Australian (ASX) Stock Market Forum

FGE - Forge Group

Jump to new
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.
 
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.
Click to expand...

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...
 
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...
Click to expand...

Very dangerous!
 
Haha, I thought that line might draw out a comment or two :D

Indeed it is though, a good reminder!
 
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.
 
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.
 
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.
 
FGEs.gif
 
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.
 
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.
 
Intrinsic Value said:
I just love FGE.

They never disappoint.
Click to expand...

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.
Click to expand...

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.
 
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.
Click to expand...

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.
 
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.
 
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.
Click to expand...

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.
 
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?
 
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.

fge1311.png
 
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.
Click to expand...

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 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?
Click to expand...

$0.625!!!!:eek::eek:

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.
 
McLovin said:
If it goes through as is, I'm guessing they'll be getting a knock at the door from IMF or SGH.
Click to expand...
Indeed, the ambulance chasers will be frothing at the lips - especially with the ridiculous performance bonuses paid to directors last month.
 

Similar threads

System
AAL - Alfabs Australia
Replies
19
Views
2K
divs4ever
divs4ever
numbercruncher
VMG - VDM Group
2 3
Replies
56
Views
19K
Nevarong
N
Top