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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (55787)	8/1/2015 1:13:43 PM
From: Graham Osborn	1 Recommendation Recommended By E_K_S Read Replies (1) \| Respond to of 78719

Re: TAL That's actually a good example. What a chart! Seems they’ve gotten aggressive on financing leases and the debt has gotten out of control. Only about 2.5x interest coverage and market seems to be considering the “default risk” on the dividend which is just nigh covered. The inverse relationship between D/E and stock price (leading)/ dividend yield (lagging) seems to be playing out similarly to 2008. Bankruptcy indicators including Z-Score, Piotroski, Fulmer, Springate are off the charts on this one. Short float 10%ish. Cash dwindling, CFFO is OK but CapEx for capacity expansion has eaten up that and more. Looks like last notes issuance was BBB? So a couple comments on metrics for this one. Management touts a high teens ROE which is great, but ROIC is only 3%. GN is almost double the current price. Let’s say Company A has 100M equity and earns 20% on capital -> NI 20M. Company B has 100M equity plus borrows 900M and earns 20% on capital -> NI 200M. Both companies still have the same book value but Company B’s NI is 10x Company A’s, hence the GN will be sqrt(10) = about 3x higher. So seemingly you tripled your intrinsic value. GN fails to capture the coverage risk tied to leverage, hence why it might have failed the equity holders in this case.