Johandesilva
28 Feb 2018
Re: charlatan on trading update Thanks for the strategy presentation link Bill, I had not seen that one! Note on page 14 it puts to rest another of Numberbiter debate and shows another example of how a little bit of knowledge being a dangerous thing. This reset simply accelerated the downside. The question as investors is when will the trend reverse given that the accounts do add up with plenty of free cash flow and some speculative growth led by a CEO who has been involved with Expedia and Ubur.
Bill1703
27 Feb 2018
Re: charlatan on trading update "If you check my posts, whenever I have analysed the accounts and suggest a 'strong sell' then in about 90% of cases the share duly falls in price. You have all been warned!"FYI Numberbiter popped up on the Galliford Try board, following the SP plunge (naturally!) on a trading update and equity raising, on 14th February - posting a Strong Sell with the SP at 800p. His "argument" being along his usual lines. The SP is now 925p, with the interim recovery predicted by a number of people who know the business well - fears that it is the "next Carillion" were clearly premature. I think we should take his "90%" success rate with a pinch of salt...
Bill1703
27 Feb 2018
Re: charlatan on trading update "Im a buy on the AA, and would hope to gain 50% over the next 2 years, but doubt it will go above 150 for 4 or 5 years.... And yes, I am just an amateur, and an optimist !"Paul TF - we are all amateurs here! Albeit some of us less optimistic (by nature) than others...The range of potential "outcomes", for what the equity is worth, remains unusually wide, as previously explained - particularly if you stretch it out to your "4 or 5 years". Anything from zero (yes, numberbiter could be right), up to - if they hit their targets for EBITDA, FCF, etc, or anywhere near - something quite substantial... difficult to put an upper "limit" on it, but certainly more than your 150p (at least double that IMHO).With this in mind, particularly for those fretting the more pessimistic end of things, if you haven't already I recommend to everyone (yes, including numberbiter) a flick through their presentation slides (link below) for the recent Strategy Review - particularly those slides on financing structure (pp 43-48), terms, covenants and all related considerations. [link] don't think any of this changes the investment case, such as it is - but perhaps of some comfort?
paul the fish
27 Feb 2018
Re: charlatan on trading update Not wanting to join the bickering, honest question.You say if you list as a Strong Sell 90% of the time the price falls, do you have a longer term figure against that?.i.e. after 6 months are they still down or was the fall the market reaction to concerns?.Im a buy on the AA, and would hope to gain 50% over the next 2 years, but doubt it will go above 150 for 4 or 5 years.And yes, I am just an amateur, and an optimist !
Bill1703
27 Feb 2018
Re: charlatan on trading update "Whenever i see a major fall in share price, I analyse the latest accounts to see why it happened. In most cases, it is obvious such as AA. This one is so bad that even if you accept that intangibles have a value you still see that liabilities exceed assets by around £2 billion. This one is a clear basket case."You say you "analyse" NB, but all we get here - all we get with the vast majority of your posts across multiple boards - is the reportage of the same few headline numbers on the reported balance sheet statement.... goodwill, other intangible assets, reported net assets. It'd take you or anyone else about 5 seconds to do that... and even then, you don't always get that right (cf. our previous discussion on ULVR).Where is the analysis of business cash flows, free cash flow, debt structure, terms, duration etc (all very relevant to the "special situation" of the AA plc)? Where is it ever, in your posts??Yes, your issue about intangibles vs net assets can often be the hallmark of a failing company and/or a failing SP... but as we established before, it is also often the hallmark of many of our most successful and highly rated stocks, a long list of familiar "quality" blue-chips among them. So where is your analysis of causation vs coincidence?And yes, the AA balance sheet does look like a "basket case"... but here's the thing. It did last year, the year before... in fact, the balance sheet profile is essentially unchanged since the IPO, a full 4 years back (if anything, it has modesty improved, with strong FCF steadily paying down net debt, albeit relatively slowly, while average debt costs have also been steadily reduced). It does not - it cannot - explain the most recent SP collapse - but I know a number of people on this board who can, and do.And yes, maybe the AA SP keeps on going down from here - sentiment is against it, and as I (and others) have identified, there's not much they can do to reverse that, in the short term. But where will it be 3,4,5 years from here? Balance sheets, which you claim to be your area of expertise, tell you a fair bit about where we've been - but are notoriously bad guides to where we're going. If you were a true investor at all (rather than mere mischief-maker) you would understand that, but I have my doubts. "You have all been warned!"Yes, they have indeed, by me... and it is not something I do lightly, but I care about the integrity of these boards and the potential for misinformation, whether witting or not, to mislead and end in misadventure. The conclusion that you are either a fool or a knave is inescapable to me... as I've said before, I am happy to give you the benefit of the doubt... a classic case of a "little knoweldge" being a dangerous thing indeed!
numberbiter
26 Feb 2018
Re: charlatan on trading update Bill,Whenever i see a major fall in share price, I analyse the latest accounts to see why it happened. In most cases, it is obvious such as AA. This one is so bad that even if you accept that intangibles have a value you still see that liabilities exceed assets by around £2 billion. This one is a clear basket case. Occasionally, a sharp fall is not justified, such as the fall experienced by Kingfisher, which has since bounced back.If you check my posts, whenever I have analysed the accounts and suggest a 'strong sell' then in about 90% of cases the share duly falls in price. You have all been warned!
Recovery required
26 Feb 2018
Re: major holdings Ag
peemalc
26 Feb 2018
Re: major holdings Umm very different picture revealed from the later news item after I posted ?Huge difference ?P
Recovery required
26 Feb 2018
Re: Major holdings Citigroup have increased their holding but Bank of America have significantly decreased their holding and no longer reportable which I believe is below 3%.
peemalc
26 Feb 2018
Major holdings Am I misunderstanding the two news items today that show the Bank of America, and Citigroup have increased their holdings ? Doesn't this, in spite of the fall in the share price, show that some big money has confidence ?Hope soP
Bill1703
26 Feb 2018
Re: Credit Suisse jumps on the bandwagon... "... I think it's fair to say we have both made a mistake buying into this on the basis of the CEO's punch.... It's also a clear indication that you should not follow Woodford's lead, as he is getting close to a majority wrong call status... Lesson learned, just don't waste your time on heavily indebted companies.." Yes, Games, as of today, hard to conclude otherwise... but equally, that can change. Not saying it will here... merely that I know that it CAN. I didn't invest on the basis of the "punch", though it was indeed a catalyst for drawing my attention to it... it was a conciously "speculative" investment, of modest size (as with yourself, I think?)... a "punt", in what I always saw as a "special situation". As such, I am not really surprised we are where we are currently - and nor should you be. Nor has it anything to do with Woodford... I never "follow" any fund managers into any stocks, that is a dangerous path. Whatever these guys say in public, you never see the full spectrum of what they are thinking - and doing - behind the scenes. I learned, quickly enough, that whatever stock you choose to buy, you can easily find a manager of at least reasonable repute who is also buying it, or has done... merely one manifestation of "confirmation bias". And don't forget, I know many of these guys personally, their strengths... and weaknesses. The difference between them, generally, and you or I or a number of fellow boardies is a lot less than most might suppose... and as I've always argued, the private investor retains a number of key advantages over the professional players.So.... as for the AA, we will see. I remain relatively relaxed... since the "punch", what has really changed, fundamentally? The one thing I confess I under-appreciated (I acknowledged it, but didn't necessarily see it as inevitable) was that a new CEO (which we knew we'd be getting) was always most likely to want to "reset" the business to some degree. Give himself some room to "outperform" and therefore justify his existence and his pay packet. So... we get profits "revised" down by a degree, largely through discretionary measures, but with the projection of faster growth thereafter. If he hits his targets (I appreciate, a big "if"
, then by year 3 or 4 the overall profit level will be no worse than I had previously expected, even on fairly conservative assumptions. How much of this is necessary (re)investment and how much is rearranginbg deckchairs? As always... time will tell!Beyond that, what has changed is the market's perception of the sustainability of the capital structure. That happens, and other events (eg. Carillion) have not helped, however uncorrelated the conditions. I don't think the AA is going bust any time soon, and nor do the bond holders... what happens longer term is inherently unknowable, but I think they (ie. AA plc) at least have time to deliver against their objectives.
gamesinvestor
26 Feb 2018
Re: Credit Suisse jumps on the bandwagon... Bill - whatever the analysis one wants to choose here, I think it's fair to say we have both made a mistake buying into this on the basis of the CEO's punch.It's also a clear indication that you should not follow Woodford's lead, as he is getting close to a majority wrong call status rather than the odd one now and again which anyone can expect.Games -- Lesson learned, just don't waste your time on heavily indebted companies -- better to stay in cash until you can find one's that aren't -- and if you can't, so be it - keep waiting.
Bill1703
26 Feb 2018
Credit Suisse jumps on the bandwagon... Or jumps off it, more like? Looks rather like following the SP down reactively, what used to be called "jobbing back" in my (formative) days in the market, and it is always a bit of a circular "argument" - but edited highlights below for full disclosure: "Decreasing target price: We decrease our target price to 80p (from 125p) and retain our Underperform rating. Our FY19E-FY21E EPS estimates decrease by 16-24% following the company’s strategy announcement and guidance. Whilst we view management's plan for the Insurance division positively, we continue to take a negative view of the larger Roadside Assistance division and the significant debt burden the company has.Ongoing challenges at Roadside Assistance: Although some of the headwinds to personal membership growth are behind AA, we believe the division will continue to slowly lose members and experience ongoing margin challenges from the increased operational expenditure and ongoing price competition. We do not believe the Connected Car initiative, or efforts to grow the membership base with younger segments, will provide the necessary growth whilst consuming significant cash. Improvements to the operating systems and flexibility of the patrol force have been mooted before and we wait for evidence of success before factoring these into our numbers.Growth potential in the Insurance division: We believe there are lots of 'low hanging fruits' for the Insurance division to benefit from (only 9% of members also have motor insurance and broadening of the underwriter footprint) and which can drive growth in the near term, especially when supported by additional investment.Catalysts and Risks: AA reports full year results on 17 April. Risks to the upside include: 1) early and tangible success from the Connected Car trials and 2) paid membership numbers reverse the decline. Risks to the downside include: 1) further dividend cut to provide funds for turnaround programme and 2) further volatile work load patterns suppressing margins.Valuation: Our DCF-derived target price decreases to 80p reflecting our lower earnings estimates and risks to membership levels. On our estimates, AA trades at 10.2x CY2018E EV/EBITDA with 2.6% dividend yield."
Bill1703
26 Feb 2018
Rights issue - the big issue Whether or not they could get a significant equity raising away at the current SP and in the current market, it is worth remembering the constraints imposed by the capital structure... as best summarised by Berenberg below.FWIW I have always thought a significant recapitalisation was the eventual "end game" here - one way or another (eg. could be via a merger with a stronger balance sheet). But (rightly or wrongly) that is some way into the future... "Downgrades to EBITDA guidance alongside further investment into the business mean that the AA will have a leverage of 7.7x net debt/EBITDA on 2019E numbers, or 8.8x including its £395m pension deficit. The immediate questions following the company’s profit warning centred around a possible covenants breach, and the prospect of a dilutive rights issue to de-risk the balance sheet. We consider both options to be unlikely – the whole business securitisation (WBS) debt structure was designed in such a way that the AA is more likely to continually refinance rather than significantly pay down its debts. Punitive early repayment costs (c£550m) mean that a rights issue would be uneconomical. As a result, there is no quick fix for the AA’s substantial leverage, which we expect to remain a concern for several more years..."
Bill1703
26 Feb 2018
Re: charlatan on trading update "... you cannot be confident as they are a busted flush. Just look at the Balance Sheet to see that liabilities far exceed assets. If they had a major claim in their first year they would have to borrow even more money. I don't think the banks would take the risk."I think we are wise by now to Numberbiter's MO, a carion feeder popping up (invariably with a Strong Sell tag) on boards once the rot has already set in, selling the snake oil of his apparent accountancy expertise but actually offering only a one trick pony, ie. the repetitive point about intangible assets being worthless and any business where intangibles > NAV being "effectively bankrupt".Which of course includes quite a long list of some the UK's bluest of "blue chips"... Unilever, Reckitts, Diageo... and Bunzl, whose FY figures I have been crunching this morning. A very solid and successful business model, once again delivering good organic growth and strong FCF - and extending the 25-year record of dividend growth, with another dividend increase very well covered by earnings and cash flows. Just a shame it is "effectively bust"...Numberbiter is no expert on the AA... hard to see how a "major claim" in a predominantly domestic car insurance operation will sink the business... cars are not actually getting more reliable (as JDS wisely points out), in all the areas that make up the vast majority of call-outs, and are likely to get even less so in at least the early years of the transition to electric and then driverless cars... and there is no evidence the "banks" are now refusing to lend to the business, quite the contrary - they have steadily refinanced the debt at progressively lower rates. And so on...We know what the problem is... the post-IPO capital structure, with the huge amount of debt. That was the problem last year, this year... and will be next year. It is true that the "banks" (ie. debt/bond holders) own the business, quite literally (via the Whole Business Securitisation structure) and shareholders merely own a minority equity "stub" - but as I say, we knew that already.It doesn't mean this equity "stub" is worthless... but it COULD be. It could equally end up being worth quite a bit more than the current market cap - the huge gearing means the range of potential "outcomes" was, is, and will remain very wide, with even a small movement in your valuation of the overall business having a dramatic impact on your 'fair value' for the SP.
