Updated the FFP spreadsheet

I updated the spreadsheet that tracks FFP’s NAV discount to include the results of the latest annual report and to reflect the partial sale of the Zodiac stake in the beginning of this year. The spreadsheet updates automatically all share prices and the current discount, and is publicly accessible on Google Drive using this link. As is visible FFP’s NAV discount is basically unchanged at 47% since I initiated my position a half year ago:

FFP NAV

Disclosure

Author is long FFP.PA

More updates (AWDR.OL, CNRD, PVCS.L, SHFK)

While I was on vacation for just three weeks a ton of companies thought that would be the perfect time to release news. So some quick thoughts on the latest portfolio developments:

Awilco Drilling (AWDR.OL)

Awilco refinanced its debt last month. The company had ~$100 million of debt outstanding at a 9% interest rate that matured in 2015 and they replaced this with $125 million of debt with a 7% interest rate that will mature in 2019. Because Awilco decided to increase its debt load the lower interest rate will not lead to a meaningful reduction in interest payments which is unfortunate. Although $25 million isn’t a whole lot of money (for Awilco) I don’t see why they would want to borrow more. It’s not very cheap at a 7% rate, they don’t need it because they pay this much in quarterly dividends and since the effective tax rate of Awilco is low it has little value as a tax shield.

Conrad Industries (CNRD)

Conrad Industries reported their 2013 results last month, and business continues to be good. Earnings increased from $20.8 million in 2012 to $28.6 million in 2013 and the backlog is up 27% compared to last year. With the stock now trading at $42/share the company is certainly not as cheap anymore as it once was, but with a capable and shareholder friendly management team at the helm this is a business I don’t mind owning close at fair value (it would probably be more correct to incorporate a premium for management quality in the fair value estimate).

PV Crystalox Solar (PVCS.L)

Crystalox also reported their 2013 results last month, and their news was positive as well. The solar panel business is still struggling, but the company managed to increase revenues by 54% and they recorded a small profit of €3.7 million. After returning €36.3 million to shareholders at the end of 2013 they still have a net cash position of €39.2 million while the current market cap is just €37 million. Given the positive operating cash flow and the strong balance sheet I think Crystalox is still cheap and in a good position to wait for better times. So despite the fact that the shares are up significantly this year I’m keeping my position.

Schuff International (SHFK)

The last company in my portfolio that reported 2013 results was Schuff International. I never wrote about the stock on this blog because it has been covered extensively on other value investment blogs, and because I never managed to buy a full position (unfortunately). A good introduction to the stock can be found on OTC Adventures (part 1, part 2).

Just like my other holdings Schuff also reported excellent results. Revenues stayed more or less flat, but margins increased significantly: almost doubling operating income. What’s very encouraging is that the backlog has grown a whopping 130%: next year should be good! What’s also nice is that they managed to eliminate most of the debt that they incurred when they bought back almost 60% of the outstanding shares at the end of 2011. Looking back this must have been one of the best share repurchases ever.

Schuff recently also launched a shiny new website that includes a pretty cool infographic that showcases how much of the Las Vegas strip has been built by them:

Schuff projects in Las Vegas

Disclosure

Author is long all names mentioned

Conduril reports 2013 results and doubles dividend

Conduril reported their results for 2013 last week, and while the investment thesis doesn’t hinge on exceptional operational results it’s good to see that the business is doing well. Earnings per share are up 56% and the dividend has been increased to €3/share giving the company a 4.8% yield. The only slightly negative news is that revenues are down 9.5%, but I don’t think that signals a trend because the backlog has increased 23% from €610 million at the end of 2012 to €750 million at the end of 2013. The fact that the company invested a significant amount of money in fixed assets last year also hints at (a) sunny year(s) ahead. In 2013 Conduril spent €22 million on capex while it spent just €4 million in 2012. I’m not exactly sure how they arrive at these numbers since they doesn’t show up in the financials:

Historical financials Conduril 2013Despite the run-up in share price Conduril remains very cheap. It’s still trading at a PE ratio of just 3.1x, a 0.6x PB ratio and an EV/EBITDA ratio of just 1.5x. Pretty remarkable for a company that has almost tripled in value since I first bought it.

Disclosure

Author is long Conduril

Clear Leisure: a liquidating train wreck

Clear Leisure PLC is an AIM listed investment company headquartered in London, but with the majority of its operations in Italy. The historical performance of Clear Leisure has been disastrous and the share price of the company has dropped from 120p in 2010 to just 2p today. This of course didn’t happen without incident. Last year the company for example discovered that one of their key assets, a 73.4% stake in ORH SpA, a hotel and travel company, was basically worthless because of undisclosed debt positions on some African hotels. Clear Leisure had acquired a majority position in ORH SpA, after what they described as a “thorough due diligence process” at the end of 2012. Right…

Luckily management seems to be coming to their senses. The company is looking for a new CEO and to sell some of the larger assets of the company. In anticipation of the sale of the Mediapolis SpA asset they already announced a conditional 2p/share dividend. This attracted my attention since the stock itself is currently trading at the same level. But before discussing this potential dividend, and the other assets that Clear Leisure owns, first a quick look at some key statistics:

Latest price (Mar 10, 2014): 1.98p
Shares outstanding: 192,209,377
Market cap: 3,8M GBP (6.3M USD/4.6M EUR)
NAV/share (30 June 2013): 13.3p

The assets

The NAV/share number isn’t very meaningful because it is outdated, but even taking into account the loss of ORH SpA it gives a hint that this company might be worth a lot more dead than alive. Given managements intention of selling assets and paying dividends that’s good news. A diagram of the company structure is provided on its website:

Clear Leisure PLC company structureAs already mentioned ORH is probably worthless, although it could provide some upside if Clear Leisure is able to recover anything in the bankruptcy proceedings. They did recover 14.4 million of their own shares, but this is already incorporated in the number of shares currently outstanding. The core assets that remain are:

  • A 50.16% stake in Sipiem (Ondaland)
  • A 100% stake in You Can Group (Sosushi)
  • A 69.45% stake in Mediapolis

Other assets are a 10.0% stake in Ascend Capital, a 67.12% stake in Bibop and a 8.9% stake in Geosim. Since these assets are small and no useful information is provided for a valuation I’m going to assume that these are worthless too, and only focus on the core assets.

Sipiem (Ondaland)

Sipiem is the holding company that owns 66% of Ondaland, the biggest water park in Italy. The park received a €7 million investment at the end of 2012 to add a traditional theme park that will allow it to remain open throughout the year. It is currently only open three months in the summer. Since Clear Leisure owns a 50.16% stake in Sipiem they effectively have a 33.1% stake in Ondaland. The latest reported financials look as follows:

Sipiem, which owns 66 per cent. of Ondaland, Italy’s largest water park, recorded revenues of EUR 5.1 million (2011: EUR 5.9 million), EBITDA of EUR 2.1 million (2011: EUR 1.7 million) and a consolidated profit after tax of EUR 0.9 million (2011: Loss after tax 0.2 million).

As at 31 December 2012, Sipiem had a consolidated net asset value of EUR 11.3 million.

Because Clear Leisure and (some of) the holding companies further down in the corporate structure own just partial stakes in the businesses they control you have to be careful to account for the impact of minority interests. Revenues and EBITDA are measures before taking into account minority interests while the earnings and net asset value numbers are (probably!) after minority interests.

Valuing Sipiem at €11.3 million might be a bit too optimistic, but it would be at 12.6x earnings and 5.4x EBITDA so it’s probably in the right direction. In 2012 Clear Leisure bought a 11 percent stake for €800 thousand, valuing the company at €7.3 million. Given that earnings and EBITDA (but not revenue) increased compared to 2011 this might actually be an investment that increased in value. The €7 million funding mentioned earlier was done for a 27% equity stake in Ondaland. This implies that Ondaland is worth €26 million and that Sipiem is worth €17.3 million. If Sipiem is worth between €7.3 and €17.3 million the 50.16% stake of Clear Leisure could be worth between €3.7 and €8.7 million.

You Can Group (Sosushi)

Sosushi is an Italian sushi restaurant chain that seems to be growing rapidly. On the Clear Leisure website they talk about 18 restaurants, but when we visit Sosushi’s own website we already see 30 locations. Revenue increased last year by 54% while EBITDA grew with 87%:

You Can recorded revenues for the year of EUR 1.7 million (2011: EUR 1.1 million), an EBITDA of EUR 177,156 (2011: EUR 61,626), and a consolidated profit of EUR 52,003 (2011: loss of EUR 562).

Based on this limited disclosure of growth and profitability I think this chain could be worth a decent amount, but a lot depends on future growth prospects. Clear Leisure paid €751,500 to acquire its 50.1% stake, and I’m guess that it’s still worth this much, and potentially twice this amount or more given the impressive growth last year. The other 49.9% was acquired in January this year, but I assume that the value of this part is offset by an equal amount of debt. A valuation for Sosushi between €1 and €2 million seems a decent guesstimate to me.

Clear Leisure is thinking about spinning of their restaurants division: questionable in my opinion given the small size of both the parent company and this division.

Mediapolis

Mediapolis is the most interesting asset because the company is in an advanced stage of selling it. Mediapolis owns a plot of land that is earmarked for the development of a theme park, shopping centre and hotel. It also owns some other assets. It has received not one, but two offers for the theme park project. Both offers are contingent on two conditions:

  1. Court approval for the restructuring of the debt at Mediapolis
  2. Final building approval from the local regional authority for the theme park

The project land is appraised at €35.6 million while it has €10.3 million of associated debt. The other assets have an appraised value of €4.2 million with €5.9 million in associated debt. In the debt restructuring the company wants to pay creditors the €10.3 million of debt related to the land and €1.7 million related to the negative equity of the other assets. After this transaction Mediapolis would only own the undeveloped land and it would be debt free.

Clear Media announced in Januari this year that they had received an initial positive reply from the court, but a month later the court decided that it needed more information due the complexity of the restructuring plan. The company appears to be confident about the outcome of this process because they already announced a conditional 2p special dividend.

Valuation

To find the value of Clear Leisure it’s a matter of adding up the various pieces and deducting a number for the amount of debt at the holding company level. How much this exactly is, is a bit of a guess because the latest interim report doesn’t have the necessary footnotes to figure it out. But we know that the company had €2.0 million in convertible bonds at the end of 2012 and €3.5 million of payables for total liabilities of €5.5 million. But since then the company has issued €3.1 million in new debt to buy back debt at a significant discount and approximately a million in liabilities were removed from the balance sheet by issuing new shares (already incorporated in the current number of outstanding shares).

I decided to simply use the amount of debt that was issued last year as the current debt level in the ‘high’ valuation scenario and add an additional million in debt in the ‘low’ valuation scenario. These assumptions give a wide range of outcomes, but when the upside ranges between 66% and 220% I don’t think you need to be overly precise:

CLP.L valuation

Conclusion

Clear Leisure has a terrible track record, the valuation is imprecise at best, and if the sale of the Mediapolis asset fails intrinsic value/share will probably continue to melt away like an ice cube on a hot summer day.

Having said that: I think that at current prices it’s a attractive bet. It’s pretty likely that they will be able to sell the Mediapolis asset and they already announced their intention to return 2p/share: giving investors a freeroll on the value of everything else. Ondaland and Sosushi appear to be decent assets that could provide a lot of upside. Don’t think it is prudent to allocate a large part of the portfolio to this idea though given the risks involved.

Disclosure

Author is long Clear Leisure (CLP.L)

More reading

You can find a couple of posts with more info and background at the PhynixManifesto blog.

Emeco reports 1H14 results and intention to refinance debt

While I was on vacation at the end of February Emeco released their results for the first half of fiscal 2014, and they also announced that they are planning to refinance their debt by offering US$360 million in senior secured notes and by establishing an A$75 million revolving credit facility. A successful debt refinancing will mean that the company doesn’t have to worry anymore about meeting their current debt covenants, but I do think that the fact that they are looking to refinance is slightly negative. Their current average debt maturity was more than 4 years; you only refinance that because you are forced to. At the same time it’s of course good that they are able to refinance.

The latest results weren’t very good, but it wasn’t a disaster either. Since Emeco is at this point in time mostly a bet on liquidation value one of the most important things to track is how much money the company is receiving for the idle equipment that they are selling, and for the first time since 2009 they sold a bunch of equipment for a significant loss:

Emeco Holdings historical disposals

With the company trading at two-thirds of adjusted NCAV (see my original write-up for details) this discount still implies significant upside in a liquidation scenario. If we discount all their equipment by 20% the implied value is A$0.43/share, almost twice the current market price. And fully liquidating the company is not really what we want to see. We just want them to sell the idle equipment to manage their debt level: the equipment that is in use is generating plenty of cash flows.

In the second half of FY 2014 they have increased the amount of asset disposals significantly with US$35.1M in sales in just two months time, but based on the information provided in the conference call this was also done at a slightly higher discount. Most of the disposals were however done in the Indonesian business segment where the company has a zero utilization rate, and while mining equipment can be used world wide, shipping it isn’t free. I think their equipment in other parts of the world is probably slightly more valuable.

In the conference call the CEO also indicates that they have a number of sizable deals lined up, and that they think they could generate between A$90 million and A$100 million in cash from asset disposals in the second half of FY 2014 if they have to. So while the company continues to struggle (expected EBITDA for FY 2014 was revised downwards from A$90~105 million to A$82~94 million) I think the thesis is still intact: the value of their equipment is sufficiently high to manage their debt load and wait for better times.

Disclosure

Author is long Emeco Holdings