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6:33 am
March 9, 2012
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somrh
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That adds a whole new dimension to this. Initially I was more or less thinking that this was a "safe" (little chance of or permanent loss of capital) investment with lousy returns due to management keeping funds in a lousy investment portfolio and possibly not distributing for decades. (What good does buying $1 for $.50 do if you don't see that dollar for 20 years?)
The fraud dimension makes me question the "safe" side of it.
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9:29 pm
March 8, 2012
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Graeme
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| Member | posts 180 |
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11:43 am
February 13, 2012
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somrh
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somrh said:
That way we could estimate, say, a "current yield" by looking at:
CFO(adjusted)/Market Price + 3-4%.
This is wrong. The 3-4% would be the return on marketable securities. So for the "current yield", you would want to multiply that by the asset value of marketable securities and then divide that by market price:
Current Yield = (CFO-Adjusted + 3% x Marketable Securities) / Market Cap
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8:49 am
February 13, 2012
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somrh
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Doing what I suggested below for 2011/2010 I get the following:
2011 CFO(Adjusted) = 1.888M
2011 FCF (Adjusted) = .422M
2010 CFO(Adjusted) = 13.492M
2010 FCF (Adjusted) = 12.819M
Obviously there's a huge divergence here. Looking at more years might be worth the effort if this is something you're interested in.
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8:28 am
February 13, 2012
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somrh
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I did notice that they claim if dividends are to be paid, they will be paid to both classes in equal amounts. So there's no APOL going on here. So I would think you could look at it's "yield" as:
GENC Operating Yield + Portfolio Yield
As I've mentioned before I don't like Muni's much. If there's an interesting analogy to make between the US and the PIIGS it's that Muni's are similar to PIIGS. Many of them have a lot of debt. They are hurting on revenues (lower income tax, property tax and sales tax revenues). And they owe their debts in a currency they have no control over (US dollars). (This is also why the US, Japan, Australia, etc are different since we have a monopoly and potential unlimited supply of the currency we owe are debts in.)
I wouldn't put MUNI yields very high, say, 3-4% (and that's a risky 3-4%.) The rest of the portfolio is probably OK (another 3-4%) but gets taxed at the going tax rate (some of which may 0% due to deferred tax assets).
So how do we estimate the operating yield? I would think modifying their CFO might be useful. I'm just not sure how. I don't think their CFO adequately reflects CFO.
In particular, I think the difference between purchase and proceeds of marketable securities could be added back into CFO since that's akin to taking the cash they earn and investing it in securities (which is perhaps not the best use of funds but it is what it is.) So I would think doing something like this might be valuable:
CFO(adjusted) = CFO + MAX(Purchase of marketable securities – Proceeds from sale and maturity of marketable securities, 0)
My thought is that this is cash that was earned from operating activities whcih management decided to invest in Muni bonds (and other crap). Agree? Disagree?
That way we could estimate, say, a "current yield" by looking at:
CFO(adjusted)/Market Price + 3-4%.
Thoughts? Does it even look attractive doing this? (Unfortunately, the 10-K only lists 2 years of data so you'd probably want to look at 2-4 10-K's to get a sense of what kind of adjusted CFO the company actually earns).
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10:06 pm
February 11, 2012
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Graeme
| | Austin, Texas | |
| Member | posts 180 |
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Yeah, they stated that they have no plans of a dividend in the future and you're right about the "cash" being a mix of bonds and stocks etc. I think that money that they started investing in 2005 came from either a settlement or something not related to the core business.
All in all they do run a tight ship tho.
somrh said:
OK, here's a weird twist on the investments. Since they provide products for the service of roads and since some of those are funded by many state and local goverments and at times those state and local governments might float bonds to fund those projects, so wouldn't that mean that the company is effectively funding its own projects?
Obviously I'm overstating this a bit since they do revenues of $50M or so. I just think that's sort of funny. I suppose they may have chosen muni's for the tax benefit.
Maybe the thought process is that if they invest in muni bonds it'll act as a sort of "stimulus" to speed up projects?
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5:58 pm
February 11, 2012
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somrh
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OK, here's a weird twist on the investments. Since they provide products for the service of roads and since some of those are funded by many state and local goverments and at times those state and local governments might float bonds to fund those projects, so wouldn't that mean that the company is effectively funding its own projects?
Obviously I'm overstating this a bit since they do revenues of $50M or so. I just think that's sort of funny. I suppose they may have chosen muni's for the tax benefit.
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5:46 pm
February 11, 2012
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somrh
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So I decided to try to figure out why their CFO was often negative. From ADVFN's data, there are two categories that seem to play the role here: "Operating Gains" and "Other Non-cash items".
So I did some matching with what they have in their 10-K's. Here's how they match up if I'm doing this right:
ADVFN"s "Operating Gains":
- Purchase of marketable securities (negative)
- Proceeds from sale and maturity of marketable securities (positive)
- Income from investees (negative)
- Gain on legal settlement
ADVFN's "Other Non-cash items:
- Change in value of marketable securities
- Provision for doubtful accounts (positive)
- Loss on sale of assets
The "income from investees" seems to be related to investments in a group of companies which are all named "Carbontronics". This was recorded as income but it was non-cash I presume.
The purchase/sale of marketable securities is a bit on the high side. In 2011 it was close to $90M which is about where it's market cap is at. This seems to be the bulk of the activity for these two groups. So perhaps their operations aren't too bad but their investing is questionable. According to the 10-K:
The Company’s
marketable securities are invested in stocks and corporate and municipal
bonds through a professional investment advisor.
That's about all it really says about those. Is this what you're referring to as "cash"? Is this mostly money market type stuff or do they have stocks and bonds in their portfolio. Wait I found it. They have about 1/3 of their assets in stocks 1/2 in municipal bonds (yuck!) and the rest in corporate bonds, mutual funds, money markets, etc. (See page 29 of their 10-K)
But if every year they're taking their would be cash from operations and dumping it into the market then that might explain why their CFO is generally lousy.
Looking at their marketable securities, they started out in 2004 with nothing and have gradually increased over time to the current $72.5M. This honestly doesn't look too bad.
I guess long term, I'd want to know what they're going to do with all of that. Is this like a closed-end fund trading below NAV but doesn't (and perhaps never will) pay a dividend?
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4:27 pm
February 11, 2012
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Graeme
| | Austin, Texas | |
| Member | posts 180 |
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4:18 pm
February 11, 2012
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Graeme
| | Austin, Texas | |
| Member | posts 180 |
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This one is kinda fun. Gencor ($GENC) makes asphalt and asphalt storage units. Reading their recent 10-k is a bit of a downer as they have like 4 or 5 pages on "risks associated with the company" or as I read it: "you want to invest in us!? Seriously!?" Which I kinda like.
Now, they have risks associated with them for sure. They depend on government spending to repave roads as well as potentially pricey environmental regulations.
They trade at $7.11. They have $7.40 cash on hand, so free asphalt company! Tangible book at about $10.40. NCAV at $8.30. So cheap.
Downside tho, 10 yr average revenue growth that looks like my bank interest rate @ 0.88%. (Actually, .88% would be better than my bank…) Plus not one year of positive FCF in the past 10. No debt tho. Does anyone know if no positive FCF is normal for industries like this? To me it just says that they are bleeding money, albeit slowly. They aren't investing in anything; capex is basically at 0. But as an asphalt company, what are you going to buy anyway. Looks like they just make asphalt praying for a road to repave.
So with obvious brutal growth and tiny earnings, both a Graham formula and a DCF put it around $0.60 for intrinsic value.
Fun question time: how much would you pay for a free essentially break-even asphalt company?
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