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Sunday, July 31, 2011

Coca Cola Amatil (CCLAY)

I looked at them back in March 2006.  It's a good summary of Amatil's long history (essentially back to 1904).  They manufacture, market, and distribute Coca Cola products and local brands in Australia and other nearby markets.

They started moving into bulk water, commercial refrigerators, Crusta Fruit Juices, Grinders Coffee, packaged fruits, veggies, etc.  I think I like that shotgun approach.

The company was earning around 30 cents.  Operating margins were around 14%.  Weak cash flow.

Note that this is an ADR which back then consisted of 2 shares of Amatil stock for each share of CCLAY.  That's what OTC Markets is saying about the ADR now.

The stock (ADR) was selling for $10.30 and I figured it was worth at least $6, but maybe up to $16.

And of course, the annual report had photos of hot Australian women.

Based on experience, that photo will generate about 4 visits a day for the next 5 years.

Today the stock/ADR is at US$24.81.

Yahoo, corporate website, OTC markets

Looking at the "factbook" that the company puts out:
Earnings, ROI, and dividends have improved consistently since I last looked at CCLAY.

Production is in Indonesia (485K customers), Australia (116K customers), Papua New Guinea (8.6K customers), Fiji (3.5Kcustomers), NZ (17K customers).

In AU, they have 56% market share for carbonated drinks (most of the business).  25% bottled water.  45% sports drinks.

In NZ, they have 73% carbonated drink market share and reasonable share in the other areas.

WOW!  In Indonesia they have 90% market share for carbonated drinks, which is around 2/3 of what they sell there.

Looking at the annual report for 2010 (ending Dec):

Their "Pacific Beverage" JV now has 5 of the top 20 beers in AU.

Cost of goods sold went up 3.3%, but they recovered all of it.  In Indonesia, local currency COGS went up 15%.

Lots of disclosure in plain language.  Very, very detailed incentive plan that seems quite good.

They encourage and track executive ownership of the stock.

Earnings growth has been steady (too steady?) from 2001 to 2010.

15% operating margin.  11% net margin.

AU$66 cents per share (AU$1.32 or US$1.20 per ADR) in earnings for 2010.  Not much else in comprehensive income.

Current assets are mostly AR and inventories plus some cash.
Noncurrent assets are PP&E, investments in bottlers' agreements, and intangibles.
Current liabilities are AP, accrued charges, and some debt.
Noncurrent liabilities are debt. Debt to equity is fairly close to 1.

Note that they're sitting on accumulated losses.

Cash flow from operations is a bit above earnings, but capex is very large. Not sure if this is expansion or not.  2010 and 2009 saw weak operating cash flow [minus capex].  This explains their growth rate.

They borrowed a bunch of money in 2009, paid a bunch back in 2010.

Equity statement looks ok. [Is that a flare up of Meneire's disease coming on?]

Intangibles are customer lists (depreciate in 5 years) and brand names (depreciate in 40-50 years).

Most of the revenues come from Australia Beverages.  None of the smaller ones are growing fast.

Coca Cola owns a bit under 30% of the stock.


The top line hasn't really grown since 2006.  For comparison, when you look at the container leasing companies, you see a powerful tilt upwards over time that's only very temporarily overcome by the economic downturn.  When you look at this company, it's basically flat.  They've pulled earnings up, but that's not sustainable without revenue growth: either stealing market share (difficult to maintain) or having a growing total (reasonably) available market.

The ADR needs to drop well below $15 before I'd even look at it.  It's probably worth $18.  Am I missing something with the revenue growth?

Sunday, July 24, 2011

World Cargo News

The parent company of Hainan Airlines is bidding to buy GE SeaCo container leasing company.  They're vying against Kelso & Co.  Ge SeaCo has 900K TEU.  Rumor was that Textainer put in an offer.  When looking at companies, I'm generally looking at long term things and not rumors of takeovers/acquisitions.

China shipping volume is up 13% Jan-May.  China is also dredging the Yangtze at 12.5m all the way to Nanjing (name means south capital).

Friday, July 22, 2011

ValueClick (VCLK)

Ah, ValueClick.  That brings back memories.  Bought it for something like $2.20 back around 2002 or maybe 2003. Sold it for a little over $4.  When I sold it, I was saying that I had a hunch that the price was going to keep on going up, but I can't rely on hunches.  It went up to around $30.

Today, it's selling around $18.75.  I'm curious how they've been doing.  If they're quietly growing at a moderate rate or more, then I might be interested.



2006: $257 million
2007: $376 million
2008: $455 milion
2009: $423 million (I'm actually kinda glad to see this)
2010: $431 million (and this)

Net income
2006: $63 million
2007: $70 million (so far, so good)
2008:  ($214 million)   This was a $270 million writedown of goodwill
2009: $69 million
2010: $91 million

Diluted share count:
2006: 102 million shares
2007: 1001 million
2008: 92 million
2009: 87 million
2010: 82 million

Balance sheet is very solid. They can pay off all liabilities with cash on hand.  Cash flow looks quite good.

Just right off the bat, I like the disclosures that I'm seeing in the 10-K.  This is definitely worth looking into.  Time to dive in....

81 million shares on Feb 18, 2011

Targeted and measurable online advertising.  Generate customer leads, online sales, and brand recognition.  Personally, my opinion on this is that nothing beats giving customers what they want.  Being annoying, being deceptive, etc. is never the optimum approach.

VCLK's customers are direct marketers, brand advertisers, ad agencies.  VCLK has performance based campaigns and programs.  VCLK works with 3rd party websites, online publishers, search engines (probably not Google, I would imagine).

VCLK aggregates publisher spots into networks and optimizes them for specific goals. They own some comparison shopping websites, coupon stuff, etc. which seems fairly worthless.

Diret sales teams in US and Europe.  NOTE: Why are they not in Asia????  One out of every three people in the world is in China or India and sooner or later these people will get online, and will be using their own languages like Telugu, Kanneda, and Simplified Chinese.  If VCLK isn't involved early, they'll probably get locked out.

Four segments:
1) Affiliate marketing
2) Media
3) Owned and operated websites
4) Technology

Affiliate Marketing Segment

Wholely owned subsidiary: Commision Junction.  Large scale pay-for-performance model using proprietary technology, marketing, and advertising.
We believe we are the largest provider of affiliate marketing services.
The publisher gets a commission from the advertiser when the visitor takes an agreed-upon action.

Advertisers upload their offers to the "CJ Marketplace" making them available for placement by publishers who apply to join the advertiser's program.  CJ Marketplace serves and tracks the links.

Advertisers get a lot of real-time info.

This type of advertising seems extremely valuable to advertisers and consumers, plus it destroys the monopoly that newspapers, TV,  radio have over access to consumers.  The real question is whether VCLK has any sort of sustainable edge over competitors.

VCLK also has a full-service fixed-fee model where they handle everything for an advertiser.  That might provide a sustainable edge, I don't know.

Media Segment

This looks similar to the other segment, but is for a larger scale.  They can do all the usual targeting based on all the information that comes in via the browser (it's insane how much they know about you right on the first click).

10,000 active online publishers in the US.  15,000 worldwide.  168 million unique visitors in 2010, 79% of the US internet audience.  Wow!

They divested a lead generation marketing business in Feb 2010, and an e-commerce business in 2008.

Owned and Operated Websites Segment

Pricerunner, Smarter.com, Couponmountain.com, Investopedia.  I'm hoping this is a small percentage of their revenues.... It's fairly big, matching Affiliate Marketing and Media segments.  However, it's been shrinking (not surprising).  It turns out, that's due to a single issue with Yahoo.

Technology Segment

Wholely owned subsid Mediaplex, Inc.  This is the only small segment.

End Segments

Intense competition.  The factors that help them compete are:

655 US employees, 407 international employees.  No unions.  Entered Japan and China in 2007.  Korea 2010.

2008 spamming lawsuit being appealed by Hypertouch.  Sent back down to the lower count (L.A.)  Seems pretty minor now.

Let's look at the operating margins for each of the main segments to look for what's going on:
Affiliate Marketing Segment: Gross margin = 86%!, Operating margin = 56%.  Back in 2008 the numbers were 84%, 48%.   Ok, they've got market power
Media Segment: Gross margin = 46% (healthy, but far lower than Affiliate Marketing), Operating margin = 25%.  Back in 2008 the numbers were 45%, 19%, at least it's improving.
Websites Segment: Gross margin = 82% (I like being proven wrong here).  Operating margin = 20%.  Back in 2008 the numbers were 73%, 23%.
Technology Segment looks reasonable (roughtly 50% operating margin), it's a small segment.

Website segment had some issue with Yahoo in 2009.  Revenue dropped.

Technology segment has a single major customer.

Overall G&A decreased due to legal fees in prior year.

PricewaterhouseCoopers auditors  No qualifications to statement.

I already noted the balance sheet is insanely solid.  $50 million in NET CASH. [That reminds me: When I bought the stock in 2002-2003, I paid LESS THAN NET CASH for it and they were just crossing above the breakeven point on profitability!  Even if they had shut down the business I would have made a profit!]

They've been buying back a lot of stock.

Cash flows look good.  Very low capex.  However, there's an odd trend during the past 3 years.  Net income has been rising, but cash flow from operations has been dropping.  Let's see why...

It's partly due to a decrease in depreciation, which is a good thing?  Overall, it's good for this to be decreasing.  Ok, this is making my head hurt: Earnings go up, cash flow decreases, depreciation decreases.  That means earnings increases really were worse than they appear.  But the amount is about $10 million, not that much really.
Stock option compensation accounts for some.  This means it's making earnings increases look better.
Asset/Liability changes seem to account for some

Investing cash flows are basically acquisitions of businesses, aside from capex.

Financing is basically all stock buybacks and cash from stock options.

Google accounted for 15% of revenue.  Looks like I was wrong again.  In 2009, Yahoo was 17% and Google was 10.6%.

Oh crap, they own a student loan backed security.  Could this be essentially stolen by government fiat?  Also a bunch of other munis.

They tend to buy and also discontinue businesses.  Not an efficient sort of activity in most cases.

They sold the Web Clients business for $32.8 million.  They got a $45 million (face value) note paying 5% interest over ten years, with a balloon payment at 5th year.  Secured by assets.

2 million stock options outstanding total.  They haven't been granting any lately.


So far this looks like what I had seen before.  The fact that it still looks good after about 8 years or so is a good sign.  If I had to guess a value for it, I'd say it might be worth $30, but that's kind of a high number and it's assuming continued growth.  At $18.78 I'm thinking about it.

Note that Google owns Doubleclick (formerly DCLK).  That's something to worry about.

Sunday, July 17, 2011

Full House Resorts (FLL)

Full House Resorts (sec)

Stock is $3.33

First thing I want to see is the long term trends of revenues, earnings, margins. leverage.

2010 10-K
18 million shares

They basically own casinos.  Casinos tend to be associated with bad stuff.  They obviously make a lot of money.  The long term trend (50 years) has been growth in the industry.  I'm always expecting that to change, but it never does.  I'm also always expecting people to get tired of casinos and try to get them shut down, which is probably difficult to do.

Two fears: Corruption, competition from too many other casinos.
The corruption is hard to see.  The competition shows up as low margins.

Started in 1987.  1994 got involved in several projects in Battle Creek, MI (tribal), 50% owner of a Harrington, Delaware raceway and casino ("racino").  Own a casino in Fallon, NV.  And acquiring the assets of something in Rising Sun, Indiana.  Should be closed already.

They've got some projects in the works and some discontinued projects.  Got cut off by the Nambe Pueblo tribe in Santa Fe.  A project in Decker, Montana is cancelled due to economic conditions.

Balance sheet is very solid.

Revenues (million $), net margins, notes
2010: $33, 23%, mostly management fees, $5 million equity in net income of unconsolidated JV and guaranteed payments
2009: $19, 25%, yeah lots of unconsolidated JV stuff going on (could be crap)
2008: $9.7, 16%, balance sheet got cleaned up here
2007: $9.6, 9.9%, balance sheet was far worse back in 2007

Ok, so how about this year?  Q1
They're doing a major acquisition of Grand Victoria ($42 million) which nearly doubled assets and put a similar jump in LT liabilities.  Debt to equity is around 1/2, not too bad, assuming this isn't a bad acquisition.

Revenues are flat yoy.  Net income is down 20%! due to project development costs and interest expense.

No breakdown of cash flow from operating activities.
Cash flow: $20 million sunk into acquisition.  $15 million borrowed.  $2.4 million distributed to non-controlling interests in JV.

Entered into lease with a landlord to operate Grand Lodge Casino in Incline Village. Tahoe.  I think I stayed there once years ago.  5 years of conducting all gaming in the casino.  Early termination rights for both parties.  Option to extend. Wow, $125K monthly rent.

Anywayz, earned 43 cents in 2010, 26 cents in 2009.  Earned 9 cents in Q1 of this year.


I'd guess the stock should be selling for about $4 a share, which is not far from the current $3.33.  This one would be a lot more trouble than other companies, trying to figure out the unconsolidated stuff, trying to figure out if there's any shady stuff, and the possibility of "too many casinos" market saturation.

For now this goes on the "too difficult" pile.

Saturday, July 16, 2011

Posco (PKX) and Korean stocks

A quick look at Posco (sec).  Basically, I'm looking at the Korea Fund as a possible investment.  I don't have any easy way to get into the Korean market other than a few high profile stocks like Posco, so this is not a bad alternative.  I've looked at the Korea Fund's holdings and they make sense.  The various Samsung companies, Hyundai, Lucky Goldstar (now known as LG), Posco, and others.

I've looked at this company (POSCO) long ago when Buffett took a stake in it.  I want to get a sense for the P/E ratio of the stock right now.  77 million shares at the end of 2010.

Revenues:  (in trillions of Won)
2006: 26
2007: 32
2008: 42
2009: 37(downturn)
2010: 61 (wow!)  This is US$53 billion

Earnings have followed along with revenues almost.  2006 had 13% net margin.  2010 had 7.2%.

Debt to equity ratio has been rising over the years.

In 2010, they earned US$49.47 per share.  The stock is selling for $109.  So the P/E is roughly around 2.  This is probably misleading because the steel industry is very volatile.  But still, it's priced for a major drop in the steel industry.  Everyone knows China has been overbuilding.  Are they still overbuilding?

Korea Electric Power Corporation

20-F for 2010
Oops, they've been losing money for 3 years.  Just looking at the revenues and income going back to 2006, I'd guess a reasonable stock price would be ten dollars.  It's selling for $12.91.  I didn't cheat, really!

So that stock isn't selling cheap.


The Korea fund claims the forward (ok, if you have a time machine, why don't you just tell us the future stock prices... actually just tell me) P/E ratio for the fund is 10.43 as of June 30 (it closed at $49.27 and the current price is $50).  That's twice the price that Yahoo is showing.

It's not a bad investment at this price, but I'd rather find something cheaper if possible.

Sunday, July 10, 2011

SeaCube Container Leasing (BOX)

Continuing again with container leasing companies, SeaCube Container Leasing (sec)

Quarter Ending March 31, 2011

BOX 10-Q

Bermuda corporation.

$500 million (net) leasing equipment, a 47% increase from last year.  All the leasing companies have grown.  A lot.  This is ominous, although it may be OK after the downturn, making up for lost time.  I worry that margins could drop if this turns into a slugfest.  However, given where margins have been historically, the industry seems far from airlines-level of competitiveness.

Looking at net margins over the years,
TAL's has been 14%, 11%, 8%, 20%, 16%, med loss, small loss, 6%, and earlier lackluster results.
CAI's net margins: 36%, 21%, negative 32% (big loss), 29%, 26%
TGH net margins: 44%, 46%, 33%, 34%, 35%
SeaCube's net margins: 22%, negative 11% (big loss due to derivatives), 12%, 15%, 3%

Here's a question: Does it make sense to value the top two container companies at roughly 4x projected revenues?

So in addition to the leasing equipment, they also have another half billion dollars in "Net investment in direct finance leases", which actually shrank a bit.  So the growth rate isn't as high as it looked.

Leasing equipment was nearly 30% depreciated last year.

Very highly leveraged. Debt-to-equity ratio of around 4.6.

Interest expense is approaching 1/3 of revenues.

25% net margin this quarter.  Earned 45 cents per diluted share.  Shares are selling for $16.65.  (37x this quarter's earnings vs TAL=34, CAI=32, TGH=40).

BOX does both leasing and financing of presumably containers, plus some small misc income.

Cash Flow:
Same hefty depreciation level, purchasing of leasing equipment, and finance churn.

Company went IPO in Oct 2010.

Value-wise, they have more reefer equipment than dry containers.

553K containers.  871K TEUs including generators for reefers.

98.5% utilization.

As of April 2011, they've ordered $316 million in new equipment for delivery through June.  85% is already committed to long-term leases.

(Need to continue with 10-K)

Saturday, July 09, 2011

Textainer Group Holdings (TGH)

Continuing with container leasing companies, I'm looking at Textainer Group (TGH) (sec) next.  This is a foreign issuer based in Bermuda.

Raised $400 million in fixed rate asset backed notes.  Not registered.  Cash to be used to pay off some debt plus unspecified "corporate purposes".

CEO is retiring.

Quarter ending March 31, 2011

6K form

First thing I notice is that while CAI's rental equipment assets are about 90% of total assets, TGH's rental equipment is only 80% of total assets.  Leverage looks about the same.

TGH's container assets grew 8% yoy.

Most of revenues is from lease rental with some mgmt fees and gain on sale of containers.

Revenue is $91 million, which is less than TAL's $125 million.  I'm surprised since TGH has the largest fleet size.  TGH revenues are 5.8% of net container assets compared to 5.1% for TAL and 4.2% for CAI.  (Note: this is for the quarter and only useful in comparing with other companies for the same seasonal quarter).

Gain on sale of containers was 7% of revenues, in between CAI and TAL.

TGH had a loss on interest rate swaps.  TAL had a gain.  Different sides.

58% operating margins.  Higher than TAL, lower than CAI.
46% net margin.  Fairly close to CAI (TAL was only 26%).

Watch out: A non-controlling interest owns part of the company, so converting between per-share numbers and overall numbers is not straight forward.

Shares are selling for about 40 times Q1 earnings (TAL and CAI are selling for less: what's the reason?)

Cash Flow:
Obviously expanding faster than depreciation.  Financing the cost with secured debt.
Like CAI, depreciation is big.

1.5 million containers.  2.4 million TEU.

98.2%utilization vs 90.1% a year ago.

2010 Year

20-F statement

Revnues: (millions of $)
2006: 226
2007: 266
2008: 281
2009: 238
2010: 303

Wow, their 2010 was a big jump.  Did they grab market share during the downturn?  If so, it would indicate a solid business and mgmt.

Net income (overall, including minority interest):
2006: 80 
2007: 91
2008: 93
2009: 109
2010: 138

Solid, compared to TAL and CAI.  Earned $2.43 per diluted share for the year.


Definitely needs more work, but this might be a better company than TAL and CAI.

Monday, July 04, 2011

Container Leasing: TAL vs CAI

"Despite what they say, I see they handle reefers."

Looking at two container companies.  I've followed the container industry due to CFRI.  World Cargo News is the source of info in the industry.  I've learned a lot just by reading the headlines for the last 4 years or so.

TAL International Group (sec)

CAI International (sec)

Quarter Ending March 31, 2011

CAI 10-Q
TAL 10-Q

CAI has $647 million net container rental equipment, which grew 22% from last year, about 12% depreciated
TAL has $2.4 billion, which grew about 10% from last year, roughly 20% depreciated

CAI has $212 million in equity
TAL has $448 million in equity (twice as leveraged, equity / rental assets)

Nearly all of CAI's revenue comes from container rentals, with some management fees and some gain on sale.
TAL is also mostly container rentals, but also some equipment trading revenue.

CAI: $27.7 million in revenue, 4.2% of net rental assets
TAL: $125 million in revenue, 5.1% of net rental assets
This makes some sense considering TAL's equipment is more depreciated.

Both had significant gain on sale from assets (6.3% of revenues for TAL, 13% for CAI)
TAL had a large gain on interest rate swaps.  It's difficult to know whether to back this out for comparison reasons (might be offsetting a hidden loss somewhere else).

TAL: 53% operating margin (46% without gain-on-sale)
CAI: 67% operating margin (54% without gain-on-sale)
Wow, the container business is good, at least this particular quarter.  Based on World Cargo News, I didn't think that was all THAT great of a quarter for container leasing companies.  It was certainly bad in 2010 and 2009.

TAL: 26% net margin  (interest is about 19% of revenues, tax about 14%)
CAI:  47% net margin!!!  (tax and interest are each about 11% of revenues)

I'll need to go back and look at the really bad quarters to see how each company survived.

TAL is currently selling for about 34 times this quarter's earnings
CAI is currently selling for about 32 times this quarter's earnings
I imagine the business is somewhat seasonal, so trying to guess a P/E is tough.

Cash Flow:
Can't really read much into TAL's operating cash flows.  There's a lot going on.  Depreciation was the same amount as net income!  This is a capital intensive business.  They bought almost 4 times as much leasing equipment as was depreciated, which matches the growth I saw in assets.  Lots of finance churn.

For CAI, depreciation was only half of net income (need to think about this).  CAI is also buying up a lot of containers (an even larger percentage).

CAI: founded 1989.  Focuses on dry freight standard containers.  Went public in 2007.  International leasing goes through a Barbados subsidiary they created in 2008.  Despite what they say, I see they handle reefers.

TAL also focuses on dry freight, with some reefers and other containers tossed in.

CAI's CEO and CFO are retiring.  New ones have been appointed.

TAL has 1.44 million TEUs owned and managed. (Twenty-foot Equivalent Units = TEU)
CAI has 0.863 million TEUs owned and managed (much higher ratio being managed)

2010 Year
CAI 10-K
TAL 10-K

Revenues:  TAL, CAI (in millions of dollars)
2006: 273,  34.6
2007: 286,  38.1
2008: 319,  56.4
2009: 309,  53.7  (that wasn't so bad)
2010: 329,  64.9

Net income:  TAL, CAI (in millions of dollars)
2006: 42.1,  15.7
2007: 38.8,  19.0
2008: 35.8,  (27.1) CAI massive impairment of goodwill (tide goes out, see who's swimming naked)
2009: 71.6,  13.6
2010: 57.7,  28.2 what's the story with CAI here?

The big story here is the long term intermodal growth that I've clearly seen watching World Cargo News headlines.

Ok, so what happened with TAL, first.  Why were earnings falling in 2006-2008 while revenues were climbing so fast?  Equipment trading expenses seems like the answer.  Admin expenses went up a lot, but about what I'd expect.  If it wasn't for the climb in net gain on sale of leasing equipment, it would've been worse.  Also there's a big loss on interest rate swap, but that shouldn't have stood out if it was just a hedge (that't the whole point with hedging).


It's possible that TAL is worth something like $50 a share, given my expectations of long-term global growth and assuming TAL isn't doing anything stupid.  For CAI, maybe it would be $35, that's without looking at more details.

Needs more work.

UPDATE July 8, 2011:  World Cargo News has an article about the boom for container lessors.
Textainer Group Holdings, the world’s largest container lessor by fleet size, reported total revenue for the first quarter ended March 31, 2011 of US$91.2M, an increase of US$21.6M, or 31%, over the 1Q 2010 figure.
I should scan through Textainer Group's financial statements (sec), a Bermuda company.

Also SeaCube Container Leasing Ltd. (sec), they focus heavily on reefers (about half of book value of containers, they're the largest lessor).  Their revenues seem to have gotten a lot more clobbered by the downturn.

Sunday, July 03, 2011

AeroCentury Corp (ACY)

"that's a lot of Fokkers, but they're cheap Fokkers"

I've followed ACY for many years.  Looking at their latest numbers for Q ending March 31, 2011.  10-Q

Revenues are way, way down.  $4.9 million vs $8.8 million prior year Q.  Net loss of $2.3 million ($1.48 per share!).  Last year they earned $1.20 per diluted share.  More planes are off-lease, plus they had to lease stuff out in 2010 at a lower rate.  Also uncertainty about collecting some receivables.  All this is partly offset by an increase in revenue from planes that are now on-lease vs last year.

Expenses went up by $2.4 million due to planes returned.  Most of this is funded by reserves previously collected.

The question is whether this represents some large bad trend.  I doubt it, but it could be.

Need to go through the 10-Q.  The subsequent events: they forfeited $100K to avoid buying a Dash-8-Q400.  They extended a lease of a Dash-8-300 that was going to expire in May (good).  They should be gaining $1 million by selling two DHC-6 planes above carrying value (I recall that happens a lot with ACY).  A Fokker 50 went to someone in Asia on lease.  The credit facility was amended to change some provisions of a debt coverage ratio "to more accurately  reflect the purpose of the covenant."  Also changing the max leverage ratio (up? down?).  Signed 5 leases with company in Estonia for 5-year leases on 3 Fokker 100 planes returned in 2010.

Sounds like the sky is not falling.

Ok more details:  $1.2 million drop in revenue from off-lease planes.  $1 million drop due to re-leasing at a lower rate (ominous).  $294K increase due to a new lease of an off-leased plane.  $239K reduction due to possibly uncollectable RXables.

$2.8 million increase in maintainence expense.  Seems like a timing issue.  $597K drop in depreciation due to changing estimated residual values (hmmm).

In 2010, two customers, one that leased two Fokker 50 and one that leased three Fokker 100 aircraft, experienced severe financial difficulties, and the five aircraft were returned to the Company. The Fokker 100 lessee was a significant customer based on 2010 lease revenue.  The Company retained the entire $12,752,500 of non-refundable maintenance reserves from both lessees that were previously recorded as maintenance reserves revenue.  The Company has incurred and will continue to incur significant maintenance costs in order to prepare the five aircraft for lease to new customers.  Approximately $4,173,000 and $3,900,000 of such costs was incurred during the year ended December 31, 2010 and the first quarter of 2011, respectively. 

Tough times for small regional airlines?

These two customers caused about a million dollar writeoff of RXables.

In 2010, they replaced the old $80 million credit facility with a $90 million one.  None was borrowed or repaid in this quarter.  $63 million due.  Secured by all assets (planes and engines).  Interest rate went up.

Here are the planes currently off-lease:
3 Fokker 50s (lease expiration in 2010, one will be re-leased for 4 years)
3 Fokker 100s (returned in 2010, mentioned above, all these should get re-leased in Q2 to an Estonian airlines)
1 Dash-8-Q400 (purchased in Dec 2010, which is good, this is getting leased out to an African carrier for 4 years in Q2)
1 Saab 340-B (returned at lease expiration in March, nothing going on with it yet)

So 5 of these 8 have new leases signed.  That's a good sign.

Largest Customers:
21% in Antigua
16% in Germany
15% in Norway

Asset concentration:
7 Fokker 100 regional jets (30% of book)
8 Dash-8-300 (24% of book)
14 Fokker 50 (that's a lot of Fokkers, but they're cheap Fokkers at only 19% of total book value)

Warrants for 81K shares.  Seems like small potatoes.

The management structure is very weird, going through JMC.  I checked this out in more detail back around 2002.

Interest rate risk seems real and could be trouble in the future.  Also currency fluctuations could kill customers.

2011 looks bad due to the lingering downturn.  Lower on-lease percentages, longer lead times, lower rental prices.  Also possible lease defaults due to airline failures.

The high maintenance expense will continue in 2011, another $1.8 million in Q2,Q3.  Could end up exceeding the retained reserves.

Three leases set to expire in Q3.
Four leases set to expire in Q4.
Three customers leasing 5 of these 7 assets previously extended the lease.  It's likely these will get extended again.

So far, it doesn't look like there's a covenant risk, but they admit the cushion is getting eaten up.  Customer financial conditions seem to be weakening.
The Company has seen indications of a weakening in both the financial condition and operating results of the majority of its customers.


If the sh*t hits the propeller, things could get very ugly for ACY.  This is definitely worth watching in the event of some global financial meltdown.  The stock could get irrationally cheap.

I'm glad to see that they've been buying regional jets.  My concern around 2002 was that they could get in trouble if regional jets seriously replaced turboprops worldwide.

Unrelated Note: I went overboard a while back and bought a MacBook Air (13" screen) for doing this investment work.  I spent some time evaluating the alternatives and figured that the cost was "down in the noise" compared to glorious investment mistakes that can easily burn up ten times as much.  So I might as well have the computer I want.  Less than three pounds and still has a 1440x900 screen resolution.  So far it's working out very well.  Oops, it's starting to rain....

QTCQX stocks

Scanning through the QTCQX stocks in the pink sheets (aka otcmarkets).  Forget the mining companies.

Aldila, Inc
Golf club shafts.  Losing money.

China Education Resources CHNUF
This is the same company I was following on this blog for a long time (CEDA).
Q1 2011 Results
Weak balance sheet.
Earned about a penny a share.
Cash flow statement was horrible.

Ok, let's go back to the annual report.
Auditors are Chang Lee.  Who?  Running through the google list, it's not Chang Lee's Tae Kwon Do of Mesquite, TX.  Not the Chang W. Lee of the NYT.  Not the Chang Lee from Doctor Who.  Not Ron Chang Lee.  Oh, here they are, all three of them.

Doubts about the company as a going concern.  Well, that about wraps it up.... but let me just take a peek:

Balance sheet is horrifying.  Income statement... how do you spell hemorrhage?

Equity statement shows lots of share printing for acquisitions etc.

Operations actually generated cash flow.  Why did they make a gigantic advance to related parties???


I think I'll skip China Health Labs & Diagnostics Ltd.

Competitive Technologies
They help commercialize technologies coming from universities and other sources.  That's certainly a better business than actually trying to guess which ones will succeed.  Sort of like selling restaurant equipment instead of starting a restaurant.

10-Q March 2011.  "Unlocking the potential of innovation" (I'd rather it be "Picking the pockets of mousetrap builders")

Holy cow, where are your assets? only 10% of them are remaining... and total current liabilities are bigger than total assets.  Tiny sliver of equity.

Wow, revenues have gone way up.  50% gross margins.  Actual net income! although not much.

Cash flow is terrible: receivables are climbing.

They have a slight customer concentration: 94% of revenues are from Calmare(R) pain therapy.


I've got to toss in a note about Pandora.  I rely on them for what was once called "FM radio" (and later satellite radio).  I signed up for the $3 per month premium service to get rid of advertisements.  For investing work, I find the "Squirrel Nut Zippers" station is perfect.  It's like going back in time to 1911 when children in the US worked in factories and sent text messages on what must have been very primitive mobile phones.  Hehe.

Saturday, July 02, 2011


AAON (sec)

I owned stock in this company back around 2000 to 2002, and revisited back in 2006.  Very solid air conditioner company.  If I recall, Wal*Mart used them because they were very cost effective over their lifetime, although the initial price was fairly high.

Looking at the stock chart, this was definitely a good investment at that time. 4-bagger plus when the market went nowhere.  Back in 2006, I said that I had correctly sold them at full value in 2002.
If these guys get slammed by a downturn with skyrocketing commodity prices, it might be worth looking at again.
[rubbing hands together] And here we are!

The problem is that they seem like they're selling at full price right now.  Perhaps that will change.

Looking at the 10-K.

16.5 million shares.  Two companies: AAON, Inc (Oklahoma!) and AAON Coil Products, Inc (Texas).

Same businesss that I remember: rooftop air conditioners, chillers, heat recovery units, condensing units, etc.  Almost all domestic US.  Half the business is replacement units.

Business is cyclical, lags housing starts by about 6-18 months.  14% estimated rooftop share. 1% coil market share.  No more major customers (aka Wal*Mart), which is good.  No major vendors, also good.

They negotiate terms for raw materials and purchased components 6months to 1 year ahead.  Small sales staff.  They focus on higher quality and have higher initial cost.  I'm guessing that with high or unpredictable energy costs, this is now an easier selling point.

March 2011 Backlog is somewhat higher than last year.

Competitors: Lennox International, Ingersoll Rand, Johnson Controls, United Technologies. All of them are bigger than AAON.

No unions.

Business is down now due to the down economy.

Semi-annual varying dividends since 2006.  Stock buyback in 2010 (up to 5%).

Revenues, diluted earnings per share
2006: $231 million, $0.90
2007: $262 million, $1.22
2008: $279 million, $1.60
2009: $245 million, $1.60
2010: $244 million, $1.30

Current stock price is $22.17

Stock count steadily dropped during that time from 19 million to 17 million.

Wow, total debt during this time started at near-zero, climbed to $3 million in 2008 and then declined back to zero.  Good show.

Commodity prices are all over the map.  Steel dropped  34%, aluminum up 155%, copper up 210% (this is particular tough for them) from 2008 to end of 2010.  They bought a derivative to hedge against copper in 2009, settled Dec 2010.

Gross margin, operating margin, net margin
2008: 24%, 15.5%, 10.2%
2009: 27%, 17.8%, 11.3%
2010: 22%, 13.4%, 9.0% (not too shabby, given the situation)

Grant Thornton auditors (sounds familiar), non-qualified opinion.

Good balance sheet, but low on cash.  PP&E half depreciated.  Not much on the liabilities side. $33 million inventories out of $160 million total assets (depreciated).

They use the revolver a lot.  Bank of Oklahoma, $15.2 million LIBOR + 2.5% (4.0% end of 2010).  Expect to renew July 2011.

Stock options seems reasonable.  Less than 1/2 million total outstanding.  Assume 17 million totally diluted shares.  Re-invested cash tends to buy down the share count, but let's not double-count that.

Cash flow looks good, but there's a fairly large capex in 2010.

Provisioning looks ok.

Looking at Q1:
Share count down slightly.
AR and inventory up a bit.
PP&E up $7 million, mostly machinery
Pulled $7 million out of the revolver

Earned 22 cents per share vs 30 cents (business is seasonal)

Gross margins down to 19.4% from 26.4% due to snowstorm (see below) and subsequent inability to heat the building.  Also rising raw material costs "that we were unable to pass on to our customers" and increase in mfg supplies related to increased sales(?).
Operating margins down to 10.1% from 16.6% (included additional trade show expense)
Net margin down to 6.1% from 10.45

Cash flow sucked vs last year.  Inventory increase (all raw materials) and liabilities.  Big capex $10 million.

Still expect to renew the revolver.

Expect to spend a total of around $30 million on Tulsa expansion.  Shouldn't require any debt.
Big snowstorm that they said wasn't a big deal in the 10-K (subsequent events) turned out to be a bit more.  Lost production for 8.5 days.

Released new production, set up new mfg lines in Tulsa (building addition).

Revenues up 22% due to "the favorable reception to our new products."


I viewed this as a good business each time I looked at it, and this time is no different.  If things get crazy and the stock gets clobbered because of it, I would expect to jump in and buy some.  I think the current price is about right, maybe even a bit low.

I figure it's worth around $25.

(NOTE: I also was looking at GWR back in 2006)

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