Value Investing Forum

I am also not as negative as I was a week ago. If I can read the scenario correctly, I get diluted by about half. This still leaves an 80% discount to book value. It does cap my upside from my original estimate of 4.5 eu ps to perhaps 2 eu ps but the certainty of achieving this value is increased by the cash injection. We will see what happens, but Id still say theres a fair chance the stock will revalue this year but at lower levels than originally expected (MoS).

Ill have to see what happens at the AGM. Might actually be the case that the stockholders got farked over my management. They are raising extra capital, but at a massive discount to book value, which is obviously not something that an equity holder would like to see. I am not very happy with this result, we will see what the offer price will be. I doubt I will be joining the rights issue.

I guess investing is full of lessons. One of which is the capacity but especially the willingness to act in the best wishes of shareholders. I suppose our share will get diluted by roughly 50%, still leaving a steep discount of book value (0.26x p/b at my entry price),  but something that should have been avoided.

Although I am currently well under water for this trade, it reaffirms how important margin of safety is in these dealings. Lacking any very good net nets, I tried to make my 'up' the balance sheet but should have been more careful in analyzing the liquidation value and the ability of companies to quickly convert to cash.

Rule #1 Don't lose money, Rule # 2 & # 3 Don't forget rule #1.

reg

Floris

Thanks for your advice,

I'm in Spain, where things are getting better. The situation is some how similar, the markets turned there backs on country's like Greece, Ireland, Portugal and Spain leaving great companies at a cheap price. I got the scoop of Alapis from a investment company here in Spain, which was saying the same as you guys.

Let's see if we all had a good eye!!

Hi,

I'm a new member here in this forum, I actually found out about this site when I searched in google Alapis. I invested in this company back when it was at a price of around 0.88 euros. I'm a young investor so I don't have a big capital to invest with, I bought 500 shares. The stock started to go down because of the bailout of Ireland and the doubts that the markets have on Portugal and Spain. I started to get scared wondering if I had made a good decision or not on buying the stock, but always held to the idea that this was a longterm investment.

Now that I see this forum I'm doubting on buying more stock or not. Any recomendations?

I bought it on the greek exchange (where it trades).

Hi Floris thanks for the response.

 I am not sure I understand what you mean when you say cash flows are identical to 2009. For the 9 months in 09 they reported 67 mm in CFO and in 10 it is (120). If you mean receivables in particular they were up 200 mm in 09 and up 130 in the 1st 9 months of 09. That matches the number through the 1st 9 months of 10. But that is cumulative, meaning total A/R has gone up another 130 mm so far in 2010. CFO net of interest in 2009 was about 90 mm and that included some positive changes in working capital liabilities. So unless we are looking at a siginificant drawdown in A/R or an increase in A/P in the last quarter it looks like they will have negative cash flow on the year.  

Another thing to note is that they are adding back 35 mm in interest expense to CFO, which I think they can elect to do in IFRS. That is conceptually correct as interest is a financing expense, but if we are looking at liquidity we can't add it back since it is a mandatory payment.

How much of the outstanding A/R do you think is state hospital debt? (Or have they stated that somewhere?)  They have stated they are factoring some of it although I am unclear on the recourse terms. It sounds like if the buyers of the A/R can't collect from the customer or credit insurance they can put it back on the company. You would think though they will be able to collect from credit insurance (as that is the whole point of credit insurance). Also do we know how the recent deal with the government impacts them? Will they be receiving any of these no interest bonds? I agree with you that not paying drug suppliers is not really an option for Greece going forward, but it seems like they are still playing around with them.

The problem with using a liquidation analysis here is what are the odds the company is going to liquidate? Their earnings are still pretty strong so I would have to think if they couldn't make their payments or get financing they will go into bankruptcy and not liquidate.  Then the question is what happens to the equity in bankruptcy. In theory a bankruptcy should create the value of the company at least at liquidation value but I am not sure that is always how it plays out. I agree bankruptcy is certainly not a given, but I am not sure a liquidation analysis provides comfort.

Another thing to note are the price controls on drugs the government is putting in place. So we should see some margin compression going forward.  

Given that earnings are still strong and the debt burden is not astronomical if I would have to guess I would say they will be able to refinance with some form of debt/secondary equity. But I would have to think the terms will not be very good. Additionally, they will be facing headwinds of the price controls. With all of that it still might be a buy.