Guys,
thank you for your comments on MIR. Got myself a bit of it at 1.54$ today. here are some comments from the Yahoo board:
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Why the low share price?
Mirant has $4 billion in short term debt due by the end of 2004. With 400 million shares, that equals about $10 per share. Cash on hand is $1 billion, or $2.50 per share, leaving a net short term problem of $7.50 per share. California problems are secondary-of the order of $0.50 cents per share. The solution to the debt problem is widely thought to be refinancing. Assume the refi package is 5 years, at 5%-To retire the $7.50, each years payment would have to be $1.73. Earnings for 2002 are estimated at $1.02, for 2003 at $0.77. Tough to make those payments! Assume instead that the refi is 10 years, at 6%. To retire the $7.50, each year's payment would be $1.02. Assuming Mirant's earnings do not slip, the 10 year plan could work-the problem is that earnings in reality are at zero for the foreseeable future, because every penny will go to solving this short-term debt problem, until income increases. The other approach is to sell assets. Selling assets (power plants) now is foolish because they are worth 30% of their construction cost. What will probably be done is that the debt will be extended for 5 years or so, with about half of it amortized, and the remaining $3.75 per share due in 2008. With any luck, the operating margins or power plant values will improve at some point during the 5 years so the $3.75 balloon payment could be taken care of-Risky assumption if the current deflationary environment persists. If it does persist, Mirant shareholders would again be in this spot in 2008.
When energy was deregulated, and the IPPs were founded, many thought the rules were different and rushed in and built gas turbine power
plants. Artificially high electricity prices (via Enron) also fueled the overbuilding of this infrastructure. This construction boom, combined with the recession of the last 2 years has resulted in an oversupply of electricity, particularly the gas turbine "peaking" plants that are big profit centers for IPPs. Inflation erases a lot of mistakes in capital spending. Deflation amplifies the same mistakes. Marce could come out with clean books and a Hollywood scripted CC tomorrow, but unless she says the operating results are $2.50 per share for 02, and $3.00 per share for 03, this ain't no 10 dollar stock. The way this is a 10 dollar stock is if the refi goes through, and operating results over several quarters show that Mirant can earn a buck a share, on top of servicing its debt. Anyone who uses their grocery or rent money for this stock is absolutely crazy-assuming clean books it's not going bankrupt tomorrow, but it's not going to 10 bucks either. I'm in it because I think the Enron crook factor is overblown in the sector, and I think we will emerge from the recessionary funk in the next year or so, and electricity demand will increase. As uncertainty is replaced with confidence, valuations will improve, but there's still a lot of Megawatts sitting idle 15 hours a day. |
