Inside Information - how to get some?

[barney]

I find that buying higher quality businesses, selling at (un)reasonably low prices tend to work out better than jumping into more speculative stocks.

I suspect you are probably correct @luutzu ….. For some reason I still prefer the cut and thrust of an unknown Speccie ….. I'm probably a punter

 

[luutzu]

I suspect you are probably correct @luutzu ….. For some reason I still prefer the cut and thrust of an unknown Speccie ….. I'm probably a punter

A punter... or an enterprising investor?

I'm also on the look out for that next big unicorn. But it's with money I could afford to lose, which isn't much Punted on that next generation waste management company... It's practically history now but for some reason still floating around, not completely dead yet.

That didn't stop me from punting on another up and comer. But again I know it could go either way. But a sure thing is always better... Hence I invest in TRS

 

[barney]

a sure thing is always better... Hence I invest in TRS

I'm not great with balance sheets …. but TRS had an NPAT of +$16 million (up 34%) and the share price has been pulverised ….

That makes no sense to me especially given their modest Market Cap …… I agree with your assessment 100% @luutzu … but …

The big question is ….. why has it been sold off under the current circumstances

 

[Smurf1976]

Another thing is just paying attention to what's going on. Note that my point here is to highlight the thought process more than anything about this specific example.

It's not an ASX listed company, indeed it's not even Australian, but Nyrstar's shares look to be rapidly becoming worthless. Latest price is 0.64 Euros versus 1.59 EUR just two weeks ago and over 7 EUR back in January this year. At least some analysts are suggesting the shares could soon be worthless as in literally going to zero.

Now the relevance to Australian investors, assuming they don't directly own shares in the company listed overseas, is that it has major operations in Australia.

The zinc smelter at Lutana is the largest exporter, of anything, in Tasmania and a significant local employer.

The lead smelter at Port Pirie is locally important to the town and is a significant industry to the whole state in SA.

In both cases there will be many contractors and suppliers who would be affected if the company did go belly up. Some of those will be small businesses, some will be bigger but not listed companies, some will be listed companies.

Now if there's a listed company for whom Nyrstar is a major client then there's at least some cause for concern. Are you in any way exposed, through other things you own shares in, should this company end up broke? Physical closure of the Australian operations is unlikely, the longer term question being more about who owns them, but the company going bust and defaulting seems at least possible.

Now my point here is about the thought process not Nyrstar specifically, that's just an example.

1. News item says xyz is in trouble.

2. I don't own shares in xyz. OK so far but:

3. Is this of relevance to anything else that I am invested in?

It's not strictly "inside" information but working out that some other company is exposed well before they announce anything could certainly be to your advantage.

 

[luutzu]

I'm not great with balance sheets …. but TRS had an NPAT of +$16 million (up 34%) and the share price has been pulverised ….

That makes no sense to me especially given their modest Market Cap …… I agree with your assessment 100% @luutzu … but …

The big question is ….. why has it been sold off under the current circumstances

I can have a few guesses at why the TRS is in the dumpster... I've looked into them and thought things aren't as bad as the market price indicate. That or the market will have the last laugh... which isn't the first time at my expense so that's alright

There's the high inventory, the recent release stating that sales decline but there's an abnormal drop in profit.

The inventory is higher than last year's, but not too crazy, quite modest actually. Compare inventory to sales... they both grew... ratio increase by about 1%.

The massive drop in profit from relatively weak sales figures could be explained by the changes in new accounting standards I think retailers must adopt this FY19.

TRS management wrote about this in the FY17 annual report where the new standards will mean more (accounting) expenses are recognised in the first year or two [i.e. less profit to report... i.e. less tax to pay]... but cash flow wise the business wouldn't be affected.

Retail had obviously deteriorated since, but has it been that bad at TRS? Will try to answer that....


The reason for the sell-off... in my humble opinions... could include:

1. Quite a few retailers are collapsing or doing very poorly. TRS just indicate its profit could drop 40%? Head for the exit is safer.

2. Momentum in the exit.

3. Capital losses. Buying at $5 to $7 a year ago... Even if you believe in the business, might do the accountant proud to offload those, book the loss to offset other gains... might buy back in, or might not.

4. People's calculator's working. Mine isn't.

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A few things I find interesting...

1. TRS still pay its suppliers like they've always been paying. Within 30 days.
That's both good, and bad... Good in that they're dealing fairly with their suppliers; suppliers getting paid mean you can guarantee quality/cheap supplies. You don't want to send your suppliers broke and suffer... maybe that's not too important in retails but anway... businesses will delay paying suppliers when things are out of control.

Bad in that TRS turn over its inventory in about 45 days [from memory]... A better retailer of similar size would want to push their supplier's pay to at least the same time it takes them to offload the stuff. But who am I to tell people how to run their business.

2. TRS doesn't allow credit sales, layby etc. Cash sales is always good, and safe. Them not roping in consumers with deals and credit show discipline.

3. 100 of their 360 [?] stores will have their leases re-negotiated this FY.

Given the potentially tough retail environment, it's not too much to assume that they'll use this opportunity to not renew those stores that aren't doing brilliantly. Those that do better they can negotiate a better rate... come on mate, you know it's getting tough out there, I've closed x stores and if you aren't helping...

While that might reduce the sales, which might further crash the share price... Can't ask for too much right?

Net operating cash at some $30M, zero debt, still making a profit, keeping costs down, no further capital expenditure of any significance.. selling for some $65M. I just can't help myself.

 

[Darc Knight]

Here's a thought: we (ASF members) are Australia wide. If we work together visiting companies, their set ups, their this and that etc, could we as a community build an information profile better than what is already available?

 

[sptrawler]

I'll go around and check out RCR's yard in Welshpool.
Sorry, just couldn't resist it.

 

[Darc Knight]

I'll go around and check out RCR's yard in Welshpool.
Sorry, just couldn't resist it.

Good Man Homer! Finding a volunteer to cover those remote Miners etc in W.A. had me concerned. I don't mind helping out around SE QLD




Back to my original question: Here's a thought: we (ASF members) are Australia wide. If we work together visiting companies, their set ups, their this and that etc, could we as a community build an information profile better than what is already available?

 

[MrChow]

Really interesting concept I've seen some online blogs run by retail investors get access to interview directors by writing analysis pieces on the company.

Personally I've gained useful information by emailing IR / Management but it takes subtle interpretaton and the time spent may not be worth it as it's really a fishing expedition.

Few examples:
- If you get their management voluntarily replying in June that previous guidance is still accurate, it may be a breach of disclosure obligations if there was a surprise for that FY so it is very unlikely to be one.
- On the other side it is very difficult for a company to reply to an enquiry about a former statement about trading conditions 6 months later. The only time they can reply is if conditions remain the same as the time of the statement as it would be very unlikely for them to email randoms in any other situation considering the implications of disclosure risk.
- Other things may be clarifying figures like one company I contacted had a very different formula for ROIC than is expected which reduced my anticipated 5 year EBITDA projection by about -25%.

 

[freebird54]

I used to sell to big businesses - 2 lunches a week minimum - found out lots