This is the Pro and Institutional subscription addendum to the post: Non-Financial Companies to Short in 2010.
Following are the key weak points of the six analyzed companies (for subscribers only):
- GET US equity – The Company is in hotel business and is witnessing sharp declines in sales. The sales declined 5.6% in 2009 and the analysts are expecting a further y-o-y decline of 17.3% in 2010. The interest coverage is extremely low at 1.11x based on the annualized interest expense in 2010 and TTM EBITDA. Looking at the debt maturity schedule, there are no maturities till July 2012. The valuation is also stretched with the company trading at EV/EBITDA (2010e) of 19.9x.The stock has increased nearly 103% in the last one year
- USG US equity – We covered this company earlier and we have again shortlisted this company owing to extremely weak fundamentals. The company continues to record sharp decline in sales with y-o-y decline of 29.8% and 17.1% in 2009 and 1Q10 respectively. The TTM EBITDA margin has been declining and became negative in 1Q10. While the company has no major debt maturity till 2014, the negative operating cash flows require financing which might become a concern amid the weak fundamentals. The weak fundamentals also undermine the valuations. The company is trading at EV/EBITDA (2010e) of 42.2x. The stock has increased nearly 51.5% in the last one year.
- GGC US Equity – The Company is a chemical manufacturer and has recorded sharp decline in sales and EBITDA in 2009. While the sales have picked up in 1Q10, the margin continues to decline. In 1Q10. While the sales grew nearly 55% (y-o-y), EBITDA grew just 3.0% (y-o-y). On TTM basis, the EBITDA margin has come down to 6.6% in 1Q10 against peak of 8.0% in 3Q09. The interest coverage on TTM basis has improved to 2.05x against 1.11x in 2009 largely owing to decline in interest expense resulting from conversion of large chunk of debt into equity. While the company’s interest coverage is stable at these levels and the company has no major maturities till 2013, the debt ratios are extremely high. Net Debt to market cap is 129% and Net debt to common equity is 198%. Another noteworthy weakness of this company is the lack of cash generation from operating activities owing to increasing working capital needs over the last one year. Receivables and inventories amounted to nearly 33.1% of the total assets against 22.9%, year ago. Total working capital has increased to 43% over the last three quarters. The company is trading at EV/EBITDA (2010e) of 8.4x. The stock has increased remained flat over the last one year.
- SFD US Equity – We covered this company earlier and we have again shortlisted this company. While the sales have picked up and margins are improving, the interest coverage continues to remain depressed. Base on annualized interest expense of 1Q10 and consensus estimates for EBITDA in 2010, the interest coverage is 1.5x. The company is trading at EV/EBITDA (2010e) of 13.7x. The stock has increased nearly 64.7% in the last one year.
The other last comp – STON is a small company with float of less than 15 million shares and is involved in cemetery business. The primary concern for STON is very low interest coverage which hovers around 1.0x in 2009 and 2010.
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Retail subscribers should strongly consider upgrading to access our Premium Pro and Institutional Content (much more dense and informative). The subscription addendum to this is the product of exhaustive research (about a 1 and 1/2 man/months) to whittle this list of over 1,400 companies down to 7 who will make the most profitable short candidates. The professional and institutional level subscriptions will include full forensic analysis of those companies as well as the results from our financial short list as well.
The professional and institutional level subscriptions will include full forensic analysis of those companies as well as the results from our financial short list as well as an upgraded version of the shortlist that contains 33 companies and computed metrics for:
- and other ratios.
Professional subscribers may click here to access this expanded list of candidates.