Member Info for asclypius

No problem :)

That's right. ST has (unintentionally!) done me a favour by recommending a couple of my biggest positions. Meanwhile , Albemarle is now trading at just 64%* of H&T's enterprise value, despite being around the same size and having similar long-term opportunities. *(ABM: Net debt 50.6 + Market Cap 4.9 / HAT: Net debt 20.8 + Market Cap 65.8)

Congrats on your short-term gains, people. This was tipped in the Investors Chronicle today.

RNS: "despite a number of proposals being received from interested parties through the course of the formal sale process... none of the proposals were deemed to represent a fair value for the Company." The other part was: "depending on the final outcome, there may be limited value attributable to the ordinary shares." This sometimes leads to zero value, and sometimes it doesn't lead to zero value. TY & ATB.

Peter Lynch said that his really huge gains most often came in the 3rd or 4th year he held a stock. If (and yes, it's a big if) Naibu is still paying dividends in 3 years, we will be absolutely fine. We will be amply rewarded for taking on this risk. And if Naibu is indeed what it promises to be, it should be around for quite a long time after that. There is plenty of time for the investment community to fall in love with it. Talk soon.

1. The company has not broken its amended banking facility. We can presume interest is being paid in a timely fashion. 2. Covenant testing dates have been delayed again for another two months, so that the covenants are not yet broken. 3. The bank debt has not been sold. 4. Management refused offers during the formal sale process which did not fully reflect the value of the business. 5. In the year to June 2013, the company produced a pre-tax profit, before restructuring costs and other one-off items, of £11.3m. Net Income for the year was £3.5m. £1.6m of dividends were paid (previous year: £7m paid). 6. The company suffered a loss at the EBITDA level in the first five months of the year. 7. Net debt in December 2013 was £50.6m, versus a £53.5m banking facility. 8. Albemarle's major rival, H&T, which is similar in scale, has net debt of £21m and a market capitalisation of £58m (which I believe undervalues H&T's long-term prospects). H&T enterprise value: £79m. I believe that H&T is superior to Albemarle but I don't think it is ultimately worth 55% more than Albemarle, which is what the enterprise values would suggest if Albemarle has no residual value above its bank debt. More special restructuring and advisory costs are inevitable, but I remain hopeful that the new management team, whose actions appear to have been faultless, will figure out a way to generate a reasonable return for us. At this point, what I would be prepared to settle for is a debt-equity conversion based on an enterprise value of at least £65m. I think £70-75m would be fair. Of course, it's still perfectly possible that the shares are worthless. We don't know how bad the present EBITDA losses are and whether they pose a threat of immediate financial distress and a disorderly breakdown. Given that the company refused to accept derisory offers in the sale process and the banks have not yet taken action to shut it down, I think it's quite unlikely that the situation is all that bad. But it remains a possibility. These shares are not a suitable investment for the vast majority of investors. I think the risk-reward is favourable as part of a diversified portfolio. The risk element is clearly very large and it's possible that the return will be -100% no matter what price is paid for them. I did a little comparison check recently, asking H&T and Albemarle stores how much they would lend against some gold sovereigns. Albemarle offered to lend me only 75% of what H&T offered. I can't make a comparison with their respective approaches last year, but this is surely a sign of prudence. Perhaps they can avoid making the same mistakes again. They also offer a lower pawn service charge than H&T. I am long HAT and ABM and am therefore biased. Do your own research. I might change my mind and buy or sell at any time. All my humble opinion.

I think you are taking this from more of a trading perspective. I would support a buyback because it would increase the long-term value of the shares which I have bought and might hold for a long time, not because it would improve sentiment. It would be nice if sentiment improved but if it doesn't then it might just give me more opportunities to buy cheap shares. All the best.

My support of a buyback is not based on a desire to improve investor confidence, boost the share price, create a base for the share price, etc.. It would simply be a good investment, assuming that the share price radically undervalues the company. Assuming that it does not threaten the solvency or critically undermine the operations of the business, it would have a much higher return than any normal business activity. To use simple numbers for an imaginary business: suppose that a company has earnings per share of £1. Suppose that without threatening its operations it can repurchase one quarter of its shares, paying only £1 for each share. The earnings per share have now increased to £1.33. If the correct P/E multiple which should be applied to the company is 5, and the loss of the cash is immaterial, then the value of each share has increased by 5 x 33p = £1.66. The repurchase program has increased shareholder value in a real sense, just as if the company had increased earnings by 33% through the construction of a new factory. But the earnings created in this way are much, much cheaper and easier to generate than the earnings achieved by building new factories (if the share price radically undervalues the business).

If the company's present operations are worth at least X to some degree of certainty, and it can buy its own shares for a fifth of X, then it can generate an easy return of 400% for shareholders by rebuying its own shares. It is unlikely to generate a higher return than that for us by investing in additional plant and machinery. I hope they don't miss out on this extraordinary opportunity to buy their own shares but I agree that such a program is unlikely. One of the problems with the scrip dividend program is that when the share price is so low, it means diluting the people who take the cash dividend at a disadvantageous price.

You guys might not have seen that EZCORP released their first quarter results yesterday. They are also having a difficult time, although the results did beat expectations: http://www.cnbc.com/id/101371696 I've had a little look at them. The EZCORP share price values them at c. $510m. They are trading at only about six times historic and projected earnings. They have cash of $45 million and debt of $252 million (although nearly half of that is related to a Mexican subsidiary and is non-recourse to them). In their filing, they said that EZCORP "may be required to write off the remaining $7.9 million of its investment [in Albemarle] in the second quarter", as a consequence of the "limited value" RNS. I don't think there is much utility in trying to read the minds of others but they are certainly not providing any evidence that they have any interest in making a further Albemarle investment. But if they did have an interest in doing so, it would naturally be against their interests to admit that. It would be better for us if they were in a stronger position. But at least they are still profitable on an annual basis (estimated to earn something like $89 million this year). It still seems logical that they would want to see Albemarle get out of this situation in good condition, and they only need to remove the 70% of shares they don't own to take complete control of the situation. Again "limited value" might mean zero, it might not. I will bet not.

Maybe, if it can be done, but it's hard to get the timing right. I prefer just to buy when I think it's cheap.

Hopefully my last words here for a while: I'd like to emphasise that it is prudent and good practice for management to warn of limited value in this situation. IMHO, they are acknowledging that the the shares should be considered as call options on the enterprise (with a strike price at the net debt figure of c. £50m). They are acknowledging that they are unsure if the strategies they are pursuing will realise value above that strike price. Personally: I think it's an attractive risk-reward situation. But it is certainly not something which most investors should get involved with. It is only suitable if you can absorb a return of -100%. The directors have been realistic and helpful by warning investors who can't accept a -100% return that such an outcome is possible. While acknowledging that possibility, I still think, for reasons already explained and despite the wild uncertainty surrounding the eventual outcome, that there are some attractive non-zero return outcomes which remain possible, making these options very attractively priced. But only buy them if you have good reasons to think that the risk-reward is attractive and can afford to be dead wrong. All my humble opinion.

I read the administrator's report on TVZ. They had no assets at all - nothing except a few domain names. Albemarle has a £37 million pledge book (on which they are charging interest of 8% per month) which is just one component of a very large pile of working capital. Albemarle also has a long history of profitability interrupted by less than a year of operating losses. It's a completely different situation to TVZ.

That's a key point Benj: there were "proposals" (e.g. a small percentage shareholding in H&T or a small payout from EZCORP), and management did not consider that they represented fair value. They are holding out for more and they are confident that the banks aren't closing them down yet. This is an appropriate course of action to take and implies that there are return possibilities here.

*there is NOT a £38m difference.

Thanks Sam, I'm doing my best. Sain@Vision, glad you agree about the "flat-pack". And you are right that we can have no complaints if we get nothing - we certainly can't blame management for being too optimistic. Going back to my argument below, I guess I just believe that there is a £38m difference between H&T's market cap minus net debt and A&B's value minus net debt (minus all the other deductions I mentioned). It's still very possible that the shares have zero value, and it's good for management to warn us of that possibility. Let's remind ourselves of what Raymarine management said: *************** http://www.trustnet.com/Investments/Article.aspx?id=200908171131335438X The Company continues to explore a sale of the business or an equity fundraising and, in the absence of either of these, to secure additional medium term debt facilities with its banking syndicate. The Board notes that, at this stage, there can be no certainty that an offer will be made nor as to the terms on which any offer might be made. At present, it is not known whether any offer will provide any value for ordinary shareholders. *************** Final outcome: value of $24 million to shareholders.

My average is now 21.3p, or value £11.8m. Maybe they won't, but I'd be surprised if management didn't figure out a way to return at least a few £ millions to shareholders. They have likely increased the chances of us getting a decent return by rejecting poor-quality bids. The banks do not appear to be in a hurry to shut down a business whose only crime is to break its earnings covenants, but which continues to pay interest on its facility. If the banks continue to act this way and if short-term operating results start to recover, now that the gold price has bottomed and the company has taken stabilisation measures, I don't see why it's impossible for the company to eventually satisfy its covenants again. But of course it would be rather speculative to give that scenario much weight in our calculations. The scenario I consider most likely at this point is a pre-pack administration, which will keep things neat and tidy and lead to a faster outcome for everybody concerned. EZCORP, hopefully after a competition witth one or two others, will buy the debt from the banks at a small discount and immediately demand an unpayable repayment. It will have been agreed with the remaining shareholders beforehand that we will then relinquish all claims to the company's assets in exchange for a reasonable payout. Of course I'm only guessing.

Yes, I'm inclined to agree that this is probably a great opportunity, not a value trap. Since the large investor exited this fell another 6p from 62.5p to 56.5p, and is now at 59.5p. Volume has been fairly light. It looks to me like a small stack of private investors capitulating.

Suppose that the only difference between Albemarle and H&T was their capital structure. H&T has net debt of £21m and market cap of £57m. This means that if the company had net debt of zero, the market cap could be something around £78m. Albemarle had debt of £50m at the end of November, and had cash at hand of £10m at the end of June. Those numbers combine for a net debt figure of £40m. If it was identical to H&T and those numbers were unchanged since then, that would leave a remaining value for equity of £38m. To get a valuation for Albemarle, we can take the £38m figure and subtract all of the following: the cash impact of losses since June, special advisory costs with respect to fundraising and the sale process, restructuring costs associated with redundancies, breaking leases (potentially), and the general costs of distress (in terms of management focus, for example, and the ability of bidders for Albemarle assets to exploit the company's weak bargaining position). We can also subtract the value of the superiority in quality and size of its portfolio estate which H&T holds over Albemarle. Does this leave an equity value of zero for ABM? I still don't think so. We have been advised that depending on the circumstances, the shares may have "limited" value. I expected precisely that when I bought the shares at a price of 22p, which was less than twice the value of the dividend which the company paid out in 2012. I still think there is a good chance of value of something like £20m in the equity here, though clearly the market thinks I am wrong. But a debt-for-equity swap such that the debt got 75% of the new structure could still leave that sort of value for those holding the equity as it currently exists: the new unencumbered company could have a market cap of something like £60-80m (based on modest earnings multiples applied to 2013 results before exceptional costs), with a 25% share thus being worth £15-20m. If the debt got less or more than 75%, the existing equity holders would be better or worse off, but that is the sort of calculation which will determine the outcome here. All my own humble opinion. I am long HAT and ABM, could buy or sell at any time, dyor etc.

By my calculations, if you exclude the top three institutional investors, each share has changed hands more than twice in the last four months.