NWH - NRW Holdings

odds-on said:

Hi Boggo,

Thanks for the chart - what would have to happen to the chart for you to be tempted?

I call this stage of the stock price cycle the "uncertainty" period.

Cheers

odds-on

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Probably a repeat of the left side of the chart I posted above.
Effectively it has been in a downtrend for over twelve months with a loss in value of around $3 so it needs to break out of its ongoing cycle of half hearted attempts at turning back up.

Just my

Boggo said:

Probably a repeat of the left side of the chart I posted above.
Effectively it has been in a downtrend for over twelve months with a loss in value of around $3 so it needs to break out of its ongoing cycle of half hearted attempts at turning back up.

Just my

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Thanks Boggo.

At this stage I think you will have to wait at least a year before you are tempted. The market is being pessimistic about this company, for the downtrend to continue the company has to go bankrupt and I do not see that happening. I speculate this is the point of “maximum pessimism”, so I took a position and am going to patiently wait for the party to get started or the facts about the business to change. According to the mainstream media it is a “yield-chasing” market so I reckon the double digit dividend yield and consensus estimates will eventually bring about a change in sentiment to the stock.

If the sentiment does change, I would appreciate your posts. I played TGA wrong (got in at the bottom but sold out too early) and would like to play this one better.

Cheers

Fundamentally, only time will tell how well NWH is going to perform over the next couple of years. With their heavy exposure to Pilbara iron ore mining civil construction contracts just how well will they be able to replace work and sustain their civil works division and how well will they be able to maintain margins on future work?

NWH do a lot of work for Rio. Rio are the world's lowest cost iron ore producer. The Pilbara in general is low cost. What does this mean? It doesn't matter what the price of iron ore is, Rio will always be able to clear its production and make a profit. The more the price of iron ore falls, the more of the world's supply will come out of the Pilbara. Demand for Pilbara iron ore will not fall. The price may fall, but companies like Rio will be able to supply at profit throughout the price cycle.

So, there should be demand for NWH's services in the Pilbara in the long run. The question how much ongoing work and at what margin?

NWH have used a lot of labour hire and equipment hire during its current boom in work, so they should be able to continue to deploy their current full time work force and machinery to a large extent even if the work on hand reduces over the next couple of years - so they say.

Just how pessimistic a future does NWH face? Let's assume that in future years the company makes no money out of the civil construction business at all. In the 2012 financial year, the company saw $700m revenue from the drill, blast and mining businesses which are generally recurring revenues with multi-year contracts. At an after tax profit margin of 6% that still works out to earnings of $0.15 per share. At today's close that gives a PE of 8.8. Assuming a payout ratio of 67% on those earnings that would provide a dividend yield of 7.6% on today's closing price.

And yet we know that iron ore production out of the Pilbara is still set to expand further. Iron ore production is going to end up about double what it was in 2009 by 2015.

I agree with Bogo that from a technical position, it is far to early to make an entry into NWH from t/a of the chart. It would have been better to have gotten in close to the 1.14 low than I did, for safety in placing a stop loss, but I don't watch stock prices every day.

still a good bet, and a solid company, planning to buy more over the coming weeks.

pacman said:

still a good bet, and a solid company, planning to buy more over the coming weeks.

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Be interested to know if you thought it was a good company at $4.36 just over a year ago?

It's declined 73.0% since that time. Next support around $0.85. That's the technical side of things. Now tell us why it's a good company fundamentally?

Boggo said:

Effectively it has been in a downtrend for over twelve months with a loss in value of around $3 so it needs to break out of its ongoing cycle of half hearted attempts at turning back up.

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No change in opinion for me, it is still maintaining a consistent downtrend with a few sucker upturns.

Porper said:

Be interested to know if you thought it was a good company at $4.36 just over a year ago?

It's declined 73.0% since that time. Next support around $0.85. That's the technical side of things. Now tell us why it's a good company fundamentally?

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The days of fundamentals and reality (actual stock price) consistently going in the same direction is a rarity since the pre GFC days.
There are many stocks trying to climb a hill in fourth gear because they have a full tank of gas but since the GFC and a whole new merciless operating environment the hill has had the last laugh.
Nowadays there are too many variables that can have a significant influence over a short time span that need to be recognised and dealt with if future survival is in your plan.
I believe it will stay like this too, belatedly received fundamental data just doesn't have the same influence anymore, especially over the period between bi-annual reports.

NWH is another classic example (there are many) where unless you have a bottomless drawer (and bottomless money pit) and also believe in cryogenics to see it back into a profit for you then you are better off striking up a cosy relationship with reality.

Just got in... expecting that there is not an awful lot of downside.

A dividend of 13c-18c looks likely... so anything under $1.30 looks exceptional for my needs.

Dropped around 15% to $1 or so after I got in (at $1.16), now is up to around $1.155... so hopefully I got near the bottom of the knife?

I guess we'll find out within the next three months or so.

I have bought in at average price of $1.37 months ago. Reasons are high dividend yield , bought by directors at around$1.50 mark, always been a top shorted stock, still very solid order book, very low debt levels,profit downgrades by peers ugl,wor etc which may be in similar sector but are totally different stocks altogether when you read their annual reports.
I believe this company will do well when $aud keeps falling, increasing profitability of miners like bho,rio alike, which will maintain current capital works and keep future expansion. About mining boom being over, in 5-7 years time when you look in hindsight, you will be laughing at the comments of top analysts about this.
Now could not be a better time to buy in. Everything runs in cycle. I love a bargain.

Choongy said:

I have bought in at average price of $1.37 months ago. Reasons are high dividend yield , bought by directors at around$1.50 mark, always been a top shorted stock, still very solid order book, very low debt levels,profit downgrades by peers ugl,wor etc which may be in similar sector but are totally different stocks altogether when you read their annual reports.
I believe this company will do well when $aud keeps falling, increasing profitability of miners like bho,rio alike, which will maintain current capital works and keep future expansion. About mining boom being over, in 5-7 years time when you look in hindsight, you will be laughing at the comments of top analysts about this.
Now could not be a better time to buy in. Everything runs in cycle. I love a bargain.

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Two queries regarding the areas I have in bold above...
1 - do you understand the dividend yield formula ?
2 - please explain

If anyone has time to have a look at the twenty-one page Form 604 "Notice of change of interests of substantial holder" for Goldman Sachs lodged this morning I would be interested to hear your feedback. Does it give any indication of whether they have finished shorting this stock or is this just noise?

View attachment 130613 nwh.pdf

tinhat said:

If anyone has time to have a look at the twenty-one page Form 604 "Notice of change of interests of substantial holder" for Goldman Sachs lodged this morning I would be interested to hear your feedback. Does it give any indication of whether they have finished shorting this stock or is this just noise?

View attachment 52778

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You might get a better picture if you sum up all the rows in buys / sells / borrow and return. That way you can see the net direction. It may be that they were just doing the stock lending and someone else has been shorting it.

Porper said:

Be interested to know if you thought it was a good company at $4.36 just over a year ago?

It's declined 73.0% since that time. Next support around $0.85. That's the technical side of things. Now tell us why it's a good company fundamentally?

Click to expand...

Over a year ago, at 4.36, the company was trading at >27 times 5y avg earnings. That is an earnings yield of ~3% if you purchased on that day. I would say that overvaluation has played just as much a role in the move to ~90c as technicals have! Currently, the multiple is 6, which implies an earnings yield of 16% at 16c in EPS. i.e. good or bad company, over the longer term (>6 months) then valuations absolutely play a role in outcomes, with the importance of value increasing as the investment term inreases.

If you buy a company (or the index!) when it's expensive, you can expect poor long term results regardless of the trend. This is a scientifically verified fact at the single name and index level. Trends occur in both cheap and expensive markets, but 99% of the time, investors only get to keep the fruits of the trend when it's driven by cheap valuations. Overvalued assets can destroy value at an amazing rate, just look at how much the NASDAQ 100 returned between 2000 and 2010.

Stocks are calls against the long term cashflows of a company. Therefore fundamentals absolutely matter when it comes to investing in stocks, and it's simply wrong for Boggo to say that stocks don't react to fundamentals when the entire global rally since Aug 2011 has been off the back of value stocks, with growth stocks significantly underperforming.

I say all of this as an avid technician.

sinner said:

If you buy a company (or the index!) when it's expensive, you can expect poor long term results regardless of the trend. This is a scientifically verified fact at the single name and index level. Trends occur in both cheap and expensive markets, but 99% of the time, investors only get to keep the fruits of the trend when it's driven by cheap valuations. Overvalued assets can destroy value at an amazing rate, just look at how much the NASDAQ 100 returned between 2000 and 2010.

Stocks are calls against the long term cashflows of a company. Therefore fundamentals absolutely matter when it comes to investing in stocks, and it's simply wrong for Boggo to say that stocks don't react to fundamentals when the entire global rally since Aug 2011 has been off the back of value stocks, with growth stocks significantly underperforming.

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Great post, Sinner.

The FWD thread is a great example of relatively simple FA in practice. A look at margins and asset utilisation gave plenty of notice the company was operating in a boom. That sort of FA could have been repeated across the mining services industry and would have generated similar results. At the point some of us here were pointing out the unlikelihood of the recent business performance continuing most brokers were still calling them buys.

Now that the boom is passing the real danger is investors seeing big price falls and assuming something has become "cheap". When in fact it's just reverting.

It doesn't matter how great the business, if you overpay, you won't get the return that someone who paid a reasonable price for the same asset achieves.

It's also important to note that "value" as defined by a very low P/B, P/B TEV/EBIT multiple, etc is not just correlated with higher performance but also more bankruptices and delistings. In the same way that it doesn't matter whether a company is good or not when it's overvalued, it matters very much whether or not an undervalued company is good or not.

The seminal work on this matter is by Piotroski, who found that taking the value quintile (bottom 20% of market by P/B) outperformed each year, but that over 50% of the stocks in the quintile actually underperformed! A strategy to sort the quintile into two halves of high and low quality. running a hedge book of long high quality value short low quality value produced 20% CAGRs from the period 1976-1996.

"Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers" - Piotroski.

I finished reading "Quantitative Value" a couple of months ago, and they provide their own (slightly better IMHO) version of the Piotroski score.

sinner said:

"Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers" - Piotroski.

I finished reading "Quantitative Value" a couple of months ago, and they provide their own (slightly better IMHO) version of the Piotroski score.

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Thanks for the reference. You are such a walking library of trading and investing research papers. I have no idea when you find the time to locate them or read them (or not fall asleep whilst reading).

skc said:

Thanks for the reference. You are such a walking library of trading and investing research papers. I have no idea when you find the time to locate them or read them (or not fall asleep whilst reading).

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Love the markets! Grasping one concept makes me realise how little I understand about ten other things so I have to go out and research them. My IT career has largely been in research/academia, and my other personal interest is ethnobotany/ethnopharmacology so I am very used to reading and seeking out journal papers. Usually on the weekend I will spend a fair chunk of time taking new notes and evaluating ideas from my notes.

Thank you for the posts, sinner. I mean this sincerely, I think it is a credit to you that you have made the effort to understand where some of the fundamental analysists are coming from even though you do not practice it in your own investing style.

sinner said:

It's also important to note that "value" as defined by a very low P/B, P/B TEV/EBIT multiple, etc is not just correlated with higher performance but also more bankruptices and delistings. In the same way that it doesn't matter whether a company is good or not when it's overvalued, it matters very much whether or not an undervalued company is good or not.

The seminal work on this matter is by Piotroski, who found that taking the value quintile (bottom 20% of market by P/B) outperformed each year, but that over 50% of the stocks in the quintile actually underperformed! A strategy to sort the quintile into two halves of high and low quality. running a hedge book of long high quality value short low quality value produced 20% CAGRs from the period 1976-1996.

"Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers" - Piotroski.

I finished reading "Quantitative Value" a couple of months ago, and they provide their own (slightly better IMHO) version of the Piotroski score.

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Sinner,

If you ever get bored, pick a stock, calculate the 5 year average EPS, multiple by 10, now compare it to the broker forecast range. In my experience this usually gives the lower end of the broker forecast range.

For NWH this calulates to $1.88 and the broker forecast range is $1.25 to $3.08.

Cheers

Ves said:

Thank you for the posts, sinner. I mean this sincerely, I think it is a credit to you that you have made the effort to understand where some of the fundamental analysists are coming from even though you do not practice it in your own investing style.

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Thanks for the thanks V :

Just a note, while I don't use value in the same way as most on ASF, I do use it as part of my quant toolset in a very similar way to (and inspired by) John Hussman, who I greatly admire. Check out one of his recent weekly commentaries for a simple model which demonstrates the idea and discusses its logical basis

http://www.hussmanfunds.com/wmc/wmc130506.htm

I prefer the Ulcer Index over the Sharpe ratio used above, but you get the idea.

EDIT: Sorry for going offtopic.