ELD - Elders Limited

[drsmith]

This could go into receivership, or it's an awesome buying opportunity. Now, which one?

At best I susepct the directors opinions are that they don't know.

Speculative buy below 10 cents ?

?????????

 

[Wysiwyg]

Stock market do what it suppose to do for many generations now.
Take Benjamin Graham word to heart.

"Short Term stock market is a voting machine, Long Term it's a weighting machine"

what's Uncle Ben telling you is stocks can go on a wild swing up and down in short term due to speculation and human emotion but long term stock price will reflect its true earning power
and balance sheet.

so you buying a weak company like ELD with highly leverage balance sheet and not much earning power hoping for a quick bucks, you know where it will end in the long run right?

short term it may deliver a quick paper profit but hold it for 5-10 years it can be an expensive peice of paper.

Another top quality post on "why" from ROE. Thank you kindly for your wise words and comments are always most welcome.

 

[skc]

ROE:

With a book value of, quite likely, over TWICE as much as market-cap...

With, seemingly solid management, and having seemingly completed asset writedowns... ELD / ELDPA is very tempting for me.

Not to short-term trade it (though, a jump up to $1.55 isn't off the cards)... but, to make a long-term profit from it...

It could quite easily double within, say, 2 years... I'm not saying it will; just it could.

The right way to play this was probably long the ELDPA and short the main stock - same as the hedge fund play on FXJ (which is the most shorted stock on the ASX for that reason).

Looks like pretty solid capitulation the past few days. Down 80% or so on the year SkyBusiness told me this morning, but looks worse than that. The CEO doesn't really impress, and I'm not sure if I believe what he says. Possible class action for poor disclosure mustn't sit well with investors. Chart looks decidedly dodgy, to say the least. Must be skewed by that consolidation, or is it? This could go into receivership, or it's an awesome buying opportunity. Now, which one?

To me one of the biggest problem is that ELD was making crazy forecasts during the SPP - like projecting strong sale of MIS products (timber stuff) even when Timbercorp (and others) were going into administration.

It would be interesting to see if their P/L by division, and whether the core distribution operations actually is profitable. If that is the case someone might come in and mop them up.... The big gap up last year was due to takeover rumours - but I wouldn't hold my breath even if a takeover was announced. Many crap companies review offers that didn't go through - NUF and possibly SIP now.

 

[ricee007]

what's Uncle Ben telling you is stocks can go on a wild swing up and down in short term due to speculation and human emotion but long term stock price will reflect its true earning power and balance sheet.

so you buying a weak company like ELD with highly leverage balance sheet and not much earning power hoping for a quick bucks, you know where it will end in the long run right?

This provides interesting insight.

However, it does miss the fact that if the ELD SP reflected it's balance sheet... ELD would be a multi-bagger and ELDPA would be worth $100.

It is VERY hard for investors to actually know how much ELD assets are...... and, I had thought they were all written down fully.

Perhaps, perhaps, the assets are written down pretty much fully...... but, income is a lot lower than expected, which may mean that assets will need to be sold.......... at BELOW writtendwon price (IE: firesale?)?

 

[w534220]

why wouldn't everyone buy ELDPA? there are 4 possible scenarios:

1. elders start paying hybrid dividends again as planned in a year's time. The coupon margin steps up by 250bp to be 470bp over the higher of 3mo BBSW or 10yr swap. so a total coupon of approximately $10.42 or running yield on current $40 unit price of 26% !!

2. elders is taken over by private equity or trade buyer. they must be looking at it given it's massive discount to sum-of-parts valuation. If ELD taken over the hybrids get par plus half the takeover equity price premium. ie. ELDPA owners would triple their money from here.

3. they redeem the hybrids 30 Jun 11. hybrid owners 2.5x their money from here

4. they continue to not pay hybrid divs and hybrids are effectively zero coupon perpetual. Well in this case because of the equity div stopper the common equity is even more a zero coupon perpetual and therefore nearly valueless and 2. is much more likely.

 

[skc]

why wouldn't everyone buy ELDPA? there are 4 possible scenarios:

1. elders start paying hybrid dividends again as planned in a year's time. The coupon margin steps up by 250bp to be 470bp over the higher of 3mo BBSW or 10yr swap. so a total coupon of approximately $10.42 or running yield on current $40 unit price of 26% !!

2. elders is taken over by private equity or trade buyer. they must be looking at it given it's massive discount to sum-of-parts valuation. If ELD taken over the hybrids get par plus half the takeover equity price premium. ie. ELDPA owners would triple their money from here.

3. they redeem the hybrids 30 Jun 11. hybrid owners 2.5x their money from here

4. they continue to not pay hybrid divs and hybrids are effectively zero coupon perpetual. Well in this case because of the equity div stopper the common equity is even more a zero coupon perpetual and therefore nearly valueless and 2. is much more likely.

Isn't there at least 2 more scenarios?

5. ELD goes belly up. After administrators looked at it for 3 years they declare that hybrid holders get nothing or some scraps...

6. ELD goes for a another massive re-capitalisation involving the hybrid notes as well. Holders get 40% of face value which is close to the price now. Hybrid holders get to vote on either re-capping the company or have it wind up... similar to BBI last year.

 

[w534220]

Isn't there at least 2 more scenarios?

5. ELD goes belly up. After administrators looked at it for 3 years they declare that hybrid holders get nothing or some scraps...

6. ELD goes for a another massive re-capitalisation involving the hybrid notes as well. Holders get 40% of face value which is close to the price now. Hybrid holders get to vote on either re-capping the company or have it wind up... similar to BBI last year.

well given they have already done a $550mil recap which de-risked the company and also given that they are close to break-even operating earnings in current environment on turnover of $2bn+ per annum and they recognise they simply have to expand their margin a little to improve profitability. barring some out of the blue disaster i can't see how they are going to go bust.

for the same reasons i don't see why they would have to do another recap. what do they need the money for?

their key challenge is simply to do better than break-even by expanding margins whilst maintaining market share.

 

[ricee007]

w534.. and how has that worked for them so far this year?

You have to understand that there is a REALISTIC chance that ELDPA holders won't see $100.


I mean, sure, they might one day.... but, you seem to place a much less chance of that happening than me, skc and the market..........

 

[w534220]

w534.. and how has that worked for them so far this year?

You have to understand that there is a REALISTIC chance that ELDPA holders won't see $100.


I mean, sure, they might one day.... but, you seem to place a much less chance of that happening than me, skc and the market..........

explain to me under what circumstances the ELDPA will not see $100?

The only scenario under which you will not see $100 is if the firm goes into liquidation and the total assets of $2221million are worth less than total liabilities of $1150million. (i have included receivables and current assets and liabilities).

but why would it go into liquidation when it is breaking even and has gearing of only 35%?

 

[ricee007]

explain to me under what circumstances the ELDPA will not see $100?

The only scenario under which you will not see $100 is if the firm goes into liquidation and the total assets of $2221million are worth less than total liabilities of $1150million. (i have included receivables and current assets and liabilities).

but why would it go into liquidation when it is breaking even and has gearing of only 35%?

Oh, sorry, I thought that they just recently downgraded forecasts, for the umpteenth time?

Aren't they going to, probably, take on more writedowns, despite already doing a massive chunk of them?

If those two things keep happening... then the fact that they say they jmay breakeven is kinda irrelevant !!!

Besides, no, that's not the only circumstance that ELDPA won't see $100. I suggest you educate yourself on BEPPA/BBI. It was just over 43% for BEPPA holders... I only made a 35% profit on those .

 

[w534220]

Oh, sorry, I thought that they just recently downgraded forecasts, for the umpteenth time?

Aren't they going to, probably, take on more writedowns, despite already doing a massive chunk of them?

If those two things keep happening... then the fact that they say they jmay breakeven is kinda irrelevant !!!

Besides, no, that's not the only circumstance that ELDPA won't see $100. I suggest you educate yourself on BEPPA/BBI. It was just over 43% for BEPPA holders... I only made a 35% profit on those .

well i bought the beppas at under 10c so i know all about that. But Elders is different. BBI was trying to refinance debt secured against equity holdings in highly geared assets. it was beholden to the banks who wanted them to raise equity and Hamill/Kendrew had done a deal with BAM whereby they would keep their jobs if they helped BAM take it over on the cheap.

Elders on the other hand has already done the equity raising the banks required and has no equity market capitalisation linked debt covenants. so it is not beholden to the banks, does not need to raise capital and therefore does not need to agree to any takeover deals that involve those senior to common equity taking a haircut.

 

[w534220]

well i bought the beppas at under 10c so i know all about that. But Elders is different. BBI was trying to refinance debt secured against equity holdings in highly geared assets. it was beholden to the banks who wanted them to raise equity and Hamill/Kendrew had done a deal with BAM whereby they would keep their jobs if they helped BAM take it over on the cheap.

Elders on the other hand has already done the equity raising the banks required and has no equity market capitalisation linked debt covenants. so it is not beholden to the banks, does not need to raise capital and therefore does not need to agree to any takeover deals that involve those senior to common equity taking a haircut.

another big difference between BEPPA and ELDPA is that the BEPPA outstanding was huge(approx $800mil) relative to the equity . whereas ELDPA is only $150mil. also the BEPPA were cumulative causing BBI to be getting deeper underwater, whereas ELDPA are currently free finance for ELD. but that is all irrelevant given that ELD is not in a position where they need to raise equity.

 

[Pierian]

Also curious about sentiment out there with current holders.... perhaps people feel their holdings have been so diluted that it's worth more to them to pursue compensation rather than wait for the SP to recover???

It's devastating.

Perhaps all current shareholders should consider registering for further info regarding the class action with Slater and Gordon Lawyers - 1800 555 777

 

[freddy2]

explain to me under what circumstances the ELDPA will not see $100?

The only scenario under which you will not see $100 is if the firm goes into liquidation and the total assets of $2221million are worth less than total liabilities of $1150million. (i have included receivables and current assets and liabilities).

but why would it go into liquidation when it is breaking even and has gearing of only 35%?

What happens if the board decides never to pay a dividend to the equity holders and ELDPA holders. Instead future profits/cash flows could be used to pay back debt or re-invested. They could do this as ELDPA are non-cumulative and have no set redemption date.

 

[oldblue]

Hi W534.

I've been thinking about your posts ELDPA v ELD and tend to agree, although I'm not sure I'd be buying either at present.

I see the biggest point against ELDPA though as its relative lack of liquidity. If things get really/even more nasty for Elders at least the ords are likely to continue to give a way out, albeit at a price. Not so certain with ELDPA, I would think?

 

[w534220]

What happens if the board decides never to pay a dividend to the equity holders and ELDPA holders. Instead future profits/cash flows could be used to pay back debt or re-invested. They could do this as ELDPA are non-cumulative and have no set redemption date.

because of the equity div stopper the equity would be more of a zero coupon perpetual than the hybrid. if the equity market discounted this(which it may well already be doing) it would be (is) a prime takeover candidate and in the case of a takeover the hybrid holders get par plus 50% of the takeover premium. ie. could well be 3x current hybrid price.

more practically, it looks bad to not be paying hybrid divs and removes their flexibility on equity divs. so i believe they either start paying the hybrid divs as planned in a year's time(will be approx 26% running yield on current price) or they convert the hybrids, which will be dilutive for equity but increases management flexibility re equity divs.

Malcolm Jackman said during conf call that they are having a meeting in July to discuss , amongst other things, cap structure and what they do with they hybrids.

 

[craigj]

is elders the worst performing stock for the finnancial year? or perhaps the biggest loser of equity during the year?

 

[alphaman]

in the case of a takeover the hybrid holders get par plus 50% of the takeover premium. ie. could well be 3x current hybrid price.

They may get par, or may have to accept a discount. Who knows.

By the way why do hybrid holders get 50% of the takeover premium? Is that a specific condition of ELD's hybrid paper?

 

[ricee007]

w534220.

Understand that the market is pricing ELDPA where they are because of risk of never seeing $100 again.

ELDPA are one stock that I'd consider buying, hell, I nearly did buy (I got STO instead, ELDPA was probably my 3rd choice at the time, though).

However, you *ARE* downplaying the risk, compared to what the market thinks.

You say ELD don't need capital? What if the economy keeps going like it is? Will they need cash flow?

Realistically, there's no reason why ELD has to pay dividends before 2013. 3 years away. In fact, one may argue that, from this position, that looks most prudent. They have too much debt for their cash flow... why would they give some of their cash to s/holders!?

ELDPA may give the nice $110 or so in 18 months time. Who knows? However, understand how little risk you are implying, compared to the market.

Read the latest announcment.... the SP dropped 40% for a reason.

"Is that a specific condition of ELD's hybrid paper? "
Yes.... quite an unusual clause, but, a certainly 'sensible' one...

 

[nulla nulla]

is elders the worst performing stock for the finnancial year? or perhaps the biggest loser of equity during the year?

Wouldn't the award for biggest loser of equity during the year go to BBI or BBP? BBI, now renamed PIH, gave up 99% of equity in the company to a new cornerstone investor to stave of the banks. Fortunately the entrenched management were able to keep teir jobs (and probably their bobues).