Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
cuddothisnow
I'm a long only investor because of the dual need of being right on timing and magnitude required in short sales. I did buy into MTRO at 514 and got stopped out at 505 the next day and been out since then ... waiting
Here is proof of the above. https://imgur (dot) com/na4VgiI
Surreylad
if you take a look at historical stock data what you see is that prices fall massively in short spans of time but their recovery is very muted and the longer and farther it falls, the longer and farther it has to rise back.
At least in the US and Canadian context, in my experience (been at this ~19 years), you can usually expect it to take 2 to 3 times as long for a stock to rise back to where it was prior to the fall, i.e. if MTRO began turning aound tomorrow, I would expect it to take about 1.5 to 2 years before it got back to the January 2019 levels.
Plenty of time there for someone to step back in and therefore no reason to stick around hoping for a turnaround everyday. Will you likely miss the exact day this turns around? yes
Does it matter when the climb back is a 100% - 500% gain? Not really
zccax77
growth without adequate profits for a bank is suicide. rather take no growth and 8% ROE than 20% growth and 5% ROE.
and frankly the market agrees with that sentiment. Never forget rule #1 of investing is "don't lose money"
mortgages where the rates are fixed for two years. The term of the mortgage is longer. Just means the buyers are going to be refinancing the terms / rates in 2 years.
Agreed that 2 years is very very short. Usually it's about 5 years and shorter terms are seen as evidence of a hyped up market with lenders "buying market share" by under cutting on profits to get the loan on their books and eventually selling it off to an investor.
Why would one sell? Let's see:
1. capital losses can be used to offset capital gains which reduces the tax bill
2. if something goes down 30% it has to rise 43% for the investor to break even. With the If you bought in at £6, the stock has to double from today's close and stock don't, no matter how downtrodden, rise that far so quickly that you can't get back in.
3. For every month it takes to turn around or just stop falling, the investors loses out on about 1% in returns on the broad market index fund alternative sitting right there to be bought.
just being profitable is not enough for a bank to trade over book value. It must:
1. earn more than the cost of equity which is usually pegged at somewhere between 8% and 10%, and
2. be able to show a plausible growth rate (reinvested earnings x ROE) to provide an argument for a premium.
As a very short hand, you can use the following identity to play around with where a bank stock (any bank stock) should trade for given levels of ROE, growth, market returns and reinvestment rate.
Price to BV = [ROE% - (Reinvestment ratio x ROE%)] / [market return - (reinvestment ratio x ROE%)]
where (Reinvestment ratio x ROE%) = growth rate possible without external capital raises.
Pokerchips
yes I honestly think that. Businesses make purchase decisions, not governments. At the end of the day, if the price is "right", the proximity of a UK supplier is a massive plus point as is the English legal system as regards enforcement and speed and efficiency.
I take your point on the lack of export uptake from outside as yet but you have to keep in mind that we still in the EU and shipping ports are on the continent and VAT rules make shipping out of Netherlands / Greece / Germany / Italy much more cost efficient.
There is no need to disrupt an estiablished (and cheaper) tranport route before the UK actually separates from the EU.
I don't see it quote that way. I think there will be loan demand from export oriented industry and farming and services as the newly cheaper pound makes UK goods more attractive.
I think the bigger risk from brexit is the exodus of EU citizens and the bank deposits that leave with them. WIthout deposits growth a bank is hamstrung as to growth rates
maybe that refers to the FedAir acquisition.
I agree to an extent because their strategy had been to "buy deposits and undercut on loans". That lead to sub-par Net Interest Margins which is a much longer term fix because depositors fixing it requires higher rates on loans or lower rates on deposits both of which undercut the basic strategy.
The cost savings are of course welcome but the market tend not to believe future predicted outcomes when they come from parties with clear self-interest (the management in this case).
I agree it's a bargain here. That was not the point of my post. But you cannot deny this bank has been a terribly unprofitable operation and when you're a bank that is not profitable leaning on 'growth' to justify a pitch to buy your shares, coming out with a big chunk of your loan book at misclassified just casts doubt on competence.
Correct classification of risk is about the most basic thing a bank ought to be able to do.
I am a gobal investor and I have seen this exact situaiton unfold in the Canadian market at least twice in the last 4 years (National Bank and then Laurentian Bank). In each situation the turnaround took about 2 years for the street to trust the operation again, even though the short seller went away much earlier and the bank remedied the situaion fairly quickly.
I didn't say it was overblown at 500p. At anything under 0.8x BV (pre-loan sale), MTRO is arguably a bargain. However, MTRO traded at £30 not too long ago and had a fairly stable ride up to those levels.
When you have steady rides up without periodic and significant (30%) corrections, the shareholder base tends to become biased towards higher prices and when the overvaluation finally resolves itself, the ride down is very protracted because at every level down there are people running to get out.
The fact that a follow on issue was over subscribed (at 0..4x BV no less) is an inchoate data point without some study on whether that issuance would have been equally oversubscribed when MTRO was at £30 or £20 or £15 or whatever other value before the loan problems were surfaced.
FWIW, I am waiting to buy in. I don't expect that the black cloud on the name will lift until that problem portfolio of loans is sold (at whatever value). Until then I wait.
You have to consider where it's coming down from. Metro was never a great operation to begin with so the SP was horrendously overblown to begin with.
At the fundamental level you have a bank that has grown revenues 10x in 6 years as a listed entity but is no where near as operationally sound as even the worst of its competitors even without the recent debacle.
1. Book Value is still where it was at IPO.
2. Financial Leverage is at industry levels without matching levels of profitability
3. ROE% has remained roughly at RBS levels
4. NIM's are way below what might have justified anything close to the valuations placed on the name.
The bottom line is that Metro sold a great line for a few years ('savvy' bank with an edge that was growing) and got the market to ignore sub-par results on operational results to attain a valuation it never deserved (3x - 4x of book value). The SP was riding on nothing but hope and speculation until the loan fiasco.
The above notwithstanding, the current valuations will not improve without;
1. a sale of the the bad loans
2. improvement in fundamentals
and I think it is more likely than not that the street is never growing to price the stock the same way it had previously. If the bank can hit a 8% ROE for a couple years, the best shareholders can hope for is a market valuation (1x book value). That might be a ways above where we are today but today's levels are pricing in the sale at a significant discount and that ambiguity will be resolved until an actual sale is concluded.