (FOB) cost estimates range
> from as low as US$20/t for the planned DSO material from Sundance’s Mbalam
> ...




http://www.eaber.org/sites/default/files/documents/HURST_AfricaFeO_EABER_FINAL_0.pdf


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## Intrinsic Value (7 September 2012)

McLovin said:


> I've seen anything from $20 to $60 quoted as being cash costs for ore in Africa. I admit, I don't spend much time on mining generally but we do seem to take an overly domestic view of iron ore, as though we are the supplier and China is the customer. Aren't BHP and RIO are operating down around the $40-$50/tonne mark, if I'm not mistaken?




I am in Paris at the moment and I am staying with the Project Manager for Rio Tintos iron ore project in Guinea.

I will ask him tonight what their estimated production costs are.

I asked him last night about iron ore prices and he said they were expecting prices to be over 100  dollars a tonne in the next six months or so. 

Anyway do your own research. 

There is still plenty of CAPEX out there despite some cutbacks. Wage costs are getting out of control in Australia anyway for a lot of these projects so a bit of a pullback may reduce some of the wage costs which are severely impacting projects bottom lines.


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## Intrinsic Value (8 September 2012)

Intrinsic Value said:


> I am in Paris at the moment and I am staying with the Project Manager for Rio Tintos iron ore project in Guinea.
> 
> I will ask him tonight what their estimated production costs are.
> 
> ...




Okay so RT's cost per tonne in the Pilbara is roughly 18 dollars but for the African  joint venture with the Chinese it is approx 45 dollars a tonne. He reckons BHPs Pilbara cost per tonne is around 30 dollars. FMG around 80.

So why are they doing the African joint venture? Because it is the second biggest iron ore deposit in the world and they want to be part of it.


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## Ves (8 September 2012)

Intrinsic Value said:


> Okay so RT's cost per tonne in the Pilbara is roughly 18 dollars but for the African  joint venture with the Chinese it is approx 45 dollars a tonne. He reckons BHPs Pilbara cost per tonne is around 30 dollars. FMG around 80.
> 
> So why are they doing the African joint venture? Because it is the second biggest iron ore deposit in the world and they want to be part of it.




Thanks mate - that is actually quite scary.  Because historically iron ore prices have sat just above the cost of production (obviously with a small profit margin for the producers).

If there is a heap of supply coming online in Africa from 2014 onwards - it is possible that some (or a lot) of mean reversion still could happen.  I think it would be interesting to see what happened when the Japanese stopped having a huge hunger for our iron ore when they went through their growth spurt in the 20th century.  Was there a severe correction in prices after a bubble of sorts?


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## McLovin (8 September 2012)

Intrinsic Value said:


> Okay so RT's cost per tonne in the Pilbara is roughly 18 dollars but for the African  joint venture with the Chinese it is approx 45 dollars a tonne. He reckons BHPs Pilbara cost per tonne is around 30 dollars. FMG around 80.
> 
> So why are they doing the African joint venture? Because it is the second biggest iron ore deposit in the world and they want to be part of it.




Thanks mate. Those numbers certainly highlight my point. It's hard to see how the current prices are sustainable and the price driver will be on the supply side, IMO. 



			
				Ves said:
			
		

> Thanks mate - that is actually quite scary. Because historically iron ore prices have sat just above the cost of production (obviously with a small profit margin for the producers).




And that's where it will head back to long term. The Chinese demand story is a short term thing.

I think we should start an FMG deathwatch thread.


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## Trembling Hand (8 September 2012)

McLovin said:


> And that's where it will head back to long term. The Chinese demand story is a short term thing.
> 
> I think we should start an FMG deathwatch thread.




Shame iron ore is not an open market like other commodities. Then all the evil hedgefunds and speculators could poor some of that cheap funny money into it from the Fed, ECB and BOJ. Save some companies and Oz in the process.

But its a closed shop. The irony.......


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## Intrinsic Value (8 September 2012)

Another thing to consider is the current strength of the AUD.

If the AUD falls then all the iron ore contracts are in USD so there is some potential upside there as well.


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## tinhat (12 September 2012)

I'm not able to log into my trading platform at the moment to look at the market depth, but FGE share price spiked yesterday arvo and again this morning. Looks like there may have been a couple of at market buy orders without much supply.


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## jank (21 November 2012)

This stock is being totally driven by market sentiment to mining services.
The market cap is $340 million, they have $140 million in cash as part of $480 million worth of assets.
They have 900 million worth of orders.
Yet the stock is now trading at below $4 a share.....

Anyone want to hazard a guess to when market sentiment will change? Will a new year will bring a new attitude.


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## skc (21 November 2012)

jank said:


> This stock is being totally driven by market sentiment to mining services.
> The market cap is $340 million, they have $140 million in cash as part of $480 million worth of assets.
> They have 900 million worth of orders.
> Yet the stock is now trading at below $4 a share.....
> ...




Several events I'd watch for.

1. China announces stimulus.
2. Iron ore goes back up above $150.
3. BHP announces that cap ex spending is back on.

And it's not just sentiment. There has been downgrade after downgrade in the sector. BLY, WOR, MAH, NWH, EHL and LYL (today), just to name a few. When the market shrinks, competition increases and margins decline. FGE will not be immune to it. 

The chart is looking terrible and really threatening to break on the downside.


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## jank (21 November 2012)

Thanks, might stay clear of it so. I was just thinking at these prices shares in FGE would have a lot of upside to them. 3.83 is the 52 week low, can you see it go lower. It is already trading at a P/E of 6.9


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## VSntchr (21 November 2012)

jank said:


> Thanks, might stay clear of it so. I was just thinking at these prices shares in FGE would have a lot of upside to them. 3.83 is the 52 week low, can you see it go lower. It is already trading at a P/E of 6.9




P/E may be slightly irrelevant once the E component of that equation is squeezed a bit by a possible coming of margin compression and contract loss


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## skc (21 November 2012)

jank said:


> Thanks, might stay clear of it so. I was just thinking at these prices shares in FGE would have a lot of upside to them. 3.83 is the 52 week low, can you see it go lower. It is already trading at a P/E of 6.9




I am a perpetual risk-adverse bear so take what I say with a ton of salt...

BLY is trading at ~4.5x while WOR at ~17x. So FGE would probably trade somewhere in between...


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## Intrinsic Value (23 November 2012)

jank said:


> This stock is being totally driven by market sentiment to mining services.
> The market cap is $340 million, they have $140 million in cash as part of $480 million worth of assets.
> They have 900 million worth of orders.
> Yet the stock is now trading at below $4 a share.....
> ...




You know what I am going to say by my previous posts but FGE is a great stock but you might have to wait a while before it comes back  into favour.

When it comes in favour again expect it to rocket up as it is very much undervalued.

Further there is still a huge amount of Capex in Australia and a lot of the Capex that was deferred or cancelled was marginal at best a. Further a little blip now is good for wages costs as well because wages have been getting way out of control on lots of Australian projects.  

And the US is intent on continous stimulus until their economy gets boosted. This is good news for Australian miners because that probably means a rise in commodity prices in general.


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## skc (23 November 2012)

skc said:


> And it's not just sentiment. There has been downgrade after downgrade in the sector. BLY, WOR, MAH, NWH, EHL and LYL (today), just to name a few. When the market shrinks, competition increases and margins decline. FGE will not be immune to it.
> 
> The chart is looking terrible and really threatening to break on the downside.




Just adding to the list... FWD, ALQ, ASL, NFK...


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## tinhat (28 November 2012)

Sold out of FGE and DCG today. I've done well out of both but buying back into FGE at 4.18 in September was ill disciplined. (Same deal with DCG). Hopefully, this will be the last time I try and catch a falling knife!


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## jank (4 December 2012)

Still dropping like a stone. To my un trained eye either something is up or its way over sold. I wonder what the bottom will be?


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## Ves (4 December 2012)

jank said:


> Still dropping like a stone. To my un trained eye either something is up or its way over sold. I wonder what the bottom will be?



I haven't bothered looking at any of these mining services stocks lately, but my guess is that analysts are finally starting to smell the roses and are currently revising some of the ridiculous earnings estimates that they had for 2013 and 2014 for stocks in this sector.

Someone may like to check.


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## skc (4 December 2012)

jank said:


> Still dropping like a stone. To my un trained eye either something is up or its way over sold. I wonder what the bottom will be?




Wait for ASX speeding ticket. On cofirmation of no real issues there's probably a short term long trade to be had.

Buying now risks a profit downgrade like many others in the sector.


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## RottenValue (4 December 2012)

Continue to be a believer and have bitten away at the falling knife over the past six months - resulting in a rather large position that is starting to shake the belief .

A company with a solid track record  - 30% ROE, $110M in net cash, 4% dividend and steady EPS growth is being offered at a PE of 5. I am finding it hard to turn it down.

I guess I will be either a big winner or not but I continue to struggle to see how this can be valued anything south of $6.  Time will tell.


----------



## skc (4 December 2012)

RottenValue said:


> Continue to be a believer and have bitten away at the falling knife over the past six months - resulting in a rather large position that is starting to shake the belief .
> 
> A company with a solid track record  - 30% ROE, $110M in net cash, 4% dividend and steady EPS growth is being offered at a PE of 5. I am finding it hard to turn it down.
> 
> I guess I will be either a big winner or not but I continue to struggle to see how this can be valued anything south of $6.  Time will tell.




Avoid putting yourself in a situation where your position size affects your behaviour. It's easier to hold a position with conviction against the trend, when the size is manageable. Plus there's always the unforeseeable unknowns... 

The "solid track record" is a result of the external enviornment as much as their internal strengths so it may not be something that you can fall back on. 

Good luck.


----------



## RottenValue (4 December 2012)

Agree.  In reality, even now the large position is relative as it has only reached 5% of the portfolio so any damage will be limited.  My bigger problem is that I didn't really mean this to occur as I was happy with a 2% holding as I normally reserve the bigger positions 5-15% for far better quality businesses than this one.

A nibble here, a nibble there.  Need to stop watching it


----------



## McLovin (4 December 2012)

RottenValue said:


> A company with a solid track record  - 30% ROE, $110M in net cash, 4% dividend and steady EPS growth is being offered at a PE of 5. I am finding it hard to turn it down.




A solid track record that goes back to 2007? That doesn't really give you a good understanding of what happens to this business through the cycle. Check out some of the discussion in the FWD thread to see how well these mining services companies have done on an historical basis for the last few years.

Here's what I said last August when NPM fell from 12% to 9%



> 8,832/424,673 <> 12%. Net profit margin has contracted from 12% to 9%. If labour costs are rising, then why hasn't the company made some reference to that and outlined ways it is mitigating that effect (like being able to pass the cost on), or at the very least acknowledged it is occurring.
> 
> Is this expected to continue? I mean if you are sitting here this time next year and NPM has contracted a further 3 points, their going to need some serious headline growth to lift the bottom line.




That has now played out and margins are down at 6.4%. The same is happening across the industry, so I really don't see how FGE can go back to its boom time returns.

The stratospheric growth in revenue, while maintaining big margins was never going to be sustainable.


----------



## tinhat (5 December 2012)

Earnings guidance out today and the share price takes off.


> The Board of Forge Group Limited (ASX: FGE) (Company) wishes to advise  that the
> Company  anticipates  net profit before tax  (NPBT)  for the  financial  year ending 30th June
> 2013 to be in the range of $90M to $100M. This represents an improvement on the previous corresponding period (pcp $70M) of between 28% and 43%. Revenue is expected to be in the range of $950M to $1.0B for the financial year ending 30 th June 2013. This represents an increase on the previous corresponding period (pcp $781M) of between 22% and 28%. The Board anticipates the weighting of both NPBT and Revenue to be approximately evenly
> split between the first and second half of the 2013 financial year.


----------



## skc (5 December 2012)

skc said:


> Wait for ASX speeding ticket. On cofirmation of no real issues there's probably a short term long trade to be had.
> 
> Buying now risks a profit downgrade like many others in the sector.




That's a very solid update. share price +18%.

Chart is now right on resistance of $3.90. It might take a few cracks to leave it behind, then it'd probably meander around $4-$4.4.


----------



## RottenValue (5 December 2012)

A pleasing announcement - is it now that I say I never doubted management 

I guess no speeding ticket required now.


----------



## McLovin (5 December 2012)

Good update. Very surprising actually. They're still getting work albeit they are doing it on margins under 10% instead of the old 20%+.

I don wonder how sustainable this is. These guys aren't selling burgers. My doubts remain.


----------



## Intrinsic Value (5 December 2012)

McLovin said:


> Good update. Very surprising actually. They're still getting work albeit they are doing it on margins under 10% instead of the old 20%+.
> 
> I don wonder how sustainable this is. These guys aren't selling burgers. My doubts remain.





If you compare FGE to many of the other mining services companies they are in a very strong position. A downturn in the short term could be good for FGE as marginal players are forced out or become uncompetitive leaving more work for FGE.


----------



## Intrinsic Value (5 December 2012)

McLovin said:


> Good update. Very surprising actually. They're still getting work albeit they are doing it on margins under 10% instead of the old 20%+.
> 
> I don wonder how sustainable this is. These guys aren't selling burgers. My doubts remain.




I think these reduced margins were already factored into the share price in any case.


----------



## McLovin (5 December 2012)

Intrinsic Value said:


> If you compare FGE to many of the other mining services companies they are in a very strong position. A downturn in the short term could be good for FGE as marginal players are forced out or become uncompetitive leaving more work for FGE.




Hmm...I don't know if I'd call it a downturn, more like a return to normal.  I do agree, FGE does seem to be one of the better run companies in the sector.


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## RottenValue (6 December 2012)

On reflection, the market reacted to the FGE announcement in a very subdued way (or as subdued as a 17% daily spike can be).

Prior to the announcement, consensus EPS for 2013 was $0.65 which can now reasonably be increased to $0.77.

Prior to the announcement, SP was $3.29 and it ended the day at $3.85.

Basically the market seems to be only prepared to pay 5 times earnings at the moment for this company.  Will be interesting to see if it is re-rated over the next few months - an undemanding PE of 8 would raise it back to where I see it as being fairly priced.


----------



## skc (6 December 2012)

RottenValue said:


> On reflection, the market reacted to the FGE announcement in a very subdued way (or as subdued as a 17% daily spike can be).
> 
> Prior to the announcement, consensus EPS for 2013 was $0.65 which can now reasonably be increased to $0.77.
> 
> ...




PE 5x is the going rate for smaller contractors. BLY, ASL, NWH and a few others are all around that level. 

PE 8x is actually quite demanding for the market at the moment!


----------



## RottenValue (11 December 2012)

Battled its way through $4 today  -  interesting to see if it can continue its upwards movement.


----------



## skc (11 December 2012)

RottenValue said:


> Battled its way through $4 today  -  interesting to see if it can continue its upwards movement.




Most mining service stocks put in a good performance today. I think we probably have a mid term bottom for the sector - until the next reporting season in Feb is my guess - as long as the overall market doesn't fall substantially (which looks unlikely).


----------



## Intrinsic Value (14 December 2012)

skc said:


> Most mining service stocks put in a good performance today. I think we probably have a mid term bottom for the sector - until the next reporting season in Feb is my guess - as long as the overall market doesn't fall substantially (which looks unlikely).




Another contract win for FGE and a pleasing jump in share price. Could  it be headed back up to 5 dollars?


----------



## Intrinsic Value (26 December 2012)

skc said:


> That's a very solid update. share price +18%.
> 
> Chart is now right on resistance of $3.90. It might take a few cracks to leave it behind, then it'd probably meander around $4-$4.4.




Hit 4.88 last trading day. Where to from here?


----------



## Intrinsic Value (28 January 2013)

Intrinsic Value said:


> Hit 4.88 last trading day. Where to from here?




FGE looking good to crack thru the 6 dollar mark this week.


----------



## robusta (28 January 2013)

Intrinsic Value said:


> FGE looking good to crack thru the 6 dollar mark this week.




Yep starting to wonder at what point I would consider taking more profits. This business could follow in the footsteps of MND and grow well into the future.


----------



## Intrinsic Value (28 January 2013)

robusta said:


> Yep starting to wonder at what point I would consider taking more profits. This business could follow in the footsteps of MND and grow well into the future.




I know what you mean. I am  holding 30,000 Forge with an average buy in price of just over 3 dollars. I didnt sell last time they went to 6.70 odd but this time I think i will sell at least half.


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## adds4 (14 February 2013)

the most undervalued stock on the market. $150m cash, low or no debt, business making $100m profit, and the company has a 500m cap at 5.80 a share? Its certainly odd. Dividend pay out is poor, surely thats not the reason? Newscorp is much worse and it is rated properly by the market?


----------



## VSntchr (14 February 2013)

adds4 said:


> the most undervalued stock on the market. $150m cash, low or no debt, business making $100m profit, and the company has a 500m cap at 5.80 a share? Its certainly odd. Dividend pay out is poor, surely thats not the reason? Newscorp is much worse and it is rated properly by the market?




As SKC has said in numerous threads recently, the market is current very forward looking and is disregarding current earnings... The future for mining services are seen as very risky.

That said I think FGE is one of the better ones and will probably continue to perform well...


----------



## tinhat (14 February 2013)

VSntchr said:


> As SKC has said in numerous threads recently, the market is current very forward looking and is disregarding current earnings... The future for mining services are seen as very risky.
> 
> That said I think FGE is one of the better ones and will probably continue to perform well...




According to the SMH/Age markets live blog they are reporting today. Will be interesting to see the results. The share price has had a great run but looking at the weekly chart it made a lower high and a lower low over 2012.


----------



## Country Lad (14 February 2013)

tinhat said:


> According to the SMH/Age markets live blog they are reporting today.




Due to report 18 Feb


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## tinhat (14 February 2013)

Country Lad said:


> Due to report 18 Feb




That's what I initially thought. Fairfax got it wrong. I'm not holding at the moment.


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## adds4 (17 February 2013)

going to be another cracking result on monday. I bet fge will achieve the high estimate of its profit forcast. Fge always surpises on the upside. Stella result will propel the shares towards $10 by years end. For me the big driver of share price performance will be the dividend payment. Fge needs to up this to about 50% of profit, to reward long term holders. Hoarding cash for the sake of it, isnt good for shareholders, return a little, and keep some for aquisition, or safety net, or just working capital. The business has grown steadily, so it can sustain higher dividend payments. If in the future the company wants to buy a big business and doesnt have that cash in the bank, im sure the financial markets will fund it.


----------



## robusta (17 February 2013)

adds4 said:


> going to be another cracking result on monday. I bet fge will achieve the high estimate of its profit forcast. Fge always surpises on the upside. Stella result will propel the shares towards $10 by years end. For me the big driver of share price performance will be the dividend payment. Fge needs to up this to about 50% of profit, to reward long term holders. Hoarding cash for the sake of it, isnt good for shareholders, return a little, and keep some for aquisition, or safety net, or just working capital. The business has grown steadily, so it can sustain higher dividend payments. If in the future the company wants to buy a big business and doesnt have that cash in the bank, im sure the financial markets will fund it.




Should be interesting, major shareholder Clough will no doubt be looking for a higher payout ratio and unless there is a major acquisition on the horizon I reckon FGE will agree. Don't forget this type of business needs a nice chunk of cash available to fund and guarantee projects. 

As for $10.00 by years end, I would love to see that, the yield should go up but at that price you would be also be paying for some growth. Many parallels between FGE and MND in my opinion the major difference being at this stage in their development MND still had about 10 years of the mining investment boom to go, will LNG do the trick for FGE?


----------



## prawn_86 (18 February 2013)

Thought this would have got a mention with all the followers here. Up 4.5% today on HY report

NPAT up 60%, dividend increased to 10cps


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## robusta (18 February 2013)

Nice result, the payout ratio did not increase as much as I thought, good to see they still think this capital can still be invested for decent growth. The fantastic organic growth of FGE in the recent past has been nicely complimented by the success of the acquisitions, hopefully these disciplines will continue into the future.


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## notting (18 February 2013)

Not even BLY got a mention!
Profit and earnings slump.
57 per cent slump in full year profit.
Outlook for 2013, which appeared weaker than expected.
Boart slashed its final partly-franked dividend to one US cent a share from 5.6 US cents.
Whooops there goes that dividend play.
Sector may be due for a spanking after that is digested, maybe not in this market.
Stupid is back.


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## adds4 (19 February 2013)

great result. Dividend payment is poor, considering the company has nearly 200m in the bank. What are they going to do with that money? Its not like they make very big aquisitions, 40m is the biggest so far? Return some cash to shareholders, and at the same time, it ups the price of the shares? Fge can then still buy more companies up, with the massive cash it has left.


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## robusta (19 February 2013)

adds4 said:


> great result. Dividend payment is poor, considering the company has nearly 200m in the bank. What are they going to do with that money? Its not like they make very big aquisitions, 40m is the biggest so far? Return some cash to shareholders, and at the same time, it ups the price of the shares? Fge can then still buy more companies up, with the massive cash it has left.




Even though this is a cyclical business I reckon they can keep as much capital as they as long as they get a decent return. The CTEC acquisition seems to be going well so far, they paid about 2.6 x EBITDA, and the new division now has the lions share of the order book.


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## Intrinsic Value (27 February 2013)

FGE up big time today to 6.63 on huge volume 1.4 million shares. I have never seen that sort of volume with FGE. 

Let the good times roll. 

I have been plugging this one for a long time and bought up big on it.

The question now is how much is there left to go on this?


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## Intrinsic Value (4 March 2013)

Intrinsic Value said:


> FGE up big time today to 6.63 on huge volume 1.4 million shares. I have never seen that sort of volume with FGE.
> 
> Let the good times roll.
> 
> ...




Sold out most of my FGE today.

It was a hard decision but I made a handsome profit.

Will look to get back in if the price drops a bit in the next few months.


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## tinhat (25 March 2013)

Clough are selling their 35% share in FGE to instos at $6.05 per share - a nice profit to them. Good riddance to them. Nothing much ever came of the joint venture.


----------



## Intrinsic Value (25 March 2013)

tinhat said:


> Clough are selling their 35% share in FGE to instos at $6.05 per share - a nice profit to them. Good riddance to them. Nothing much ever came of the joint venture.






Yes I notice FGE are in a trading halt. I wonder what this means for FGE going forward.


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## robusta (3 June 2013)

FGE have bought Taggart Global. On first reading I like the ongoing maintenance contracts and the earning in US$. The price they have paid does not seem overly expensive.


----------



## VSntchr (3 June 2013)

robusta said:


> FGE have bought Taggart Global. On first reading I like the ongoing maintenance contracts and the earning in US$. The price they have paid does not seem overly expensive.




Maximum <3xEBITDA if earn outs are met...seems quite cheap...but who's going to overpay for mining service in this environment anyway! I'm interested to do a proper valuation later this week (time permitting) and see what the numbers look like because I still have a soft spot for FGE and consider it one of the better players...


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## skc (3 June 2013)

VSntchr said:


> Maximum <3xEBITDA if earn outs are met...seems quite cheap...but who's going to overpay for mining service in this environment anyway! I'm interested to do a proper valuation later this week (time permitting) and see what the numbers look like because *I still have a soft spot for FGE* and consider it one of the better players...




Very dangerous!


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## VSntchr (3 June 2013)

Haha, I thought that line might draw out a comment or two 

Indeed it is though, a good reminder!


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## Intrinsic Value (4 June 2013)

It looks like a good deal for FGE.

There is some exposure to coal here which is not in favour at the moment.

I am not sure how the market will view this acquisition but I hope FGE goes down in the short term below 4 dollars so I can go and buy some. 

There is no way they worth anything less than 6 dollars imho and probably worth a bit more.


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## Intrinsic Value (9 July 2013)

FGE might be on the verge of another run up.

Nice gain today and the fundamentals are still looking very strong.

Will be interesting to see their half yearly results.

I still think they are the stand out in the mining services space although not many commentators agree.


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## tinhat (2 September 2013)

All good news for FGE which I currently don't hold. Just awarded a contract with their JV partner for Roy Hill construction work (FGE share $830m). Up 20% in two days. Nice.

I've been looking at the weekly chart as showing a triple top but it is looking more like an inverted head and shoulders now.


----------



## piggybank (2 September 2013)




----------



## Valued (4 September 2013)

Something I noticed about FGE, they are required to have a liquidity ratio above one as part of their debt covenant and they currently do not have that. I believe it would still be with the covenants. NAB waived compliance for the quarter ending June 2013 since FGE has decided to swap to ANZ. If ANZ has the same covenants, FGE may be in breach for this quarter ending September 2013. Without seeing the loan agreement, it will be difficult to tell of the consequences of such a breach. Potentially FGE may be forced to pay off its entire debt. The debt is significantly less than the amount of cash they have on hand, but they may have another use for that cash due to a lot of current liabilities for trades and payables. They have a fair amount of expenses they need to pay for that total more than the amount of cash on hand. With receivables, their current assets outweigh their current liabilities, but they might have issues if forced to pay off this 26 million dollars in debt (or refinance without this covenant at a potentially higher interest rate) as their receivables may not come in fast enough to pay their payables. It's just a short term cash flow issue by the looks of it. If anything, it can be fixed with refinancing with potentially some short term debt. 

Other than these issues, FGE has ticked all the boxes for me as an investment opportunity. I think the problem seems to be people are just scared of the sector. I don't own any shares in FGE though at this point in time. The prices, even now, looks attractive to me though. I am going to see how management manages the affairs of the company throughout what I think is going to be a minor cash flow issue in the short term.


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## Intrinsic Value (5 September 2013)

I just love FGE.

They never disappoint.

I have been in and out quite a few times.

I sold out mid 6 ers awhile back and got back in again but didnt buy as many this time but still looking at a nice profit if i sold but I think i will be  hanging on this time and let it run.


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## skc (13 November 2013)

Intrinsic Value said:


> I just love FGE.
> 
> They never disappoint.




Looks like they are going to disappoint you for once.

Shares still in suspension. It's hard to believe that board and management can be so blind to let two contracts go so bad that they need an emergency capital raising. I remember reading their report back in Aug and thought that their cash flow was pretty crap. But it's impossible to know if that was at all related to the problem contracts currently identified.

This from the AFR



> It’s thought the company had been trying to put a $100 million equity raising together, with select fund managers sounded at taking part at $2.50 a share.
> 
> But it’s understood any plans to raise equity have been scrapped – or at least delayed – for the time being.
> 
> It’s thought institutional investors have had a hard time getting comfortable with the offer, in light of Forge’s deteriorating earnings outlook. There is also the issue of management trust, after Forge failed to identify two key contracts that turned problematic and are likely to see a material earnings downgrade for financial 2014.




http://www.afr.com/Blogs/Opinion_Street Talk#2eaa6082-4beb-11e3-a7a7-c4b0eec5e9a4

This will get a royal smacking on open... whenever that is. Perhaps CLO knew something when they sold out in March at $6.05.


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## McLovin (13 November 2013)

skc said:


> Looks like they are going to disappoint you for once.
> 
> Shares still in suspension. It's hard to believe that board and management can be so blind to let two contracts go so bad that they need an emergency capital raising. I remember reading their report back in Aug and thought that their cash flow was pretty crap. But it's impossible to know if that was at all related to the problem contracts currently identified.




crap is the right word, especially when the half year report had cash inflow of $78m. They basically had a $60m cash outflow in the second half.


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## VSntchr (13 November 2013)

And to think this was one of the few that many suspected would be left standing as a strong player at the end of the mining services bloodbath.
Looks like its joining the pack.


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## McLovin (13 November 2013)

VSntchr said:


> And to think this was one of the few that many suspected would be left standing as a strong player at the end of the mining services bloodbath.
> Looks like its joining the pack.




I guess there's a few ways you can look at this. Either they dropped the ball pricing these two contracts, which happens, or because work has been drying up they've had to price more aggressively and have shot themselves in the foot. If it's the former, then you could consider it one offish. If it's the latter, which I think it more likely is, then it's a pretty clear change in the operating environment, which we already knew was coming. One of the big issues I have with contractors is that they'll happily tell you the size of their order book but you know sweet FA about the quality of the book, ie it's not hard to win work if you're pricing at a loss.


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## Ves (13 November 2013)

Lots of news articles floating around about this morning and also rumours on various websites etc

COO quit this morning,  after one of the managing directors of one of their subsidiaries left 3 weeks ago.

http://au.news.yahoo.com/thewest/business/a/-/wa/19803542/coo-exit-rocks-embattled-forge/

It sounds like cash flow has really been hit and a balance sheet re-capitalisation is in order.  I've read all sorts of figures,  some as low as $50-$100m at $2.50-3 per share.  The large discount to current market price (which is based on trading before any red flags) may not be that far fetched compared to some of the other raisings in this sector this year.

The problem was that they have already hit the market up at $6 a share and many instos and retail investors will feel sufficiently burnt....  and even more cautious than last time now that there is sufficient risk in the industry for both revenue and margins to come under pressure.

The accounting for revenue and expenses in multi-year (or period) construction / maintenance / service contracts isn't an exact science and the accounting standards provide for sufficient levels of _estimation_ that allow companies to,  let's put it lightly,  massage their short-term figures during the contract  (sometimes to the extent that they look nothing like the underlying cash flow).  Sometimes the "real profit" will not become apparent until 80-90% of the contract is complete and it can turn out to be an absolute shocker when you have based your prior period accounting figures on mispriced estimates.

Bottom line -  if you cannot price contracts when the market conditions are allowing you to achieve record profits how will you go when things slow down?


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## peter2 (13 November 2013)

I liked this one as well, probably due to past profitable trends and I was eager to buy near the bottom (at the time). Thought my buy was at the right place but the messy corrective move up indicated the next move might be an impulsive swing down. Has been one of the weakest stocks on the ASX (ex gold) for several months now. Plenty of time to exit for a chartist. 

I would expect climatic selling when it opens and a messy chart for a few months.


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## skc (13 November 2013)

McLovin said:


> I guess there's a few ways you can look at this. Either they dropped the ball pricing these two contracts, which happens, or because work has been drying up they've had to price more aggressively and have shot themselves in the foot. If it's the former, then you could consider it one offish. If it's the latter, which I think it more likely is, then it's a pretty clear change in the operating environment, which we already knew was coming. One of the big issues I have with contractors is that they'll happily tell you the size of their order book but you know sweet FA about the quality of the book, ie it's not hard to win work if you're pricing at a loss.




These projects were acquired with the CTEC acquisition in 2012. So they either fk'd up the due diligence or the operations after they took over. My guess is that the contracts were too big for CTEC... one of the power projects was a $420m contract, and CTEC only had a headcount of 60. So may be CTEC simply didn't have the capability to price and execute it property.

Interestingly the CTEC acquisition deferred payments were all paid out on the FY13 results. The timing appears impeccable.


----------



## Ves (15 November 2013)

http://au.news.yahoo.com/thewest/business/a/-/national/19838679/forge-may-accept-big-discount/

Write downs galore,  banking covenants probably breached and capital raising at perhaps $0.625?  How can they screw it all up so badly within only 2-3 weeks of their AGM?  Can they still fund the big Roy Hill contract?  And if they can't,   how much does their reputation get smashed by this major hiccup?


----------



## McLovin (15 November 2013)

Ves said:


> http://au.news.yahoo.com/thewest/business/a/-/national/19838679/forge-may-accept-big-discount/
> 
> Write downs galore,  banking covenants probably breached and capital raising at perhaps $0.625?  How can they screw it all up so badly within only 2-3 weeks of their AGM?  Can they still fund the big Roy Hill contract?  And if they can't,   how much does their reputation get smashed by this major hiccup?




$0.625!!!!

Wow...that's got to be one of the biggest discounts I've seen.

If it goes through as is, I'm guessing they'll be getting a knock at the door from IMF or SGH.


----------



## Ves (15 November 2013)

McLovin said:


> If it goes through as is, I'm guessing they'll be getting a knock at the door from IMF or SGH.



Indeed,  the ambulance chasers will be frothing at the lips - especially with the ridiculous performance bonuses paid to directors last month.


----------



## McLovin (15 November 2013)

Ves said:


> Indeed,  the ambulance chasers will be frothing at the lips - especially with the ridiculous performance bonuses paid to directors last month.




I like reading back over these threads to see who was saying what. Not because I take glee in seeing others lose money but investing is very much an "egg of Columbus" type problem; it's easy after the fact. But reading your own thoughts (and to a lesser extent others) at the time is very instructional, for me anyway.

In the wash-up we'll discover why these contracts f*up. And whether it was trying to chase growth in a slowing market.


----------



## skc (15 November 2013)

McLovin said:


> I like reading back over these threads to see who was saying what. Not because I take glee in seeing others lose money but investing is very much an "egg of Columbus" type problem; it's easy after the fact. But reading your own thoughts (and to a lesser extent others) at the time is very instructional, for me anyway.
> 
> In the wash-up we'll discover why these contracts f*up. And whether it was trying to chase growth in a slowing market.




Well... companies in this sectors are susceptible to major f*up so the bears who assume the worse have a fair chance of hitting it every now and then. In this case however, the company's performance was in such huge contrast to the industry headwinds experienced by everyone else in the sector... so one couldn't help but to think that their numbers were massaged (to put it lightly) in the last few reporting periods.

In fact, the rumoured $125m writedown will basically take out the WIP entry in the balance sheet. Did they simply count how much money they spent on projects and put it in WIP (i.e. capitalised expense) without doing any assessment on whether they'd get paid for it?

I remember taking a position in Multiplex after they stuffed up Wembley (I didn't know much about the market then). It was in the doghouse for 2 years before some canidian came and bought them out. LEI also suffered a long time with the Brisbane tunnel job a few years ago and, many years ago, the Southern Cross station, before it was sort of forgiven. None of these cases however involved massive emergency capital raising like what FGE seems to be doing here. 

Should be good trading when it opens anyway. There will definitely be reasonable intraday bounce... but I think many instos will dump this with vigour. A chart that looks like what happened to CGH in April might offer a guide for potential price action over the next few months.


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## Ves (15 November 2013)

McLovin said:


> I like reading back over these threads to see who was saying what. Not because I take glee in seeing others lose money but investing is very much an "egg of Columbus" type problem; it's easy after the fact. But reading your own thoughts (and to a lesser extent others) at the time is very instructional, for me anyway.
> 
> In the wash-up we'll discover why these contracts f*up. And whether it was trying to chase growth in a slowing market.



Indeed... my biggest interest in these threads is the analysis of earnings risk before and after the fact (especially learning from mistakes, my own and those of others)  -  as an investor I'm trying to gain real-life experience in this  and these threads are very helpful to revisit to aide in this journey. 

Interestingly,  FGE was one of the first valuations I ever did as a very new investor,  and one of the only I would ever do based on RM's infamous formula.  Glad I got that lesson out of the way quickly and never invested any real money using that formula as my valuation peg!


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## McLovin (15 November 2013)

skc said:


> Well... companies in this sectors are susceptible to major f*up so the bears who assume the worse have a fair chance of hitting it every now and then. In this case however, the company's performance was in such huge contrast to the industry headwinds experienced by everyone else in the sector... so one couldn't help but to think that their numbers were massaged (to put it lightly) in the last few reporting periods.




Reading my own comments I never thought this would happen. I just expected a slow fade to normal over a few years. 

Something I don't think I appreciated until recently is just how levered they are. Not in the traditional sense, but that they can have huge order books supported by very little tangible equity, FGE is/was over $2b with ~$150m in tangible equity. You've worked in the corporate sector so you know that project cost/time overruns are almost inevitable. Most of the risk is actually off balance sheet and is pretty concentrated. Like for example their Roy Hill project, a 10% cost overrun will cost them ~$83m. If they screw up a contract of that size it's the way they have these two contracts it would be over for them.


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## Ves (15 November 2013)

By the way,   Camden made a post on this company in the last few days on Hotcopper by the looks of it.

Terrific post and pretty much sums up what most of us have said,   but with a few more insights into cash balances and working capital requirements.


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## Intrinsic Value (16 November 2013)

Well FGE really stuffed it up in a momentous way.

It is hard to reconcile this with their previous track record but when you are dependent on these customer projects for your revenue you always run a risk of cost blowouts but this one seems to  have been well hidden and taken most of us by surprise.

I am still holding a few thousand shares but on balance I suppose I have done very well out of FGE.

I will definitely be selling out ASAP.

You cannot have any faith in management after this. It is just a matter of how much you can get for your shares come the lifting of the trading halt.

That is the problem with any of these companies that run these projects the bigger the projects the bigger the risk profile if you get cost overruns.


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## McCoy Pauley (19 November 2013)

Still in a trading halt until some point next week, at the earliest.

As Buffett would say, it takes a lot of painstaking work to create a reputation and then it can be lost virtually instantaneously.  Shades of MCE in some ways.


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## ROE (19 November 2013)

Whats going on with this?

I got this during GFC around a $1 and sold out around $3.50 and it keep going up
haven't keep up with it for a year or two can someone summarise 

too lazy to read


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## ROE (19 November 2013)

ok I got most of it from AFR 
Wow  how can this happen 60c odd CR ? was they con into buying CTEC?


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## KnowThePast (19 November 2013)

I have an opinion too!

Yes, what has happened is a major $£%^ up, and heads should roll.

But I am not too interested in analyzing the finer details of what has gone wrong and who is to blame, as satisfying as this discussion may be. What happens next, is what is of greater interest.

A lot of very smart people, including Camden on HC, gave a very good summary of why it is dangerous to invest in these kind of companies, they are cyclical and a single bad contract can have a devastating effect. Which I fully agree with, but what I don't quite agree on, is that it makes it sound like these companies are not worth investing in at any price. 

What is most definitely the wrong thing to do, is to invest in these and assuming any kind of continuity in earnings. Which is exactly what's happened to FGE prior to this, it was one of the few mining services companies that was still valued based on its earnings, for some strange reason, while almost everything else was smashed. FGE was thought to be immune from the expected downturn, because, because....help me out here please.

What will happen now, is that FGE will get smashed just like all the other MS companies got smashed. Others got smashed because of reduced order books and sentiment, FGE will get smashed because it deserves to be. 

But will it now be a good investment? Quite possibly. While it is impossible to say without knowing the extent of damage and capital raising price/dilution, the situation is right for a major mis-pricing, with so many intelligent people proclaiming doom and that it is not a good buy at any price.

They may be right, and a lot more analysis is needed to get a feel for how likely they are to stay alive until the next boom. It is very high risk, without a doubt, and would not suit the investing style of the majority of people. I guess my point is that a bad company/sector can be a good investment opportunity. The key is price and tolerance for risk.

Having said all that, I will most likely sit on the sideline here, unless the price drops to some absurd levels. I already have a few of "FGEs" in my portfolio, so I don't feel I am missing out on anything.


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## ROE (19 November 2013)

McCoy Pauley said:


> Still in a trading halt until some point next week, at the earliest.
> 
> As Buffett would say, it takes a lot of painstaking work to create a reputation and then it can be lost virtually instantaneously.  Shades of MCE in some ways.




They lost my trust when they did a deal with clouch back a few years where they lock out small share holder
and gave clouch a discount deal to buy into the business ...after that I decided to sell....


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## Clansman (20 November 2013)

I'm not altogether convinced that the SP will be hammered to the levels many speak of.
There isn't a great deal of shares on issue and they do have a good track record generally.


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## Intrinsic Value (20 November 2013)

ROE said:


> They lost my trust when they did a deal with clouch back a few years where they lock out small share holder
> and gave clouch a discount deal to buy into the business ...after that I decided to sell....




Yes that is a good point. 

The biggest issue was always going to be what they did with their big cash float and how they  managed any acquisition and they spectacularly failed.

I should have sniffed something was up when the share price dropped quite substantially in the week before the trading halt on the back of no announcements.

I kept 3k shares after selling out 80 percent of my stake when they hid mix 6 dollars awhile back but I have to admit I was thinking of buying back had they gone sub 4 dollars especially as they were already on such a low PE and have had a very good track record albeit a very short one.


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## piggybank (20 November 2013)




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## ROE (27 November 2013)

Look very serious, part of afr article

ANZ jumps in to help Forge, but white knight still needed

ANZ Banking Groupwas preparing to bail out Perth contractor Forge Grouplast night, putting forward a company-saving debt package that would enable Forge to continue trading and honour customer contracts.

The Perth-based engineering and construction contractor has been in talks with a number of parties about a recapitalisation in the past three weeks, after the company revealed massive unexpected losses on two power station projects.

Forge, advised by Goldman Sachs, first considered raising equity from existing shareholders but it became untenable given the severe destruction in the company’s equity value.


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## KnowThePast (27 November 2013)

ROE said:


> Look very serious, part of afr article




It does, indeed. As much as has been said about capital intensive, cyclical companies, to go from no debt and $90m in cash to possibly not being a going concern does not happen very often in such a short time span. It would take a stuff up of monumental proportions. 

I can't wait to hear the details of what happened, if we ever will.


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## skc (28 November 2013)

The announcement is not nearly as bad as feared. The company is pretty much saved for now.

The share price action however, is devastating for holders.

I bought some at 34c... probably close today near $1 imho.


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## VSntchr (28 November 2013)

skc said:


> The announcement is not nearly as bad as feared. The company is pretty much saved for now.
> 
> The share price action however, is devastating for holders.
> 
> I bought some at 34c... probably close today near $1 imho.




If you got your size on, you just made your monthly returns quite nice


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## skyQuake (28 November 2013)

skc said:


> The announcement is not nearly as bad as feared. The company is pretty much saved for now.
> 
> The share price action however, is devastating for holders.
> 
> I bought some at 34c... probably close today near $1 imho.




Boy am I glad I got up this morning.

I agree with the saved for now bit. But that's assuming management doesn't f*ck up or conditions don't worsen!

Edit: im out after halt


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## infamous (28 November 2013)

Got into it a little late, but still up 25% and rising


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## Intrinsic Value (28 November 2013)

skc said:


> The announcement is not nearly as bad as feared. The company is pretty much saved for now.
> 
> The share price action however, is devastating for holders.
> 
> I bought some at 34c... probably close today near $1 imho.




I dont know about a dollar today but you would think that it couldnt go much lower than 34c.

I cant remember such a spectacular fall in such a short period of time.

I still have 3thousand left that i kept when I sold out earlier in the year.

I wish i had sold those as well.


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## skc (28 November 2013)

Well... it's a xmas present alright. Sometimes the market wasnt to put money in your pocket and you just have to accept it gracefully.

Only up a casual 240% in about an hour.

Did those lazy insto managers not read the announcement?! It didn't read that bad and I was going to buy @ $1 if it opened there.

Volume now approaching 50m shares out of 86m shares on issue... Unbelievable.

There's going to be volatility along the way, but we'd see well north of $1 in the next few months imho.


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## McLovin (28 November 2013)

skc said:


> Well... it's a xmas present alright. Sometimes the market wasnt to put money in your pocket and you just have to accept it gracefully.
> 
> Only up a casual 240% in about an hour.
> 
> ...




I got in at $0.42

Announcement was much better than I was expecting. It looks like every insto sold out on the open. What idiots. I had no idea it would open that low, I thought maybe $1.50-$2.


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## SeekingYields (28 November 2013)

I got in at 51cents and am looking to sell out pretty soon.


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## Intrinsic Value (28 November 2013)

McLovin said:


> I got in at $0.42
> 
> Announcement was much better than I was expecting. It looks like every insto sold out on the open. What idiots.




I reluctantly bought at 50c. Yeah it doesnt look that bad but it is still a punt.


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## skc (28 November 2013)

skyQuake said:


> Boy am I glad I got up this morning.
> 
> I agree with the saved for now bit. But that's assuming management doesn't f*ck up or conditions don't worsen!
> 
> Edit: im out after halt




Good timing.

I got half out @ ~80c. Going to hold onto the other half and look for $1 (probably won't get there today by the looks).

My first ever triple digit % day trade


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## VSntchr (28 November 2013)

skc said:


> Well... it's a xmas present alright. Sometimes the market wasnt to put money in your pocket and you just have to accept it gracefully.
> 
> Only up a casual 240% in about an hour.
> 
> ...




Nice one!

I agree with your sentiment on the ST future of the price...
It's not going under and anything sub $1 is decent swing buying IMO...

The turnover rate is extreme!


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## craft (28 November 2013)

Why didn’t they go to shareholders with a rights issue? If it’s only liquidity and the bigger picture is still intact it shouldn’t have been that hard a sell and default risk could have been removed.

Going to the banker just puts them in deeper risk of default and gives the banker greater insight.  

With the bank having a bigger bet at stake they will be even more likely to yank the mat to recover their funds at the slightest hint of the recovery not working out.

There is less ability now to reduce default risk.  Seems an unnecessary default risk to take to avoid dilution, especially as dilution doesn’t matter as much if every shareholder is given a proportional opportunity to provide the funding or be diluted as they see fit. 

Will a strong white night equity player willing to put more capital in, position into the register at these levels to underpin a future equity injection. What does the industry really think of their order book? 

Well done to those making short term profits (not me on this one) but If I was playing it would just be on the swings for a while – I don’t read the outcome as positive at all except for – it’s not dead yet – a full prospective and a rights issue would have been much more encouraging - could still be lots of selling to come if somebody doesn’t step up to recapitalise it, and at what price are they prepared to do it. ( I don't know enough to even make a stab at the answer) 

Interesting times.


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## KnowThePast (28 November 2013)

I didn't realise the announcement came out today, but I had a forum subscription to this thread, in which skc so kindly alerted me to this situation. So I came in late to the party @ 0.495.

I think their intention was to do an issue, but as they would have needed to lodge a full prospectus, it would take too long, with liquidity crisis looming in December.

Having a quick look over their warrant notes, I believe they still can do an issue later on.


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## tinhat (28 November 2013)

I only just got inside now and in front of a computer. Wow skc you must sit and watch the screen like a hawk with that timing. Great job. FGE is probably worth north of $2 based on the news but show me a mining services company that is trading at real value. $1 would be a target. I may have missed the boat but I grabbed a very small parcel at 0.68 just now. Unfortunately I don't have time to watch the screen. Let's see if we get to $1.


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## skc (28 November 2013)

craft said:


> Why didn’t they go to shareholders with a rights issue? If it’s only liquidity and the bigger picture is still intact it shouldn’t have been that hard a sell and default risk could have been removed.
> 
> Going to the banker just puts them in deeper risk of default and gives the banker greater insight.
> 
> ...




I think they didn't go to shareholders because they couldn't get the prospectus out of the way in time. They probably tried placement with instos first and the price they were not happy with the price they'd get. They wanted to do an accelerated rights issue but ASIC blocked them so they needed a full prospectus. By the time they could complete that and get money in the bank, it'd be well after Xmas - but their cash crunch is now. 

It's a positive outcome against what was worst feared. The fact that it was rumoured to be dead (as explained by the 90% fall today) vs a completely different outcome where the banks supported the company with a warrant deal. It's a massive difference. 

At 70c it is only worth $60m... so ~1.5x pro-forma EBITDA of $45-50m (if one chooses to believe that). Total debt is $60m (by the looks) so it's about 1.5x EBITDA as well. So while not nearly as pretty as before (and probably not ideal shape going into a mining capex cliff), a market cap settling at around $100m is not at all unreasonable.


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## skyQuake (28 November 2013)

Looks like someone went to a lot of effort to force that false brk out. Watch out below!


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## KnowThePast (28 November 2013)

I am out at $0.70.

I agree that it is still very cheap at this price, but it doesn't quite fit my criteria.

I bought because there was obvious fear with everyone selling at ANY price. I thought there was very little downside buying at those price. I expected a rebound once the initial sells were done and was planning to sell the same day regardless of whether I made a profit or not.

I am obviously quite happy that it worked out, even though my parcel size is quite small.

I am now reading David Dreman's "Contrarian Investment Strategies" and a lot of it rang very loud and clear in this situation. Perfect timing.


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## craft (28 November 2013)

skc said:


> I think they didn't go to shareholders because they couldn't get the prospectus out of the way in time. They probably tried placement with instos first and the price they were not happy with the price they'd get. They wanted to do an accelerated rights issue but ASIC blocked them so they needed a full prospectus. By the time they could complete that and get money in the bank, it'd be well after Xmas - but their cash crunch is now.
> 
> It's a positive outcome against what was worst feared. The fact that it was rumoured to be dead (as explained by the 90% fall today) vs a completely different outcome where the banks supported the company with a warrant deal. It's a massive difference.
> 
> At 70c it is only worth $60m... so ~1.5x pro-forma EBITDA of $45-50m (if one chooses to believe that). Total debt is $60m (by the looks) so it's about 1.5x EBITDA as well. So while not nearly as pretty as before (and probably not ideal shape going into a mining capex cliff), a market cap settling at around $100m is not at all unreasonable.




I don’t think they will get through without recapitalising at some stage.  They could have still gone ahead with the prospectus and arranged some bridging finance – surely that would have cost less than giving away 13% of the company at 1 cent to ANZ *IF* they survive and without addressing the longer term recapitalisation issue.

What they have done only makes sense if they don’t have to recapitalise – and I just can’t see that as a prudent gamble given where investment spending seems to be going.

I have owned shares in this company at another stage of the resource investment cycle and kept an eye on them since (in preparation for some far distant return of a new investment cycle) – that is up until now where I have lost interest at any price or cycle point - until management changes.

Hope you continue to make a killing on the short term uncertainty that people thinking like me have with this company

Cheers.


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## trillionaire#1 (28 November 2013)

I thought I was seeing things this morning. Forge at 30c!,when I couldn't find news of a stock split of some kind
I jumped on,then bailed out when it slowd at 49c.Quickfire profit but wish I had stayed on till later like some of you.


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## galumay (28 November 2013)

edit.


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## skc (28 November 2013)

craft said:


> Hope you continue to make a killing on the short term uncertainty that people thinking like me have with this company




Had you been holding I doubt you'd throw it out on open at <40c. There's nothing great about the industry or the company... but your average insto fund manager just seems to like dumping things with a passion, often unnecessarily.

As to short term trading... FGE was suspended for 3 weeks and it gave everyone plenty of time to prepare a trading plan for various scenarios that might unfold, how much size you would put on etc. It's not just about waking up early in front of the screen and buying a "bargain".


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## Trembling Hand (28 November 2013)

skc said:


> As to short term trading...
> Blah
> Blah
> Blah




Is too! :


----------



## Valued (28 November 2013)

I remember commenting earlier in the thread that I was concerned about forge group's liquidity but thought if everything went well throughout September we should be right. I therefore bought in October for the average price of approximately $5.30. Today I bought in for 40% of my initial buy in for October at the average price of 31 cents. This puts my overall average buy price at $1.03. At this point I am holding.

I think if Roy Hill goes ahead, which I think it will even if there is a delay, FGE will have a sizable contract to make up the shortfall. The value of FGE is in its future contracts. I think their current order book and potential future order book are worth a lot more than 30 cents. It's interesting to me people chose to escape that low. If this is just a once off, and it should be (the contracts were inherited by acquisition btw too, not tendered by forge), we should be ok. I think we can expect above $1 in FY2014. I expect once the FY2014 results are out the share price will dip when people realise they were serious about the loss. I also expect it will dip slightly when people get upset about not getting a dividend. I think it will recover once good news about Roy Hill comes through that confirms it's definitely going ahead. That will be when it's confirmed when Roy Hill gains the rest of the funding it needs. However, it looks good right now and given only partly paid shares into Roy Hill and the equity that's been put up so far, it has enough money to keep going. At any rate, Samsung is liable to Forge Group to pay for work Forge Group carries out even if Roy Hill does have its own problems later on. 

The future is uncertain but it's about putting the odds in your favour. I hope forge group gets some successful tenders coming through so we can see some good news and help ease the minds of ANZ so they don't put any undue pressure on Forge.


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## craft (28 November 2013)

skc said:


> As to short term trading... FGE was suspended for 3 weeks and it gave everyone plenty of time to prepare a trading plan for various scenarios that might unfold, how much size you would put on etc. It's not just about waking up early in front of the screen and buying a "bargain".




I wasn't insinuating you were just trading it off the cuff and I sincerely hope you capitalise on the volatility. I have no issue with trading it short term. Just expressing my opinion that I don't like managements actions from my long term perspective. 

I hope people don't buy for a long term hold simply based on the presumption that it must be a bargain because of the size of the fall.



skc said:


> Had you been holding I doubt you'd throw it out on open at <40c. There's nothing great about the industry or the company... but your average insto fund manager just seems to like dumping things with a passion, often unnecessarily..




If I was in I would want out - the only question is price - that's why I think there could be selling to come. But the turnover is huge - Interesting to see over the next few days who's in, who's out and how much is just getting shaken all about.


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## McLovin (28 November 2013)

I'm out. That was pretty easy money. Off to do my Christmas shopping. It's a dog company in a dog industry, I think if you're going buy and hold on this you're kidding yourself.

Nice work, skc.


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## VSntchr (28 November 2013)

What a day!
By far the craziest opening hour I have ever seen for a stock.

Once it found a bottom and a top it really didn't offer to much action.
Now we have tomorrow to look forward too, wonder which way it will drift...

As craft said, the substantial holder notices should be interesting also..


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## skc (28 November 2013)

craft said:


> I wasn't insinuating you were just trading it off the cuff and I sincerely hope you capitalise on the volatility. I have no issue with trading it short term. Just expressing my opinion that I don't like managements actions from my long term perspective.
> 
> I hope people don't buy for a long term hold simply based on the presumption that it must be a bargain because of the size of the fall.




Actually my response wasn't directed at you either. It was just in response to the various others who traded/watched the saga today.



craft said:


> If I was in I would want out - the only question is price - that's why I think there could be selling to come. But the turnover is huge - Interesting to see over the next few days who's in, who's out and how much is just getting shaken all about.




That's what I meant... I imgaine you'd have a cooler head than to dump at any price on the open.

100m shares traded today so if someone wanted to get out today they could have done so easily.

Anyway... leaving a pretty small position for the next few days and see if I can get a little bit more out of it.


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## TheUnknown (28 November 2013)

Wow what a decline...is anyone buying up and waiting?


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## TheUnknown (28 November 2013)

Thinking of buying 20k worth


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## robusta (28 November 2013)

TheUnknown said:


> Thinking of buying 20k worth




I got in for 2k worth in my personal account and topped up the existing super position by almost 3x that amount lol missed all the early action but I am prepared to hold to see how this works out. As skc said at about 1.5 x EBITDA probably worth the punt. Got in at $0.66


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## TheUnknown (28 November 2013)

robusta said:


> I got in for 2k worth in my personal account and topped up the existing super position by almost 3x that amount lol missed all the early action but I am prepared to hold to see how this works out. As skc said at about 1.5 x EBITDA probably worth the punt. Got in at $0.66




Buying some first thing tommorow


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## Baker1494 (28 November 2013)

TheUnknown said:


> Thinking of buying 20k worth




Will be interesting to see how it unfolds. Got in this morning at 0.3-0.33c, went in though expecting to lose it all. My thoughts are they will go looking for more capital from shareholders (possibly at a can't say no price). Will be an interesting couple of months. Defiantely interested to see how it opens tomorrow morning.


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## tinhat (28 November 2013)

Bought at 0.68 at lunch time and break even stop loss triggered at 3ish. It doesn't get more exciting than this. Good luck to those that hold. Congrats to those that grabbed the bottom.


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## robusta (28 November 2013)

The share price has been hammered today due to the extraordinary long trading halt after the losses incurred by the CTEC business.  When FGE bought CTEC in January 2012 at a really low multiple, somewhere around 3-4 x EBIT it seemed too good to be true. I wonder how long the sellers knew this time bomb was ticking away... You know what they say. "if it seems too good to be true it probably is."


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## skc (28 November 2013)

robusta said:


> I got in for 2k worth in my personal account and topped up the existing super position by almost 3x that amount lol missed all the early action but I am prepared to hold to see how this works out. As skc said at about 1.5 x EBITDA probably worth the punt. Got in at $0.66






TheUnknown said:


> Buying some first thing tommorow




Please... don't take anything I say without researching it for yourself.

And don't forget how different the reward:risk equation is between what I am doing to what you may be doing (if you know what you are doing). I bought in low and already free carried, I watch every tick intently and it will take me no time to sell and accept a loss that's within my risk parameter. So everything I said relates only to what I am doing.

Robusta - I would definitely think very carefuly about "prepared to hold and see how this works out"... make sure you have a plan that's better than this and watch your risks/total exposure. You should stick to your knitting and invest using your own criteria (I am sure FGE in its current state fails every single one of those criteria).


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## craft (28 November 2013)

skc said:


> but your average insto fund manager just seems to like dumping things with a passion, often unnecessarily.




Just thinking out loud on this point and trying to put myself in their shoes.

First thing obviously is size of holding – your thinking would not be parcel at X price but average price of overall position.  So algo’s spreading the order would be go. The question is do you set the Algo based on time, volume or price.

Time and/or volume allows you to get a market average and if you don’t have a strong belief in an absolute valuation it might be your preferred choice if developments now mean you want out.

What might your view on absolute valuation be given developments? Well this is what I would be considering.

Obviously debt outranks equity in a wind up.

The debt financier is firmly in control.

I’m probably at an information disadvantage to the financier. 

The warrant priced at 1 cent over 13% of the company issued to secure the debt. If the debt is so costly either the management are incompetent or the default risk is very high.

The warrant has a cash equivalent term which is basically an execution clause as the company could never meet the call. The bank could utilise this at any stage to maximise their windup distribution, but would not be in their interest to use it a point that left equity with anything.

The probability of default is X%.

Business as usual X$ – earnings risk now that ability to deliver is in question makes this a wild guess at best on tendering outcomes, not to mention the uncertainty over managements capability to deliver already won contracts on budget. 

Takeover to get access to the order book – probability X%. You would have to have really good industry knowledge to make an assumption on this probability as it depends on the contract terms. Those that missed the contracts in the bidding process may have no interest taking them on based on FGE’s winning bids

So a reasonable view on an absolute valuation could easily be (and probably should be) – NFI. Therefore a time or volume based algo might make sense if you want out.

VWAP for today would be near 60cents. A volume based algo might have unwound some sizable positions – time based ones would obviously depend on the time frame you pick.

What if a lot of the stock is currently in traders or bargain hunters hands what will they do if the price starts dropping below their entry? Maybe having an algo active at any price is dumb but maybe waiting for a technical signal to time a big exit is worse. 

The complications of size that fund managers face can be a nimble retail trader’s edge. The emphasis at the moment IMO should be on nimble.


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## KnowThePast (28 November 2013)

skc said:


> Please... don't take anything I say without researching it for yourself.
> 
> And don't forget how different the reward:risk equation is between what I am doing to what you may be doing (if you know what you are doing). I bought in low and already free carried, I watch every tick intently and it will take me no time to sell and accept a loss that's within my risk parameter. So everything I said relates only to what I am doing.
> 
> Robusta - I would definitely think very carefuly about "prepared to hold and see how this works out"... make sure you have a plan that's better than this and watch your risks/total exposure. You should stick to your knitting and invest using your own criteria (I am sure FGE in its current state fails every single one of those criteria).




Excellent points - as a fundamental investor, I just don't see much value in FGE long term. Not without massive assumptions that their problems are completely limited to just 2 contracts, and that further MS contraction won't put unbearable burden on the balance sheet, which will now be a lot less healthy.

With millions of shares been sold at ANY price, I thought that the potential for a corrective upswing was near 100%, so I gambled a day trade on it with money I was prepared to lose. A special opportunity in a special situation.

Put yourself in a position of manager/owner of the business. What would it take for you to be completely unaware that some of your largest projects are so badly overrun? With thousands of people involved in the project and the majority of them probably aware that something is not quite right, how can the information not trickle up at some point? And I have to assume that management was unaware, or they would have started to prepare a rescue plan sooner. If they were aware, but didn't start planning early enough, than it's even worse.

As a (generally) long term holder, I just don't see enough value to justify the risks here.


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## skc (28 November 2013)

craft said:


> Just thinking out loud on this point and trying to put myself in their shoes.
> 
> First thing obviously is size of holding – your thinking would not be parcel at X price but average price of overall position.  So algo’s spreading the order would be go. The question is do you set the Algo based on time, volume or price.
> 
> The complications of size that fund managers face can be a nimble retail trader’s edge. The emphasis at the moment IMO should be on nimble.




All very true. I don't know what I'd do if I am an insto with 5m FGE shares. I doubt I'd do it all at the open, but only 1m or so shares changed hands at 30c so that could have easily been me. 

The fund manager's size is definitely my edge. In fact, that's pretty much how my pairs trading works... simply exploiting the waves left by insto managers.


----------



## So_Cynical (28 November 2013)

I'm really slipping, i didn't even know FGE was in a halt 

Anyway i imagine there will be some crazy volatility ahead with the amount of new stock holders on the books as of today, most new holders will be punters of one kind or another and will be keen to turn the stock over.

Some fresh opportunity's across the sector i would think, fear is contagious.


----------



## Valued (28 November 2013)

I will be refreshing commsec intently tomorrow morning and will definitely consider selling. I am going to lose money on FGE because I invested before the halt. I did catch up a little bit though by taking a gamble with the 0.30c buy in. It seemed just too cheap. Unfortunately, with only 40% of my initial investment put in this morning since I did not have the liquid cash without taking on a credit risk or putting my business plans next year at risk, it doesn't make up for the loss. It makes the loss bearable though The trade alone though this morning was of course highly profitable going up over 100% in one day.

I am not sure if I want to hold until Monday because I don't like giving people time to think about their choices. I will hold if the stock climbs tomorrow though. Some people might be a bit more optimistic about the company and want to cash in on the bargain price. Everything I said about Roy Hill above still holds true. It might be better though to wait for the good news to come in rather than holding now hoping to get in on the ground level of the company rebuilding. 

One thing that is leaning towards me selling is I am at a lost at calculating FGE's value right now.


----------



## Valued (28 November 2013)

So_Cynical said:


> I'm really slipping, i didn't even know FGE was in a halt
> 
> Anyway i imagine there will be some crazy volatility ahead with the amount of new stock holders on the books as of today, most new holders will be punters of one kind or another and will be keen to turn the stock over.
> 
> Some fresh opportunity's across the sector i would think, fear is contagious.




If you didn't know it was in a halt, I hope you don't own FGE since you just lost the large majority of your investment.


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## McLovin (28 November 2013)

craft said:


> The complications of size that fund managers face can be a nimble retail trader’s edge. The emphasis at the moment IMO should be on nimble.




The other thing to remember is that for a fund manager with a few billion dollars their holding in FGE would have been little more than a rounding error. If you're time poor and running a portfolio of 50-100 shares, you're more likely to just cut and run than spend time on a position that might represent 0.1% of your portfolio. AMP owns 7% of FGE, that was about $28m. By contrast AMP has about $80b in FUM. While that's no doubt spread across lots of products/asset classes, I'm sure no one was skipping lunch because of FGE down on Alfred Street.


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## skc (29 November 2013)

McLovin said:


> The other thing to remember is that for a fund manager with a few billion dollars their holding in FGE would have been little more than a rounding error. If you're time poor and running a portfolio of 50-100 shares, you're more likely to just cut and run than spend time on a position that might represent 0.1% of your portfolio. AMP owns 7% of FGE, that was about $28m. By contrast AMP has about $80b in FUM. While that's no doubt spread across lots of products/asset classes, I'm sure no one was skipping lunch because of FGE down on Alfred Street.




Sure but someone's got to be accountable somewhere along the line... I guess that explains a lot about why big instos struggle to outperform.

Anyhow... all out today at 83. The last 17c to get to $1 is going to be hard work - if it ever gets there.

Going to donate 10% of the winnings to charity this xmas.


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## Intrinsic Value (29 November 2013)

skc said:


> Sure but someone's got to be accountable somewhere along the line... I guess that explains a lot about why big instos struggle to outperform.
> 
> Anyhow... all out today at 83. The last 17c to get to $1 is going to be hard work - if it ever gets there.
> 
> Going to donate 10% of the winnings to charity this xmas.




I am out at 83c too. Nice little profit which more than makes up for the loss on the 3 thousand I held before the trading halt.

I have kept 5 thousand as a bit of a punt.


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## Valued (29 November 2013)

I am out at 0.805. I hung around a little to see if it could recover again. When I saw the high of 0.86 I was hoping we could get to 0.90. It was quite close but then a lot of sellers seemed to come through, likely the ones who bought at 0.70 this morning. 

I didn't make back the money I lost before the trading halt. I lost about 20% overall. That's a lot better than losing 80% though and the short term trade by itself was hugely profitable.


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## McLovin (29 November 2013)

skc said:


> Sure but someone's got to be accountable somewhere along the line... I guess that explains a lot about why big instos struggle to outperform.




Big instos outperform when the market is falling by going to cash. It's too hard trying to consistently outperform in a rising market.

I don't know what sort of methodology they use to select stocks, but I would have thought with something like FGE it would be part of a macro theme rather than a company specific idea. So, for instance, playing mining capex, you can buy WOR or MND or you can buy a basket of small mining services stocks on lower pe's. I have no idea if this is how the operate.

I do think that retail investors have a tendency to fixate on what instos are doing. I seem to recall a similar discussion in the TGA thread when Perpetual was sellling down.


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## skc (29 November 2013)

McLovin said:


> Big instos outperform when the market is falling by going to cash. It's too hard trying to consistently outperform in a rising market.
> 
> I don't know what sort of methodology they use to select stocks, but I would have thought with something like FGE it would be part of a macro theme rather than a company specific idea. So, for instance, playing mining capex, you can buy WOR or MND or you can buy a basket of small mining services stocks on lower pe's. I have no idea if this is how the operate.
> 
> I do think that retail investors have a tendency to fixate on what instos are doing. I seem to recall a similar discussion in the TGA thread when Perpetual was sellling down.




A fund manager friend once told me that they rebalance based on beta to try to outperform. I.e. overweight high beta stocks in a rising market to get those extra performance. But it probably depends a lot on the mandate / strategy of the fund.

I think retail investors should pay heaps of attention to what instos are doing. Not because instos are always right/wrong, but because they affect substantially your entry/exit points. TGA may have been a buy at $2, but if Perpeutal is selling and has 10m shares to go - why stand in its way?

There are only 2 broker reports on FGE that I've seen today... Bells and MQG. Bell has a target price of 58c (and downgraded to sell) while previous target was $5.15. MQG downgraded it to underperform with target price 43c, based on 50% of NTA. It's Thanksgiving in the US so probably a few other analysts away - so may be there'd be more reports come Monday, or perhaps the company is just too small to receive coverage anymore.


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## McLovin (29 November 2013)

skc]A fund manager friend once told me that they rebalance based on beta to try to outperform. I.e. overweight high beta stocks in a rising market to get those extra performance. But it probably depends a lot on the mandate / strategy of the fund.[/QUOTE]

How big was the fund?

[QUOTE=skc said:


> I think retail investors should pay heaps of attention to what instos are doing. Not because instos are always right/wrong, but because they affect substantially your entry/exit points. TGA may have been a buy at $2, but if Perpeutal is selling and has 10m shares to go - why stand in its way?




Sorry, I should have been clearer, I meant investors fixate on whether the company is "good" or "bad" based on what instos are doing. The TGA thread is too long to go and find examples but to paraphrase many of the comments were along the lines of "If Perpetual is selling why would you think you know more than they do".



			
				skc said:
			
		

> There are only 2 broker reports on FGE that I've seen today... Bells and MQG. Bell has a target price of 58c (and downgraded to sell) while previous target was $5.15. MQG downgraded it to underperform with target price 43c, based on 50% of NTA. It's Thanksgiving in the US so probably a few other analysts away - so may be there'd be more reports come Monday, or perhaps the company is just too small to receive coverage anymore. QG downgraded it to underperform with target price 43c, based on 50% of NTA.




Yeah, I read the Mac report. At least this time we know FGE can't be accused of selective briefings.


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## skyQuake (29 November 2013)

skc said:


> Sure but someone's got to be accountable somewhere along the line... I guess that explains a lot about why big instos struggle to outperform.




They'd probably just give a call to an IB to dump shares. Price not important, volume important!

If it beats vwap then well done. If its not oh well. Just like GNC this morning


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## Valued (29 November 2013)

McLovin said:


> How big was the fund?
> 
> 
> 
> Sorry, I should have been clearer, I meant investors fixate on whether the company is "good" or "bad" based on what instos are doing. The TGA thread is too long to go and find examples but to paraphrase many of the comments were along the lines of "If Perpetual is selling why would you think you know more than they do".




I think in some cases retail investors can have more industry knowledge or better knowledge about a specific company than a fund too. If you work in a specific industry you might be able to piece together things outsiders can't. An example I think is the ASX listed law firms. Most of the investors arn't lawyers and don't understand the first thing about how the firm makes money other than it wins cases and gets paid. A lot of focus is put on their acquisition strategy without even understanding the basic principles behind what generates their revenue. 

If you work in an industry you also have contacts in the companies you may consider investing in. Big funds can talk to senior management but sometimes there is more value in knowing middle management. One big ASX listed company that is popular with mum and dad investors and institutions alike looks great from the eyes of senior management but there are huge problems underneath at the middle and lower management level. If you miss that, you overvalue the company. The problem is you can't know that unless you work in the industry.


----------



## Intrinsic Value (29 November 2013)

The basic problem with all these mining services companies is the high level of risk assosciated with their projects.

First off the mining service companies often dont have the quality resources to manage big projects and set themselves up for failure in the intial acceptance of the contract terms which are typically run on very tight margins. You typically have customers like BHP, Rio, Woodside etc who have far greater resources and far greater financial acumen than the staff at mining services companies so you are behind the eight ball to start with. 

I worked for two big mining services companies specifically setting up their project WBS structures for their projects and doing their month end and monitoring their costs for their cost plus jobs. 

The staff they employed werent really up to the job of managing these projects. Costs were often missed and became unrecoverable and many projects lost money as a result. Basically there are a lot of cowboys in the mining services industry who dont really have the expertise, experience or staff to run a big project.

One of the companies I work for no longer does projects because it lost over 50 million on one project alone.

So it is always buyer beware when it comes to these sort of businesses.


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## skc (29 November 2013)

McLovin said:


> How big was the fund?




Not sure the exact size but it was a big insto (can't remember rthe name!). 



McLovin said:


> Sorry, I should have been clearer, I meant investors fixate on whether the company is "good" or "bad" based on what instos are doing. The TGA thread is too long to go and find examples but to paraphrase many of the comments were along the lines of "If Perpetual is selling why would you think you know more than they do".




Yes I agree. Just like those who are fixated on the presence of bots in any particular stock...


----------



## So_Cynical (29 November 2013)

Valued said:


> If you didn't know it was in a halt, I hope you don't own FGE since you just lost the large majority of your investment.




Lucky for me that in general i avoid stocks that don't own anything, the "value" trap...i dont and have never held FGE.


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## Valued (30 November 2013)

So_Cynical said:


> Lucky for me that in general i avoid stocks that don't own anything, the "value" trap...i dont and have never held FGE.




I suppose service companies can seem risky but imo a service company like FGE isn't that much different to say a supermarket like Woolworths (ignoring Woolworths' other very large interests). They employ a relatively low amount of capital in order to generate very high profits due to high revenue with low operating margins.


----------



## VSntchr (30 November 2013)

Valued said:


> I suppose service companies can seem risky but imo a service company like FGE isn't that much different to say a supermarket like Woolworths (ignoring Woolworths' other very large interests). They employ a relatively low amount of capital in order to generate very high profits due to high revenue with low operating margins.




Look at the customer base. WOW has millions of repeat transactions...any of which can drop off and WOW will not even notice. They can make a pricing blunder and still it wont affect them badly...

now look at FGE, handful of transactions..any of which drop off and you'v got a serious problem...a pricing blunder on just two contracts has nearly wiped them out and at best has tarnished their name for the foreseeable future...


----------



## ROE (30 November 2013)

Valued said:


> I suppose service companies can seem risky but imo a service company like FGE isn't that much different to say a supermarket like Woolworths (ignoring Woolworths' other very large interests). They employ a relatively low amount of capital in order to generate very high profits due to high revenue with low operating margins.




you soon learn, business that has million of repeat transaction in small number is far superior to any other business on the market...and the same business that are ticket clippers and get customer to pre-paid is even better 

Business that has large contract are inherently more risky as one contract could make or break you.


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## Valued (30 November 2013)

ROE said:


> you soon learn, business that has million of repeat transaction in small number is far superior to any other business on the market...and the same business that are ticket clippers and get customer to pre-paid is even better
> 
> Business that has large contract are inherently more risky as one contract could make or break you.




Fair enough. This makes sense. Im convinced lol. Btw above I said low operating margin. I meant high revenue low profit margin. WOWs operating margins in their supermarkets are very high, as with forge which is why one contract can bust them


----------



## Baker1494 (2 December 2013)

skc said:


> A fund manager friend once told me that they rebalance based on beta to try to outperform. I.e. overweight high beta stocks in a rising market to get those extra performance. But it probably depends a lot on the mandate / strategy of the fund.
> 
> I think retail investors should pay heaps of attention to what instos are doing. Not because instos are always right/wrong, but because they affect substantially your entry/exit points. TGA may have been a buy at $2, but if Perpeutal is selling and has 10m shares to go - why stand in its way?
> 
> There are only 2 broker reports on FGE that I've seen today... Bells and MQG. Bell has a target price of 58c (and downgraded to sell) while previous target was $5.15. MQG downgraded it to underperform with target price 43c, based on 50% of NTA. It's Thanksgiving in the US so probably a few other analysts away - so may be there'd be more reports come Monday, or perhaps the company is just too small to receive coverage anymore.




Hey SKC,
Where have you been getting these reports? I have been searching for a couple of years for a good collection of them.


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## skc (3 December 2013)

Baker1494 said:


> Hey SKC,
> Where have you been getting these reports? I have been searching for a couple of years for a good collection of them.




You have to pay for them or a client of the research house.

This site offers a summary of daily broker calls. I don't know about its accuracy, currency or comprehensiveness.

http://finance.ninemsn.com.au/newsc...108/fn-arena-broker-call-headlines-3-dec-2013

Back on FGE... still plenty of movements. Looking at the movement of MMS after its shock (completely different event and potential outcomes), the price action may turn out to be quite similar.


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## ROE (3 December 2013)

I hate to say it but downgrade usually don't come with one off
It usually follow by more down grade .... I ain't suggesting FGE going to do it but stats wise

It has a bigger chance of more down grade down the track.

With big miners spear head and accelerating capex saving in the next 2 years the odds stack against mining services companies.

RIO announce today they going to save 8bn capex by 2015


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## Baker1494 (3 December 2013)

skc said:


> You have to pay for them or a client of the research house.
> 
> This site offers a summary of daily broker calls. I don't know about its accuracy, currency or comprehensiveness.
> 
> ...




That website is brilliant. Thank you very much for that. Any opinions on research houses?

I got out of FGE today more for a short term short, planning on buying back in if it falls by 50%. Def looking like the potential for more falls over the next couple of days/weeks.


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## skc (3 December 2013)

Baker1494 said:


> That website is brilliant. Thank you very much for that. Any opinions on research houses?




Do a search on the forum and ask the questions in the right thread so we can keep this thread on FGE.


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## Floater (10 December 2013)

Hi to all,

Have just joined Aussie Stocks,
Not new at share trading but no wizard either,
My question is I have just purchased a sizeable parcel of FGE shares today at $0.505c and jumped the gun by about an hour as they went down even lower to 48.5c.
 Did I make the right decision, looking at the value of the company regardless of the issues at hand the original values are still there even though they made some not so diligent purchases.
I believe still that I have made a good purchase and that the shares will rise in the not to distant future.
What are the thoughts, is in your learned eyes FGE still a good company to own shares in.

Regards
Floater


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## infamous (17 December 2013)

Floater said:


> Hi to all,
> 
> Have just joined Aussie Stocks,
> Not new at share trading but no wizard either,
> ...



Feeling better about that decision now? (hopefully you stuck to your guns)
Currently $0.67, so +33% on the back of a being awarded a 40 mill contract in the US market.


----------



## robusta (24 December 2013)

Bit strange the last two days, the price has spiked on reasonable volume. I wonder if there is a announcement pending?


----------



## Valued (24 December 2013)

robusta said:


> Bit strange the last two days, the price has spiked on reasonable volume. I wonder if there is a announcement pending?




Well if the price is going up with an announcement pending, it begs the question: how does the market know? If the announcement is good news and the stock price goes down, we may just have our answer.


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## piggybank (27 December 2013)

Not surprising to see that the company got a speeding ticket today given the rise in price since it's (lows on 11/12 December - 46.5 cents) have increased by 120% to close today at $1.025 on increasing volume - it has gapped up the past 3 trading days.

Is this increase warranted or just day traders pushing it up in trying to make a killing?

This is the link for the speeding ticket:-

http://stocknessmonster.com/news-item?S=FGE&E=ASX&N=663103


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## robusta (27 December 2013)

piggybank said:


> Not surprising to see that the company got a speeding ticket today given the rise in price since it's (lows on 11/12 December - 46.5 cents) have increased by 120% to close today at $1.025 on increasing volume - it has gapped up the past 3 trading days.
> 
> Is this increase warranted or just day traders pushing it up in trying to make a killing?
> 
> ...




No idea, I got out at $0.95 at the open, bought in at $0.66 a month ago. Left a bit on the table however $0.95 was the days low could have got $1.03 easy.

Either someone is building a position at a strange time, as you say the day traders are playing games or another company with deep pockets have decided to buy the order book.


----------



## Lisa Edwards (29 December 2013)

According to The Australian this week Forge Group is announcing another Joint Venture worth 90M. Should be a big week for FGE. Up 15% on Friday, news maybe already leaked. Watching closely.....


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## infamous (30 December 2013)

HOLD ON TO YOUR HATS!


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## notting (30 December 2013)

Christmas to new year is a shocking time for a squeeze!
Good time to get short but.


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## Serpentis (30 December 2013)

That's weird. I figured I'd jump in with a punt and momentum trade it, but only part of the shares actually appeared in my account after my order went through. I have the confirmations that the trade was carried out in full and everything, and everywhere I look it says the order was properly carried out, but still only part of the shares are showing up. This is in Commsec, and of all the trading I've done I've never had this happen to me before, shares always show up in my portfolio instantly after the order goes through, so I can sell them immediately after I get them.

I couldn't set up a stop loss, I couldn't sell when I wanted to, all I can do is watch as the value of the shares I apparently own are now dropping back down again, straight through where I tried to set up my stop loss 

Maybe it'll keep going up, maybe this'll turn out okay (it was only a small amount of money anyway) but I'm not sure I'll ever trust Commsec again with trading.


----------



## notting (30 December 2013)

Serpentis said:


> That's weird.
> I couldn't set up a stop loss, I couldn't sell when I wanted to,




Gotta go the phone fast in a situation!


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## Serpentis (30 December 2013)

I called them up and got it resolved, but obviously it's too late now for my stop loss. They said this happens occasionally when a popular stock leaps up in price very rapidly.

Very frustrating, but at least now I know what to do next time this happens.

So I guess I'm going to be holding FGE for a bit then. Not too bad, I think it's been beaten down way too far, and I think it's got ground to recover as contracts come in. Then I'll sell!


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## Valued (30 December 2013)

Sigh... I saw a few entry opportunities but I was at work and something kept coming up. My first entry was a pullback when the stock was just 9% up. At least I was out of the market so could not lose that 40% in 5 seconds flat that some did! I missed out on some insane returns though  kicking myself for not pulling the trigger.


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## piggybank (30 December 2013)

Companies response to price query:-

http://stocknessmonster.com/news-item?S=FGE&E=ASX&N=663205


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## Intrinsic Value (30 December 2013)

Well it just goes to show that I shouldn't let other posters and fear influence me.

A very costly decision to sell out quite a substantial holding for circa 80 cents instead of hanging on for a while.


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## Valued (30 December 2013)

Intrinsic Value said:


> Well it just goes to show that I shouldn't let other posters and fear influence me.
> 
> A very costly decision to sell out quite a substantial holding for circa 80 cents instead of hanging on for a while.




I think too that sometimes you might get half the strategy. E.g. someone might sell at x since they think it's going to go down but then they are planning to buy again at y if momentum begins upwards again. There is no rule that you cannot rebuy at a later point in time. I wish I did... if I even took the last entry I saw I would be up 20% or so right now. If I took the first one this morning and sold when people were going crazy I would have made around 80%! I wish I took those trades.


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## Valued (31 December 2013)

Lol after missing out on thousands yesterday and even got my order at 3:59:50 yesterday not fulfilled since there was lag and missing out on more money this open, I managed to shave off a grand total of $70 this morning. Yay, Valued is eating this week.


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## Serpentis (31 December 2013)

I sold out for about an overall 7% profit. Not great, but considering my technical difficulties that stopped me from doing the trades I was meant to do, I'm just happy I got out unscathed!


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## Searinox (6 January 2014)

I bought in at 0.54.. was going to sell the other day when it hit 1.90.. back down to 1.43 now 

Will just hold for the time being i think..


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## piggybank (6 January 2014)

Searinox said:


> I bought in at 0.54.. was going to sell the other day when it hit 1.90.. back down to 1.43 now
> 
> Will just hold for the time being I think..




$1.43 is better than anything less than 54 cents (plus commission) - GREED


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## piggybank (6 January 2014)

"Forge was forced to respond to two price queries from the ASX as its shares rose a total of 127.3% over the short period between December 20 and 31 (which included an incredible 54.6% one-day gain). Forge responded that it knew of no reason to explain the sudden spike in trading volume" 

Q) Does this mean that the ASX could take action (punishment) for Forge not being honest? Or could they argue they were not aware of the stock being bought up by BlackRock the Worlds largest money manager!!

Thanking those in advance of their reply.

Regards
PB


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## HCC (7 January 2014)

Got out at 1.28. Bought in at 0.592. Was going to hold it for a tad longer but decided to spend the proceed elsewhere. GOOD roller coaster ride for the shareholders.


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## Valued (8 January 2014)

Hmm, Blackrock sold back some of what they bought according to the substantial holder notices. The average sell price was 1.75. Blackrock probably sold some at market when the price got to 1.90 which is perhaps why the price tumbled I think from memory 30 or 40% in mere seconds that day.


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## piggybank (8 January 2014)

The share price closed down today at $1.105c (15.5%) on volume of 6.69 Million.


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## TheUnknown (8 January 2014)

Wish I got in at 59cents. anyone game enough to short it?


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## notting (8 January 2014)

TheUnknown said:


> Wish I got in at 59cents. anyone game enough to short it?




30th-December-2013 11:37 AM


notting said:


> Christmas to new year is a shocking time for a squeeze!
> Good time to get short but.




It's retraced back nearly %61.8 of it's recent bounce off the bottom. Time to take profits on the short and watch what it does next!


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## Valued (8 January 2014)

Which broker is letting you short FGE? With what instrument?


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## HCC (9 January 2014)

Wow FGE is on the rise again???


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## Searinox (9 January 2014)

Yeah, out of nowhere it's climbing after days of dropping, opened at 1.09 now at 1.28


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## infamous (9 January 2014)

My thought is it's short term profiteers buying back in.

It's still good value at it's current price IMHO, if you've got the stomach for the fluctuations!


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## HCC (9 January 2014)

infamous said:


> My thought is it's short term profiteers buying back in.
> 
> It's still good value at it's current price IMHO, if you've got the stomach for the fluctuations!





Well i sold everything this morning with 30% profit. 

Im sure ill get on to that once its less volatile.


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## prawn_86 (10 January 2014)

infamous said:


> It's still good value at it's current price IMHO,




Why do you think that? Can you please provide some analysis to promote some further discussion?


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## Searinox (10 January 2014)

Trading halt today, could be interesting


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## skc (10 January 2014)

If I was to bet I'd say the financial positions on those f'd up contracts have gotten worse.

A potenital less negative scenario is simply that they need more working capital, having recently won Roy Hill and other projects, and ANZ or whoever have extended them further loans for performance bond or something like that.


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## Ves (10 January 2014)

skc said:


> If I was to bet I'd say the financial positions on those f'd up contracts have gotten worse.
> 
> A potenital less negative scenario is simply that they need more working capital, having recently won Roy Hill and other projects, and ANZ or whoever have extended them further loans for performance bond or something like that.



I think given the delay to next Tuesday (ie. they're buying as much time as possible) it's probably certain to not be "good" news.... and most likely it'll be to do with the inevitable capital raising that had to happen.


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## Valued (10 January 2014)

I am glad my money isn't in this one this trading halt lol. Bad news might be an opportunity if the price drops very low again, especially if blackrock sells their entire holding at market for any price... like what happened last time.


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## PurplePixie (14 January 2014)

What do people think of the news today?

I'm new at this whole stock market thing, so my thoughts may not be as well trained as others...however I thought it was interesting that ANZ have agreed to continue financing them.

The recorded loss is high.

It was surprising to see that while the price of the shares has dropped since it was trading, it is still high, compared to the first day of trading after the last halt.


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## skc (14 January 2014)

Someone said in an earlier post, that the first estimate of loss on a troubled project is rarely the last (sry couldn't find the actual post to acknowledge the author). Additional $23-28m loss on problem contracts, another $14-19m cash required.

Even with continued support of bankers, their need fresh capital has increased in scope and urgency. I think they are probably trying to live on debt until the project is absolutely completed and the market being fully satisfied that there are no more downgrades. I suppose that is possible since ANZ is probably in a bit too deep to pull the plug now. Commissioning of those power plant is not due until end of FY14... plenty of time for things to go wrong yet for the pessimist. 

I think the market is being very kind to FGE, esp on a day like today, with the share price only down ~15%. I really thought this was going to open 50% down. Too bad there was no borrow on this name. But I do think today's high will be a high for quite some time.


----------



## PurplePixie (14 January 2014)

skc said:


> Someone said in an earlier post, that the first estimate of loss on a troubled project is rarely the last (sry couldn't find the actual post to acknowledge the author). Additional $23-28m loss on problem contracts, another $14-19m cash required.
> 
> Even with continued support of bankers, their need fresh capital has increased in scope and urgency. I think they are probably trying to live on debt until the project is absolutely completed and the market being fully satisfied that there are no more downgrades. I suppose that is possible since ANZ is probably in a bit too deep to pull the plug now. Commissioning of those power plant is not due until end of FY14... plenty of time for things to go wrong yet for the pessimist.
> 
> I think the market is being very kind to FGE, esp on a day like today, with the share price only down ~15%. I really thought this was going to open 50% down. Too bad there was no borrow on this name. But I do think today's high will be a high for quite some time.




Yes, I think I read the post you are referring to. And FGE have had more than one trouble. 

I was surprised that ANZ decided to stay, but as you say, maybe they are in a little too deep. 

I wondered if Roy Hill might be their 'positive' project, since the power stations seem to be struggling with loses. 

When you say 'today's high will be a high for quite some time' - do you mean you think it will stay high, or you think today's high is the best it will go for some time?

I was expecting to see the 30 cent price we saw when it last opened.


----------



## skc (14 January 2014)

PurplePixie said:


> I wondered if Roy Hill might be their 'positive' project, since the power stations seem to be struggling with loses.




Roy Hill project hasn't actually got full funding yet. They had confirmation to start phase 3 but I have no idea what phase 3 actually entails. Probably some early utilities / site work / design etc which isn't going to be the full project value. 

Also, keep in mind that Roy Hill is one of the few last mega projects left in the immediate planning horizon. Every man and his dog will be bidding for it, as the overall sector faces significant reduction in capex spent. It was a seller's market, and a very ideal set up for the "winner's curse" situation.



PurplePixie said:


> When you say 'today's high will be a high for quite some time' - do you mean you think it will stay high, or you think today's high is the best it will go for some time?




The latter. Share price won't exceed $1.21 for some time.

Then again, I am often wrong.


----------



## PurplePixie (14 January 2014)

Thanks skc - all very interesting points! I'm still learning, so lots of things to take into consideration


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## Valued (14 January 2014)

There is a very good chance Blackrock sold their holdings this morning. The price plummeted on extremely high volume. There was then major volume going into those up bars, likely selling into the buying by Blackrock. If I wasn't busy this morning I would have bought because I knew there was a good chance there would be a huge sell off by big money. I actually forgot about it since there was a mini crisis at work We won't see a change in substantial shareholder message from them though since they sold off over 1m of their holdings previously and that notice came on Jan 6th, removing them from being a substantial holder.


----------



## PurplePixie (14 January 2014)

Hi Valued

Do you mean blackrock sold off their shares? hence the price drop?

Their announcement said they had to financial backing of their supporters, but I wonder for how long?


----------



## gv1 (14 January 2014)

This is pathetic, they ar not in a business of selling peanuts, whereby profits are only 50c, its a huge loss, who was incharge. Heads should be rolling as well. I could see before the major t/halt last year, the co had AGM a month before that, how come such large loss was not discovered and discussed. Also I am sure normally in contracts like this they have clause for overruns, I am sure they could have come up with the customer.
Someone needs to be held accountable for all this drama.


----------



## Valued (14 January 2014)

PurplePixie said:


> Hi Valued
> 
> Do you mean blackrock sold off their shares? hence the price drop?
> 
> Their announcement said they had to financial backing of their supporters, but I wonder for how long?




The price would have dropped anyway but not that much. I am suggesting Blackrock or another large or substantial shareholder did a huge sell off of millions of shares on open. I can't know that for sure, but there is no way that's retail trader volume. Someone big was selling in big chunks of volume. Blackrock is who I suspect though since they already started selling off earlier on in the piece, taking their holding under that of a substantial holder. That's why the price flung down so aggressively from its highs in December.

Hopefully ANZ just decides to stick with it. They have an interest via warrant of a significant amount of the company. They probably also have some sort of fixed and floating charge over FGE's property and are secured as a creditor. Someone at ANZ might have their eyes fixed firmly on the dollar signs of roy hill. I am sure ANZ has calculated the risk and consider it acceptable. At the end of the day, they can afford to lose that sort of money and only get back a percentage of it at liquidation. If they drop support now and liquidate forge, they will probably not get much back at all... plus ANZ would exercise their warrant in the event of some sort of take over, and get some money back there and still be a creditor.


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## skc (14 January 2014)

Valued said:


> The price would have dropped anyway but not that much. I am suggesting Blackrock or another large or substantial shareholder did a huge sell off of millions of shares on open. I can't know that for sure, but there is no way that's retail trader volume. Someone big was selling in big chunks of volume. Blackrock is who I suspect though since they already started selling off earlier on in the piece, taking their holding under that of a substantial holder. That's why the price flung down so aggressively from its highs in December.




Blackrock only had 4.586m shares as at 31 Dec, and after 6 Jan notice, 3.246m left. Another 30m shares traded in the 3 days since the 6 Jan notice, before the trading halt. So I would have guessed that Blackrock hasn't got many shares left going into the halt... pure guess work of course as there's no way to verify.


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## skyQuake (14 January 2014)

skc said:


> Blackrock only had 4.586m shares as at 31 Dec, and after 6 Jan notice, 3.246m left. Another 30m shares traded in the 3 days since the 6 Jan notice, before the trading halt. So I would have guessed that Blackrock hasn't got many shares left going into the halt... pure guess work of course as there's no way to verify.




I knew it was gonna be a great short when my borrow got recalled


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## ROE (24 January 2014)

Another trading halt on earning guidance cant be good news considering the sell down last few days.

Bad news comes in three, this going to be number #2


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## skc (24 January 2014)

ROE said:


> Another trading halt on earning guidance cant be good news considering the sell down last few days.
> 
> Bad news comes in three, this going to be number #2




Actually this is number 3 already...

There's actually a mostly benign explanation to the latest trading halt. After the 2nd downgrade on the trouble contracts they actually didn't update their earnings. So this could be just tidying that up on the announcement front.

However, given that they said it's an update on the "underlying" earnings... which excludes the impact of the problem projects, I am fearful that it'd be more bad news yet.


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## adds4 (26 January 2014)

Looks like fge is going to announce more write downs. Usually when a company has a bad yr, you might as well cleanse the books, so anythink that is in dispute is rectified, and accounted for, any contract that looks like not making the required profit for the project is accounted for now, not in yrs time etc.

The real worry for the company is the growth division the power segment is the part of the company that is causing all the problems. Think they would have been better off buying a couple of engineering businesses in Africa to give webb some critical scale and copy the success in Australia to Africa. Hindsight is a wonderful thing though.


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## TheUnknown (26 January 2014)

Hope this drops down to 0.50 again ill buy a truck load ride it to 1.00


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## Valued (26 January 2014)

TheUnknown said:


> Hope this drops down to 0.50 again ill buy a truck load ride it to 1.00




You don't even know what the news is yet though. The only reason it dropped so far in the first place was the fire sale from professional interests who simply yelled to their broker SELL AT ANY PRICE. Those interests are now not involved in the stock (although Blackrock did a play on the stock at the right time before selling it off at the exact right time). Therefore, if the price plummets retail traders will have to panic sell. The news would have to be terrible for the stock to drop 50%. It might be that some profit downgrades cause a 10% drop but I wouldn't expect a panic unless there is something very wrong which would make a long position risky (e.g. losing the roy hill contract would clearly be a disaster).

There may be a slight chance it's good news and they want to wait until after the long weekend. It could be a small new contract.


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## ROE (26 January 2014)

Valued said:


> There may be a slight chance it's good news and they want to wait until after the long weekend. It could be a small new contract.




You dont put company into a trading halt because you winning some new contracts, you just announce it to the market when you inked the deal...

Generally good news they don't normally put company into trading halt, it has to be write down, loss of large contracts that affect profitability, profit downgrade that outside the market consensus, capital raising etc... something that can cause share price dilution and or heading south...


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## TheUnknown (26 January 2014)

Lets hope its bad news to enter in for a short rewarding ride. Because i dont believe in long term.


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## ROE (29 January 2014)

Read the announcement ... too many unanswered question....too vague...high risk remains, 15% capital raising is bugger all at the current price...probably wouldn't covered them for another revision down...

plus Australian has an article their subcontractors haven't been
paid so they have serious cash flow issues...

they just just surviving at this rate...too high risk ...


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## Valued (29 January 2014)

Lol I saw this thinking hmm I might be able to make a quick buck here when this dropped down to 0.78. Turns out I could have but I decided I didn't want to gamble. Went up 10 percent in a minute or two... but then I remember seeing FGE drop 40% in less than 5 seconds not too long ago. Of course, that came after the big 93% drop...


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## ROE (29 January 2014)

Could be getting worse ...definitely a gamble at this state and I ain't intend to gamble

http://www.theaustralian.com.au/bus...ge-power-project/story-e6frg9df-1226812444861


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## skc (29 January 2014)

2 months from the initial suspension which said EBITDA underlying was going to be $45-50m. Now it's a $20-25m loss. Various excuses being thrown in the announcement, but the only summary is that they are incompetent and basically lied about other projects being quarantined.

I can't believe these guys are only down 10%. A company with essentially no credibility or equity left. Would you work for them if you are a subcontractor? Would you award them with work if you want something built? 

They said they have had 3rd party approaches... let's see if they are real or just tyre kickers... I'd want a look too to see if there's any meat on the order book. 

Here's my fearless prediction for FGE... if they do received a takeover offer it will be at a price well below the current price. AND the directors will recommend shareholders accept the offer.


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## VSntchr (29 January 2014)

skc said:


> 2 months from the initial suspension which said EBITDA underlying was going to be $45-50m. Now it's a $20-25m loss. Various excuses being thrown in the announcement, but the only summary is that they are incompetent and basically lied about other projects being quarantined.
> 
> I can't believe these guys are only down 10%. A company with essentially no credibility or equity left. Would you work for them if you are a subcontractor? Would you award them with work if you want something built?




Pretty great concise summary right there of the facts that are going to affect the underlying business going forward.
If only IG still had it on borrow


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## ROE (29 January 2014)

skc said:


> Here's my fearless prediction for FGE... if they do received a takeover offer it will be at a price well below the current price. AND the directors will recommend shareholders accept the offer.




Only thing that stable the price today is holder hoping for a take over offer, without that I reckon it would have been in free fall... Another stuff up and I am afraid their bankers going to pull the pin.....

Also there generally a great cost the company has to pay for banker to back them with the current dire situation

and none of this info is disclosed so  you in the dark on what interest rate they pay,  what asset they put up, any business they force to sell as part of the deal, what their new Covenants going to be etc..etc...

or it has been the whole time the bankers said we back you while you put up the business for sale else we pull the pin... 4 weeks is a long time in trading halt when they came back so a lot must have happened and lot of dealing and wheeling going on and no one know what it is

remember BBG , bankers force them to divest their most profitable business and pay them back for ongoing support


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## piggybank (30 January 2014)

Worrying cracks in Forge Group’s credibility
Stephen Bartholomeusz 29 Jan, 12:44 PM 4
Industries, Resources and Energy

Once is happenstance, twice perhaps a coincidence. But three times?

Today’s latest earnings downgrade from Forge Group shreds its credibility.

In November and earlier this month, Forge disclosed earnings writedowns associated with two West Australian power projects – $127 million in November and a further $23 million to $28 million two weeks ago.

Forge weathered those writedowns with the forbearance of its bank, ANZ. The bank waived covenants on its loan facilities, expanded the group’s working capital facility and, in exchange, was issued with warrants that, if exercised, would give it about 13 per cent of the former market darling...... 

If you wish to read more, then you can do so by clicking on this link:-

http://www.businessspectator.com.au...il&utm_content=566960&utm_campaign=pm&modapt=


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## PurplePixie (7 February 2014)

FGE have gained nearly 20% today. I wonder why the sudden rise?


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## skc (7 February 2014)

PurplePixie said:


> FGE have gained nearly 20% today. I wonder why the sudden rise?




News that their data room has attracted plenty of interest...

http://au.news.yahoo.com/thewest/business/wa/a/21314995/wa-firms-cast-eyes-over-forge/



> Shares in Forge Group have soared more than 20 per cent as WA contractors join parties having a look at its books as the engineering company seeks a more lasting fix for huge project losses.




This may or may not lead to an actual offer, and any offer may be higher or lower than the prevailing share price.


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## PurplePixie (7 February 2014)

Thanks skc!

It's interesting watching what can change the price so quickly. 

I imagine any take-overs would be on the strength of Roy Hill?


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## ROE (11 February 2014)

ANZ pull the pin, sad day, fire sale or bankrupt or corner investor at massive discount no win for shareholder in any scenario.


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## skc (11 February 2014)

ROE said:


> ANZ pull the pin, sad day, fire sale or bankrupt or corner investor at massive discount no win for shareholder in any scenario.




Yup... that was a very dramtic and quick turn of events. It was always going to be a all or nothing type gamble... but I thought they would last a little bit longer yet.


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## skc (11 February 2014)

Another one added to Chairman David Craig's resume.

http://investing.businessweek.com/r...sCapId=23724765&previousTitle=FORGE GROUP LTD



> 2008-2010
> Former Independent Non-Executive Director, Chairman of Audit Committee, Member of Nomination Committee and Member of Remuneration Committee
> ADG Global Supply Limited
> 
> ...




None of these companies are booming successes... the jury's still out with SIR.


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## PurplePixie (11 February 2014)

ROE said:


> ANZ pull the pin, sad day, fire sale or bankrupt or corner investor at massive discount no win for shareholder in any scenario.




I imagine the stocks are worth nothing now?

Or will they just be worth a very low amount?

Or would a shareholder go on a creditor list?

Totally new at this and have no idea what would happen.


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## ROE (11 February 2014)

PurplePixie said:


> I imagine the stocks are worth nothing now?
> 
> Or will they just be worth a very low amount?
> 
> ...




You don't know until Thursday when the announce to the market their position ...but nothing good would come out of this .. These are possible scenario.

1. Bank pull their support and demand their debt back, FGE don't have the cash they are insolvent and their asset belongs to the banks, administrator call in, fire sale start...nothing will be left for holder... 

2. They find a buyer for the business and the new owner wish to take on all the liability including the bank debt, how much they pay no idea

3. Sell off their asset or exchange their big contracts with some other company for some cash and pay back the bank debt, do they have anything to sell that worth 50-100m?

4. Recap, need to find a white knight who willing to inject money that satisfied FGE bankers and carry on...
This won't come cheap as FGE is on 000 emergency bed, they demand large discount and that dilute most current holders value..

When it comes to this shareholder usually get little value out of it....you are the last in line ....


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## McLovin (11 February 2014)

ROE said:


> ANZ pull the pin, sad day, fire sale or bankrupt or corner investor at massive discount no win for shareholder in any scenario.




Hard to believe that if ANZ didn't want to stay on, even with the sweet deal they gave themselves, that there's much left in FGE worth saving. It wasn't even that long ago that this was still a darling stock, considered bullet proof by many even as the sector started to get whipped.


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## PurplePixie (11 February 2014)

Thanks Roe!

Doesn't sound too good either way!


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## craft (11 February 2014)

craft said:


> The warrant has a cash equivalent term which is basically an execution clause as the company could never meet the call. The bank could utilise this at any stage to maximise their windup distribution, but would not be in their interest to use it a point that left equity with anything.




What surprised me most about FGE is not that it ended up like this but that the price got close to $2.00 in-between the announcement that really put the writing on the wall and this one. 

Best case scenario for shareholders is that the execution clause has been exercised because there is an offer on the table that management doesn't want to take but ANZ thinks they should. If there is no offer then ANZ will put them into receivership to protect its priority claims. Can't imagine there would be anything left for shareholders out of that process.


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## skc (11 February 2014)

craft said:


> Best case scenario for shareholders is that the execution clause has been exercised* because there is an offer on the table that management doesn't want to take but ANZ thinks they should.* If there is no offer then ANZ will put them into receivership to protect its priority claims. Can't imagine there would be anything left for shareholders out of that process.




Where did you read about that?


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## McCoy Pauley (11 February 2014)

ROE said:


> You don't know until Thursday when the announce to the market their position ...but nothing good would come out of this .. These are possible scenario.
> 
> 1. Bank pull their support and demand their debt back, FGE don't have the cash they are insolvent and their asset belongs to the banks, administrator call in, fire sale start...nothing will be left for holder...
> 
> ...




As one of the commentariat pointed out when news emerged that companies like Monadelphous and other mining service providers were going through FGE's data room, they were almost certainly doing due diligence on FGE's numbers when the tenders awarded to FGE come back onto the market because FGE can't do the job any more.

I highly doubt that any peer/competitor to FGE would be interested in purchasing FGE.  They would rather see the company go into insolvency and then cherry pick the best assets, use their intelligence from going through FGE's data room to cherry pick the best contracts and away they go.

I don't see a white knight coming to the rescue.

I don't hold FGE, but I do hold MND.


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## craft (11 February 2014)

skc said:


> Where did you read about that?




I'm just saying that it would be the best case scenario as an explanation to why ANZ have moved now. 

ANZ have put themselves firmly in control - if its not to force acceptance of some offer then its to protect their claims via receivership. 

I have no idea if there actually is any offer.


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## skc (11 February 2014)

craft said:


> I'm just saying that it would be the best case scenario as an explanation to why ANZ have moved now.
> 
> ANZ have put themselves firmly in control - if its not to force acceptance of some offer then its to protect their claims via receivership.
> 
> I have no idea if there actually is any offer.




I see. I mis-understood your wording. I wonder what sort of change of control / administrator appointed provisions exist in a typical contract. Re-tender is a timely and costly proceess...


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## ROE (11 February 2014)

http://www.afr.com/p/business/companies/forge_may_pay_ultimate_price_for_9aWkuE7JIGIeenJU7DRLWN


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## ROE (11 February 2014)

Game over
http://www.afr.com/p/business/companies/forge_appoints_administrators_source_lkLBq0TDWXrYnjC6s5JAaN


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## McLovin (11 February 2014)

So...who's next?

There's a whole bunch of small mining services companies that are surely only a few ham sandwiches away from being the next FGE.


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## skc (11 February 2014)

McLovin said:


> So...who's next?
> 
> There's a whole bunch of small mining services companies that are surely only a few ham sandwiches away from being the next FGE.




BLY's balance sheet is not in great shape with $190m current debt and $645m non-current debt against $37m cash and $443m of inventories. Any issues turning those inventories into cash will see it run into a bit of trouble. Equity market value is $210m.

EHL is another one. Current debt $9.3m, non-current debt $406m against $5.7m cash ~$50m debtors less creditors and $15m of inventories. They do have $820m in fixed assets (so if they can sell them near book value they'd be OK) and last reported op cash flow was decent. Utilitisation rate is 43% means a lot of idle fleet around. Equity market value is ~$170m.

Then there's Leightons... with potential cash flow problems in Middle East and probably Gorgon Jetty. But you'd hope it won't go under.

BTW, how good was CLO's timing?! Selling it's stake in March 2013 for a sweet $6.05.


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## Miner (11 February 2014)

McCoy Pauley said:


> As one of the commentariat pointed out when news emerged that companies like Monadelphous and other mining service providers were going through FGE's data room, they were almost certainly doing due diligence on FGE's numbers when the tenders awarded to FGE come back onto the market because FGE can't do the job any more.
> 
> I highly doubt that any peer/competitor to FGE would be interested in purchasing FGE.  They would rather see the company go into insolvency and then cherry pick the best assets, use their intelligence from going through FGE's data room to cherry pick the best contracts and away they go.
> 
> ...






craft said:


> I'm just saying that it would be the best case scenario as an explanation to why ANZ have moved now.
> 
> ANZ have put themselves firmly in control - if its not to force acceptance of some offer then its to protect their claims via receivership.
> 
> I have no idea if there actually is any offer.




All speculation but reasonable explanation of its condition on FGE finance.
Who will trust ANZ who made a volte face after providing $100 M (?) debt assurance and then taking the support off. 
I thought to miss out to make quick bucks last time when the shares sunk at 28 cents. But this time I am not going to think of even investing when it opens (if) on Thursday.
FGE management proved its incompetency so can not show any miracle . 
two questions I have : what ANZ shareholders will say for its lending steps
Second - why still no one asked the directors for sleeping under the blanket and taking hefty bonus . It was raised at first trading halt and now buried under sand.
I am worried as an engineer about the fate of Roy Hill Project and the creditors who invested fortune through work in progress once FGE collapsed. Mrs R the richest person of Australia will probably blink after just sorting out her funding good. What about the people jobs once again will slide ? Roy Hill is the only large project in mining area in Australia/W now.
It is just not FGE shareholders going to be shafted.

- - - Updated - - -



McCoy Pauley said:


> As one of the commentariat pointed out when news emerged that companies like Monadelphous and other mining service providers were going through FGE's data room, they were almost certainly doing due diligence on FGE's numbers when the tenders awarded to FGE come back onto the market because FGE can't do the job any more.
> 
> I highly doubt that any peer/competitor to FGE would be interested in purchasing FGE.  They would rather see the company go into insolvency and then cherry pick the best assets, use their intelligence from going through FGE's data room to cherry pick the best contracts and away they go.
> 
> ...






craft said:


> I'm just saying that it would be the best case scenario as an explanation to why ANZ have moved now.
> 
> ANZ have put themselves firmly in control - if its not to force acceptance of some offer then its to protect their claims via receivership.
> 
> I have no idea if there actually is any offer.




All speculation but reasonable explanation of its condition on FGE finance.
Who will trust ANZ who made a volte face after providing $100 M (?) debt assurance and then taking the support off. 
I thought to miss out to make quick bucks last time when the shares sunk at 28 cents. But this time I am not going to think of even investing when it opens (if) on Thursday.
FGE management proved its incompetency so can not show any miracle . 
two questions I have : what ANZ shareholders will say for its lending steps
Second - why still no one asked the directors for sleeping under the blanket and taking hefty bonus . It was raised at first trading halt and now buried under sand.
I am worried as a miner  about the fate of Roy Hill Project and the creditors who invested fortune through work in progress once FGE collapsed. Mrs R the richest person of Australia will probably blink after just sorting out her funding good. What about the people jobs once again will slide ? Roy Hill is the only large project in mining area in Australia/W now.
It is just not FGE shareholders going to be shafted.

- - - Updated - - -



McCoy Pauley said:


> As one of the commentariat pointed out when news emerged that companies like Monadelphous and other mining service providers were going through FGE's data room, they were almost certainly doing due diligence on FGE's numbers when the tenders awarded to FGE come back onto the market because FGE can't do the job any more.
> 
> I highly doubt that any peer/competitor to FGE would be interested in purchasing FGE.  They would rather see the company go into insolvency and then cherry pick the best assets, use their intelligence from going through FGE's data room to cherry pick the best contracts and away they go.
> 
> ...






craft said:


> I'm just saying that it would be the best case scenario as an explanation to why ANZ have moved now.
> 
> ANZ have put themselves firmly in control - if its not to force acceptance of some offer then its to protect their claims via receivership.
> 
> I have no idea if there actually is any offer.




All speculation but reasonable explanation of its condition on FGE finance.
Who will trust ANZ who made a volte face after providing $100 M (?) debt assurance and then taking the support off. 
I thought to miss out to make quick bucks last time when the shares sunk at 28 cents. But this time I am not going to think of even investing when it opens (if) on Thursday.
FGE management proved its incompetency so can not show any miracle . 
two questions I have : what ANZ shareholders will say for its lending steps
Second - why still no one asked the directors for sleeping under the blanket and taking hefty bonus . It was raised at first trading halt and now buried under sand.
I am worried as a miner  about the fate of Roy Hill Project and the creditors who invested fortune through work in progress once FGE collapsed. Mrs R the richest person of Australia will probably blink after just sorting out her funding good. What about the people jobs once again will slide ? Roy Hill is the only large project in mining area in Australia/W now.
It is just not FGE shareholders going to be shafted.


----------



## So_Cynical (11 February 2014)

Service company's don't own anything so have no real value and yet are so attractive to value investors. :dunno:

RIP: Forge..another share market darling gone.


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## Klogg (12 February 2014)

So_Cynical said:


> Service company's don't own anything so have no real value and yet are so attractive to value investors. :dunno:
> 
> RIP: Forge..another share market darling gone.




That's because the Return on Equity in the business is usually high, as a result of minimal equity requirements.
What happened to Forge is another matter...


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## PurplePixie (12 February 2014)

The article on The full says FGE are looking at restructuring. 

If you held stocks with FGE, what happens tomorrow when the announcement is made to market? I assume they will just announce that they have gone into administration, so do those stocks just 'disappear' from your portfolio, now that they don't have a company anymore? 

If someone bought FGE, or part of it, would they take over the stocks?


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## McLovin (12 February 2014)

Klogg said:


> That's because the Return on Equity in the business is usually high, as a result of minimal equity requirements.
> What happened to Forge is another matter...




As it turned out, the lack of E in ROE was their achilles heel. I don't think in a few years time we'll be seeing companies with a few million bucks in equity taking on huge projects where even a modest error in costs could blow them out of the water.


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## So_Cynical (12 February 2014)

PurplePixie said:


> The article on The full says FGE are looking at restructuring.
> 
> If you held stocks with FGE, what happens tomorrow when the announcement is made to market? I assume they will just announce that they have gone into administration, so do those stocks just 'disappear' from your portfolio, now that they don't have a company anymore?
> 
> If someone bought FGE, or part of it, would they take over the stocks?




It will be a goner, a trading halt that never ends...that's how it usually works.

1000 to one shot that you will get anything of significance after the administrator is finished with them...the shares will stay in your portfolio (broker) until de-listed, may take a few months.


----------



## ashpan (12 February 2014)

So_Cynical said:


> It will be a goner, a trading halt that never ends...that's how it usually works.
> 
> 1000 to one shot that you will get anything of significance after the administrator is finished with them...the shares will stay in your portfolio (broker) until de-listed, may take a few months.




Hello guyz, 

I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted. 

I dont want to pay $5000 for my forge shares. How can i do the stop payment. Is it okey If i dont put money in my account and dont pay $5000 for forge group shares??

Need reply pls urgently..


----------



## skc (13 February 2014)

PurplePixie said:


> The article on The full says FGE are looking at restructuring.
> 
> If you held stocks with FGE, what happens tomorrow when the announcement is made to market? I assume they will just announce that they have gone into administration, so do those stocks just 'disappear' from your portfolio, now that they don't have a company anymore?
> 
> If someone bought FGE, or part of it, would they take over the stocks?





They aren't coming out. They already announced suspension and appointment of administrators. The original trading halt end day is no long relevant.



ashpan said:


> Hello guyz,
> 
> I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.
> 
> ...




Unfortunately it is not something you can just "back out". You are most likely liable to honour the settlement amount, and if you don't they will probably slap you with a fee and interest charges. Best read your Commbank product disclosure statement for actual details. 

If there's a way to back out without redress... anyone can just buy shares and get a free option on it going up before T+3...


----------



## So_Cynical (13 February 2014)

ashpan said:


> Hello guyz,
> 
> I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.
> 
> ...




That's shocking bad luck, one to tell the grand kids about...99.9% chance that your 5K is gone.


----------



## beachlife (13 February 2014)

ashpan said:


> Hello guyz,
> 
> I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.
> 
> ...




Did you receive any advice from the broker?  Maybe there is an out if you spoke to a broker at the time of purchase.  Calls should be recorded.


----------



## Valued (13 February 2014)

Thank your lucky stars you weren't leveraged and you get out not going bankrupt. It's sad to think some people would have had CFD positions in this stock. In my opinion you should not use CFDs for companies that could go insolvent. This sounds pretty obvious but some people got caught out today thinking FGE was a cash cow to day trade.


----------



## galumay (13 February 2014)

So_Cynical said:


> Service company's don't own anything so have no real value and yet are so attractive to value investors. :dunno:
> 
> RIP: Forge..another share market darling gone.




I went back through the financials on FGE this morning out of interest to have a look at them from the viewpoint of 6/13, I want to see if any warning signs stood out then that I and other investors should have seen as warning signs.

There is not a lot to raise red flags, growing earnings, NPAT, growing dividends with a low payout ration, strong order book, low debt, good ROE, low debt, reasonable cash flow....

How many investors would have predicted such a rapid collapse of the business? Not many of those metrics would have done anything other than reassure a value investor.

I would be interested to hear other's opinions - even with the benefit of hindsight!

Maybe the biggest lesson is the point you make So_Cynical - service companies by their nature are highly volatile and cyclic businesses?


----------



## infamous (13 February 2014)

I never predicted that FGE would fall so hard so fast.

But yesterday talking with friends that work for, or with FGE, guys the had all flights cancelled, redundancies terms handed out and most aren't expecting to get their owed pay anytime soon.

I knew I was taking a punt on FGE, I knew it was a good business that had made some poor choices that bit it hard (CTEC mostly).
But I thought if it could get to the new financial year with MRRT being axed it would rejuvenate the mining services sector.

A good chunk of my exposure was from profits made from FGE in the last 3 months, so I guess I'll chalk this up to experience... knowing when to leave while your ahead.


----------



## craft (13 February 2014)

galumay said:


> I went back through the financials on FGE this morning out of interest to have a look at them from the viewpoint of 6/13, I want to see if any warning signs stood out then that I and other investors should have seen as warning signs.
> 
> There is not a lot to raise red flags, growing earnings, NPAT, growing dividends with a low payout ration, strong order book, low debt, good ROE, low debt, reasonable cash flow....
> 
> ...






craft said:


> ROE for the last 4 FY Results, 17.90, 18.58, 31.94, 33.28
> 
> ROE for the last 4 HY Results             14.73, 13.62, 24.29, 19.02
> 
> ...






craft said:


> Just updating this post with latest numbers.
> 
> I held FGE and sold late march 2011 conserned that profitability looked like it was starting to come off and industry margins were cyclically high. Premature as usual and didn't see the resurgence in march/april this year on the horizon so my thoughts can be taken with a grain of salt - but I still hold concerns that these mining service companies are overvalued on a full cycle profitability basis.
> 
> ...




I recall posting about FGE and dug a couple of old posts.  I don't think the course of events were really that much of a surprise. The specific contract problems were probably not knowable - but the potential certainly was: High contract values - small company - cyclical earnings - industry downtrend. 


As to the suddenness of the failure, again it seems a pretty usual course. Frog in a pot scenario then a rapid decline once the penny drops for most. The execution clause in ANZ's refinancing deal should have been a huge red flag that holders were not going to get any prior warning to it going into receivership - still cant believe the prices it reached post that announcement.


----------



## skc (13 February 2014)

galumay said:


> I went back through the financials on FGE this morning out of interest to have a look at them from the viewpoint of 6/13, I want to see if any warning signs stood out then that I and other investors should have seen as warning signs.
> 
> There is not a lot to raise red flags, growing earnings, NPAT, growing dividends with a low payout ration, strong order book, low debt, good ROE, low debt, *reasonable cash flow*....
> 
> ...




The last report (Aug 13) of the business showed a pretty seious issue with cashflow. However, it probably didn't warrant an immediate sell, but definitely warranted closer monitoring. The AGM update would have put many investors at ease and you probably can't fault them for it. Although ignoring the overall mining capex backdrop is probably investing against some pretty large adverse forces, no one from the outside could have predicted a dramatic collapse at that time.

By the time the first trading halt, every single red flag should have been raised. Any "value invesetor" should definitely recognise it's time to get out. I imgaine many didn't because the share price is so low and they didn't want to realise the loss. 

By the time of the second and third trading halt, it is indefensible to keep holding from a "value investing" approach. Yes you can potentially buy as a trade or a long term turnaround story, but the timeframe/risk management/position sizing for such plays would be very different. And yes it would have been pretty unlucky to be holding when the 4th trading halt happens... but your position sizing would have protected you from too large a loss. 

To be honest, the market offered an opportunity to somewhat more gracefully exit the stock >$1.50. It would still mean a large loss to many investors, particularly if they kept looking backwards at the equity high market >$6. 

As I said in another thread... successful investors are those who strike a balance between not over-reacting and being quick to act. Having money on the line makes the decision in real time much more difficult.


----------



## McCoy Pauley (13 February 2014)

skc said:


> The last report (Aug 13) of the business showed a pretty seious issue with cashflow. However, it probably didn't warrant an immediate sell, but definitely warranted closer monitoring. The AGM update would have put many investors at ease and you probably can't fault them for it. Although ignoring the overall mining capex backdrop is probably investing against some pretty large adverse forces, no one from the outside could have predicted a dramatic collapse at that time.
> 
> By the time the first trading halt, every single red flag should have been raised. Any "value invesetor" should definitely recognise it's time to get out. I imgaine many didn't because the share price is so low and they didn't want to realise the loss.
> 
> ...




Fantastic post.

Allied to that is a recent Eureka Report article on the effect of biases on investors, particularly anchor bias and recency bias.  Well worth a read.


----------



## ROE (13 February 2014)

ashpan said:


> Hello guyz,
> 
> I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.
> 
> ...




5k down the drain, you can't get out its a legal contract they will go after you for it ...
What happen to FGE got nothing to do with comsec, they are a regulated brokers and they must pay the other side of the trade, they will go after you for the money if you don't pay up

Write off the 5k you don't want to be mark down as not honouring your trade, it will cost you FAR more than 5k going forward


----------



## ROE (13 February 2014)

Valued said:


> Thank your lucky stars you weren't leveraged and you get out not going bankrupt. It's sad to think some people would have had CFD positions in this stock. In my opinion you should not use CFDs for companies that could go insolvent. This sounds pretty obvious but some people got caught out today thinking FGE was a cash cow to day trade.




Some dude leverage 300k using CFDs on hotcopper  
Telling the family going to be the hard part I reckon

Share free fall must have attract a lot of newbies looking for quick bucks....I used to owned it but let it go sometimes ago then after the free fall I read the announcement I decided its a no go zone...

What surprise me the most after the last trading halt, it stop falling and the market seem to embrace it? I cant figure it out plenty of article said it has cash flow problem, contractors not getting pay, fuel card stops, subcontractors walk, workers now credit card for their own petrol and still the market ignore it all..


----------



## McCoy Pauley (13 February 2014)

ROE said:


> Some dude leverage 300k using CFDs on hotcopper
> Telling the family going to be the hard part I reckon
> 
> Share free fall must have attract a lot of newbies looking for quick bucks....I used to owned it but let it go sometimes ago then after the free fall I read the announcement I decided its a no go zone...
> ...




Pure speculation on my part, but the bounce might have been because everyone thought that ANZ was standing behind Forge.  The stuff about ANZ only providing funding conditional on Forge finding equity support emerged later, IIRC.


----------



## galumay (13 February 2014)

Thanks for the response to my questions guys, high quality, well thought out posts as usual! 

I never held FGE, but I think stories like this are a great opportunity for learning, by seeking with the aid of hindsight, to understand what the warning signs were and reflect on potential triggers for exits if you do get caught in a similar situation.


----------



## notting (13 February 2014)

I know that Wise Owl took a position and suggested it to their followers to as well, on the first bounce, they got out in time too.
How F#$%ed up is that in retrospect!
Their job is to do the deep analysis and know stuff about companies and make recommendations.  This was clearly a shocking recommendation despite the fact they were lucky enough to get out. Hope they didn't go in for seconds, on the logic of the first trade there would have been no reason to not have and got destroyed!!


----------



## skc (13 February 2014)

Added to ASX200 in Sept 13. Bankrupt within 6 months. Shades of the old AED Oil.

https://www.aussiestockforums.com/f...t=3374&page=37&p=652437&viewfull=1#post652437


----------



## skyQuake (13 February 2014)

ROE said:


> 5k down the drain, you can't get out its a legal contract they will go after you for it ...
> What happen to FGE got nothing to do with comsec, they are a regulated brokers and they must pay the other side of the trade, they will go after you for the money if you don't pay up
> 
> Write off the 5k you don't want to be mark down as not honouring your trade, it will cost you FAR more than 5k going forward




+1

Unless you plan to leave Australia forever or live using a barter system for the rest of your life


----------



## TheUnknown (13 February 2014)

300k on FGE cfd........just wow.

Probably kill himself soon, poor guy.


----------



## McLovin (13 February 2014)

ROE said:


> Some dude leverage 300k using CFDs on hotcopper
> Telling the family going to be the hard part I reckon




Poor guy. Hope he hasn't lost the roof over his head in the process.


----------



## skc (13 February 2014)

TheUnknown said:


> 300k on FGE cfd........just wow.
> 
> Probably kill himself soon, poor guy.




Probably shouldn't say things like that...

If you hold $300k CFD position with IG you will be using tiered margin.

0-25k shares = 25%
25k-50k shares = 30%
50k-75k shares = 60%
75k shares and above 75%

So if those $300k CFD averaged @ $1 per share, total margin is ~$200k. 

So hopefully it means that it is a hefty but not life threatening loss. It fact, nothing should be a life threatening loss...


----------



## Smurf1976 (13 February 2014)

Buying just before it collapsed - it's a legal contract as others have said and the broker is merely facilitating the trade. There's likely to be no legal option other than handing your money to the broker. 

The broker hasn't done anything wrong, they're just providing (in return for the brokerage fee) a facility for you to buy and sell shares with and it's up to you how you use it.

Same principle as, say, an airline is just providing a means for you to get from A to B. As long as they get you there as promised, it's not their fault if the hotel you booked is crap and it rains the whole time you're on holiday. The airline did their part and got you from A to B and you have to pay for the flights. 

As for the collapse, something I've learned over the years is that most collapses follow the same basic pattern.

1. The underlying business has problems and is seriously exposed should a "trigger event" arise. 

2. As time progresses and the company's finances worsen, the size of the trigger required to bring about the collapse gets progressively smaller. At one point it might have taken a major problem to do it, but if that doesn't happen and the situation progresses then eventually you get to the point where something truly trivial is enough to tip the company over the edge. Eventually, something happens and then it all falls in a heap _very_ quickly.

3. The majority of people don't see it coming until it's too late.

4. A small number of people see it coming well in advance and will usually have taken the appropriate actions to protect themselves.

From the perspective of an individual investor, it really comes down to being alert for warning signs and "joining the dots" yourself. Nobody's going to announce that the company is going broke until it's too late, but if the alarm bells are ringing then it's wise to act accordingly.

As for the person who bought $300K of shares, I hope they can afford to lose that sort of money otherwise they've got a rather big problem.


----------



## Ves (13 February 2014)

galumay said:


> I would be interested to hear other's opinions - even with the benefit of hindsight!




The most obvious things to me  (after learning a fair bit from what others more experienced than me have encountered with similar collapses):

a) Cyclical earnings that are exposed to violent mean reversion at the margin level at a moment's notice.   At the lower parts of the cycle there are much fewer really profitable jobs (aka big projects) and too many companies fighting over them for the industry to be highly profitable in the long term.

b) the business model of engineering / construction companies that build projects on a fixed contract basis is fraught with hidden dangers as we saw with FGE.  McLovin said it in this thread;  they're highly leveraged to their order books with a very slim margin for error. Pricing risk on long-term contracts,  when combined with mean reversion in margins and increased competition can spell doom for smaller to medium sized companies who aren't capitalised enough to take the heavy hits when they get it wrong.   If you're completing a $500m project and you mis-price it by 10% that's $50m in costs that you suddenly have to come up with.   It's not that uncommon for this to happen when everyone is fighting over the scraps of the boom and low ball offers get put in so that projects can be won.

c)  cash flow issues - related to the above.   big projects require up-front working capital,   you spend a lot of money at the start of a project to get it underway and then have to wait for progress to be made before the real fruits can start to be seen.     Often  you get to the end and only then realise that you're way over-budget and have a big problem. The perfect storm happens when you need working capital to start a massive job and you realise at the same time that you've overrun costs on another big job you're due to finish.

d)  despite what most people seem to say in the good times,  I don't think these companies are truly scalable.   No matter how big they get the fixed costs and asset requirements always seem to increase with the growth in revenue. It's like an albatross around their necks.  It can choke you at any minute.  This makes organic growth pretty hard to sustain,  especially when recurring revenue streams are few and far between.


Poor Earnings visibility + undercapitalisation / default risk = too hard for me


----------



## skc (13 February 2014)

Ves said:


> Poor Earnings visibility + undercapitalisation / default risk = too hard for me




Agree with this all but the cold hard fact is this... FGE management completely took their eyes off the problem projects. They've taken over the power projects for over 2 years. Had they reviewed them earlier they may have been able to reduce the size of the loss, put in better management team, and strengthen their balance sheet by raising equities when the share price was +$4-5. There were a hundred ways to control and manage the situation and they did nothing. Instead they went on empire building which conveniently also increased their bonus cheques. 

All other factors about nature of the contracting cyclical businesses are risks, but they should not be terminal to a well managed company.


----------



## Ves (13 February 2014)

skc said:


> Agree with this all but the cold hard fact is this... FGE management completely took their eyes off the problem projects. They've taken over the power projects for over 2 years. Had they reviewed them earlier they may have been able to reduce the size of the loss, put in better management team, and strengthen their balance sheet by raising equities when the share price was +$4-5. There were a hundred ways to control and manage the situation and they did nothing. Instead they went on empire building which conveniently also increased their bonus cheques.
> 
> All other factors about nature of the contracting cyclical businesses are risks, but they should not be terminal to a well managed company.



Poor management + tricky business model more often than not ends in tears.   Agree it was poorly managed,  and it wouldn't surprise me if there were further problems that we'll never find out about now that the receivers are running the show.

There's something in Buffett's quote:

"Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it."

My personal view is that engineering and construction service firms don't fit this description.   How many of the bigger companies still on the ASX have had poor project management issues?  I'm thinking LEI,  UGL, WOR, BLY etc I would have thought most of them have had material project problems.  Whilst share holder value gets destroyed,   for the purposes of their on-going survival it is lucky that they are well capitalised and have access to the lending markets to fill in the bullet holes.


----------



## nem23 (13 February 2014)

This could make a very interesting case study for business and management students, in terms of what went wrong.

It is a timely reminder, when investing in a company, one should not only look at the potential upside, but assess the probability of loss of capital.


----------



## ROE (14 February 2014)

nem23 said:


> This could make a very interesting case study for business and management students, in terms of what went wrong.
> 
> It is a timely reminder, when investing in a company, one should not only look at the potential upside, but assess the probability of loss of capital.




This is no different from dozen of other collapse that came before it ... ABC learning...Centro....MFS
they all have similar themes...


----------



## Pairs Trader (14 February 2014)

Getting delisted at 91c, a lot of people didn't see that coming! interesting to note that only 1 non-executive director held 5k shares, pocket change really, in other words the entire board didn't have any skin in the pot, not very aligned with shareholders if you ask me, usually the CEO and chairman will hold a decent chunk, so the culture here was high-risk for bonus checks, guarantee you they're already shopping around for their next gig, let somebody else eat the share price. Shareholders have taken a bit of a haircut however let's not forget the 1,300 employees and their families which are the real victims here...management should be held accountable, but we all know that's a pie in the sky ideology.

The cost of FGE stock 1 year ago = $6
The cost of reckless management = 1300 jobs and 80m in shareholders cash down the drain
The cost of management patting each other's back to their next gig = priceless


----------



## CanOz (14 February 2014)

The same thing happened to me with KZL, i bought it with an algorithm signal. The NEXT day it went t*ts up... $5000 down the drain:flush:.

Next 1000 trades...


----------



## Ohmama (14 February 2014)

CanOz said:


> The same thing happened to me with KZL, i bought it with an algorithm signal. The NEXT day it went t*ts up... $5000 down the drain:flush:.
> 
> Next 1000 trades...





We'll... I think u are much smarter than me as I invested 2k in forge from Jan, which I think those money are gone into the sea now!! Sigh...


----------



## skc (14 February 2014)

CanOz said:


> The same thing happened to me with KZL, i bought it with an algorithm signal. The NEXT day it went t*ts up... $5000 down the drain:flush:.
> 
> Next 1000 trades...




At least it's only $5k. You could easily end up with a pretty big position with a standard 2% rule.


----------



## Garpal Gumnut (14 February 2014)

Pairs Trader said:


> Getting delisted at 91c, a lot of people didn't see that coming! interesting to note that only 1 non-executive director held 5k shares, pocket change really, in other words the entire board didn't have any skin in the pot, not very aligned with shareholders if you ask me, usually the CEO and chairman will hold a decent chunk, so the culture here was high-risk for bonus checks, guarantee you they're already shopping around for their next gig, let somebody else eat the share price. Shareholders have taken a bit of a haircut however let's not forget the 1,300 employees and their families which are the real victims here...management should be held accountable, but we all know that's a pie in the sky ideology.
> 
> The cost of FGE stock 1 year ago = $6
> The cost of reckless management = 1300 jobs and 80m in shareholders cash down the drain
> The cost of management patting each other's back to their next gig = priceless




It is quite amazing, that at the finish, the board of FGE had only $4550 of skin in the game, when the company went belly up. 

Perhaps an inventory of ASX listed companies on this metric might save punters some pain, in the future.

No wonder ANZ were uncomfortable.

gg


----------



## McLovin (14 February 2014)

skc said:


> Agree with this all but the cold hard fact is this... FGE management completely took their eyes off the problem projects. They've taken over the power projects for over 2 years. Had they reviewed them earlier they may have been able to reduce the size of the loss, put in better management team, and strengthen their balance sheet by raising equities when the share price was +$4-5. There were a hundred ways to control and manage the situation and they did nothing. Instead they went on empire building which conveniently also increased their bonus cheques.
> 
> All other factors about nature of the contracting cyclical businesses are risks, but they should not be terminal to a well managed company.




But...

Isn't one of the problems with these companies that you don't know management has taken their eyes off the problem until the problem blows up, by which point it might be too late? The last accounts don't exactly paint a picture of a company teetering on the edge. So you have to use other things, like the business cycle, as the guide to when risk of implosion is rising.


----------



## Intrinsic Value (14 February 2014)

McLovin said:


> But...
> 
> Isn't one of the problems with these companies that you don't know management has taken their eyes off the problem until the problem blows up, by which point it might be too late? The last accounts don't exactly paint a picture of a company teetering on the edge. So you have to use other things, like the business cycle, as the guide to when risk of implosion is rising.





You are partially right.

Thou even when the business cycle is booming these companies are coming undone on these projects.

I wont mention the big engineering company that was manipulating every month end until it finally caught up with them and they lost a huge amount of money.

I have worked as in independent contractor for a number of engineering companies and been actively involved in setting up their projects in SAP and interfaces and managing cost reports month end etc

The basic problem is that the people who win these contracts really don't have the expertise to manage them and the line between profit and loss is very thin and the losses can quickly mount up.

I was always envious of FGE because they seemed to be doing better than all the ones I worked for and I invested quite a lot of money in them. Fortunately I sold most of my stock when it hit mid 6 ers. I almost didn't and I did keep a few thousand which ended up me losing around 10k on my last sell out of FGE. In the future I wont ever allocate so much capital to these sort of companies and will only deal on a very short term basis.

Ironic in a way that the two stocks Montgomery pumped primed the most for a long time MCE and FGE has some of the most spectacular collapses of any stocks on the ASX> Really makes a mockery of his long term investing strategy  and value investing model. Anyone listening to him has rocks in their head. He should come with a warning whenever he speaks.


----------



## CanOz (14 February 2014)

Interesting to look at the chart, it would have been a nice short

With the benefit of hindsight...

I guess if one would have been long, they would have been asking some serious questions after the GAP down...However, most technical traders likely would have been stopped out of a long or stopped into a short at the break of the TL...


----------



## ROE (15 February 2014)

ROE said:


> 4 weeks is a long time in trading halt when they came back so a lot must have happened and lot of dealing and wheeling going on and no one know what it is





http://www.afr.com/p/business/companies/acquisitions_integration_and_the_zDSKCbjUC4Wn9ussrUs4sJ

Lesson learned, when something in trading halt for that long, look for exit when it resume


----------



## Garpal Gumnut (15 February 2014)

Garpal Gumnut said:


> It is quite amazing, that at the finish, the board of FGE had only $4550 of skin in the game, when the company went belly up.
> 
> Perhaps an inventory of ASX listed companies on this metric might save punters some pain, in the future.
> 
> ...




Not only did the Forge board not have any skin in the company, it's executives failed in management.  It appears they also had their nose trailing in the trough of entitlement until the final days. 

From the Australian. 

http://www.theaustralian.com.au/bus...plurged-on-execs/story-e6frg9df-1226827684754



> *Sinking Forge splurged on executives *
> 
> ON a Friday night last December -- just weeks after revealing problems that would ultimately prove the company's downfall -- contractor Forge Group threw a lavish Christmas party for its staff.
> 
> ...




Perhaps the Royal Commission may be extended in to an investigation of governance of Boards, and Executives of failed companies, and civil and criminal charges be laid, if necessary.

gg


----------



## ROE (15 February 2014)

Nothing change I am afraid, all collapse and value destroying companies has similar theme.
This is a decent book to read on this topic

http://www.booktopia.com.au/pigs-at-the-trough-adam-schwab/prod9781742169903.html


----------



## McLovin (15 February 2014)

ROE said:


> Nothing change I am afraid, all collapse and value destroying companies has similar theme.
> This is a decent book to read on this topic
> 
> http://www.booktopia.com.au/pigs-at-the-trough-adam-schwab/prod9781742169903.html




If you want to go back a bit further; it's out of print but well worth a read if you can get your hands on a copy.

http://www.amazon.com/The-Bold-Riders-Australias-Corporate/dp/1863737022

Table of Contents



> Figures and tablesPreface1 The seeds2 The first trustee company: TEA3 The birth of WA Inc4 Rothwells: the three collapses5 Spedley: the paper castle6 Bond: the ultimate bold rider7 Friedrich Mitty8 The wild bastard9 Qintex: the shimmering mirage10 Abe Goldberg: the smart one11 Estate Mortgage: the giraffe who grew too high12 The great Pyramid of Farrow13 The sinking of Adelaide Steamship14 Trico: the child who went wrong15 SBSA: a fashionable bank16 A few quick ones17 Give or take a billionAppendixNotesIndex


----------



## burglar (15 February 2014)

Pairs Trader said:


> Getting delisted at 91c, a lot of people didn't see that coming! ...




New at this, I have tried reading the candlesticks.
I cannot see it coming, even with hindsight.


----------



## Valued (15 February 2014)

burglar said:


> New at this, I have tried reading the candlesticks.
> I cannot see it coming, even with hindsight.
> 
> View attachment 56833




You can't read candlesticks candle by candle any more then you can read a novel analysing each word at a time. You must understand the flow of the narrative, take notice of the plot, consider the underlying themes and read between the lines. The problem with candlestick techniques is they tend to force you to read into it one candle at a time. The fact that this stock gapped down and lost 93%, been in multiple trading halts, and has no clear trend is an indication that this stock is in trouble. 

A stock without professional operators in it won't react in advance to good or bad news. If you only have a bunch of retail traders in a stock, whose going to find out ANZ is withdrawing their support and then exit with such large volume as to put out warning signs? The professionals did do this when they were putting million share lots on the market at any price. When professional operators dump their entire holdings on the market at any price this is a panic situation. Normally they would slowly distribute their shares. They want out right this second that they put in a market order for everything, well in excess of the normal order book. After they exited, there was no one left. In bigger stocks with professional interests the professionals will start to wind down their holdings which can warn you if they think bad news is coming.


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## Klogg (15 February 2014)

Valued said:


> When professional operators dump their entire holdings on the market at any price this is a panic situation. Normally they would slowly distribute their shares.




Slightly off topic, what would a fund that tracks the ASX200 do if a stock fell out of that category during the S&P rebalancing? Do they dump everything on the day?


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## craft (15 February 2014)

The Equivolume  chart of FGE is interesting.




As much volume changed hands in the last few months as the prior 6+ years since listing.

Interestingly someone buying on the first day following the demerger that created FGE and selling on 28/11 at 57.5 cents (mid range point for the day and likely somewhere near VWAP) would have made an annualised return of approx 17.5% from the fully franked dividends received. 

Those speculating since the announcement that really put the writing on the wall, have received no income from the company, and were left holding the bag when the music stopped.

Ps

I know the above is just the aggregate picture and individuals will have had different outcomes, some better and some worse – but still it’s interesting to contemplate the average outcomes.


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## ROE (15 February 2014)

Klogg said:


> Slightly off topic, what would a fund that tracks the ASX200 do if a stock fell out of that category during the S&P rebalancing? Do they dump everything on the day?




I think s&p give plenty of notice prior to a stock add or will remove from the index in the next rebalance 
So in theory you know weeks in advance to buy/sell


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## McLovin (15 February 2014)

Klogg said:


> Slightly off topic, what would a fund that tracks the ASX200 do if a stock fell out of that category during the S&P rebalancing? Do they dump everything on the day?




They rebalance every quarter, and they announce the changes two weeks before the rebalance.


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## McCoy Pauley (15 February 2014)




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## CanOz (15 February 2014)

craft said:


> The Equivolume  chart of FGE is interesting.
> 
> View attachment 56834
> 
> ...




That is indeed an amazing chart Craft, a picture does paint a few words!


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## skyQuake (15 February 2014)

Klogg said:


> Slightly off topic, what would a fund that tracks the ASX200 do if a stock fell out of that category during the S&P rebalancing? Do they dump everything on the day?




S&P would announce addition or deletion, funds would exit by implementation day (in this case, it was announced last week and implemented by friday - FGE removed, NEC added)


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## Valued (15 February 2014)

In hindsight David Simpson always did look like a bit of a doofus when talking. There was just no passion or excitement. I know the industry does not lend itself to big stages and charismatic unveiling of new products but he just seemed so bland and boring and like he didn't care much. 

He harped on a lot about safety but there needed to be more talk about projects and money. All he ever did was say how large the order book was.

His last name is also Simpson. I am not sure how anyone didn't see that!


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## tinhat (15 February 2014)

McLovin said:


> If you want to go back a bit further; it's out of print but well worth a read if you can get your hands on a copy.
> 
> http://www.amazon.com/The-Bold-Riders-Australias-Corporate/dp/1863737022
> 
> Table of Contents




In 1989, as undergraduates, we got Quintex (remember Christopher Skase?) to throw a party at The Mirage, Southport, worth about $25,000 (at that time) for about 150 people (mainly students) as the opening event of an international student conference. I was the chairman of the organising committee. We even had live sheep shearing on stage! That event must have occurred very close to the collapse of Quintex. Those were the days. RIP Christopher Skase.


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## So_Cynical (16 February 2014)

Klogg said:


> Slightly off topic, what would a fund that tracks the ASX200 do if a stock fell out of that category during the S&P rebalancing? Do they dump everything on the day?




When i did my initial research on STW i noticed that they actually held 203 stocks, so i dug a little and found a disclaimer along the lines of...due to movement of stocks into and out of the ASX200 from time to time the fund may hold additional stocks etc etc.


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## Ves (20 February 2014)

Didn't take long for IMF to come and start trying to pick some scraps of meat off the bones of the rotting carcass, did it?


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## Klogg (20 February 2014)

> Shareholders who purchased shares in Forge after 1 January 2013 and who held some or all of those securities at any time between 4 November 2013 and 11 Februrary 2014 may be eligible...




Why are shareholders who purchased after 1 January 2013 eligible?


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## Ves (20 February 2014)

Klogg said:


> Why are shareholders who purchased after 1 January *2013* eligible?




Why wouldn't they be?  My bold.


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## Valued (20 February 2014)

I held in that time but made up most of my loss by day trading FGE the next day. I wonder if I am still eligible. The day trades were separate. I did lose that money and it was only since I added on more to day trade with that I got back up there. I will probably give it a go when IMF asks for interested litigants. I didn't lose much but it might be nice to get a little bit back.


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## skc (20 February 2014)

Valued said:


> I held in that time but made up most of my loss by day trading FGE the next day. I wonder if I am still eligible. The day trades were separate. I did lose that money and it was only since I added on more to day trade with that I got back up there. I will probably give it a go when IMF asks for interested litigants. I didn't lose much but it might be nice to get a little bit back.




How much you made from day trading FGE is completely irrelevant to how much you lost from holding FGE through the period in question as far as the class action is concerned.


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## Klogg (20 February 2014)

Ves said:


> Why wouldn't they be?  My bold.




Sorry, worded my question badly. 
What if I purchased before 2013? Why wouldn't I be eligible?

(I didn't own these at any point - just curious)


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## ROE (20 February 2014)

what sort of money can you get out of law suite from a collapsed company? they ain't got any cash
just more money to the lawyers unless it is a no win no fee then you got nothing to lose.

I wouldn't put more money into chasing a law suite.


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## ROE (20 February 2014)

Klogg said:


> Why are shareholders who purchased after 1 January 2013 eligible?




because it may related to announcement and revise forecast made during that period and people based their buying decision with those announcement ..those who had before those announcement made their decision based on other information.

it usually all come down to what they said in the announcement and what actually happen.


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## Klogg (20 February 2014)

ROE said:


> because it may related to announcement and revise forecast made during that period and people based their buying decision with those announcement ..those who had before those announcement made their decision based on other information.
> 
> it usually all come down to what they said in the announcement and what actually happen.




Ah, that makes sense - Thanks.

And I agree - not quite sure what they're going to get out of a company with no equity and the directors who probably moved their assets to other entities in order to pre-empt such a law suit.


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## McLovin (20 February 2014)

Klogg said:


> Ah, that makes sense - Thanks.
> 
> And I agree - not quite sure what they're going to get out of a company with no equity and the directors who probably moved their assets to other entities in order to pre-empt such a law suit.




Directors have insurance. I have no idea what the scope etc of those insurance policies is.

IIRC, Harris Scarfe had a class action against it, so did HIH and OneTel. Not sure what the outcome of those suits was though.

IMF are smart enough operators that they won't proceed unless they know at the least there is someone who can pay.


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## Valued (20 February 2014)

ROE said:


> what sort of money can you get out of law suite from a collapsed company? they ain't got any cash
> just more money to the lawyers unless it is a no win no fee then you got nothing to lose.
> 
> I wouldn't put more money into chasing a law suite.




It's no win no fee. A lot of the damages will end up being eaten by IMF if you win but they take on all the risk.

A legal action can be taken against the directors in their own name in some circumstances. Its called lifting the corporate veil. There may also be insurance that can pay as well.


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## tinhat (20 February 2014)

McLovin said:


> Directors have insurance. I have no idea what the scope etc of those insurance policies is.
> 
> IIRC, Harris Scarfe had a class action against it, so did HIH and OneTel. Not sure what the outcome of those suits was though.
> 
> IMF are smart enough operators that they won't proceed unless they know at the least there is someone who can pay.




Interesting, because I've never considered that directors of public companies have insurance. The no win no pay nature of this sort of litigation makes sense then. No win no pay litigation generally involves claims against insured defendants.

You can register your interest at the Bentham IMF site:
http://www.imf.com.au/cases/information-packs


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## herzy (25 February 2014)

tinhat said:


> Interesting, because I've never considered that directors of public companies have insurance. The no win no pay nature of this sort of litigation makes sense then. No win no pay litigation generally involves claims against insured defendants.
> 
> You can register your interest at the Bentham IMF site:
> http://www.imf.com.au/cases/information-packs




Oh absolutely. Directors take on huge personal liability, so essentially have to have directors' insurance. Should be an interesting one for IMF (which I happily hold). No win no pay is common in class actions (otherwise you'd rarely get people bothering to pursue relatively small individual claims - even if the overall claim might be huge), and yes - the funder generally does pretty well in the event of success. 

The last 5 or so pages of this thread are a fantastic learning tool. Thanks everyone for the great analyses of how this could have been spotted earlier. Will go over this with interest in more depth when I get the time. It could save a lot of people a lot of money in the future.


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## skc (14 March 2014)

Trading while insolvent... are there 3 sweeter words to a lawyer's year?!



> The receiver's report into the collapsed engineer Forge Group has revealed it could have been trading while insolvent from November.
> 
> Read more: http://www.smh.com.au/business/forg...ort-reveals-20140314-34rgj.html#ixzz2vuYOsFHf


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## Apokolips (25 April 2014)

Lost $6,000 on this. Sold most of my FGE prior to collapse. Worth getting in on lawsuit?


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## ROE (25 April 2014)

Apokolips said:


> Lost $6,000 on this. Sold most of my FGE prior to collapse. Worth getting in on lawsuit?




Was it a secret Buy  ... Read the law suit, they only target a certain date so if you bought during those date
you got nothing to lose to join, people like IMF will fund the case and if they win they take certain % of the win the rest distribute to people who registered.


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## AUSG (30 September 2014)

The class period has been amended from 4 November 2013 to 11 February 2014, to 7 March 2012 to 1 November 2013. It supposedly increases the chances of getting a return from the class action.


https://au.news.yahoo.com/thewest/a/25131517/forge-class-action-widened


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