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

pdf

Published in BoomBustBlog
Thursday, 26 February 2009 23:00

One of those "I told you so's"

Quite few people have emailed me asking, some a
little less politely than others, how is it I come to the conclusion
that XYZ company is insolvent when all of the "highly paid",
"professional" analysts and pundits on the street come to a totally
different conclusion. Well, , I think we should judge credibility by
track record.
For those who either forgot or didn't know, I have taken the liberty to compare my record with those of the "Street" just to set the record straight. See Blog vs. Broker, whom do you trust!.

Please click the graph to enlarge to print quality size.


image005.png

I also get emails saying,
"You alleged blah, blah about my favorite company, yet I am sitting
here with XYZ 10k right in front of me and I don't see blah, blah,
yada, yada! How is it that you have the right to spread falsehoods and
rumors about so? You should be ashamed of yourself
". Well, my friends, just because you don't see something doesn't necessarily mean that it is not there. Often, you have to look past and beyond just a 10k. You also have to scan every word of every footnote. I was challenged by many on my accusations of JP Morgan's solvency, primarily by those who had a problem reconciling the fact that JPM was carrying a much larger amount of NPAs on its books than the 10k's and 8k's apparently stated. Well, they stated just what I said, they just couched the statements in a language that they knew would fly over the layman's head. Well, you can only do that for bust so long before I catch' ya. And voila, these are the last two articles that I wrote concerning JP Morgan over the last 30 days or so!

Of course, paying subscribers are offered plenty of
proof to back up my assertions and allegations, but then again, they
are paying, aren't they?

pdf JP Morgan Q408 quarterly valuation opinion - Retail 2009-01-22 08:49:26 79.24 Kb

pdf JP Morgan Q408 Quarterly opinion with sample trades - Professional & Institutional 2009-01-22 08:48:02 211.69 Kb

Well, this is JP Morgan in the news yesterday. Told' ya so!

JPMorgan warns of more housing woes

CNNMoney.com - ‎21 hours ago‎

The New York City-based bank said "non-credit impaired" loans would suffer in 2009 due in large part to the ongoing decline in home prices across the ...

And while we're at it, I posed a warning on GE in the summer of last year (GE: The Uber Bank???). What's the relevance? Well, you should be cognizant of the honest and/or accuracy of management's comments. If I am not mistaken, I could have sworn that I heard GE's CEO sat that he would not have to cut the company's dividend...
Must be me in my old age.

From the WSJ:
General Electric is cutting its quarterly dividend to 10
cents
a share from 31 cents a share, saving $9 billion a year, CNBC reported.
The move comes amid a steep slide in the company's stock price. The company's
financial services operations have been hit hard by losses and delinquencies
during the credit crisis and economic downturn in the past 18 months.

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Notes:
  1. I will try to post the full Wynn forensic analysis tonight or tomorrow morning.
  2. I will be raising subscription prices very soon in a move to come closer to (but still undercut) market prices, so anybody who is on the fence should take the plunge now, or face a price increase later on.
Published in BoomBustBlog
Monday, 23 February 2009 23:00

More "I told you so's"

I told you so on Amex on July 31st, 2008: When the best of the best start with the shenanigans, what does that mean for the rest...

A few months later...

AmEx is paying card holders to close their accounts.

American Express Co (AXP), battered by mounting credit card losses, is offering $300 to a limited number of U.S. card holders who pay off their balances and close their accounts, the company said on Monday.

"We sent the offer out to a select number of card members," said Molly Faust, a company spokeswoman. "We are looking at different ways that we can manage credit risk based on the costumers overall credit profile."

The company did not say how many card holders would receive the offer and did not disclose the total of their card balances. Card holders have until the end of February to accept the offer and must close their accounts in March or April. Each card holder will receive a $300 pre-paid American Express card.

American Express, often seen as catering to relatively wealthy customers and companies, has been expanding its credit card business in recent years by reaching out to a wider range of clients. But that strategy has backfired. The company's earnings tumbled in the fourth quarter as credit losses jumped and debt-burdened consumers slashed spending.

In addition, American Express reported last week that credit card delinquencies rose in January more than analysts expected, as U.S. unemployment increased and the global economy deteriorated.

I told you so for nearly 360 days in a row concerning GGP, starting November of 2007: GGP and the type of investigative analysis you will not get from your brokerage house. Now they have billions in delinquent and about to be delinquent loans.

Published in BoomBustBlog

I have released the latest insurance sector forensic analysis and valuation report. Keep in mind that as the financial sector gets hit hard in the equity and fixed income markets, these companies will report worse and worse investment portfolio results. Hedging at the institutional portfolio level is very difficult and expensive considering the amount of money in question and the significantly reduced amount of liquidity in both the exchange traded options market (due to market makers pulling back from historically excessive volatility) and the OTC options and swap market (see Counterparty risk analyses - counter-party failure will open up another Pandora's box). This company has a very high relative share price, a high comparative book valuation, and a considerably valid argument for valuation compression. A fairly good investment proposition, all in all.

pdf Forensic Report Retail 2009-02-23 14:11:08 418.58 Kb

pdf Forensic Report Pro 2009-02-23 14:09:16 418.58 Kb

Published in BoomBustBlog
Sunday, 22 February 2009 23:00

Questions Abound Concerning Intrepid Potash

I have been looking into this company (Intrepid Potash, IPI) at the behest of a reader who felt that there may have been some hanky panky going on. I will leave it up to my readers to draw their own conclusions from what I have found - better yet if anyof you can shed some light on this it would be helpful.

My Take on IPI

According to initial prospectus filed on April 07, 2008 (registered users can download it here as a zip file: pdf Intrepid Potash Prospectus Apr 23, 2008 2009-02-23 14:39:12 491.91 Kb ) the company offered 24 mn shares at price band of $24-$26 per share (P/E band of 96.0x -104.0x). Subsequently according to Free Writing Prospectus filed on April 17, 2008 shares offered were raised to 30 mn with price band of $27-$29 (P/E band of 108.0x-116.0x). Later, the company filed another to offer 30 mn shares to public at $32 per share (P/E of 128.0x).

According to prospectus, the company intended to use the proceeds to acquire Intrepid Mining for $757 mn and re-pay debt of $82.5 mn and the balance $60 mn towards general corporate expenses. As per the cash flow statements for subsequent periods, the company seems to have allocated the IPO proceeds in line with the objectives stated in IPO. The company had used $87 mn for repayment of its long term debt and $893 mn to Intrepid Mining LLC.

o Although technically the proceeds of IPO were used according to stated objectives, it is interesting to note that Intrepid Mining was controlled by the promoters with Harvey Operating and Production Company, Intrepid Production Corporation and Potash Acquisition, each having 40%, 40% and 20% stake, respectively in the Intrepid Potash.

§ Robert P. Jornayvaz III, Chairman of the Board and Chief Executive Officer of Intrepid Potash, had 100% ownership interest in Intrepid Production Corporation

§ Hugh E. Harvey, Jr, Executive Vice President of Technology and Director of Intrepid Potash , had 100% ownership interest in Harvey Operating and Production Company.

  • The company offered 30 mn (40%) shares to the public while the balance 44.8 mn was held by 3 promoters - Harvey Operating and Production Co (24%), Intrepid Production Corporation (24%) and Potash Acquisition, LLC (12%). As of December 8, 2008 (last reported filings) Harvey Operating and Production Company and Intrepid Production Corporation both had reduced their holdings by 10% to 16.1 mn shares (each having 21.6% of total shares outstanding). On November 14, 2008, Potash Acquisition distributed 8.0 mn shares to its members and certain persons with indirect interests in Potash Acquisition according to pro rata interest in the company.
  • Insiders have sold a nominal amount of shares to the public worth $5.72 mn with an average price of $17.9 per share between November 24, 2008 to December 5, 2008.
  • As regards accounting shenanigans relating to inventory on the prima face, we believe the facts stated in your mail may not be correct. Although the company's inventory have increased marginally from $18.5 mn as of December 2007 to $$23.1 mn as of September 2008, its backed by 6% increase in sales. Inventory turnover days of the company as of September 2008 is also comparable at 37.2 compared with 31.6 as of December 2007.
  • Also, we wanted to highlight that the company's gross margins have increased substantially to 61% in 3Q2008 from 24.6% in FY07 on back of considerable increase in potash price. Average sale price of potash had increased 223% to $623 in 3Q2008 from $193 in 3Q2007.

Registered users can download the financial statistics and things of interest spreadsheet here: pdf Intrepid Potash Financial Statistics of Interest 2009-02-23 14:40:50 96.00 Kb

The company managed to raise 67% more than the initial expectations.
Date of filing Shares offered to public (mn) Price band P/E Band Expected amt to be raised ($ mn) Underwriters' option to purchase Shares O/S
(mn)
% increase (per share from initial minium offering) % increase in total offer from initial minium offering
Minimum Maximum Minimum Maximum Minimum Maximum
07-Apr-08 24.0 24.0 26.0 96.0x 104.0x 576 624 3.60 74.8
17-Apr-08 30.0 27.0 29.0 108.0x 116.0x 810 870 4.50 74.8 21% 51%
21-Apr-08 30.0 32.0 128.0x 960 4.50 74.8 33% 67%
$757.4 mn, or 84.4% of the net proceeds tol be paid to Intrepid Mining in exchange for all of Intrepid Mining's assets other than cash
$82.5 mn, or 9.2% of the net proceeds, to be used by for repayment of debt assumed from Intrepid Mining pursuant to the exchange agreement, leaving the company with no outstanding debt
$59.5 mn to be used to fund production expansions and other growth opportunities and for general corporate purposes.
Shareholding pattern Just after IPO Current Position
Public stockholders 40.1% 30.0 56.2% 42.1
Harvey Operating and Production Company 24.0% 17.9 21.6% 16.1
Intrepid Production Corporation 24.0% 17.9 21.6% 16.1
Potash Acquisition, LLC 11.9% 9.0 0.0% 0.0
Other propmoters 0.4% 0.3
Sissel 0.3% 0.2
Total 100.0% 74.8 100.0% 74.8
IPO Investors had immediate dilution impact of $29.78 per share after the offering
Pro forma combined net tangible BVPS as of Dec 31, 2007 0.12
Increase in net tangible BVPS attributable to new investors 11.99
Decrease in net tangible BVPS distributed to existing stockholders -9.89
Pro forma combined as adjusted net tangibleBVPS after the offering 2.22
Initial public offering price per share 32.00
Pro forma dilution per share to new investors -29.78
On November 14, 2008, PAL distributed 8,058,000 shares of Common Stock pro rata in accordance with its governing instruments to its members. The members of PAL and certain persons with indirect interests in PAL thereupon successively distributed substantially all of the shares received pro rata in accordance with their respective governing instruments to their partners and members

Additional observations from an astute BoomBustBlogger whose opinion I value:

"Still looking into this.
But I had a couple things which smelled a bit funny the first time through.

This
was a little weird - their Interim CFO was the primary owner of Quinn &
Associates, a really small accounting firm. In 2006, Q&A got a full
33% of their revenues Intrepid Mining. We've seen a few instances now where
small accounting firms are a "tell" that the quality of the old
accounting might not have been much good.

"Relationship with
Quinn & Associates, P.C.

Mr. Quinn,
our Interim Chief Financial Officer, is an independent contractor and performs
services for us through the accounting firm of Quinn & Associates, P.C., of
which he is the primary owner. In 2006, we paid Q&A $468,456 for services
rendered on our behalf by Mr. Quinn and other employees of Q&A,
$175,175 of which was attributable directly to services performed by
Mr. Quinn. In 2006, payments from Intrepid Mining represented
approximately one-third of Q&A's annual revenue.
" (source - 12/20/07)

It
also looks like management emptied out the piggy bank before getting Intrepid
Mining bought out, with "special distributions" and interests in
other entities:

"Intrepid Mining
Transactions with Members

Intrepid Mining declared
special distributions to its members of $3.9 million and $15.0 million in June
2007 and October 2007, respectively. These distributions were funded by draws
upon the existing revolving line of credit, and were permitted under the
existing senior credit facility.

In early 2007, Intrepid
Mining decided to distribute its remaining interests in Intrepid Oil and Gas,
LLC (IOG) to its members. The amount of the equity distribution was $0.8
million.

Intrepid
Mining made advances from time to time to its managing members. At
December 31, 2006 and 2005, the outstanding advances were approximately
$0.4 million and $0.2 million, respectively. All such advances have been repaid
to Intrepid Mining.
" (source - 12/20/07)

Regarding
Jornayvaz's fiduciary duty to Intrepid Potash, I totally agree with you.
At the same time though, while their contract specifies they must devote their
full time to the company, the contract also says basically "except they
can also manage their personal investments" [see red below]:

"We expect to enter into
employment agreements with Messrs. Jornayvaz and Harvey in connection with
the completion of this offering
in order to secure their
services on a long-term basis and to protect the company following their
termination of employment by securing their agreement not to compete with us.
The anticipated terms of the employment agreements were developed based on
recommendations by Towers Perrin and input from counsel and the principal
owners.

Pursuant
to the terms of these agreements, Mr. Jornayvaz will agree to serve as our
Chairman and Chief Executive Officer and Mr. Harvey will agree to serve as our
Executive Vice President of Technology. We expect that Messrs. Jornayvaz and
Harvey will devote substantially full-time attention to their employment with
us.
In addition, they may continue to manage
their personal investments owned in whole or in part by each executive,
including Intrepid Oil & Gas, provided the management of such
investments does not interfere substantially with the performance of their
duties for Intrepid Potash
. We expect the
employment agreements to be for initial terms of 18 months from the completion
of this offering, with automatic extensions for successive terms of 12 months
each, unless notice of termination is given by us or the executive 90 days
prior to the end of the initial or any successive term. The agreements will
provide for an annual base salary of $487,500, subject to annual review by the
compensation committee with adjustments to be consistent with salaries paid to
executives holding similar positions at peer group companies. We expect that
the agreements will provide for the executives to be eligible for all benefits
offered generally to senior management, for participation in the senior
management bonus programs established by the compensation committee, for grants
under the Intrepid Potash Inc. 2008 Equity Incentive Plan in such amounts and
subject to such terms and conditions as are established by our compensation
committee and for all perquisites available generally to senior management.
Each of Messrs. Jornayvaz and Harvey shall be entitled to a company-provided
automobile of his choice valued at under $75,000, to personal use of our
aircraft for 45 hours of flight time per year and the right to dry lease our
aircraft for personal use on the same terms as we dry lease the aircraft to
unrelated third parties.
" (source - 12/20/07)

This doesn't make his actions any less
slimy. But in terms of legality, he does seem to have some wiggle
room. He is clearly pushing it hard though.




I need more time to think through this special dividend, and just work out the
numbers."


Published in BoomBustBlog
Saturday, 21 February 2009 14:35

Request for Videos

Anybody who has video content that adds value to the topics an analysis found on this blog is urged to submit it. This includes videos of REIT properties, manufacturing sites, finance related, etc.

You can add link to videos from other servers here: Video Link

You can upload your own videos here: Video Upload

You must be registered to upload videos to my server. I am taking a few days off with my family and will return with some fresh new ideas and research Monday or so.I look forward to video contributions. This is an ideal and very valuable way for those whe feel they don't have analytical expertise to contribute to the community. 

Saturday, 21 February 2009 14:35

Request for Videos

Anybody who has video content that adds value to the topics an analysis found on this blog is urged to submit it. This includes videos of REIT properties, manufacturing sites, finance related, etc.

You can add link to videos from other servers here: Video Link

You can upload your own videos here: Video Upload

You must be registered to upload videos to my server. I am taking a few days off with my family and will return with some fresh new ideas and research Monday or so.I look forward to video contributions. This is an ideal and very valuable way for those whe feel they don't have analytical expertise to contribute to the community. 

In penning A few grim thoughts for the New Year, as I reflect upon the past year, I seriously thought this year would be significantly more challenging than last year. After all, by now EVERYONE should have gotten the memo - we are in a dire economic downturn and real asset and financial asset wielding companies that relied on short term funding and/or excessive leverage are pretty much done for. Now, theoretically, we will have to do a lot more work for a lot less return, right? Well, obviously not. Apparently, there are still many out there who didn't get the memo. Roughly 80% of the researched and blogged subjects that bore a negative opinion have significantly outpaced the S&P 500 to the downside since the beginning of the year. By the end of the 2nd quarter, the I am confident that the remaining 20% will drop pass the broad market as well. Paying subscribers should realize that this group is relatively diverse in that includes UK and Eurozone companies as well as banks, consumer retail, real estate and insurers. Most of the manufacturing and industrial picks from the last two quarters have lost considerably more than 50% of their share value.

Click graphic to enlarge to print size

1st_two_months_2009_recent_research_performance.gif


I implore you to keep this in perspective. If you were long the S&P via an index fund, you would have lost significant wealth. If you were in an actively managed fund or with a sell side broker, chances are you may have lost even more (see Super Brokers form to push Super Broken products to make those with High Net Worth Super Broke). If you were in cash you would have preserved your wealth, and relative to those invested in the broad market or through the sell side, would have been that much wealthier. Now, if you were a BoomBustBlogger, you could literally consider yourself to be a member of the capitalist class - at least from an "in the know" perspective. I know it's early in the year, but it appears as if we are on track to beat last year's competition trouncing invest performance (see BoomBustBlog performance for 2008).

News from around the globe>

The Dow industrials broke to a new six-year low. The
average of the nation's 30 biggest companies has lost 47% of its value
since its record close 16 months ago.

Published in BoomBustBlog