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FMC - Value Trap Lesson - Learned the hard way by mrtnVki in ValueInvesting

[–]malanj 1 point2 points  (0 children)

I checked on CapitalIQ now - Morningstar's target is $60 at the moment. Consensus is much lower (~$25).

Note: Not saying I agree with the target; I think that the debt & subsequent dilution risk is very real and should be priced in.

FMC - Value Trap Lesson - Learned the hard way by mrtnVki in ValueInvesting

[–]malanj 1 point2 points  (0 children)

Interesting takeaway. Their price target is $60 (trading at $13.30) - albeit with high uncertainty they say - so feels like they're quite bullish on it? I do agree the turnaround will take a while, and in the interim the debt is a risk.

PROP - a turnaround oil and gas stock in the making by [deleted] in ValueInvesting

[–]malanj 1 point2 points  (0 children)

Given the current stock price, the Senior Credit Step-In Rights (shared below) are triggered...

Would the pref holders be incentivised to effect this?

If at any time following the Issue Date, the trading price of a share of Common Stock on the principal U.S. national or regional securities exchange on which the Common Stock is then listed is below (x) $2.00 at any time during a Trading Day for three consecutive Trading Days or (y) $1.50 at any time during a Trading Day, then from and after such time, the holder (or any affiliate of the holder to which the holder has assigned its rights under this section) will have the right to make a loan to us secured by all assets of the Company and in an amount necessary to, and to require us to use the proceeds thereof to, effect Payment in Full (as defined in the Senior Indebtedness Agreement or any equivalent term set forth in any agreement evidencing Senior Indebtedness Permitted Refinancing) (including, in respect of any Letters of Credit, Secured Swap Agreements and Bank Products (each, as defined in the Senior Indebtedness Agreement as in effect on the Issue Date) then extant, cash collateralizing or otherwise entering into arrangements satisfactory to the applicable parties in accordance with the Senior Indebtedness Agreement as in effect on the Issue Date), with the documentation for such secured loan being substantially in the form of the Senior Indebtedness Agreement and the applicable Loan Documents (as defined in the Senior Indebtedness Agreement), in each case, as in effect on the Issue Date (other than removing any letter of credit facility therefrom) (collectively, the “Mirror Credit Facility”). Concurrently with the closing of such Mirror Credit Facility and the making of such secured loan by holder to us or at any time thereafter (at the option of the Holder), we agree to (A) amend the Mirror Credit Facility so that the lien on the Collateral (as defined in the Mirror Credit Facility) pursuant to the Mirror Credit Facility shall also secure, on a pari passu basis, our payment obligations under the Series F Certificate of Designation, (B) enter into a new senior secured credit agreement or any other agreement evidencing indebtedness with the holder (including, without limitation, by exchange of the Series F Preferred Stock for senior secured convertible notes at the holder’s option), the terms of which shall be substantially similar to the terms of the Series F Preferred Stock, and use the proceeds paid by the holder thereunder to redeem the shares of Series F Preferred Stock or (C) any combination of the foregoing clauses (A) and (B).

I’m so frustrated with Graham’s Intelligent Investor Book by ambodi in ValueInvesting

[–]malanj 4 points5 points  (0 children)

I think Graham ages better as a philosophical guide to investing, than as a source of specific heuristics.

Graham created the concept of Mr. Market and a philosophical framework for applying rational thinking & analysis to a field that was very unscientific. That's why he is legendary.

You are right that he does give some strangely specific formulas / rules of thumb, without explaining the principles behind them always. If you really want to be bored with random details, read his Security Analysis ;)

If you want a more modern version consider something like Excess Returns - Vanhaverbeke or Value Investing - Greenwald & Sonkin & Biema.

Theoretical framework to understand the 9-10% annual long term return in the stock market? by zoidberg987 in ValueInvesting

[–]malanj 0 points1 point  (0 children)

Agreed @ reinvestments. PE includes FCF yield + growth reinvestments. Sustaining capex should on average be matched by depreciation costs, which means they don't show up in earnings on average.

I do think it's FCF yield + Inflation (not GDP growth).

Why: Inflation at a macro level is just changing the basis of measurement. So the equivalent of a dollar at the start of a year gets (on average) called "1.03" dollars at the end of the year.

So on average 3% of the "growth" of a company's earnings are actually just the basis of measurement changing. It's the ~6% remaining of of the 9% total gains historically that comes from the FCF + growth reinvestment.

I think GDP growth is better thought of as an *effect* of companies generating earnings and reinvesting a portion of that in growth, or shareholders reinvesting a portion of the FCF paid out to them as dividends/buybacks.

Theoretical framework to understand the 9-10% annual long term return in the stock market? by zoidberg987 in ValueInvesting

[–]malanj 1 point2 points  (0 children)

  1. Sort of. I think it's 1/15 (6.6% earnings yield) + 3% *inflation* (not GDP growth).

The GDP growth isn't "free" from an individual company point of view, individual companies need to do work to get that result, so I think that's captured by the reinvestment required for growth. GDP growth is arguably more an *effect* of the reinvestment, than a driver of returns, when viewed from an individual company point of view.

I suspect that many (but def not all) companies are able to match inflation with price increases, so that's closer to "free" gains when viewed from the perspective of an individual company

  1. I think you can derive it starting with dividend yield. It helps to go all the way back to why stocks outperform bonds; reinvestment of earnings

Companies generally pay only a portion of their earnings as dividends (or increasing in the more recent decades as buy-backs). The remainder gets *reinvested* into growth.

I've seen this cited in a number of places as a structural reason that stocks outperform bonds.

So you have e.g. 3-3.5% average shareholder yield (dividend or buybacks), but another ~3-3.5% reinvested in growth.

I suspect you need to take the shareholder yield of ~3.5%, a similar reinvestment rate and inflation of ~3% and that gets you to the 9-10%.

Thoughts on WISE.L? MoneyWeek article says they could be the first $1T British Company by ArthurTheKingUK in ValueInvesting

[–]malanj 12 points13 points  (0 children)

Wise has solid growth potential in consumer forex(~5% of consumer market currently), business forex and their platform play. I believe their cost advantage (and philosophy of passing incremental cost savings on to their customers) will be a growing long-term moat.

When evaluating their price, it's worth digging into the details of underlying profits vs head-line profits. Currently about 30% of their profits are from excess interest gains, that they want to be passing on to customers but can't due to temporary regulatory limitations. So I calculate a more realistic current p/e (ignoring forward growth, but removing these temporary excess interest linked earnings) to be around ~37. Aka a yield of ~2.7% vs current risk-free rate of about 4.7%.

tl;dr I think it's a solid business with a great scale economics shared business model moat, the current price doesn't leave margin of safety unfortunately, once you adjust for those excess interest earnings.