Here is my first crack at a value play:
ABITIBIBOWATER INC., ABH
Revenues: 4746 million 2010
Share price: $19.45
P/E: .66
Diluted EPS with extraordinary items: $28
Base on 1Q2011
Profit margin: 6.6 %
Interest coverage: 2.63X
current ratio: 2.66
Long Term Debt; $2410
Total Assets: 7178
Total shares outstanding: 114.1
BV/share: 41.79
ROE: 2.52%
Free Cash Flow/share (using shares issued 97.1M): .55
Salient points as I understand them:
1. ABITIBIBOWATER INC is a Canadian based paper and wood products company with global operations. They recently emerged from bankruptcy and is a successor company.
2. The company faces strong headwinds as a result of ongoing decline in newsprint readership, the feeble house starts situation in the U.S., and the global economic downturn.
3. Through the resolution of bankruptcy proceedings the company will pay the remaining $4852 million of unsecured debt with shares the company has put aside: approximately 22.3 million shares.
4. The a company has put aside $35 million for remaining debt obligation, which they claim is the maxim aggregate amount to be disbursed should they loose their litigated cases.
5. Thorough Wells Fargo, the company have approximately $750 million available as revolving credit. (ABL Credit Facility) The covenant of this agreement is restrictive. The company must maintain certain financial ratios and cash on hand requirements.
6. $903 million, 10.25% senior secured notes due 2018
7. The company is planning on exploiting the increased and larger newspaper markets in Asia, the middle east and Latin America. I believe newspaper readership in China may decline however in favor of electronic devices.
8. The CEO, Richard Garneau, took his position in June of 2010. Prior to this appointment he was the CEO of Catalyst paper. At Catalyst Paper, Mr. Garneau streamlined operations, and improved efficiency.
9. Their new marketing head is Mr. John Lafave, promoted from within the company. This leads me to believe marketing may not have a dramatic changes in it's method.
Threats:
1. The paper industry is in secular decline. There are less costumers and intense competition. The wind is not at their backs.
2. The company has a case in front of the Supreme Court of Canada, "On March 31, 2010, the Canadian Court dismissed a motion for declaratory judgment brought by the province of Newfoundland and Labrador, awarding costs in our favor, and thus confirmed our position that the five orders the province issued under section 99 of its Environmental Protection Act on November 12, 2009 were subject to the stay of proceedings pursuant to the Creditor Protection Proceedings. The province of Newfoundland and Labrador’s orders could have required us to proceed immediately with the environmental remediation of various sites we formerly owned or operated, some of which the province expropriated in December 2008. The Quebec Court of Appeal denied the province’s request for leave to appeal on May 18, 2010. An appeal of that decision is now pending before the Supreme Court of Canada, which will hear the matter on November 16, 2011. If leave to appeal is ultimately granted and the appeal is allowed, we could be required to make additional environmental remediation payments without regard to the Creditor Protection Proceedings, which payments could have a material impact on our results of operations or financial condition. " 1Q,10Q 2011. If the company looses the case, it may lead to breaking the covenant with respect to the ABL credit facility and therefore comprise the company's ability to continue as a going concern.
3. If the 22.3 million shares held in reserve as compensation is fully distributed, it wil represent a significant fraction of shares outstanding. Those creditors might gain control of the company and oust the board or take action against the company in some form.
comment:
In think November16th is the critical date for this company. If it wins the case, I think it will be able to continue operations.
The economics of the situation gives me pause. Is this a cigar butt with one good puff in it? Are there too many warts on this frog?
Well guys, let me know if this presentation was okay or not. Too little detail? Did if get the Grahammarian principles wrong? Wrong focus? Is this sector too lousy?
Anthony
BTW pardon any typos or slip ups. I am visually impaired. So, I do slip up regularly. My apologies in advance. |
