ABS - ABC Learning Centres

[chops_a_must]

Eddie makes some pretty solid allegations against Citi.........I'm not sure I've ever heard a story like that one about Citi...another matter for ASIC no doubt..

I actually gathered an ounce of respect for Eddie and at 1.75 at close, may even do some numbers on an ABS investment.......sound like ABS may actually fund some growth with operating cash flows...please talk me out of doing some numbers ROE..surely ABS even has a price..or maybe no...

Some things really don't add up.

If there was not an ounce of truth to the Citi report, why have ABC had to offload some of their US assets?

And since when have analysts had to talk to management before issuing a report? Most of the crap analysis I have read is when the authors have clearly spoken to management.

Seems a little odd that a firm doing coverage can have intimate knowledge of director positions however... I think that is going to have to be another regulation... But... if you want to margin loan against your companies shares as a director, you have to assume a pretty high risk.

Really messy... but if there weren't severe problems in the business, none of this would have happened.

 

[Miner]

If Citi is so smart then why them made losses in billions ?
It is often who can not they teach.
Sorry but how many great players have become a good coach ?
If you are that great in your academic you would not do the Ph D or join teaching but straight go earning money.

No disrespect to teachers. Because they go to teach then only we learn from them and become better than them. That is how a good coach produce Ponting, Tendulkar, Sobers and Hewette.
But i would put pinch of salt to read any CIti reports.

 

[snabbu]

Don't you consider the directors ARE sholders, they are some of the biggest shareholders. Anything they do to protect the assets of the directors is almost certainly in the best interests of other shareholders.

Perhaps I didn't make myself clear, the future earnings of the company are being sacrificed to sure up the SP in the short term, this benefits those who have margin loans to the detriment of those who are merely long.
Of course the SP over the medium term is a function of projected future earning which will reduce as a result of this deal.
It will be interesting to see who sold what yesterday.
I note no one here agrees with my suspicions on this, perhaps I am wrong.
It alarms me a little that Citi agrees with me as their track record of late is not that flash. However I do hope you got out at the 2.70 mark as the fluctuations yesterday seem to confirm my reading of the situation.
But even I didn't expect the insiders to get out with 100 percent profit in one day. As of this morning the price is down 18.22 percent so on that basis as of this morning the market also agrees with me which is something I guess.
Anyway it will be interesting to see what happens today.
Do you know how long after they sell shares that directors have to report to the ASX, because that will be fascinating.

Cheers

Gary

 

[snabbu]

Hi TheAbyss
Thank you for your comments on my rhetorical questions (quoted below in blue). A couple of comments.
For all shareholders given the alternative was a continued downward spiral. Didn't appear to work very well so far, down 18.2 percent yesterday, be interesting to see what happens today.
He sold to reduce debt which has been achieved. Whether they can now increase their profit margins is yet to be seen. My interpretation is he sold to prop up the share price in the short term to protect himself from more margin calls. As the mid term SP is a function of future earnings, selling 60 percent of the US business will affect those earnings and therefore the price in the medium to long term. I am not across the fundamentals of the company as you are I have only read the business summaries which is where I formed the opinion that the future profit of the company was heavily influenced by the US operations.

Do you think that an 18 percent mark down is fair considering the decreased value of the company post the sale, is there more to go? or should it bounce back. I guess the question is what percentage of EPS do you think the sale represents, because this will determine a fair price.

Could you clarify this, are you saying that the Australian centres are 90 percent empty?
How did you deduce that? The vacancy rates in the US centres are around 62% and 90% for Aus. The australian centres are where the money is the rest is an ego trip.

Anyway it's an interesting situation.
I hope you got out yesterday if you were holding.
I am watching the ASX announcements with great interest.

Cheers

Gary

 

[snabbu]

Kohler, Gottliebsen and Bartholomeusz have just released this exslusive interview with Eddy Groves.

It's awesome

http://www.businessspectator.com.au/bs.nsf/Article/KGB-INTERROGATION-Eddy-Groves-CG4L5?OpenDocument

Eddy has a bit of a go at a few people and some big companies on the way too.

Great link, good interview, thanks for posting it. I found this quite telling.
"AK: And what’s your position now? Do you have any lending left against your shareholding?

EG: Look, I wouldn’t want to comment on the current position. I’m happy to do another interview with you in a little while once I get through all this. "

I take that to mean yes he does or he did before yesterday.

It is interesting that he says he was surprised that citi sold his shares from under him, it is not up to citi to ring him it is up to him to rectify his situation. This is quite plain in the conditions of Citi margin loans.
For those interested there is a link to the PDF if you skip down through all the BS to the bottom of page nine the process is quite clear.

https://sec1.citismithbarney.com.au/auc/pdf/FIF_ML_section.pdf

I kind of wonder about a guy who can't get his head around a simple document like this. Particularly as fellow director Martin Kemp was margin called on the 22nd which he didn't meet and was sold down at $3.00 odd. Four days later the price was approx $1.80 when Mr Groves was margin called and sold down. I really can't understand his surprise at the result.

It is also interesting that in answer to one question he says he's put everything he owns into ABS, the very next he says if citi had rung him he would have written them a cheque.

Thanks again for the link.

Cheers

Gary

 

[buffettologist]

ABS @ the current price of $1.47 is an absolute bargain IMHO
Assuming the hiccup in current earnings is due to seasonality and the operations of the business is still sound, it's currently trading at a 2008 projected earnings yield of 20% and 2009 earnings yield of 28%
The price to book value is 0.32
Bargain! Bargain! Bargain!

 

[ghostworld]

ABS @ the current price of $1.47 is an absolute bargain IMHO
Assuming the hiccup in current earnings is due to seasonality and the operations of the business is still sound, it's currently trading at a 2008 projected earnings yield of 20% and 2009 earnings yield of 28%
The price to book value is 0.32
Bargain! Bargain! Bargain!

Not if the below article is true. Note that it's by Michael West. Could result in massive dilution of shares.


http://business.smh.com.au/bad-notes-trigger-abcs-renewed-dive/20080307-1xrm.html



Bad notes trigger ABC's renewed dive

* Michael West
* March 7, 2008 - 7:02PM
*

Eddy Groves was looking good. He had nipped over to the US on a mission to sell some assets and recapitalise his child-care empire.

In no time at all, he had struck a deal with Morgan Stanley Private Equity. It might have been a fire sale but the $502 million price tag for the bulk of his US centres didn't look too shabby.

Eddy was back. Smaller. But back.

With the $811 million proceeds from a convertible notes issue, ABC could now make a large dent in the $1.2 billion senior bank facilities - the covenants of which ABC had come so perilously close to breaching.

The stock price rallied. Then mysteriously, at 3pm yesterday, ABC shares took a 25% pounding. The slide has continued today, with the stock down a further 20% at one point.

What happened?

One theory is the hedge funds are back having their evil way with Eddy's stock price again. It could be true. Perhaps they have seen the terms of the recent convertible note issue.

It is a bit speculative at this point but, according to a Goldman Sachs JBWere note to clients, these convertible notes may be known as "exploding convertible notes", that is, "if the ordinary shares drop in value, the number on issue explodes".

If so, ABC shareholders are in for a torrid time and whoever owns these convertible notes has got the company by the proverbials.

"The last big company to issue such notes was HIH Insurance in 1999. In the case of ABC, there appears to be no limit on how many shares could be issued on conversion, whereas with HIH there was."

If Goldman is correct, this security is one of the silliest ever issued to raise money. It would even go down in the annals of corporate history as the "iconic" security of the great market downturn of 2008.

ABC issued the notes last June, according to reports, about the time of the US credit market meltdown.

"It did the issue on a dollar basis rather than the conventional `fixed proportion' system," says Goldman, which means they are an absolute bargain. Why would you ever buy ordinary shares again?

The story goes that the hedge funds may have driven down the ABC ordinary shares while buying up as many of these notes as they could.

Naturally Eddy Groves and his advisers from Austock did not contemplate the stock being so low but that is no excuse for issuing these notes, if indeed the story is right.

According to reports, Comm-Sec holds some $360 million of the $600 million tranche and may turn out to be a very large holder of ABC.

In Eddy's defence, unlike the Allco executives, Eddy declined to draw a large salary last year, preferring to take stock instead.

He is indeed a true believer, though perhaps poorly advised.

Despite the aggressive accounting, extreme expansion tendencies and poor corporate governance of ABC that has led to its recent troubles, Eddy Groves certainly deserves to own a few of those convertible notes.

 

[ROE]

ABS @ the current price of $1.47 is an absolute bargain IMHO
Assuming the hiccup in current earnings is due to seasonality and the operations of the business is still sound, it's currently trading at a 2008 projected earnings yield of 20% and 2009 earnings yield of 28%
The price to book value is 0.32
Bargain! Bargain! Bargain!

Then buy some more no one stopping you from doing it... spend a few millions and you can own the whole company
Game over for three directors, Eddie his wife and Kemp all shares gone.. another margin call today

they together hold less than 50,000 shares

 

[Rainmaker2000]

"The story goes that the hedge funds may have driven down the ABC ordinary shares while buying up as many of these notes as they could."

Well, that's the end of the story then, if correct.... The sheer negligence of this situation is absolutely beyond comprehension.....no wonder the ABS share price had a heavy weight on it.....makes a lot more sense....my understanding of most convertible notes is a debt agreement with an interest rate and a call option as a bonus......These guys clearly had no idea at all....ASIC will need another 3 office blocks by the time this boom to bust is over...

I'm going to get my finances in order and prepare a bid for an ABC centre in my local neighbourhood....

My thoughts go out to anyone who participated in this story.....I think I'll just stick to my boring stocks who fund growth out of last year's earnings...

 

[freddy2]

If there is anyone who looks after number 1 more than Eddie Groves it is the investment banks. I would like to see who advised ABC on these deals, surely they didn't just trust the investment banks. Basically these sharks have fleeced ABS shareholders with the unwitting help of the directors.

 

[Miner]

Joke of the Day or Night

My friendly broker Bell Potter Securities in their report published today 7 March has advised ABS as BUY at prevailing price $1.73

Any way as always I have posted when Bell Says - BUY means they want to sell their favourite clients shares to you.

Probably they will offer Bundy Rum with it as an incentive.

Should ASIC investigate these cowboy brokers?


What do you think folks?

 

[snabbu]

While making it clear I feel sorry for those who lost money.

I have to say it is a very nice feeling to be so right about something.
I know it's childish to gloat but I just couldn't help it
Thinking about the ex notes for a moment. Someone who is too dense to understand the terms of his margin loan could not possibly be competent enough to do deals of this magnitude.

In regard to the "deal" it isn't a deal it's an expression of interest due diligence is underway as we speak it could still fall over. If it does what value the shares then? Also when the directors share transactions show up on the ASX next week what will the market reaction to that be?

I rely a lot on the quality of the management and the board in making investment decisions. I would not lend Groves bus fare.

Cheers

Gary

 

[snabbu]

Then buy some more no one stopping you from doing it... spend a few millions and you can own the whole company
Game over for three directors, Eddie his wife and Kemp all shares gone.. another margin call today

they together hold less than 50,000 shares

Hi Roe
Just a quick question. How do you know that information. I've been waiting for an announcement on the ASX is there somewhere else you can find out first. I suspect some of the directors shares were sold before margin calls, which was the primary reason for flogging the US assets i.e. for a short term boost in the price.

Cheers

Gary

 

[chansw]

ABC Learning founder sells most of stake
March 7, 2008 - 7:07PM

http://news.smh.com.au/abc-learning-founder-sells-most-of-stake/20080307-1xvg.html

ABC Learning Centres Ltd founder Eddie Groves has been forced to sell almost his entire stake in the company after facing more margins calls.

Mr Groves sold off more than 12 million shares on Thursday at $2.14 apiece - leaving him with only 3,186 ordinary shares in the company he built up from a single childcare centre in Brisbane 20 years ago.

After topping the annual Business Review Weekly Young Rich List with a personal fortune of $260 million two year ago, Mr Groves now owns a $4,683.42 stake in ABC.

His wife Le Neve Groves also sold off her entire stake of six million shares at $2.21 apiece on Thursday, while the childcare giant's Australian head Martin Kemp sold 2.7 million shares at $2.02 each.

Mr Kemp is left with 23,659 ordinary shares while Mr Groves still has 308,880 options, according to directors' change on interest notices lodged with the Australian Securities Exchange late on Friday.

The share sales were all the result of margins calls, a spokeswoman confirmed.

Last week Mr Groves, Mrs Groves, Mr Kemp and another director were forced to sell off the bulk of their stakes after margin calls were triggered during panic selling of the stock by investors.

Trading was halted on Wednesday last week and Mr Groves flew to the US to negotiate the $US775 million ($A836.57 million) sale of 60 per cent of ABC's US assets to Morgan Stanley Private Equity.

The deal will help ABC pay off most of its debt.

But investors remained suspicious of the value of the rescue plan and stripped another 18 per cent from the stock's value when it restarted trading on Thursday.

The nose-dive apparently set off more margin calls to Mr Groves and his fellow directors.

ABC shares fell another 16 per cent, or 28 cents, to $1.47 on Friday.

Investors first fled the stock on February 26, stripping $760 million from the value of the company in a single day before the trading halt.

The night before ABC had lodged a disappointing 42 per cent fall in interim net profits to $37.1 million.

Concerns over the interim result and the company's heavy debt were then ignited by market rumours that loan covenants had been breached, sparking the sell-off.

Mr Groves and ABC have rejected all speculation their bank covenants had been breached.

On Thursday Mr Groves accused his personal banker Citigroup of being the source of faulty research creating uncertainty over whether ABC had breached one of its loan covenants.

But in further research analysing the rescue deal, Citigroup has labelled ABC a speculative hold and says the board and management "need to go" before the childcare provider can regain an investment-grade rating.

A March 5 Citigroup note to clients challenged Mr Groves and ABC's assertions they were under no pressure to sell ABC's US assets.

"The urgency with which the sale was conducted indicates the company is under pressure from some source," the note said.

"If the urgency relates to shoring up share price to avoid margin calls, the longer-term interests of the majority of shareholders may have been jeopardised for the interests of a few."

 

[Aussiejeff]

ABC Learning founder sells most of stake
March 7, 2008 - 7:07PM

http://news.smh.com.au/abc-learning-founder-sells-most-of-stake/20080307-1xvg.html

ABC Learning Centres Ltd founder Eddie Groves has been forced to sell almost his entire stake in the company after facing more margins calls.

Mr Groves sold off more than 12 million shares on Thursday alone, at $2.14 apiece - leaving him with only 3,186 ordinary shares in the company he built up from a single childcare centre in Brisbane 20 years ago....."

Poor fella. He returned *only* $25.7 Million to his bank account on the Thursday, huh? That must hurt. I don't think I'd be happy with *only* $25.7 Million bucks on one day. Who could possibly live on that? We better cut the poor guy some slack, eh?

LOL


AJ

 

[ROE]

Hi Roe
Just a quick question. How do you know that information. I've been waiting for an announcement on the ASX is there somewhere else you can find out first. I suspect some of the directors shares were sold before margin calls, which was the primary reason for flogging the US assets i.e. for a short term boost in the price.

Cheers

Gary

I just use ASX announcement and broker site announcement which usually they get from ASX anyway..

I also watch the volume...unusually high volume either indicates the stock is trade out of existence or margin call.

so regardless if some people denied that fact (margin call) I still use volume.
Volume speak louder than words

I don't hold ABS..and I feel sorry for Eddie to lost it all but at the same time I think he should be more responsible and accept the fact he doesn't understand how margin call and leverage works or have some very very bad advisers.

Banks are in the business of making money, they are not your family or close friends when it comes to crunch time they will do what ever it takes to protect their money. If they happen to send you broke well they will do that as long as they can recover the money.

 

[ROE]

Poor fella. He returned *only* $25.7 Million to his bank account on the Thursday, huh? That must hurt. I don't think I'd be happy with *only* $25.7 Million bucks on one day. Who could possibly live on that? We better cut the poor guy some slack, eh?

LOL


AJ

No man chances are he wont see much of that money if it's a margin call.
Banks will have most of that money to recover his lost position.

 

[snabbu]

I just use ASX announcement and broker site announcement which usually they get from ASX anyway..

I also watch the volume...unusually high volume either indicates the stock is trade out of existence or margin call.

so regardless if some people denied that fact (margin call) I still use volume.
Volume speak louder than words

I don't hold ABS..and I feel sorry for Eddie to lost it all but at the same time I think he should be more responsible and accept the fact he doesn't understand how margin call and leverage works or have some very very bad advisers.

Banks are in the business of making money, they are not your family or close friends when it comes to crunch time they will do what ever it takes to protect their money. If they happen to send you broke well they will do that as long as they can recover the money.

Ta for the info I think I mustn't have refreshed the ASX page still getting
it from the cache, now I see the announcements.

I see he got out on the 6th at 2.13 so he probably sold them himself otherwise they would have been margined last week at that price.
Still better to get out at 2.13 than still be in or margined at $1.47

He can look forward to a more relaxed life now as I imagine the owners wont want him around after this Monday.

Be interesting to see who they appoint.

Have to be a bean counter I guess.

Cheers

Gary

 

[buffettologist]

You still have to credit eddy groves for starting up a business from scratch and building it into an empire. Although his finance skills may not be top notch he's still regarded as a top business manager in Australia. I'd hate to see him leave and start up another child care centre.

 

[hangseng]

You still have to credit eddy groves for starting up a business from scratch and building it into an empire. Although his finance skills may not be top notch he's still regarded as a top business manager in Australia. I'd hate to see him leave and start up another child care centre.

Well done, great to see and I couldn't agree more.

Australia needs more Eddy Groves, willing to quite simply have a go and to back themselves doing so.