Better Chinese ECM market could be part of rise.
Last week Nam Tai reported a 30% sequential rise in Q revenues, and their net margin from their ECM business in China hit 20% before taxes!!! This up from 11.5% last quarter and historical levels of 8-11 %.
Since Flextronics is one of the largest ECM operations in China, if this is an indication of a strong ECM market there, this could bode really well for FLEFE.
I'm starting to see more and more things going positive for this stock. Over the last 6 months or so its been some depressing and confusing news. But now it looks to me the SEC inquiry will be "Much Ado About Nothing", the markets Flextronics has expanded into, China, Mexico, and San Jose are booming and capacity in the last two is filled, Ericsson has put out a good earnings report, and the sector multiple is climbing. Looks like the Magic Three Factors are in place for FLEFE:
1. Higher revenue growth.
2. Higher profit margins.
3. Higher stock PE multiple.
These factors are the reason my largest ECM holding is FLEFE, by far.
BTW, they plan to sell the secondary shares after the SEC inquiry is complete, and the financials are released. Rumor is that they will only sell 1.5M shares. They will collect about $45M net on 1.5M shares at the current price, which is more than the $35M net they would have collected on the 2.0M shares they planned to sell in Feb/March. All in all by delaying so far they will have made a difference of this $10M plus $17M worth of shares on the 0.5M reduction in the number of shares they won't have to sell.
If you read about some of the details of the purchase of the Karlskrona plant on the SEC Edgar site, they are required to maintain a certain debt/equity ratio. This could be one of the driving forces behind the secondary offering. I wonder if Marks used the SEC inquiry on the Astron accounting issue to delay the secondary until he had the Jun Q earnings report out? Well at least, may be they didn't rush through the response to the SEC inquiry as fast as they might have. They couldn't very well do the secondary until the SEC inquiry was finished, could they? And why would Marks rush to sell shares to the public at 21, when he and other insiders just bought shares at 25 in February?
This whole issue has really worked to the benefit of the shareholders. Seems to me that Marks is "smarter than the average bear".
Paul |
