FGE - Forge Group

[Klogg]

Service company's don't own anything so have no real value and yet are so attractive to value investors. :dunno:

RIP: Forge..another share market darling gone.

That's because the Return on Equity in the business is usually high, as a result of minimal equity requirements.
What happened to Forge is another matter...

 

[PurplePixie]

The article on The full says FGE are looking at restructuring.

If you held stocks with FGE, what happens tomorrow when the announcement is made to market? I assume they will just announce that they have gone into administration, so do those stocks just 'disappear' from your portfolio, now that they don't have a company anymore?

If someone bought FGE, or part of it, would they take over the stocks?

 

[McLovin]

That's because the Return on Equity in the business is usually high, as a result of minimal equity requirements.
What happened to Forge is another matter...

As it turned out, the lack of E in ROE was their achilles heel. I don't think in a few years time we'll be seeing companies with a few million bucks in equity taking on huge projects where even a modest error in costs could blow them out of the water.

 

[So_Cynical]

The article on The full says FGE are looking at restructuring.

If you held stocks with FGE, what happens tomorrow when the announcement is made to market? I assume they will just announce that they have gone into administration, so do those stocks just 'disappear' from your portfolio, now that they don't have a company anymore?

If someone bought FGE, or part of it, would they take over the stocks?

It will be a goner, a trading halt that never ends...that's how it usually works.

1000 to one shot that you will get anything of significance after the administrator is finished with them...the shares will stay in your portfolio (broker) until de-listed, may take a few months.

 

[ashpan]

It will be a goner, a trading halt that never ends...that's how it usually works.

1000 to one shot that you will get anything of significance after the administrator is finished with them...the shares will stay in your portfolio (broker) until de-listed, may take a few months.

Hello guyz,

I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.

I dont want to pay $5000 for my forge shares. How can i do the stop payment. Is it okey If i dont put money in my account and dont pay $5000 for forge group shares??

Need reply pls urgently..

 

[skc]

The article on The full says FGE are looking at restructuring.

If you held stocks with FGE, what happens tomorrow when the announcement is made to market? I assume they will just announce that they have gone into administration, so do those stocks just 'disappear' from your portfolio, now that they don't have a company anymore?

If someone bought FGE, or part of it, would they take over the stocks?

They aren't coming out. They already announced suspension and appointment of administrators. The original trading halt end day is no long relevant.

Hello guyz,

I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.

I dont want to pay $5000 for my forge shares. How can i do the stop payment. Is it okey If i dont put money in my account and dont pay $5000 for forge group shares??

Need reply pls urgently..

Unfortunately it is not something you can just "back out". You are most likely liable to honour the settlement amount, and if you don't they will probably slap you with a fee and interest charges. Best read your Commbank product disclosure statement for actual details.

If there's a way to back out without redress... anyone can just buy shares and get a free option on it going up before T+3...

 

[So_Cynical]

Hello guyz,

I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.

I dont want to pay $5000 for my forge shares. How can i do the stop payment. Is it okey If i dont put money in my account and dont pay $5000 for forge group shares??

Need reply pls urgently..

That's shocking bad luck, one to tell the grand kids about...99.9% chance that your 5K is gone.

 

[beachlife]

Hello guyz,

I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.

I dont want to pay $5000 for my forge shares. How can i do the stop payment. Is it okey If i dont put money in my account and dont pay $5000 for forge group shares??

Need reply pls urgently..

Did you receive any advice from the broker? Maybe there is an out if you spoke to a broker at the time of purchase. Calls should be recorded.

 

[Valued]

Thank your lucky stars you weren't leveraged and you get out not going bankrupt. It's sad to think some people would have had CFD positions in this stock. In my opinion you should not use CFDs for companies that could go insolvent. This sounds pretty obvious but some people got caught out today thinking FGE was a cash cow to day trade.

 

[galumay]

Service company's don't own anything so have no real value and yet are so attractive to value investors. :dunno:

RIP: Forge..another share market darling gone.

I went back through the financials on FGE this morning out of interest to have a look at them from the viewpoint of 6/13, I want to see if any warning signs stood out then that I and other investors should have seen as warning signs.

There is not a lot to raise red flags, growing earnings, NPAT, growing dividends with a low payout ration, strong order book, low debt, good ROE, low debt, reasonable cash flow....

How many investors would have predicted such a rapid collapse of the business? Not many of those metrics would have done anything other than reassure a value investor.

I would be interested to hear other's opinions - even with the benefit of hindsight!

Maybe the biggest lesson is the point you make So_Cynical - service companies by their nature are highly volatile and cyclic businesses?

 

[infamous]

I never predicted that FGE would fall so hard so fast.

But yesterday talking with friends that work for, or with FGE, guys the had all flights cancelled, redundancies terms handed out and most aren't expecting to get their owed pay anytime soon.

I knew I was taking a punt on FGE, I knew it was a good business that had made some poor choices that bit it hard (CTEC mostly).
But I thought if it could get to the new financial year with MRRT being axed it would rejuvenate the mining services sector.

A good chunk of my exposure was from profits made from FGE in the last 3 months, so I guess I'll chalk this up to experience... knowing when to leave while your ahead.

 

[craft]

I went back through the financials on FGE this morning out of interest to have a look at them from the viewpoint of 6/13, I want to see if any warning signs stood out then that I and other investors should have seen as warning signs.

There is not a lot to raise red flags, growing earnings, NPAT, growing dividends with a low payout ration, strong order book, low debt, good ROE, low debt, reasonable cash flow....

How many investors would have predicted such a rapid collapse of the business? Not many of those metrics would have done anything other than reassure a value investor.

I would be interested to hear other's opinions - even with the benefit of hindsight!

Maybe the biggest lesson is the point you make So_Cynical - service companies by their nature are highly volatile and cyclic businesses?

ROE for the last 4 FY Results, 17.90, 18.58, 31.94, 33.28

ROE for the last 4 HY Results 14.73, 13.62, 24.29, 19.02

Last half yearly has already shown a decrease in ROE and current forecasts show a continuation. Do you think 30% is a conservative enough estimate for an entire cycle or are you forecasting and playing earnings momentum?

If you are using the formula that I think you are then you are implying a growth rate of 22.5% Does that sound consistent with the overall picture and growth in mining infrastructure spend or are you forecasting and playing FGE gaining market share?

Do you know how far into the future these assumptions are implied to last by the valuation formula you are using? Do they match your assumptions for the business?

Just updating this post with latest numbers.

I held FGE and sold late march 2011 conserned that profitability looked like it was starting to come off and industry margins were cyclically high. Premature as usual and didn't see the resurgence in march/april this year on the horizon so my thoughts can be taken with a grain of salt - but I still hold concerns that these mining service companies are overvalued on a full cycle profitability basis.


MND has a longer record (1990-2011) to get a feeling for how good the last half dozen years or so have been for the industry. 10.31% 11.65% 19.89% 18.58% 21.60% 20.19% 23.00% 25.14% 26.02% 26.44% 27.84% 13.25% 17.17% 20.73% 21.72% 36.14% 47.31% 66.77% 64.97% 60.57% 57.68% 49.20%

I recall posting about FGE and dug a couple of old posts. I don't think the course of events were really that much of a surprise. The specific contract problems were probably not knowable - but the potential certainly was: High contract values - small company - cyclical earnings - industry downtrend.


As to the suddenness of the failure, again it seems a pretty usual course. Frog in a pot scenario then a rapid decline once the penny drops for most. The execution clause in ANZ's refinancing deal should have been a huge red flag that holders were not going to get any prior warning to it going into receivership - still cant believe the prices it reached post that announcement.

 

[skc]

I went back through the financials on FGE this morning out of interest to have a look at them from the viewpoint of 6/13, I want to see if any warning signs stood out then that I and other investors should have seen as warning signs.

There is not a lot to raise red flags, growing earnings, NPAT, growing dividends with a low payout ration, strong order book, low debt, good ROE, low debt, reasonable cash flow....

How many investors would have predicted such a rapid collapse of the business? Not many of those metrics would have done anything other than reassure a value investor.

I would be interested to hear other's opinions - even with the benefit of hindsight!

Maybe the biggest lesson is the point you make So_Cynical - service companies by their nature are highly volatile and cyclic businesses?

The last report (Aug 13) of the business showed a pretty seious issue with cashflow. However, it probably didn't warrant an immediate sell, but definitely warranted closer monitoring. The AGM update would have put many investors at ease and you probably can't fault them for it. Although ignoring the overall mining capex backdrop is probably investing against some pretty large adverse forces, no one from the outside could have predicted a dramatic collapse at that time.

By the time the first trading halt, every single red flag should have been raised. Any "value invesetor" should definitely recognise it's time to get out. I imgaine many didn't because the share price is so low and they didn't want to realise the loss.

By the time of the second and third trading halt, it is indefensible to keep holding from a "value investing" approach. Yes you can potentially buy as a trade or a long term turnaround story, but the timeframe/risk management/position sizing for such plays would be very different. And yes it would have been pretty unlucky to be holding when the 4th trading halt happens... but your position sizing would have protected you from too large a loss.

To be honest, the market offered an opportunity to somewhat more gracefully exit the stock >$1.50. It would still mean a large loss to many investors, particularly if they kept looking backwards at the equity high market >$6.

As I said in another thread... successful investors are those who strike a balance between not over-reacting and being quick to act. Having money on the line makes the decision in real time much more difficult.

 

[McCoy Pauley]

The last report (Aug 13) of the business showed a pretty seious issue with cashflow. However, it probably didn't warrant an immediate sell, but definitely warranted closer monitoring. The AGM update would have put many investors at ease and you probably can't fault them for it. Although ignoring the overall mining capex backdrop is probably investing against some pretty large adverse forces, no one from the outside could have predicted a dramatic collapse at that time.

By the time the first trading halt, every single red flag should have been raised. Any "value invesetor" should definitely recognise it's time to get out. I imgaine many didn't because the share price is so low and they didn't want to realise the loss.

By the time of the second and third trading halt, it is indefensible to keep holding from a "value investing" approach. Yes you can potentially buy as a trade or a long term turnaround story, but the timeframe/risk management/position sizing for such plays would be very different. And yes it would have been pretty unlucky to be holding when the 4th trading halt happens... but your position sizing would have protected you from too large a loss.

To be honest, the market offered an opportunity to somewhat more gracefully exit the stock >$1.50. It would still mean a large loss to many investors, particularly if they kept looking backwards at the equity high market >$6.

As I said in another thread... successful investors are those who strike a balance between not over-reacting and being quick to act. Having money on the line makes the decision in real time much more difficult.

Fantastic post.

Allied to that is a recent Eureka Report article on the effect of biases on investors, particularly anchor bias and recency bias. Well worth a read.

 

[ROE]

Hello guyz,

I just purchased Forge group shares in last day of trade worth $5000. And in my cba commbank CDIA account, money hasn't been deducted.

I dont want to pay $5000 for my forge shares. How can i do the stop payment. Is it okey If i dont put money in my account and dont pay $5000 for forge group shares??

Need reply pls urgently..

5k down the drain, you can't get out its a legal contract they will go after you for it ...
What happen to FGE got nothing to do with comsec, they are a regulated brokers and they must pay the other side of the trade, they will go after you for the money if you don't pay up

Write off the 5k you don't want to be mark down as not honouring your trade, it will cost you FAR more than 5k going forward

 

[ROE]

Thank your lucky stars you weren't leveraged and you get out not going bankrupt. It's sad to think some people would have had CFD positions in this stock. In my opinion you should not use CFDs for companies that could go insolvent. This sounds pretty obvious but some people got caught out today thinking FGE was a cash cow to day trade.

Some dude leverage 300k using CFDs on hotcopper
Telling the family going to be the hard part I reckon

Share free fall must have attract a lot of newbies looking for quick bucks....I used to owned it but let it go sometimes ago then after the free fall I read the announcement I decided its a no go zone...

What surprise me the most after the last trading halt, it stop falling and the market seem to embrace it? I cant figure it out plenty of article said it has cash flow problem, contractors not getting pay, fuel card stops, subcontractors walk, workers now credit card for their own petrol and still the market ignore it all..

 

[McCoy Pauley]

Some dude leverage 300k using CFDs on hotcopper
Telling the family going to be the hard part I reckon

Share free fall must have attract a lot of newbies looking for quick bucks....I used to owned it but let it go sometimes ago then after the free fall I read the announcement I decided its a no go zone...

What surprise me the most after the last trading halt, it stop falling and the market seem to embrace it? I cant figure it out plenty of article said it has cash flow problem, contractors not getting pay, fuel card stops, subcontractors walk, workers now credit card for their own petrol and still the market ignore it all..

Pure speculation on my part, but the bounce might have been because everyone thought that ANZ was standing behind Forge. The stuff about ANZ only providing funding conditional on Forge finding equity support emerged later, IIRC.

 

[galumay]

Thanks for the response to my questions guys, high quality, well thought out posts as usual!

I never held FGE, but I think stories like this are a great opportunity for learning, by seeking with the aid of hindsight, to understand what the warning signs were and reflect on potential triggers for exits if you do get caught in a similar situation.

 

[notting]

I know that Wise Owl took a position and suggested it to their followers to as well, on the first bounce, they got out in time too.
How F#$%ed up is that in retrospect!
Their job is to do the deep analysis and know stuff about companies and make recommendations. This was clearly a shocking recommendation despite the fact they were lucky enough to get out. Hope they didn't go in for seconds, on the logic of the first trade there would have been no reason to not have and got destroyed!!

 

[skc]

Added to ASX200 in Sept 13. Bankrupt within 6 months. Shades of the old AED Oil.

https://www.aussiestockforums.com/f...t=3374&page=37&p=652437&viewfull=1#post652437