FGE - Forge Group

[McLovin]

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]

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.

 

[Ves]

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!

 

[McLovin]

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.

 

[Ves]

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.

 

[Intrinsic Value]

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.

 

[McCoy Pauley]

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.

 

[ROE]

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

 

[ROE]

ok I got most of it from AFR
Wow how can this happen 60c odd CR ? was they con into buying CTEC?

 

[KnowThePast]

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.

 

[ROE]

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....

 

[Clansman]

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.

 

[Intrinsic Value]

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.

 

[piggybank]

 

[ROE]

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.

 

[KnowThePast]

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.

 

[skc]

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.

 

[VSntchr]

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

 

[skyQuake]

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

 

[infamous]

Got into it a little late, but still up 25% and rising