Thursday, 19 March 2009 00:00

Cash Shortage in the Flim Flam Scam?

Shaunsnoll posed an interesting question in the comment section of the last Flim, Flam Scam article and I want to address it as its own post so I can include exhibits and charts. Shaun asked,

"Reggie, in your previous analysis you said this company has "38% or $22.4M of the total debt outstanding accure in less than one year" when i look through the financials though its not clear to me exactly when that debt will come due. it seems like with 26M$ in cash currently, this 22.4M$ debt coming due could really be what breaks this company, so would be good to know when exactly that is coming due.

PS: it just blows my mind everytime i see this stock rally....."

Well, Shaun, sharp rallies such as the one we just had are opportunities for the dispassionate fundamental investor. Price and value have significantly diverged in terms of this company and significant opportunity is at hand. Let me walk you through it a I see it.

The following table was derived from page 5 of my forensic analysis:

Year Share buyback Average price Total amount (US$) Most recent close Gain/(loss) per share Net average shareholder gain/(loss)
2004 1,453,318 $ 25.71 $ 37,358,071.00 $ 30.89 $5.18 $7,528,187
2005 457,362 $ 35.04 $ 16,025,809.00 $ 30.89 ($4.15) ($1,898,052)
2006 1959487 $ 37.47 $ 73,422,956.00 $ 30.89 ($6.58) ($12,893,424)
2007 1,318,724 $ 50.40 $ 66,457,372.00 $ 30.89 ($19.51) ($25,728,305)
2008 1,053,614 $ 42.44 $ 44,718,000.00 $ 30.89 ($11.55) ($12,169,242)
Total/Average 6,242,505 $ 38.12 $ 237,982,208.00 $30.89 ($7.23) ($45,133,311)

As you can see, the share buyback program is literally gutting the shareholder, thus far to the tune of nearly $33 million. Wealth destruction on a grand level, at least percentage wise. Wait, there's more...

Insider Sales of Stock (US$)
2004 $532,079
2005 $2,620,030
2006 $34,066,205
2007 $10,818,727
2008 $14,121,708
2009 as of Feb 17 $6,714,000

A large portion of PPD shares were held by the board of directors and the management of the company which, apparently, incentivized the management to continue to buyback shares at higher prices and negative rates of return, producing significant benefit to themselves. I really do mean significant benefit at the expense of shareholders. Management has netted over $68 million from the sale of the stock into the corporate buyback program. This is over 150% of the shareholder wealth destroyed by the share buyback program! PPD used the money collected as membership fees from those who lack the analytical skills to determine what was going on for the purpose of overpriced share buybacks. From 2004 onwards, PPD has utilized US$237.98 million for share repurchase, out of which a full 28.9% (nearly 1/3rd) has gone directly to the insiders while the shareholders are getting burned by overpaying for the privilege of enriching the management and the board. In addition, the rate of insider sales this year has eclipsed that of all previous years since 2004! It appears as if management has come to the same conclusion that Reggie has reached - basically, the "Jig is Up!". Securities regulators, where art thou???!!! The Flim Flam Scam! I have made this very simple for any regulator to follow through. This begs to be investigated. If you are a shareholder of this company and continue to hold those shares after reading my research (which I have made available for free as a public service, see my subscription rates), I believe you to be a fool and you know the saying, "A fool and his money are soon to be parted". If you are short the company, remember, save your money and do something charitable with the profits. The monies were made by shorting a company which literally fleeced others who didn't know any better. Give back! It's the right thing to do. If you are a regulator and you ignore what you have read here, you are doing a disservice to your country. These may be strong, or unpopular statements, but hey, its how I feel and its from the heart!

I have even more stuff to make you love this company, for I haven't even addressed Shaunsnoll's question yet. Now, Shaun, they ended 2008 (last quarter) with roughly $26.528 million in cash. Look on page 37 of their annual report (the debt due line is highlighted in yellow: pdf PPD annual_report_2008 20/03/2009,02:51 749.07 Kb) and you will find contractual purchase obligations of $26.6 million due within one year. Of those obligations, $22.408 million is long term debt due. This would be a problem even if their business was humming along smoothly, which we all know it is not. So, you see, even without being a Ponzi scheme (which I feel they are) or a pyramid scheme (which I feel they are as well), they are probably going to implode for fundamental reasons. Of course, it would be sweet justice if they imploded for being a Flim Flam Scam, but hey, we should take whatever we can get.

More on my earlier takes on Prepaid Legal Services if you are new to this conversation:

My free summary on PPD: pdf PrePaid Legal Services Actionable Intelligence Report - Pro 2009-03-14 06:51:32 675.65 Kb.

I have decided to make it free as a consumer service, thus to that end I will release the Professional Forensic Analysis as well (this one time). Enjoy: pdf Prepaid Legal Services Forensic Analysis - Pro 2009-03-19 14:20:00 288.45 Kb . This latest report is from the perspectice of an investor or shareholder while the previous report was a summary intelligence note, suitable for a broader audience, ex. regulators, politicians, etc. I obviously believe this is a no-brainer short proposition, but there is risk entailed so reader beware. There has been a bit of research, or shall I say whistle blowing, in regards to this company. It would be a shame if it were to all be ignored. For your entertainment, here is additional commentary and research from:

A refresh of my recent REIT analysis should be about within 24 to 36 hours, with special addendums for Pro susbscribers.

Published in BoomBustBlog

A few weeks ago I released and an Intelligence Note to all of my subscribers on a company that I really, really had to hold myself back from describing as a fraud. Well, I had a few members of my team do some additional digging and, well,,,, I'm really trying to hold back....

As a public service, I will release the 31 page research report to the public this one time, free of charge. It has come to my attention that a few people can, and probably have, had their financial situations hampered in connection with company. This brings me to my next point: What are our government watchdogs doing? If a mere blogger can dig this deep and find this evidence, what is the SEC doing?

First we had Bernie Madoff, then Allen Stanford, and now... Well, I don't want to outright accuse this company of any legal wrongdoing, but from an investors perspective, and that of an astute laymen, the terms Ponzi scheme and pyramid scheme are just screaming at me. Hey, I even looked them up and posted them right in the analysis so readers can make up their own minds.

For those who are not regulars to my site, yes, I am short the company. Would you have shorted Madoff's operation if you researched it and found out what was going on? Download the report for free here: pdf PrePaid Legal Services Actionable Intelligence Report - Pro 2009-03-13 16:58:17 675.63 Kb

This gives non-pro subscribers the opportunity to see the level of analysis and research available to pro subscribers. This is not a full forensic analysis, but an extended intelligence note - akin to a super summary of my opinion and findings. If you like what you see, you are welcome to subscribe to more. I have covered over 90 companies with a nearly 100% hit rate, and there are many more in the pipeline. Look here for performance figures for last year and this year to date (as of last week).

Published in BoomBustBlog
Friday, 27 February 2009 23:00

The Wynn Resorts Full Analysis is released

Here are the reports with valuation bands. As is usual, the professional/institutional reports give the complete macro argument in addition to the fundamental assumptions that went into the model that calculates the valuation.

They haven’t released their 10k yet, so we are still running on our internal estimates for much of the Balance Sheet stuff. I have to admit, in reviewing the earnings call transcript, Steve Wynn didn’t bitch and cry like the management of many other companies that I have shorted – making excuses for their lack of performance. He stood tall like a man and honestly said they had a horrible quarter. This goes a long way in conveying a sense of honesty and accountability from management, at least in my eyes. Compare him to the behavior of the management of BSC, MBIA, LEH, GGP, etc., who blamed their companies abysmal performance on a whole plethora of third parties (somehow the C-suite crew gets absolved from responsibility) and state that the market doesn’t understand how to value their business despite the fact that they had clearly been losing money and asset value for quarters stemming from binging at the punch bowl of inflated credit spigots and out of control asset prices.

pdf Wynn Resorts Forensic Valuation Retail 2009-02-28 18:57:59 147.47 Kb

pdf Wynn Resorts Forensic Valuation Professional/Institutional 2009-02-28 18:56:42 322.47 Kb


Published in BoomBustBlog
Thursday, 19 February 2009 23:00

Word of Wynn has Escaped

A full forensic report will be available to professional subscribers next week. Here is the latest retail/preview summary: pdf Updated Wynn Research Note 2009-02-15 09:36:21 266.62 Kb

Successful short seller has eyes for Wynn

A researcher and investor who foresaw the banking crisis, the residential and commercial real estate crashes and the downfall of General Growth Properties has set his sights on stock in Wynn Resorts Ltd. as a short-sell candidate.

Reggie Middleton, a Brooklyn-based investor who was months ahead of most analysts on numerous market-related events in the past two years, says in a nine-page report that Wynn Resorts stock is overvalued by about 26 to 65 percent.

Middleton decided to research Wynn because he spotted issues typical of companies heading for rough times.

"I look at companies with debt coming up or declining profits," Middleton said. "Wynn came up a winner, or a loser."

The report, published as proprietary research to subscribers to Middleton's BoomBustBlog Web site, cites $1 billion in debt coming due in June 2010.

It also notes falling room rates have increased the company's dependence on casino revenue, a notoriously volatile source even in good times.

It was published Sunday and was written when Wynn stock was trading at about $26 per share. The 52-week high was $119. It closed Thursday at $23. Stock in most major gambling companies has taken a beating in the past year.

Published in BoomBustBlog
Wednesday, 18 February 2009 18:00

February REIT Actionable Intelligence Note Update

Here is the February REIT Actionable Intelligence Note. There has been 25% in downward price action since I have first released the note preview. The accompanying home-made video illustrates the reasoning behind the assumptions in the research note. I took my 8 year old son to the mall to show him what a cyclical economic downturn looks like, first hand.

pdf  Alexander's Actionable Research Note Retail 2009-02-19 16:16:44

pdf  Alexander's Actionable Research Note Pro 2009-02-19 16:20:08 

Wednesday, 18 February 2009 18:00

February REIT Actionable Intelligence Note Update

Here is the February REIT Actionable Intelligence Note. There has been 25% in downward price action since I have first released the note preview. The accompanying home-made video illustrates the reasoning behind the assumptions in the research note. I took my 8 year old son to the mall to show him what a cyclical economic downturn looks like, first hand.

pdf  Alexander's Actionable Research Note Retail 2009-02-19 16:16:44

pdf  Alexander's Actionable Research Note Pro 2009-02-19 16:20:08 

Page 6 of 7