Understanding the high risk high reward stocks is a bit like playing poker. You'll get your wins and losses but if you continue to play the cards as they unfold eventually you'll end up on top.
Hastie is the most recent of stocks to hit my radar. Hastie Group Limited (HST) is a provider of technical building solutions. These include mechanical (air conditioning), electrical, commercial plumbing (MEP), fire, refrigeration and maintenance services.
Hastie has recently run into trouble. This has been mostly cause by problems with the rotary business of which they acquired in 2008 by a some cash and some equity offer to share holders at a 94.7 Million Pounds.
The Rotary business is a leading provider of essential building services in the
United Kingdom, the Republic of Ireland and the Middle East.
Problems for rotary arose within the middle east where around 33Mil had to be written off for bad debts. This also caused the write off of value to the rotary business down to zero carrying value. (They consider the investment to be worthless).
Quite a quick turn around for a business they reported to be operating strong int the 2010 annual report. My take is the problems out of this business where not being full disclosed to the parent Hastie. It was clear to see once Hastie realised the problems relating to this business they where swift to take stern mesures with realising the loss of value. My believe is the business must be running really bad. Hastie also blamed low margin work during the GFC along with losses with in their newly acquired plumbing business in QLD and NSW (at around 3Million dollars).
This all must have come as a shock to those shareholders who discovered all this once the company entered into trading holt on 16 Feb 2011. Which was shown to be true once they came out of trading holt 2 months later on 11, april 2011. Their shares fell from around 90c to not trading above 30c to the point we have now. Where a capital raising has been issued at 14c on a 2.85 share offering to 1 share owned.
This is required to raise around 150Mil to satisfy their banking group. Due to their loans hitting debt covenant issues cause by these balance sheet issues. This will also help by provide cash flow for them to further tender for work and pay their creditors.
So my take is most of the issues within this company are related to one offs. I believe this has been cost of the rapid expansion the Hastie group embarked on since floating in 2005. With the rotary business now considered worthless to the company, failure of this business isn't an issue as the price has been fully written down. However if the business was successfully returned to profit and run correctly this could provide a big boost to shareholders. Both in rotary and the plumbing business where problems have been created senior management changes have been made and hopefully are now on the right path to improving.
Moving forward from this Hastie is now trading at 14c. Which is the same price as the cap raising offer. With such a big offer this is not uncommon for these kind of stocks. When you consider the big loss most shareholders would be carrying from this stock, it's quite likely a few people are "washing" their shares. By selling them on market now and buying them back after june 30 at the offer price of .14c to allow them to claim the tax loss. A common practice which is actually illegal.
The Hastie group has seen both sales revenue and underlying earning grow every year since their inception in 2005. The fundamentals of the company seem to be strong. On the refrigeration side of the business a few major positive things have recently happened that are worth mentioning. Firstly one of Hastie's major competitors, Frigerite (asx:FRR) just went into liquation. This happened in Jan and benifits from this will include larger margins on this work due to the few big competitors left and more work available for those few. Their case building operation is slowly being moved to china. This will slowly make them more competitive and one of the major causes of fridgerite's down fall.Also knowing personally some of the employees of the Hastie group has help my decisions in relations to this company and all have indicated to me Hastie internally are saying they have a lot of work coming up in all divisions which has to be a promising indication for the company.
Hastie cap raising will creating more then 1 billion share additional to the 300Mil existing shares out there. After a rough calculation relating to the amount of shares issued and the potential amount of shares to be issued in the cap raising. This has been supported by Lazard Private equity. Known for their ability to extract good returns from struggling companies. This include Chandler Macleod. It is also worth noting that CBA has also taken a substantial investment into Hastie since problem has a risin and that CBA is also in the lending group involved with Hastie's debit. Further to this the Managing director also topped up his holding buying another $50,000 worth of shares.
My personal targets for this company are as follows.
That the NTA should be in order of 32 - 35c per share once the capital raising is complete. Also that dividence for the year 2012 will be around 3 - 4c per share full year. With no dividence paid for this full year period. Moving forward I see a share price of around 40c within 18 months. As a cautious estimate. This is why I find Hastie Group (HST) to be a good buy.
Hastie is the most recent of stocks to hit my radar. Hastie Group Limited (HST) is a provider of technical building solutions. These include mechanical (air conditioning), electrical, commercial plumbing (MEP), fire, refrigeration and maintenance services.
Hastie has recently run into trouble. This has been mostly cause by problems with the rotary business of which they acquired in 2008 by a some cash and some equity offer to share holders at a 94.7 Million Pounds.
The Rotary business is a leading provider of essential building services in the
United Kingdom, the Republic of Ireland and the Middle East.
Problems for rotary arose within the middle east where around 33Mil had to be written off for bad debts. This also caused the write off of value to the rotary business down to zero carrying value. (They consider the investment to be worthless).
Quite a quick turn around for a business they reported to be operating strong int the 2010 annual report. My take is the problems out of this business where not being full disclosed to the parent Hastie. It was clear to see once Hastie realised the problems relating to this business they where swift to take stern mesures with realising the loss of value. My believe is the business must be running really bad. Hastie also blamed low margin work during the GFC along with losses with in their newly acquired plumbing business in QLD and NSW (at around 3Million dollars).
This all must have come as a shock to those shareholders who discovered all this once the company entered into trading holt on 16 Feb 2011. Which was shown to be true once they came out of trading holt 2 months later on 11, april 2011. Their shares fell from around 90c to not trading above 30c to the point we have now. Where a capital raising has been issued at 14c on a 2.85 share offering to 1 share owned.
This is required to raise around 150Mil to satisfy their banking group. Due to their loans hitting debt covenant issues cause by these balance sheet issues. This will also help by provide cash flow for them to further tender for work and pay their creditors.
So my take is most of the issues within this company are related to one offs. I believe this has been cost of the rapid expansion the Hastie group embarked on since floating in 2005. With the rotary business now considered worthless to the company, failure of this business isn't an issue as the price has been fully written down. However if the business was successfully returned to profit and run correctly this could provide a big boost to shareholders. Both in rotary and the plumbing business where problems have been created senior management changes have been made and hopefully are now on the right path to improving.
Moving forward from this Hastie is now trading at 14c. Which is the same price as the cap raising offer. With such a big offer this is not uncommon for these kind of stocks. When you consider the big loss most shareholders would be carrying from this stock, it's quite likely a few people are "washing" their shares. By selling them on market now and buying them back after june 30 at the offer price of .14c to allow them to claim the tax loss. A common practice which is actually illegal.
The Hastie group has seen both sales revenue and underlying earning grow every year since their inception in 2005. The fundamentals of the company seem to be strong. On the refrigeration side of the business a few major positive things have recently happened that are worth mentioning. Firstly one of Hastie's major competitors, Frigerite (asx:FRR) just went into liquation. This happened in Jan and benifits from this will include larger margins on this work due to the few big competitors left and more work available for those few. Their case building operation is slowly being moved to china. This will slowly make them more competitive and one of the major causes of fridgerite's down fall.Also knowing personally some of the employees of the Hastie group has help my decisions in relations to this company and all have indicated to me Hastie internally are saying they have a lot of work coming up in all divisions which has to be a promising indication for the company.
Hastie cap raising will creating more then 1 billion share additional to the 300Mil existing shares out there. After a rough calculation relating to the amount of shares issued and the potential amount of shares to be issued in the cap raising. This has been supported by Lazard Private equity. Known for their ability to extract good returns from struggling companies. This include Chandler Macleod. It is also worth noting that CBA has also taken a substantial investment into Hastie since problem has a risin and that CBA is also in the lending group involved with Hastie's debit. Further to this the Managing director also topped up his holding buying another $50,000 worth of shares.
My personal targets for this company are as follows.
That the NTA should be in order of 32 - 35c per share once the capital raising is complete. Also that dividence for the year 2012 will be around 3 - 4c per share full year. With no dividence paid for this full year period. Moving forward I see a share price of around 40c within 18 months. As a cautious estimate. This is why I find Hastie Group (HST) to be a good buy.
