Tag Archives: PVCS.L

Reorganizing my portfolio: sold Fujimak, PVCS & Awilco

I will admit it: I’m a lazy investor. Especially for my smaller positions I often forget about the stock after having done the initial valuation work. Sure, I follow the price/news/filings to see if anything significant is happening, but often it’s just business as usual. That doesn’t mean that fundamentals can’t deteriorate gradually, or that the price can climb slowly. And those small changes over time can add up to change the investment case. Because of that I started this month with a bit of a cleanup project. I’m reevaluating all my positions, and adding to them or selling them as I see appropriate. The first casualties of my cleanup project are Awilco Drilling (OSL:AWDR), Fujimak (TYO:5965) and PV Crystalox Solar (LON:PVCS).

Sell: PV Crystalox Solar

My reason for selling PV Crystalox Solar is simple. I primarily invested in this company because it is on a path towards liquidation and was trading at a near 50% discount to NAV, but with the share price increasing from 10p/share last year to 21p/share now this discount has almost completely disappeared. The stock was actually trading even higher around 24p/share just two days ago, but the preliminary results for 2016 were not well received by the market. The company managed to turn a lot of its inventory into cash (as expected), but the industry environment once again deteriorated sharply during the year. While the discount to NCAV is gone there might still be a decent amount of upside. The company is involved in an ICC arbitration case against a former customer that might result in a large favorable judgement. This is expected to happen in the third quarter of this year, but I have decided not to wait around for this, because I have no clue how to value this and it’s not a free option anymore. If I would encounter this stock for the first time today I would not buy it so I’m not keeping it either. I acquired my first shares of Crystalox in 2013 and they have returned 110% since.

Sell: Fujimak

The second position that I sold, coincidentally also today, is Fujimak. I bought this stock at the end of 2014, basically because it was super cheap when looking at simple metrics like P/E and net cash per share. The past weeks the stock suddenly started to move up, and I managed to exit with a total profit of 100.2% (after taking into account two small dividends). Despite the rise in price the stock is still very cheap. Valuing the cash balance at 50% and slapping a 8x earnings multiple on the company and it’s still trading at a discount of ~30% to this conservative estimate of value. Not a bad deal, but in Japan you can do better than this.

Sell: Awilco Drilling

A position that has been on my ignore list for a long time is Awilco Drilling. I bought the stock early in 2013 when it had two drilling rigs under long term contracts that, according to my calculations, would generate roughly enough cashflow and dividends to pay back my initial outlay. With oil prices high at the time it was not an unreasonable assumption to think that the company would most likely be able to rent out the drilling rigs again when the two contracts would end. Of cours, we now know that that didn’t happen and as a result one rig is currently cold stacked while the other rig will reach the end of its contract in the first half of 2018.

I bought the stock at 90NOK/share, received 75NOK/share in dividends and sold the stock for 31.8NOK for a total profit of 18.9%. That’s in absolute sense not a whole lot (especially considering the holding period), but at the same time I’m extremely pleased with this result. Despite encountering one of the most unfavorable scenarios possible I managed to generate a positive return. At the same time it also validates the correctness of my initial thesis since I did indeed managed to get most of my capital back. Right now the share price of Awilco Drilling is absolutely not covered by the future cash flows from the contract that is left. I think they might generate roughly 15.5NOK/share in dividends, and the remaining value is a bet that either the rigs can be sold or that the situation changes in the coming years and they can find some work again. With my original thesis gone I don’t see a reason to stay invested.

Buy: Beximco Pharma

Besides selling stock I have also added significantly to my position in Beximco Pharma. Just two months ago I wrote that I sold a large part of my Beximco Pharma stock since the discount between the GDRs in London and the ordinary shares in Dhaka had come down from 60% to just 25%. Since then the stock price in London has slipped again while the price in Dhaka continued its upward trajectory, and as a result the discount is now back to exactly 50%. This doesn’t make any sense, but I’ll happily continue to buy low and sell high as long as the market is willing to provide those opportunities :).


Author is long Beximco, no position in Awilco rilling, Fujimak or PC Crystalox Solar anymore

PV Crystalox Solar: the struggle continues

Last year I decided to increase my position in PV Crystalox Solar because it was trading at just 40% of net current asset value (now at 47%). The company is struggling because of (Chinese) production overcapacity of photovoltaic wafers (its main product). At the same time, it was locked in an unfavorable long-term contract to buy polysilicon (the main material that is used to create wafers). PV Crystalox Solar released preliminary results for 2015 last week that show us exactly how bad 2015 was.

I expected last year that they would burn through roughly €10 million in cash, and they actually had a negative operating cash flow of €12.9 million. As a result, they have €12.7 million of cash left while the company has a €21.0 million market cap. The good news is that this amount is now expected to grow because they still have an inventory of €23.2 million that consists largely of polysilicon (€20.3 million) that they now can turn into wafers without losing money. Because of the “favorable” market conditions the company has decided to extend the strategic review period. If they are unable to start operating profitable they will liquidate, and that is what keeps the stock attractive despite the cash burn so far. From the latest presentation:

PV Crystalox outlook 2015

What I also found very noteworthy was the following statement in the letter of the chairman:

In view of changes in market conditions during recent months that have positively impacted the Group’s competitive position the Board considered it sensible to extend the review period. This extension will also provide time to take full account of the outcome of the ongoing dispute with a long term wafer contract customer where we have filed for ICC arbitration.  The judgment of the arbitral tribunal is expected later in the year and while the outcome is uncertain, the value of any award if our claim is upheld could be a multiple of the Group’s market capitalisation.  

In previous annual reports there was talk about this dispute, but then the expectation was that the value of the claim was a lot smaller. In 2014 the company received a €8.7 million payment for a similar dispute with another customer and wrote that the magnitude of an eventual cash payment would be significantly smaller for the last remaining dispute. Apparently that has now completely changed since the market cap of PV Crystalox Solar is more than €20 million, and the eventual award could be a multiple of that!

Because of this, and the large discount to NCAV, I think that PV Crystalox Solar is still a very attractive investment were most eventual outcomes range between good and fantastic. Even if the company continues to lose some money in the near future and is eventually liquidated investors could make a decent return given the current discount to NCAV. If the company turns around and starts making money and/or the large claim is awarded the outcome could be even better. I think the biggest risk is that losses continue to accumulate and that when the company is finally liquidated there is not a lot left. But so far I don’t think that’s very likely since management has been very clear about this plan. They are not desperately trying to keep a job while running down everything to zero.

Because of this I decided to add a little bit to my position once again.


Author is long PV Crystalox

PV Crystalox Solar: now trading at 40% of NCAV

FFP was not the only portfolio company that reported annual results yesterday: PV Crystalox Solar also released their results. But unlike FFP it wasn’t all good news for Crystalox, and including yesterday’s decline the stock is now down ~65% since a year ago. Luckily the stock has been one of my smallest positions because the company already partly liquidated at the end of 2013. Since the management team had shown to be shareholder friendly I was happy to see if they would be able to turn the business around. Given the price decline and the availability of the latest results I thought this was a good moment to reevaluate my position in the stock. Is this an opportunity to add, or should it be jettisoned from the portfolio?

Asset value

The company has currently a market cap of just €19.5 million euro while net current asset value is a whopping €48.1 million. This means that Crystalox is trading at just 40% of net current asset value. That’s really cheap! Graham famously suggested buying stocks at less than 66% of NCAV: Crystalox needs to gain 65% just to hit that level. The balance sheet looks as following:

Crystalox balance sheet 2014

What we see here is that on the asset side the two biggest items are the cash balance and the inventory. While the solid cash position is nice, it is worrying that a lot of money has disappeared compared to the end of 2013 while at the same time the amount of inventories has ballooned. This is caused by the fact that the company is locked in (unfavorable) contracts to buy polysilicon (the raw material needed to create solar panels) while their production levels are very low. They try to trade the excess polysilicon, but obviously they haven’t been very successful in 2014. In the presentation that accompanied the results the company writes: “some improvement in polysilicon trading seen in Q1 2015”. So hopefully they will be able to turn some inventory back into cash soon.

Related to these contracts to buy polysilicon are the provisions on the liability side of the balance sheet. The good news is that these contracts will almost completely end in 2015 since €14.5 million in provisions are current liabilities while the non-current provisions are just €1 million. I think there is a good chance that these provisions are at the moment materially smaller because of the depreciation of the euro versus the dollar and the yen. In 2014 the company also recognized a huge exchange gain on their onerous contract provision, and in 2015 the euro has already declined as much as in the whole of 2014:

Crystalox onerous contract provision

While exchange rates were a positive influence in 2014 there was also a negative surprise in the form of an additional provision. Crystalox provides the following explanation for this:

These gains were offset by €9.7m of additional provision required as a result of movements in pricing assumptions where it has been seen over the past six months that the polysilicon sales price the Group has achieved no longer reflects the spot price. As such whilst quarterly negotiations have resulted in a ‘predictable’ purchase price (in that movements have broadly reflected spot movements), the price at which polysilicon can be sold has reduced resulting in an increased loss and therefore an increase in the provision.

Given their statement about better trading conditions in the first quarter of 2015 I think that at the moment the company is not at risk of needing to recognize more provisions, but of course anything can change during the rest of the year. The company has absolutely no influence on the pricing of polysilicon, and it’s certainly not a very predictable and rational market.

Cash flows

When I decided to hold on to my Crystalox positions one of the attractions was that management promised to operate roughly cashflow breakeven while trying to wait for better times. They did indeed manage to generate some operating cash flow in 2013, but operating cash flow was a very negative €15.6 million in 2014. The main cause of this was the increase in inventory: without growing inventory levels operating cash flow would have been a more manageable minus €878 thousand.

This doesn’t mean that I think operating cash flow breakeven is in the cards for 2015 if inventory levels don’t increase further. In 2014, they received a €8 million payment from a customer that had defaulted, and they generated a lot of cash from liquidating accounts receivable and other assets. They do expect another payment from a customer settlement in 2015, but that payment should be significantly lower than the €8 million received in 2014. Another long-term customer is simply not willing to pay, and Crystalox is trying to seek resolution through arbitrage by the International Court of Arbitration of the ICC in Paris.

To get an idea of the current earnings potential of the company I have made a quick EBITDA estimate based on the 2014 income statement, but with a couple of important adjustments to remove the effects of the one-time gains and losses:

Crystalox 2015 EBITDA estimate

The EBITDA estimate is a crude proxy for operating cash flow in 2015 and ignores the fact that they will need to spend a bunch of money to eliminate the onerous contract provision. While I don’t like to turn cold hard cash into raw materials inventory it’s the last year that they have to deal with this burden, and exchange rate movements should lessen the blow. Given exchange rate movements in 2015 we could perhaps expect a similar currency gain.

What will happen?

This year is probably not going to be a good year for Crystalox, and they are most likely going to burn through a bunch of cash unless they successfully manage to trade their excess polysilicon. But the company is trading at a huge discount to net current asset value, and management has shown that it is willing to do the rational thing and quit if it seems that losses will continue. In the 2014 annual results presentation, we can find the following slide:

PV Crystalox Solar 2015 outlook slide

That last bullet point seems to suggest to me that they will consider liquidating/selling the company if they are unable to develop a cost structure that allows the business to make money.


You can’t expect to find a solid business trading at 40% of NCAV, but considering the price I think Crystalox is actually alright. The business prospects are at the moment crap, but their balance sheet has a low amount of leverage and there is a large cash position. They are going to lose money next year: perhaps something around €10 million. Not pretty, but manageable with €48 million in net current assets. Most importantly I don’t think I have to worry about a cash burn that will continue into the indefinite future because I trust management to do the right thing if they need to.

So taking this all into consideration I have decided to more than triple my stake in Crystalox to a portfolio allocation of a bit more than 2%. It’s still not a big holding because I think you want to be reasonable diversified when you buy crappy net-nets.


Author is long Crystalox

Earnings season updates (AWDR.OL, CNRD, CLP.L, PVCS.L)

Awilco Drilling (AWDR.OL)

Awilco Drilling reported excellent results for the second quarter of 2014 with a revenue of $66.3 million and a revenue efficiency of 99.7%. There were however a bunch of one-time items that impacted the financials statements. Interest expense was artificially high because of costs related to the debt refinancing, the tax rate almost tripled and operating cash flow was relative low due to a big jump in receivables. The tax rate for this quarter was almost 22%, a lot higher than the roughly 8% the company paid in the past. Those low rates are unfortunately a thing of the past due to a new law. Awilco is expecting that the normalized tax rate going forward will be around 15%.

Because the share price of Awilco has been going up steadily since I bought it while the company has paid out all FCF as dividends I think the stock is now not significantly undervalued anymore. It’s not (yet?) expensive, but at an estimated 20% discount to fair value I will probably take some money off the table soon.

Conrad Industries (CNRD)

Conrad is another pick that has advanced significantly since I bought it and is now also trading a lot closer to intrinsic value than in the past. But it not expensive with 25% of its market cap in cash and a 8x PE-ratio. Given the large cash balance I expect another special dividend at the end of the year, and given how management has been able to grow the business I’m happy to continue to hold this. Might be a good stock to hold for the long-term.

Historical financials Conrad 1H 2014

Clear Leisure (CLP.L)

I described Clear Leisure as a train wreck in my first post on the company, so perhaps I should have known better, but unfortunately the bad news is not yet behind us. The stock was suspended from trading almost two months ago because the company was unable to fill its annual accounts in time. A bit of hope is provided in the trading update that was released today in which the company announces its intention to sell the Mediapolis land and building rights separately. Call me skeptical…

Crystalox Solar (PVCS.L)

Better news came from Crystalox Solar that announced a €8.7 million settlement with one of its long term contract customers that had entered insolvency proceedings. We will have to wait a few more days for the interim financial report. I expect that they will have maintained their solid balance sheet, but I don’t expect better than break-even results.


Author is long all stocks mentioned in this post

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


Author is long all names mentioned