OBL - Omni Bridgeway

[McLovin]

Re: IMF - IMF (Australia)

I did some research last night and have to admit the DDM is the wrong valuation tool. IMF have only being paying dividends since 2007, there is not sufficient dividend history to make a valuation. I am in agreement with the posters about the future work and potential for growth but I am unable to obtain a basic medium term valuation peg. I am going to file IMF in the "too difficult" basket.

Have you had a look at the convertible notes? You are buying a bond with an option to convert at 1:1, or redeem for $1.65/note. YTM at the moment is about ~7.5%.

Might be an easier way to play it if you think valuing the business is too hard but you still want exposure.

 

[McLovin]

Re: IMF - IMF (Australia)

I'll bet they're checking how deep Deloitte's pockets are to see if they can get some money back for Hastie shareholders.

 

[pwnitat0r]

Re: IMF - IMF (Australia)

Hi guys, interesting discussion going on here. Good to have insights from nutmeg, I admit I couldn't understand IMF before without the help of a lawyer. What nutmeg said about settling was also emphasised to me by another lawyer as well. He said by going to trial and having a verdict handed down, it makes it easy for every dick and harry to line up with a lawsuit if they win because a precedent has been set, and also exposes the company to further payout risks. By settling, there is no admission of guilt either and IMF keep an advantage over any competitors in the market by not allowing them to become predators and line up for easy pay days after a winning verdict.

Profits are lumpy, true. Something I struggled to get my head around as well. But, the book value should provide some security (cash - debt + intangibles). I bought early in the year when they had a book value of ~$0.70c backing up every share. I bought at $1.35, so a book ratio of 1.9 or so and not exactly conservative I guess.

But, what helped me to buy was that the investment in cases had been accelerated, it went from $30-40 million to an all time high of $60 million at the time I bought, so I expected an increase in profits over the next 2-3 years. With the settlement of Centro, I'm sure the amount of money invested has changed, but we should see a profit of $40m+ this year, or EPS of ~30c? I am pretty sure we'll see a record profit, at least. Hope the directors don't pay themselves too much in bonuses, as they are entitled to 25% of gross profits which is ridiculous. But, given most of them have shares in the company they would only be shooting themselves in the foot long-term if they take too much away from shareholders and surely it's in their best interests to see the share price rise long-term.

My expected book value has been updated to $1, or 90c after the dividend, but I still have effectively $1 of cash in my pocket for every $1.35 invested IMO. I think IMF are cheaper now than what they were earlier in the year because they have more cash backing it up and book value is now 1.5 if you include the dividend, seeing as they are still trading CD. I consider the intangibles to be effectively cash as they could be sold $1 for ever $1 invested. IMF have historically earned ~100% net profit on the cash invested in cases.

Using 100% profit on invested money, when I bought IMF they had a book value of ~$85 million (market cap of ~$170 million) and from the money invested in cases I assumed another $60 million in net profit over the next 2-3 years, which I expected to be retained as profit or paid out in dividends to give me close to a "book value" of my purchase price through either cash retained or paid out in dividends.

For me, I bought and $1.35 and I see myself sitting on $1 cash for every share held now.. so the future income stream and dividends come for 35c/share. Even if you take their average profit over the last 3 years of $17.5 million (or ~14cps), given the odd dividend of 5 or 10c, that is great value if they were to consistently maintain that, but I expect a higher average profit over the next 2-3 years although I make no predictions beyond those 2-3 years.

I realise I may be too "forward-looking" and not conservative enough, but I come from a gambling background and I make money by looking forward to see what is likely to happen, not what has happened in the past.

My 2c anyway, good luck to everyone!

 

[pwnitat0r]

Re: IMF - IMF (Australia)

Have you had a look at the convertible notes? You are buying a bond with an option to convert at 1:1, or redeem for $1.65/note. YTM at the moment is about ~7.5%.

Might be an easier way to play it if you think valuing the business is too hard but you still want exposure.

I bought the notes (back in May when you posted this) for more exposure on the chance the shares spike after they release guidance for full year net profit, or release their full year net profit which I expect to be $40 million+.

I don't see any downside risk, but I do see the potential of an upside spike when full year profit is released. Who knows how the market will value ~$40 million profit with the shares a PE ratio of 5. $2 isn't too far fetched IMO.

Not sure about buying the notes now though, there is only 2 payments remaining and currently trading for ~$1.74, so you'll be losing money assuming they repay the full value of $1.65 back in December (which they plan to do) without a spike in the share price above $1.65.

 

[McLovin]

Re: IMF - IMF (Australia)

I bought the notes (back in May when you posted this) for more exposure on the chance the shares spike after they release guidance for full year net profit, or release their full year net profit which I expect to be $40 million+.

I don't see any downside risk, but I do see the potential of an upside spike when full year profit is released. Who knows how the market will value ~$40 million profit with the shares a PE ratio of 5. $2 isn't too far fetched IMO.

Not sure about buying the notes now though, there is only 2 payments remaining and currently trading for ~$1.74, so you'll be losing money assuming they repay the full value of $1.65 back in December (which they plan to do) without a spike in the share price above $1.65.

The notes expire in December 2014, so there is still 10 payments to be made. YTM was ~8% when I bought, not sure what it is now.

There's always downside risk, namely that IMF can't pay back the debt, but this is pretty limited, IMO.

 

[pwnitat0r]

Re: IMF - IMF (Australia)

Hi McLovin,

They have the option to pay them back in December 2012 and they indicated in one of the investor presentations this was going to be the most likely option. Anyone buying at the current price of ~$1.74 now will most likely lose money unless the share price spikes up before then and they convert to an ordinary share.

 

[herzy]

Re: IMF - IMF (Australia)

Hi McLovin,

They have the option to pay them back in December 2012 and they indicated in one of the investor presentations this was going to be the most likely option. Anyone buying at the current price of ~$1.74 now will most likely lose money unless the share price spikes up before then and they convert to an ordinary share.

I read this too...

 

[McLovin]

Re: IMF - IMF (Australia)

Hi McLovin,

They have the option to pay them back in December 2012 and they indicated in one of the investor presentations this was going to be the most likely option. Anyone buying at the current price of ~$1.74 now will most likely lose money unless the share price spikes up before then and they convert to an ordinary share.

Have you included the early redemption penalty in your calculation? The redemption amount should be ~$1.72 with the penalty payment (2%/annum compounded quarterly)

 

[pwnitat0r]

Re: IMF - IMF (Australia)

No, I didn't... thanks for reminding me!

 

[Tannin]

Re: IMF - IMF (Australia)

The dividend announcement on 29th June certainly seems to have livened this stock up. It had risen close to 20c between then and the small slip back today. I bought some in mid June and now I'm looking at the current price and wishing I'd got quite a lot more. Still, you can't complain when your stocks go up, can you.

 

[Mammom]

Re: IMF - IMF (Australia)

I think IMF are cheaper now than what they were earlier in the year because they have more cash backing it up and book value is now 1.5 if you include the dividend, seeing as they are still trading CD.

I agree that IMF are still pretty cheap. I was watching the stock price for a long while before buying in at $1.29. The things I love about this stock are that it:

• is extremely capex-light - it only requires an astute lawyer with a cheque book and maybe an accountant;
• is invulnerable to "market cycles" - indeed, if anything, it does better in downturns than upturns;
• has recently entered the US where the scale of litigation is enormous and yet the funds that IMF needs to set up operations there are trivial.

It is the US adventure that I will be keeping a close eye on in the next year or two.

 

[herzy]

Re: IMF - IMF (Australia)

Sorry what does 'trading CD' mean?

 

[So_Cynical]

Re: IMF - IMF (Australia)

Sorry what does 'trading CD' mean?

CD = cum dividend

So if you buy the stock you get the coming dividend.

http://www.asx.com.au/research/status_notes.htm#CD

 

[herzy]

Re: IMF - IMF (Australia)

haha of course. thanks SC

 

[herzy]

Re: IMF - IMF (Australia)

Some lovely results! Had a big run up into XD too.

My valuation of the company is as follows:

Assets less convertible shares liability = 95 mill
$$ invested = 66 mill
Track record on $$ invest is earning 3 $ for every one $ invested, so expected earnings on the 66 mill = 198 mill.

This to my mind gives a value of ~ 300 mill, or a price per share of $2.15 - not accounting for growth or dividends.
However, growth should compound as the balance sheet gets bigger (can afford to take on more and more cases), as well as moving into the US.

Given lumpiness of earnings, however, I expect the value of IMF to always remain a little lower. Still, I'm happy to hold for the foreseeable future. I'd be interested in other people's thoughts!

 

[So_Cynical]

Re: IMF - IMF (Australia)

Some lovely results! Had a big run up into XD too.

My valuation of the company is as follows:

Assets less convertible shares liability = 95 mill
$$ invested = 66 mill
Track record on $$ invest is earning 3 $ for every one $ invested, so expected earnings on the 66 mill = 198 mill.

This to my mind gives a value of ~ 300 mill, or a price per share of $2.15 - not accounting for growth or dividends.
However, growth should compound as the balance sheet gets bigger (can afford to take on more and more cases), as well as moving into the US.

Given lumpiness of earnings, however, I expect the value of IMF to always remain a little lower. Still, I'm happy to hold for the foreseeable future. I'd be interested in other people's thoughts!

I'm holding part free carried positions in both my Super and personal portfolios @ around the $1.35 level...happy to hold and build my position with (LEACA) and collect dividends and credits along the way...i love the business and the instant diversity it brings to a portfolio.

 

[herzy]

Re: IMF - IMF (Australia)

I'm holding part free carried positions in both my Super and personal portfolios @ around the $1.35 level...happy to hold and build my position with (LEACA) and collect dividends and credits along the way...i love the business and the instant diversity it brings to a portfolio.

After averaging down in the last dip I'm at 1.32 and also happy to hold for the foreseeable future - huge yield and low p/e (still way below my valuation of NTA) makes a good argument - it also seems recession proof and non-cyclical. What was LEACA?

 

[poverty]

Re: IMF - IMF (Australia)

Why did the SP drop so hard when it went ex-div? Buying opportunity? I'll keep watching for now.

 

[herzy]

Re: IMF - IMF (Australia)

Why did the SP drop so hard when it went ex-div? Buying opportunity? I'll keep watching for now.

I would say buying opportunity. It had a huge run up leading to the ex-div as well, I think people were hoping for good results, good divvy and then a quick profit. Anybody who bought about 6 weeks ago (from memory) would still be in front if they sold today.

You're also not including franking credits (i assume) which adds a few cents. All that said, I was surprised by the big drop as well.

In any case it's still on a p/e of less than 10, and (imo) fairly undervalued with good potential for high divvy yield in future. Just my thoughts.

 

[So_Cynical]

Re: IMF - IMF (Australia)

After averaging down in the last dip I'm at 1.32 and also happy to hold for the foreseeable future - huge yield and low p/e (still way below my valuation of NTA) makes a good argument - it also seems recession proof and non-cyclical. What was LEACA?

LEACA = Low Entry And Cost Averaging

Its an Acronym that describes what i do.