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.