Problem with calculating price to earning ratio?

[McLovin]

Why is AHY the next DSH?

It's a weak argument because I haven't bothered to analyse the 2014 and 2015 financials in detail to make the case.

Thanks. That throws everything else in to contrast.

 

[luutzu]

Thanks. That throws everything else in to contrast.

Wow. That's the best you can come back with?

Seriously, that's what you got out of all these? That since I haven't analyse and deconstruct the latest two financials, what I say isn't true?

And I'm the idiot?


So PEP walks into the room and tells you they just put up a $125m pref.shares at 15%; they've extracted already some $500m; and are asking you if you'd like to pay the equivalent of $1b.

McLovin then look at PEP and says that sounds awesome, but since I'm clever and all let me thoroughly examine your latest financial statements; check out that inventory level; do that forecast and discount models.


ah, genius at work.

 

[luutzu]

My eyes are bleeding. Thats 5 minutes of my life I will never get back.

With that kind of arrogance and stupidity, I would think there are more things you will never get back.


I just freakin showed you how a bunch of financial engineers managed to turn a losing operation into a $1b pile of crap, unload it onto the market where people's life savings are going to be stolen... and you idiots takes it out on me?

Wow. With that kind of priorities, imagine the kind of damage you could have done if you're a bit smarter.

 

[galumay]

Of course, we are all idiots and you are a misunderstood genius....but maybe, just maybe.....

(apologies to Louis CK)

Luutzu, I imagine you are likely to dismiss any advice from me, but just in case, you might try practising some self reflection and consider avoiding the personal attacks, consider why your opinions seem to be so polarising and how it is that so many very successful, skilled and intelligent investors question your analysis. (and no I am not counting myself as one of them.)

 

[McLovin]

Wow. That's the best you can come back with?

What's the point? Everything you post is full of contradictions and a total lack of basic accounting knowledge and sooo long winded. I'm not going to argue the sky is purple with someone. As I said before I just hope your posts don't lead any newbies astray.

I'll leave you to it.

 

[luutzu]

Of course, we are all idiots and you are a misunderstood genius....but maybe, just maybe.....

(apologies to Louis CK)

Luutzu, I imagine you are likely to dismiss any advice from me, but just in case, you might try practising some self reflection and consider avoiding the personal attacks, consider why your opinions seem to be so polarising and how it is that so many very successful, skilled and intelligent investors question your analysis. (and no I am not counting myself as one of them.)

Trust me, I know intelligence when I see one. You guys ain't it.

The only intelligent critique and sensible discussion I got are from Ves. At least Klogg knows he's not familiar with the company so don't want to discuss details after the initial queries.

But none of you so called experts read the dam document and already mouthed off about me not knowing what I'm talking about, then the personal insults.

Yea, that's real maturity and intelligence.

I'm no genius, obviously. But I'm quite competent at what I do and know what I'm talking about when I look into it.
Have any of you spent a week analysing Asaleo's pre-IPO documents? Then what success or intelligence or genius make you guys know about Asaleo?

What, a rich, intelligent blah blah investor like you guys automatically know every company?

And how competent are you guys if you still follow Discounted Cash Flow modelling anyway? That's the dumbest bs ever invented by idiots who knows nothing about business investing.

I mean, some idiot academic use a formula for a controlled environment to value an entity whose future, and whose macro influences are anything but controlled or predictable... and you guys thought that's the smartest thing ever.

Imagine being so clever at being stupid.

yea, this company is going to earn x, y, z; will grow at i,j,k for n,m,o years; then it will grow at a, b, c; interest rate will be this that what; risk-free therefore is alpha, beta, shieta... discount it all back today and it's worth between $5.29 to $5.42... and will not pay any higher - if all things work out as predicted.


See how stupid that is? And geniuses like you guys are buying it.

 

[luutzu]

What's the point? Everything you post is full of contradictions and a total lack of basic accounting knowledge and sooo long winded. I'm not going to argue the sky is purple with someone. As I said before I just hope your posts don't lead any newbies astray.

I'll leave you to it.

Have you spent 2 years working with two CFO, finance managers to develop an accounting software that tracks all financial transactions, produce financial statements and track financial performance on a multi-billion dollar project?

Then spent two years researching the application of finance to business analysis and stock valuation, then wrote a dam application to put it into practice?

I don't know about finance because... because I don't buy the bs modern investing practises are preaching? You guys are more competent because you learn how to read financial statements and are all rich and old and wise?


How much damage could I ever do compare to the damage those academics you're following have done? DSH is already half a billion. AHY is being bought for $1B and highly recommended.... yeah, people should worry about my stupid accounting.

 

[galumay]

Oh well, I tried. None so deaf as those that will not listen.

I think to save my bleeding eyes and scrolling button on the mouse I shall engage ignore mode.

 

[craft]

Luutzu you are unique.

Now you are being so obnoxious that I’m going to have to clear up what you so plainly don’t understand. Not for your benefit, because you have shown in the past you can’t learn but for the benefits of anybody that may be baffled by your bull****.

SCA (its affiliates and Subsidiaries) provided the joint venture $711.295M of assets and $361.699 of Liabilities = Net Assets acquired of $349.596M

For those Net Assets SCA received 210M shares and $125M Cash

The 349.596M net assets less the $125M Cash gives the correct Contributed Equity figure reported of $224.596M

SCA sold 50% of the joint venture to PEP that is they sold 105M shares for $112,298M (105M+half the 14.596M balancing figure) that money was paid by PEP to SCA nothing to do with the joint venture books.

As well as an equity holder through the ordinary 105M shares Pep become a financier of the joint venture through the 125M preference shares. Not dissimilar to how SCA had been an equity holder and a financier of SCAHAPL.

The convertible preference shares was used by the joint venture to pay the consideration to SCA for the value that wasn’t contributed as equity. This is the only cash part of the transaction that should have gone through the cash flow and it did.

Part of the liabilities incurred in the transactions was a 235M loan provided by SCA to what was originally a subsidiary. Nothing at all unusual in retiring this debt and replacing it with an external provider once the business become a joint venture. It’s just a debt source swap.

None of this is endorsement of Asaleo – any opinion on that should be based on its current asset quality and post IPO financial structure.

If you want to be polite and don’t understand any of the above facts, more than happy to help you wrap your head around it, just break your questions down into small steps. (one step at a time) If you are going to keep arguing black is white then I’ll leave you to it.

 

[luutzu]

Luutzu you are unique.

Now you are being so obnoxious that I’m going to have to clear up what you so plainly don’t understand. Not for your benefit, because you have shown in the past you can’t learn but for the benefits of anybody that may be baffled by your bull****.

SCA (its affiliates and Subsidiaries) provided the joint venture $711.295M of assets and $361.699 of Liabilities = Net Assets acquired of $349.596M

For those Net Assets SCA received 210M shares and $125M Cash

The 349.596M net assets less the $125M Cash gives the correct Contributed Equity figure reported of $224.596M

SCA sold 50% of the joint venture to PEP that is they sold 105M shares for $112,298M (105M+half the 14.596M balancing figure) that money was paid by PEP to SCA nothing to do with the joint venture books.

As well as an equity holder through the ordinary 105M shares Pep become a financier of the joint venture through the 125M preference shares. Not dissimilar to how SCA had been an equity holder and a financier of SCAHAPL.

The convertible preference shares was used by the joint venture to pay the consideration to SCA for the value that wasn’t contributed as equity. This is the only cash part of the transaction that should have gone through the cash flow and it did.

Part of the liabilities incurred in the transactions was a 235M loan provided by SCA to what was originally a subsidiary. Nothing at all unusual in retiring this debt and replacing it with an external provider once the business become a joint venture. It’s just a debt source swap.

None of this is endorsement of Asaleo – any opinion on that should be based on its current asset quality and post IPO financial structure.

If you want to be polite and don’t understand any of the above facts, more than happy to help you wrap your head around it, just break your questions down into small steps. (one step at a time) If you are going to keep arguing black is white then I’ll leave you to it.

Yea, I'm the idiot around here.

Let me get this straight...

I, PEP, calls you, SCA, up and said ey, would you sell me half that net $349m of assets that's been losing you money all these time. And here's how I will construct and pay for that half:

1. I don't pay you for that half.
2. I loan into our JV $125m. Since we're pals, I'll charge you only 15% (even though the market rate is 4% or 5% tops).
3. I'll load enough an extra $275m debt on it, repay you, repay me...
4. I'll pay my best guys; we pay our consultants


then, then we take it to market for $1billion in two years.

You, SCA, says... I freaking love this.

But ey, what idiot would buy this losing piece of crap for $1b?

There will be some, we got them lined up, don't worry about it.

Cool...



So you and I sell it, pocket half a billion each - you, because you still want control over a company that will buy your products til kingdom come, hold on to some equity in Asaleo.


Then get this... two years after having flogged it off "for cheap", you then start to borrow money to buy it back for practically the same price.

yea, I am the idiot who just don't get it.

I really should do a detailed analysis of the current state of affairs because since the float, it was only this 2015FY that Asaleo made any profit; its sales are stagnant and declining; it just loaded up on another $100m of debt, bring that to what... $300m in debt or there about?


Ya, let's give the clowns who robbed investors and unload this crap on them the benefit of the doubt.

btw, I got an opera house and a harbour bridge... I really love the bridge but will sell you the opera house. I've put billions of dollars into it ,but for you brother, you can take it off me for a mere $1billion.

Call quick before I change my mind...

 

[luutzu]

Luutzu you are unique.

Now you are being so obnoxious that I’m going to have to clear up what you so plainly don’t understand. Not for your benefit, because you have shown in the past you can’t learn but for the benefits of anybody that may be baffled by your bull****.

SCA (its affiliates and Subsidiaries) provided the joint venture $711.295M of assets and $361.699 of Liabilities = Net Assets acquired of $349.596M

For those Net Assets SCA received 210M shares and $125M Cash

The 349.596M net assets less the $125M Cash gives the correct Contributed Equity figure reported of $224.596M

SCA sold 50% of the joint venture to PEP that is they sold 105M shares for $112,298M (105M+half the 14.596M balancing figure) that money was paid by PEP to SCA nothing to do with the joint venture books.

As well as an equity holder through the ordinary 105M shares Pep become a financier of the joint venture through the 125M preference shares. Not dissimilar to how SCA had been an equity holder and a financier of SCAHAPL.

The convertible preference shares was used by the joint venture to pay the consideration to SCA for the value that wasn’t contributed as equity. This is the only cash part of the transaction that should have gone through the cash flow and it did.

Part of the liabilities incurred in the transactions was a 235M loan provided by SCA to what was originally a subsidiary. Nothing at all unusual in retiring this debt and replacing it with an external provider once the business become a joint venture. It’s just a debt source swap.

None of this is endorsement of Asaleo – any opinion on that should be based on its current asset quality and post IPO financial structure.

If you want to be polite and don’t understand any of the above facts, more than happy to help you wrap your head around it, just break your questions down into small steps. (one step at a time) If you are going to keep arguing black is white then I’ll leave you to it.

I'm not unique, i'm just as special as you are buddy.

Nope.

The 210m shares were not all for SCA. It was between PEP and SCA, with PEP the 96m and SCA the 114m shares.
So that 105m shares sold to PEP is not accurate either.

The shares were split just before IPO, with new shares issued, bringing total of shares to be some 600m.

You may be right about the deal PEP and SCA struck where for $125m from PEP and SCA's ANZ/Fiji assets at net $349m above, bring the contributed equity they claim to that $224.59m.

But that's just all numbers financial engineers can imagined up, and forensic accountants to deal with. I mean, the $125m is a loan, not any contributed equity. It's redeemable convertible pref.shares, one that was redeemed at IPO.

So its use was for Asaleo to purchase those two subsidiaries for $125m, where net of cash became $113m.

Now, the share and ownership in the new Asaleo as split between PEP and SCA in that 210m shares outstanding, that's just them negotiating who owns what and how much. The net asset for purchase to give whatever amount they can claim, that's just legal protection against the coming investigation.


HOW MUCH FOR ASALEO?

As an investor at or after the IPO, the value of Asaleo is somewhere between that $349m net asset and the $125m... all after the debt PEP and SCA loads onto Asaleo, after the capital returned. i.e., at best, it's $100m - if I'm drunk and add a few extra zeros.

SCA basically sold its subsidiaries at book value of $349m. It take the $125m upfront; it then take part of the $50m capital return; and assume that $235 is just debt and accounted for in the net amount... so minus $50m.

Take away the $275m + interests in debt; take away the shares that was given away to mgt; maybe be nice to the workers and give their meagre $600k or whatever stocks that was given.

Still positive or already in the red? Sure ain't $1billion.



CURRENT GLORY


Since IPO, how has Asaleo performed?

Made $2m profit first year, but be generous and allow that exchange difference and hedging, so say it's $20m profit.

I know mgt don't count that IPO and management bonuses as real costs, but they're real cash... so where's the cash to pay dividends from? From new debt.

Where's the money to buy back the shares from? new debt.


Look at its inventory... are they mostly raw material that can't be used while the machines and plant were replaced? Nope. $17m of the $20m increased in inventory to $159m are finished goods they can't move.

Look at the cash cycle; the days payables dropping by some 11 days with receivable days constant but cash conversion day growing past 3 years. This points to deterioration and suppliers wanting cash upfront and not as willing to grant credit.


Anyway, it just got cheaper today... stock buy back is back online.

 

[Ves]

Since IPO, how has Asaleo performed?

Made $2m profit first year, but be generous and allow that exchange difference and hedging, so say it's $20m profit.

Where are you getting the $2m profit from?

I'm seeing about $100m of free cash flow (including tax, borrowing costs and significant capex to their production facilities) for the 2014 and 2015 years combined.

 

[luutzu]

Where are you getting the $2m profit from?

I'm seeing about $100m of free cash flow (including tax, borrowing costs and significant capex to their production facilities) for the 2014 and 2015 years combined.

View attachment 68402

Ok, $2.89m instead of $2m as I remembered. But I was also being generous and assumed it was $20m.

It'd be hard to know what its FCF is in the usual manner... borrowings all over the place; should we trust their depreciation figures; are its capex maintenance and replacement as capital works etc.

So I'd just take its 2015 operating cashflow... net was $117 as they say, but you got to take out the GST component they need to pay, so that's -$13.9m; take a further $22m to pay the ATO since they've only paid $8.2m of their reported $30.37m tax expense. i.e. 117 - 13.9 - 22 = $81.1 cash from operations.

Might not be Free Cash Flow, generous enough I reckon for a two year old with dodgy history.


WHAT THEY DID DURING 2015

1. "Invest" $22.8m in new plan. We can be generous and refer to the note 2.2 and say the capital investment are not to repair but to improve and expand. So they spent $13.6m to grow. That leaves $9.2m of do or die capex.

2. Ignore share buy-backs and new $105m loan for now

3. Take away $56.7m dividends

i.e. $81.1 - 9.2 - 56.7 = $15.2m cash left from operation.

Interests and maybe some principals gotta be paid - that's at least $11m; new $13.6m investment to be made for growth; but why the share buy back? All $62m then, and extended to be $100m in total.


Money's cheap and the AHY share's a bargain so borrow the buy shares? Can simply re-finance existing facilities?


Anyway, it's a terrible business even though this FY2015 is its best year as far as the docs have shown.

Running low on cash, need borrowing to live off, managed by a bunch of scoundrels.

We can do other projections and guess works... at best it might tick along because SCA needs it to; might end soon.

 

[Ves]

I forgot to mention there's another $25m of free cash flow in the first half of 2016 that you need to financially engineer to make this look like a company this is secretly going bust.

In fact, by the end of 2016, there will probably be another $40m-50m of free cash flow on top of that.

There's only so much GST or additional tax they can pay before the ATO starts sending their cheques back.

 

[McLovin]

There's only so much GST or additional tax they can pay before the ATO starts sending their cheques back.

ATO is in on it.

 

[Ves]

ATO is in on it.

The stupid thing is, if they're not actually making any money (or $2 million), why would they be paying any tax, let alone $30m in tax?

Contradictions collapse...

 

[craft]

Nope.

The 210m shares were not all for SCA. It was between PEP and SCA, with PEP the 96m and SCA the 114m shares.
So that 105m shares sold to PEP is not accurate either.

So Luutze, small steps let look at the first incorrect statement you make – Oh look there it is on the first line.

The 96M shares are made up of consideration to SCA of 71.7M for the SCAHH subsidiary and 24.3M for the non-cash component of the SCAHHPL subsidiary. Both originally paid as promissory notes but settled for equity by the joint Venture PEPSCA

The 114M shares are made up of 20.4M brand assets for SCAHH and 93.6M of brand assets for SCAHHPL.

Total shares issued to SCA 210M

PEP then acquired 50% of the existing ordinary shares of the joint venture company from SCA (makes sense for a joint venture doesn’t it?) for $105M plus there was a completion settlement agreement where PEP would have paid SCA another 7.3M on the 105M shares.

So both parties hold an initially 105M shares each.

There was a latter split where the equity was split according to existing holdings and you can see they both had equal numbers of shares at the IPO.

It’s all spelt out multiple times in all the reports.

Nobody here is saying AHY is necessarily a great company or that the business during its transformation to an IPO ready business under private equity wasn’t highly leveraged. Nobody is saying that capital extracted from the business prior to the IPO wasn’t maximised and nobody is saying that the fees paid to advisors were justifiable.

We are just trying to point out the mistakes in your facts that undermine your arguement.

If you really want to do a good analyse – first get the facts straight. Look at things from the perspective of Funds employed. Forget just concentrating on what the joint partners made out of the process.

Then ask the questions:

IF PEP as the private equity partner made a windfall gain was it because SCA sold the 50% to them cheaply to get a partner on board who could shape the business for an IPO?
Does the underlying business improvements during the transformation period justify the profits achieved?
Or did the public pay too much for the IPO.

If you want to label it the next DSH – make the case based on post IPO financial structure and asset economic value - that's what has the potential to kill it - not just that it shared a similar heritage.

 

[craft]

The stupid thing is, if they're not actually making any money (or $2 million), why would they be paying any tax, let alone $30m in tax?

Contradictions collapse...

Do you reckon you get a tax deduction for making a charitable donation to the ATO?

 

[Ves]

Nobody here is saying AHY is necessarily a great company

FWIW, I think it's about a 6/10. I have a look at it every now and then. If the market throws up a decent price in terms of risk/reward I'd be interested. Similar quality grade to something like Ansell.

Unfortunately because the earnings profile is fairly stable, they don't often come super cheap.

 

[craft]

From where Luutze first appeared on the scene at post 11 showing with his first line that he hadn't understood the prior P/E conversation - the rest of this thread should be moved out of the beginners lounge/renamed! To what though I'm not sure???