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herger

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    <br>Please do not interpret my postings as being an informed opinion of any sort, I am only a mug punter with little time for indepth research, therefore what I post is likely to be inaccurate.<br><br>If you foolishly factor in what I post in your investment decisions know that you are doing the equivalent of asking a 7 year old for a medical opinion, because I know as much about what I'm posting on as the 7 year old does about medicine. I post only because I enjoy discussion.

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  1. herger

    GPG

    With FLT and CSR, are those 15% forward dividend yields, or historical? In the case of CSR, GPG has already suffered a permanent loss of value on its holding, albeit quite a small one. When GPG chose not to subscribe to a rights issue - priced at a significantly reduced price to its purchase price - it was permanently diluted. Even if the company was intrinsically worth, say, 2 billion before the GFC, and recovers to this valuation when the GFC subsides, GPG now owns a smaller share of that 2 billion value because of the dilution of its stake. CSR has fairly cyclical earnings so if the economy gets much worse and they need to raise more equity that's even more permanent value destruction. All this is assuming GFC has zero impact on the value of the business itself long term. This itself is questionable given the poor competitive nature of the business. They sell aluminium, sugar, and home building products - very generic products, very commodity like products. With little pricing power these seem particularly prone to deteriorating economic conditions.
  2. herger

    GPG

    Interesting bounce off its lows, would think that's the limit for now - sold my shares today. I think I got a good price. Certainly, it's not heading back to anywhere near its previous valuations of $1.50+. There's been real value destruction, rather than short term mis-valuations due to poor sentiment. That UK building products company in administration which GPG was a substantial holder in for example, is not going to go back up, ever. I still stick to my conservative valuation of 44c per share. The only reason I can see why the market is doing 60c per share (including dividend, since 57c is ex div) is possibly because they're ascribing some value to Coats. This is misguided in my view, as stated below, but also - well, the market's always been sceptical of Coats even during robust economic conditions. If Coats was as valuable as management claimed it had 3 or 4 years to be reflected in the share price. I think the market's justified to be doubtful of Coat's value during the good times. Now the bad times are rolling in, one would have to think there's nothing there at all now.
  3. I've watched both Jon Stewart's show and Cramer's show before, and I think Stewart is completely off the mark. He doesn't seem to get the fact that Mad Money is there first and foremost to entertain, like his own show. It's a bit rich hearing him slag off at Cramer for making light out of a serious topic when he does that all the time. Mad Money is not meant to be 60 minutes. As for his other beef that CNBC as a whole failed to do what it was supposed to do, well, I don't think there are any investors who are really that upset at CNBC -- they'd be more angry with the regulators, the FED, the wall street investment bankers, the crooks, etc.
  4. herger

    GPG

    Alright, just in case people think i'm too biased... There's a possibility the shares will be worth $2+ a few years from now. If Coats can survive current conditions when things turn who knows, it might fetch $3-4billion. Or at least $1.50 per share net of liabilities. Management seems to think a $2billion valuation on Coats' assets is underpriced. So if you take managment's word, the shares have very little downside, and a good chance of $2+ per share in the future. However my view is that such a probability is very, very low. But I'm just doing what most investors would do in the current environment. If you simply don't know how likely an event is, and you have very little info to work with, you have to err on the side of caution. Who knows, I could be wrong, I usually am. You could argue that it's management's assessment versus an poorly informed retail investors' assessment and as such you'd have to side with management's more optimistic valuations.
  5. herger

    GPG

    It might be seen as a downramp... but I'd prefer to see it as a conservative valuation. It might not be 'fair value' but in the current market you pay fair value, and then within a month 'fair value' has just dropped by 20%!! I'm a GPG holder, and I'd like to get a handle on the value of the shares, preferably a value that takes much of the risks out of the stock. Then I can make an informed decision when to average down, rather than just blindly average down. While I can understand people feeling upset at seeing these kind of valuations, it's not my intentions to deliberately upset anyone, in particular I'm hoping people (perhaps with more insight and knowledge than I) can contribute alternative views. For example, does anyone think Coats can make it through the current conditions without needing more capital injections, and why? Hopefully someone with special insight into the industry, as I like know nothing about threadmaking and can only make decisions based on the information presented by the company, on internet searches, etc. If anyone feels grief considering my values at least consider that I'm a conservative investor in the current environment, and I'm probably biased towards pessimism!
  6. herger

    GPG

    Please read my post carefully, I never stated the 44c and 10c NTA figures were official statutory figures. They are my own estimations of what the true NTA is. Each person have different ideas of what a valuation for a particular share might be. Just because it doesn't match what the company reports its valuation to be, doesn't mean it is false. Yes, the statutory NTA is around $1.32 per share and the 'conservative' NTA given by Ron is $1.12 per share as at 22/12/08. But how conservative is it when it assumes Coats is worth $600m+, without needing a cent of capital injections, and when it takes its portfolio values at market price without discounting them (that's fair value, not a conservative value) My 44c NTA isn't that unreasonable really, it assumes discounting its portfolio on 22/12/08 by 50%. Out of its 4 largest investments 3 of them have already fallen significantly since then. CSR from $1.67 to sub $1, Canberra investment corp from 60c to 35c, Turners and Growers from $1.55 to $1.30. The 44c value per share doesn't seem that far fetched to me.
  7. herger

    GPG

    They've made provisions for a portion of the $200m+ fines levied against them. How much, I'm not sure but one would think not much given the company's view that the $200m+ is an outrageous and totally unjustified amount. That means if they are not successful in their appeal to reduce the fine, GPG will take another big hit to the NTA from current levels. I think today's results show how cr*p the Coats business is. Sure, people always need to be clothed, but they don't always need to be buying new clothes. Especially the branded clothing items which Coats appears to supply much of the thread for. Revenues have fallen 20% in the last quarter of 2008 alone. Given unemployment and economic conditions are expected to worsen in 2009 compared to 2008, this is a very bad sign of things to come this year. Meanwhile the NTA continues to fall. Turners and growers and CSR have done poorly the last few months. The large fall in T&G the last few months made me take a look at its financial statements and not surprisingly it showed a company with fairly high debt. Hopefully this isn't a common theme among GPG's vast portfolio. High gearing, recession, and average businesses are not a good combination for shareholder's wealth. Just my opinion but I think it's virtually certain Coats will be finished this year. It's just got too much debt. My view of the best case scenario from here is that they write off coats, sit on to their cash pile, and ride out the storm with the residual value of its portfolio being around half its value when its over. In this case the NTA based on its 'simplified' balance sheet as at 22/12/08 is around 44c. however what's more likely I think, is that management repeats what it did with Capral - do a faith based investment approach, and keep throwing money at Coats to keep it afloat holding out faith that things will turn around eventually. under this scenario I expect Coats to still be worthless, like Capral, and its NTA will be the same as the 'best case' scenario except sans cash pile, which makes its NTA under 10c per share. I just can't see much upside above 44c because its portfolio is so full of penny dreadfuls and its main investment Coats has such a negligible chance of avoiding calling in bankers without additional capital. This all seems quite doom and gloom but paying for optimism in these situations doesn't seem worthwhile.
  8. My sentiments exactly macduffy. They've got one of the safest assets you can own, and turned it into one of the riskiest blue chips on the market today. I remember reading an article which contained a table on its debt levels. The thing that struck me was that the interest Sydney Airport it was paying on its debt in 2007 was greater than the entire profitability of the airport just prior to Maccas buying it out. They took on a load of debt when buying it, and have been piling it on year after year to pay dividends. I think management are thanking their lucky stars we did not go the way of Europe and the US. A severe recession would absolutely cream the revenues at Syd. Airport. On the dividend, it should also be noted that the 27c per share div is subject to economic conditions. The board has left a lot of leeway for them to cut the div.
  9. herger

    GPG

    Coats is the big question mark with this one. High financial risk due to its leverage, and high business risk due to the nature of its business. I'd imagine sales of quality clothing items will plummet over the next few years. Threadmaking seems like a pretty ordinary business in normal times, but would be tough in tough times. Not the the type of business you'd want to have heaps of debt in. If coats bombs their NTA will be lower than 50c.
  10. Hi henrietta, "Ahh ....... so it wasn't the trillions of dollars of financial gambling with worthless derivatives . All they had to do was save Lehman Brothers." At the end of the day the whole topic we're discussing is a matter of opinion, so it's hard to say either way for sure. But there's a view out there that Lehman's collapse basically eliminated any hope that there would be a quick recovery. After the collapse people began to bunker down for a protracted period of weakness. I'd agree with this view. Indeed, even in the months leading up to Lehman's collapse, ie a good part of 2008, when it was clear the sub prime loans were a big problem, the markets were still relatively strong. The All ords was something like 5000 and the Dow was 10,000+. Today the AORDs is more like 3500 and the Dow is like 7500. That is a very precipitous drop. I'm of the opinion that while the market can be inefficient for pricing particular stocks at times, it's very good as a predictor of the broader economic picture. I believe the market rout also reflects the view that chances of a quick recovery is slim. The implications for RIO? I believe if the crisis was only transient it would have had minimal impact on RIO's valuation. However tack on a few more years of weakness and the valuation for the mineral assets also falls materially. Tack on leverage as well, and you've got that fall in valuation magnified significantly. That's the point I believe many commentators have missed - it's not RIO's management that's led to the disastrous fall in the value of the company, it is the worst crisis we've had since the great depression. I guess this will be one for the historians to judge. But I suspect various management's, including OZL's, will be exculpated with the passage of time.
  11. Hi wolv, I know your position is the one taken by most commentators. Indeed all the signs said that RIO overpaid for Alcan. In any case it seemed completely uncharacteristic of them as their history shows they normally sell during booms and buy during busts. But personally, I agreed with RIO's assessment at the time that the acquisition would be value creating. Out of the $42B price tag, they expected $15B in sales, leaving a net price tag for the aluminium business of $27B. At the time it wasn't hard to see how it could've paid for itself fairly quickly. There some, including RIO, who were beginning to predict a good run up in the price of Al (at the time it was lagging other commodities in terms of price rise), fueled by rising electricity prices, which in turn was the result of soaring coal prices. Under this scenario Alcan, with its cheap, clean energy, would really take off. The forecast among analysts at the time was for a flat Al price, so I don't know if any analyst really modelled Alcan's worth based on RIO's own assumptions about the Al price. So we'll never know just how valuable Alcan could've become. As to the BHP takeover, you made the comment: "if they really thought the price undervalued their shares then there is no explanation on why they are now selling equity to Chinalco for a fraction of what BHP was offering" You do have a point there. Still, BHP withdrew its offer pretty quickly after Lehman collapsed, when the world presumably changed overnight. My guess is that by the time it was apparent a recovery in the global economy was not going to happen in the near future, e.g. around Oct/Nov 2008, when BHP dropped its bid, it was too late for RIO to change its mind. Still, there's an argument to say they could've reacted to the change in circumstances quicker than BHP could've. Henrietta, I have to disagree, no matter how high an executive's salary is, clairvoyance is never a part of the required skill set. I guess it comes down to whether you think the GFC was predictable or not. I strongly believe it was not. Many of the commentators who predicted the meltdown had been worrying about one thing or another for many years. Whether it was the trade deficit, run on the dollar, US government debt, multi-decade cheap credit, etc they all found a reason to predict meltdown sometime in the future. Many of the were wrong year after year in the run up to the meltdown as the economy boomed. Then when catastrophe came they were suddenly hailed as wise and insightful. The thing is, not even the ones who predicted the exact cause of the meltdown forsaw its seriousness. There were only a couple of prominent financial experts who predicted a housing burst leading to disaster - Robert Shiller and Jeremy Grantham - and both have said something to the effect of the situation turning out to be far more dire than anything they could've expected. Another way of looking at it is this. It's widely acknowledged that the failure to save Lehman brothers is what triggered the real meltdown we see today. Lehman's fate was in the hands of the US government. How could anyone have predicted, back in 2007, whether the US government would make the right choice when it came to bailing out Lehman brothers? To me there just seems to be a terribly large amount of randomness in all this, none of which could've been forseen years in advance.
  12. I actually think RIO management has done a decent job of running the company to date. Sure, they made an acquistion that cost shareholders dearly, but that was more a misfortunate event than a mistake of judgment. I say misfortunate because that's what the global financial crisis was, a bolt from the blue, a stroke of bad luck. 'Reasonable' judgment in 2007 would not have factored in conditions we're seeing today, and any investment decisions in 2007 that predicted the meltdown of 2008 and 2009 would've been seen then as lunacy. And it was the GFC and nothing else that most likely turned the Alcan acquisition from an attractive prosposal to an absolute disaster. It's the same story with the BHP takeover. RIO's management was right to turn away BHP if they thought the offer grossly undervalued its shares. We will never know if the shares were grossly undervalued, because this misfortunate event has permanently changed the valuation of the company. We do know however that at least Alcoa and Chinalco agreed with RIO at the time that its shares were undervalued, buying up big at $130 or so a share. Can't fault people for bad luck.
  13. G'day suti. Must be doing well with those kind of cap gains. I personally think we'll look back at these cash handouts in future years as a mistake. They don't need to cut taxes, just hold off on these payments, maybe direct them to infrastructure instead. Lee Kuan Yew, architect behind Singapore's rise, doesn't think cash handouts are a good idea. Like him or not, he is usually right. He has a reputation for sharp and insightful analysis. This is what he says about the handouts: "So those MPs who say, 'Give S$300 to every citizen and we will boost the retailers', they just do not understand the bigger picture. You give S$300 like that and it is gone in a shot, and all the things that they will buy, three-quarters of it are imported" http://www.channelnewsasia.com/stories/sin.../407319/1/.html
  14. Hate it. There's nothing to show it will be cash well spent. We know what $42b will buy in terms of healthcare, education, etc. But we don't know exactly what it will buy, for the nation as a whole, if they're given out as mass cash handouts. Show me hard evidence that it will save a few hundred thousand jobs, because at the moment it looks like the money will mostly be saved, and what's spent will only have temporary, passing benefits for the economy.
  15. I'm tempted by the divvy yield, but at least one serious voice out there thinks Telstra's non contention of the NBN tender is going to have a serious impact on its profits. Robert Gottleibsen gives his take on the event, but the worrying bit from the article is this part: http://www.businessspectator.com.au/bs.nsf...ocument&src=sph "Second, in his KGB Interrogation, Michael Egan the chairman of the Singapore Telecom/Optus consortium, spelled out in very clear terms what success of his bid would mean to Telstra. Egan said that Telstra required “an exorbitant†after-tax return of between 18 per cent and 23 per cent. Because Telstra’s interest is to protect the “enormous†profits it makes from having a monopoly of the fixed-line business. “What happens when you have this new network is that people don’t need to have a separate landline. They get their telephone and their internet off the new network and that’s been the history around the world,†Egan said. The interview continued: Gottliebsen: “So this would be a huge blow to Telstra’s profits, wouldn’t it?" Egan: “That’s why Telstra wants to protect those profits with a network which they own and operate on their own terms.†Kohler: “Now, are we just talking $4 billion worth of profits, Michael? Egan: "Something like that – that’s my understanding." To put Egan’s $4 billion profit blow into context, Telstra earned EBITDA (earnings before interest, tax, depreciation and amortisation) of $10.4 billion in 2008. Egan may be exaggerating on the profit implication and there will be lots games to follow. But at stake is 40 per cent of Telstra’s profit. That’s why it's such a big play." Is this what the fund managers are seeing, this possibility of the evaporation of $4billion of profits?
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