I sold all of my GMR shares yesterday with the big run up in price the last 2 weeks. The reason for the big rise is of course unknown, but there have been a few analyst upgrades and some articles in some papers about the cold weather increasing the need for tankers. Contrary, I read an article this week in the FT about the significantly hot temperatures in the southern hemisphere which could mean less need for oil and tankers in the coming winter...who knows. That's why I don't invest based on the press or other analyst's work. I do my own diligence when investing; it's the only way to make sure my interests are 100% represented!
Also, looking back at other share price runs on big volume for GMR, one occured in May and another in August and October which all eventually peaked out on the volume then sold off to give the run all back.
Regardless, I don't like what their latest earnings report says, and I particularly don't like them raising more debt (why are they raising debt and why at such high rates?). There also has been very little news since that announcement which would most likely mean either a deal or some more bad news; the same way the company was quiet before yanking the dividend and becoming more gloomy.
At $8.25 I am taking my profits and will revisit the company if the price falls below $7 again where my existing cost basis is. I think the stock is too expensive with the knowledge I currently have. See below for some quick math on that.
I posted some comments on the yahoo finance message board summarizing my thoughts. In particular there is solid support around $7 for this stock, so that is why I waited to sell until yesterday instead of when the earnings report came out.
I have copied my message board posts below...
12-16-09
Post 1
I apologize for not being caught up on this stock. When I heard the conf. call I sold most of my shares with the announcement of the semi surprising divy drop, but havent done the deep dive analysis needed. The surprise to me was the additional debt needed.
Some quick math below...
This all comes down to how much the ships are worth TODAY and will be in the next few years? That is a way to come up with the terminal value and assume what can pay off the debt principals. As long as the company's Enterprise value is less than its "market" book value (terminal value) plus future cash flows (which I have assumed at a generous $50MM/year) I am okay continuing to hold this stock.
Quick math after new debt and current price says EV~$1.64B and assuming $50MM/year FCF discounted at at least 15% (rate now way up with increased debt load) says in 5 years FCF is only worth $167MM today. That means the fleet needs to be worth well more than the $1.3B the latest Q has (needs to be worth at least $1.5B) to support thh current share price.
I am disappointed and have sold a bulk of my shares. I think the writing on the wall was when the CEO was leaving and took the huge $20MM or whatever it was bonus.
I am way behind on this stock, but did the company disclose how they were going to use the $300MM debt? If my memory recalls this rate is well beyond the existing debt on the books of around 5-6% which I assume is because it is not backed by the assets, which the quick math above would support. Also, if it is true the company is using the debt to maintain the divy, then no thanks...paying 12% to give me a tax effective 4% yield is hideous.
On the surface I need to be convinced that my cash flow estimates are wrong, or that they are using the new debt for something more than "surviving" or dividends.
I keep trying to give this company one more quarter, but with the latest surprises, I believe its time is up.
On the positive side there does appear to be strong support at any price below $7.00.
Post 2
I agree with some of your points, but at what discount rate are you willing to accept that "things might improve in 2010-2011"? That is potentially at least 2 years from now and 3 years from earlier this year when things started heading south. Your discount rate must be at least 15% now since the company just issued at 12%...that's a lot of time value.
If things truly are going to get better, don't you think the markets would reflect that?
I am not trying to argue, just saying that I think there needs to be more solid footing to buy this stock than "the cycle will turn upwards" as that upward turn may not come for 3-4 years and it almost certainly will not be anything like the one of 3 years ago.
Also, in times like these most companies are scaling back debt, and GMR is approaching crazy debt coverage ratios (EBITDA/interest)--it's as if the company was just levered up as if it was private equity owned!
I wonder how secure 2010's contracts are and at what rates???
Showing posts with label GMR. Show all posts
Showing posts with label GMR. Show all posts
Wednesday, January 13, 2010
Monday, August 10, 2009
GMR June 2009 Quarterly Update - Warning Signs?
Blog links to transcript of earnings call...
GMR reported earnings July 30 for the quarter ended June 2009. Overall it was a little surprising...not necesarilly negative (yet), just a little surprising and cause for caution.
The one thing I had been banking on for at least another half year has ceased...GMR will drop its dividend policy significantly down to $0.50/year from $0.50/quarter. Or, from a 20%+ Yield down to a 6% or so yield. The CEO gave multiple reasons including 1) using that cash for other opportunities (acquisitions), 2) the market being terrible (spot rate market), 3) the yield being too high ("paying $2.00 divy on $8.00 share price is stupid" was his quote).
Here are my thoughts on this...
When I saw the earnings report the night before and read that they were dropping the dividend I expected a big sell off in the stock. After hours the stock peaked down 10%, but at the end of the next day (July 30) finished down around 7%, which honestly is not that bad considering its volatility. Also, the sell off was pretty much all after hours, not much happened during the day or while the conf. call was going on as far as price goes. More so, over the weekend and by the end of the day Monday, the 1st, the stock gained all of it back. It seems as though people updated their cash flow models and realized the fundamentals are still coming out positive and the only thing that has really changed is the dividend policy...which is all pretty much true.
That is exactly what should happen when you change just your payout ratio. In fact, many models will give credit for plowing back that cash into the business versus paying out (depending on discount rate used).
At the end of the day and if you read my investment philosophy, price speaks loudest and price has not said anything negative about their plowback decision, so the street obviously is not that upset about it and/or already had the news in their models.
But, here is the meat of my thoughts...
GMR has a history of buying back shares and doing acquisitions. The CEO also said it is "stupid" to pay a $2 divy on an $8 stock...which is debatable. BUT, just 3 to 6 months ago, the market, stock price, and divy policy were all the same and they chose to pay out cash in dividends versus keep the cash. So, why the change of heart so soon, when nothing has really changed at all since 6 months ago. My thoughts are they are going to try a different route with the cash such as buying back shares and/or they already are working on some target acquistions and would much rather use cash than equity to pay for it (especially with the stock price this low). It was comforting to hear the CEO say equity is the most expensive way to pay on the call. If one of these 2 routes is taken, I will be fine with it.
Buying back shares for a lot of people is the smarter thing to do because of the double taxation on dividends...again debatable (primarily true, but there is value in getting income streams versus relying on the markets for price). So, hopefully they will start buying back shares again. I will be able to tell thru the quarterly filings.
If next quarter they are not buying back shares and not hoarding cash and only paying down their cheap 5% debt, then I will have a red flag on my plate. It would tell me that they are more worried about their debt load than other uses for their cash...especially at their such low interest costs.
SUMMARY: I continue to hold, hoping that they will be buying back shares which should thoeretically lift the share price, but I am now cautious because of the surprise change of heart with seemingly little change in any of the 3 factors named by the CEO. Quick math: currently with 54MM shares, each $54MM of EBITDA should be worth $1 in share price...we shall see by October.
Let me know if any questions.
GMR reported earnings July 30 for the quarter ended June 2009. Overall it was a little surprising...not necesarilly negative (yet), just a little surprising and cause for caution.
The one thing I had been banking on for at least another half year has ceased...GMR will drop its dividend policy significantly down to $0.50/year from $0.50/quarter. Or, from a 20%+ Yield down to a 6% or so yield. The CEO gave multiple reasons including 1) using that cash for other opportunities (acquisitions), 2) the market being terrible (spot rate market), 3) the yield being too high ("paying $2.00 divy on $8.00 share price is stupid" was his quote).
Here are my thoughts on this...
When I saw the earnings report the night before and read that they were dropping the dividend I expected a big sell off in the stock. After hours the stock peaked down 10%, but at the end of the next day (July 30) finished down around 7%, which honestly is not that bad considering its volatility. Also, the sell off was pretty much all after hours, not much happened during the day or while the conf. call was going on as far as price goes. More so, over the weekend and by the end of the day Monday, the 1st, the stock gained all of it back. It seems as though people updated their cash flow models and realized the fundamentals are still coming out positive and the only thing that has really changed is the dividend policy...which is all pretty much true.
That is exactly what should happen when you change just your payout ratio. In fact, many models will give credit for plowing back that cash into the business versus paying out (depending on discount rate used).
At the end of the day and if you read my investment philosophy, price speaks loudest and price has not said anything negative about their plowback decision, so the street obviously is not that upset about it and/or already had the news in their models.
But, here is the meat of my thoughts...
GMR has a history of buying back shares and doing acquisitions. The CEO also said it is "stupid" to pay a $2 divy on an $8 stock...which is debatable. BUT, just 3 to 6 months ago, the market, stock price, and divy policy were all the same and they chose to pay out cash in dividends versus keep the cash. So, why the change of heart so soon, when nothing has really changed at all since 6 months ago. My thoughts are they are going to try a different route with the cash such as buying back shares and/or they already are working on some target acquistions and would much rather use cash than equity to pay for it (especially with the stock price this low). It was comforting to hear the CEO say equity is the most expensive way to pay on the call. If one of these 2 routes is taken, I will be fine with it.
Buying back shares for a lot of people is the smarter thing to do because of the double taxation on dividends...again debatable (primarily true, but there is value in getting income streams versus relying on the markets for price). So, hopefully they will start buying back shares again. I will be able to tell thru the quarterly filings.
If next quarter they are not buying back shares and not hoarding cash and only paying down their cheap 5% debt, then I will have a red flag on my plate. It would tell me that they are more worried about their debt load than other uses for their cash...especially at their such low interest costs.
SUMMARY: I continue to hold, hoping that they will be buying back shares which should thoeretically lift the share price, but I am now cautious because of the surprise change of heart with seemingly little change in any of the 3 factors named by the CEO. Quick math: currently with 54MM shares, each $54MM of EBITDA should be worth $1 in share price...we shall see by October.
Let me know if any questions.
Wednesday, June 3, 2009
GMR Email 5-1-09 1Q 2009 Earnings Update
To: Friends and Family
Subject: GMR 1Q 2009 earnings Update
A few new friends I have added to the chain. Please see the email from last month (below) and then today's to gain some perspective. I can speak with you all individually if you have any questions, but GMR is a stock I have followed for 3 years now that I own in my retirement fund. It is an oil tanker stock that pays a huge dividend. I would suggest looking it up on yahoo finance. I send updates on it when needed. Let me know if you are not interested in receiving this update and I can take your name off.
1Q 2009 Earnings Summary...
What a great few months for GMR. The stock is above $10/share now after Wednesday's great earnings and dividend announcement (Last update it was below $7/share). Some key notes about the stock...
1) This is the first full quarter with the Arlington acquisition
2) EBITDA of ~$48MM for the quarter
3) Normalized Working Capital Free Cash Flow of ~$39MM for the quarter
4) Both of these numbers easily cover the $0.50 quarterly dividend target of 50 cents on 58MM shares (requires $29MM of Free Cash Flow)
5) Company paid down $50MM in debt
6) Company announced continuation of share repurchases and 50 cent dividend
7) I got a response from investor relations concerning the S3 filing...supposedly it was just a requirement that they do it for the Arlington Acquisition with no other implications
8) At $10.30/share the stock is trading right at gross tanker value, still a very positive fundamental value
One of the reasons this company is doing so well right now is because it locked into 3 year time charters at basically the peak of the bubble in 2007. This is proving to be very lucrative during this downturn (EBITDA margins over 50%!!!) But, one potential negative in the future is that these time charter contracts expire around mid 2010. Unless they lock into some new contracts, starting mid 2010 the company's contracts will be at significantly lower spot rates assuming current market conditions. But at this time I am not too worried about the dividend because of the $10MM or so of cushion per quarter currently in their free cash flow and their diversification of fleet (and spot rate) offerings (Suzemax, Aframax, VLCCs, etc).
I am a little upset at myself that I let the S3 filing scare me from buying a lot more shares below $7.00, but that's the way it goes sometimes. This stock is still around a 20% dividend and I will continue to roll my dividend into purchasing new shares, but I personally will not be adding any more shares at this point for a few reasons. 1) The stock is already a decent size of my portfolio. 2) I am not very positive about the long term aspects of the stock market in general, but that is why I am focused entirely on dividend paying stocks, because cash in my pocket is way more real than a future earnings stream expectation or implied value. It is the only thing truly measurable and right now I will take that over any high flying no dividend tech stock.
My goal with this stock is to get a good base in now as a youngin, roll the 20% dividend payment into acquiring new shares (dollar cost averaging), and wake up one day when I am 50 with a very nice size of GMR or some derivative form and flip the switch from rolling the divy to keeping the divy payment as income to live off of.
The stock's valuation varies greatly with the vast array of valuation models available. From a book value perspective $10-$12/share is about right, but book value is a pretty conservative valuation metric and implies no growth or goodwill. From a low EBITDA multiple the stock should still be in the single digits, but I do not like this valuation, because of the companies great cash flow and payout (At 20% yield, you get a 100% return in 4 years!). Therefore a higher multiple should be used which puts its price range in at least the teens. I like free cash flow models better for this stock because it not only provides excellent free cash flow, but, given its large amount of tangible assets it should get some credit for a terminal value at some point in time as well. The dividend discount models (free cash flow models) put the price in the low $20s.
All in all, I would be a long term buyer of this stock anywhere below $12.00 right now which would still put a dividend in your pocket of 17%/year.
Subject: GMR 1Q 2009 earnings Update
A few new friends I have added to the chain. Please see the email from last month (below) and then today's to gain some perspective. I can speak with you all individually if you have any questions, but GMR is a stock I have followed for 3 years now that I own in my retirement fund. It is an oil tanker stock that pays a huge dividend. I would suggest looking it up on yahoo finance. I send updates on it when needed. Let me know if you are not interested in receiving this update and I can take your name off.
1Q 2009 Earnings Summary...
What a great few months for GMR. The stock is above $10/share now after Wednesday's great earnings and dividend announcement (Last update it was below $7/share). Some key notes about the stock...
1) This is the first full quarter with the Arlington acquisition
2) EBITDA of ~$48MM for the quarter
3) Normalized Working Capital Free Cash Flow of ~$39MM for the quarter
4) Both of these numbers easily cover the $0.50 quarterly dividend target of 50 cents on 58MM shares (requires $29MM of Free Cash Flow)
5) Company paid down $50MM in debt
6) Company announced continuation of share repurchases and 50 cent dividend
7) I got a response from investor relations concerning the S3 filing...supposedly it was just a requirement that they do it for the Arlington Acquisition with no other implications
8) At $10.30/share the stock is trading right at gross tanker value, still a very positive fundamental value
One of the reasons this company is doing so well right now is because it locked into 3 year time charters at basically the peak of the bubble in 2007. This is proving to be very lucrative during this downturn (EBITDA margins over 50%!!!) But, one potential negative in the future is that these time charter contracts expire around mid 2010. Unless they lock into some new contracts, starting mid 2010 the company's contracts will be at significantly lower spot rates assuming current market conditions. But at this time I am not too worried about the dividend because of the $10MM or so of cushion per quarter currently in their free cash flow and their diversification of fleet (and spot rate) offerings (Suzemax, Aframax, VLCCs, etc).
I am a little upset at myself that I let the S3 filing scare me from buying a lot more shares below $7.00, but that's the way it goes sometimes. This stock is still around a 20% dividend and I will continue to roll my dividend into purchasing new shares, but I personally will not be adding any more shares at this point for a few reasons. 1) The stock is already a decent size of my portfolio. 2) I am not very positive about the long term aspects of the stock market in general, but that is why I am focused entirely on dividend paying stocks, because cash in my pocket is way more real than a future earnings stream expectation or implied value. It is the only thing truly measurable and right now I will take that over any high flying no dividend tech stock.
My goal with this stock is to get a good base in now as a youngin, roll the 20% dividend payment into acquiring new shares (dollar cost averaging), and wake up one day when I am 50 with a very nice size of GMR or some derivative form and flip the switch from rolling the divy to keeping the divy payment as income to live off of.
The stock's valuation varies greatly with the vast array of valuation models available. From a book value perspective $10-$12/share is about right, but book value is a pretty conservative valuation metric and implies no growth or goodwill. From a low EBITDA multiple the stock should still be in the single digits, but I do not like this valuation, because of the companies great cash flow and payout (At 20% yield, you get a 100% return in 4 years!). Therefore a higher multiple should be used which puts its price range in at least the teens. I like free cash flow models better for this stock because it not only provides excellent free cash flow, but, given its large amount of tangible assets it should get some credit for a terminal value at some point in time as well. The dividend discount models (free cash flow models) put the price in the low $20s.
All in all, I would be a long term buyer of this stock anywhere below $12.00 right now which would still put a dividend in your pocket of 17%/year.
GMR Email 3-8-09 4Q 2008 Earnings Update
To: Friends and Family
I am still a believer, especially with the stock below $7.00/share. GMR's earnings on the surface were bad because of some one time severance charges as part of the merger which I think may be part of the reason for the selloffs of late, but the ongoing expectations are for an even lower base of SG&A costs which should push EBITDA margins north of 50% permanently. Looking at the 4Q alone, adjusted EBITDA was 53% of revenues or $47MM. This number only includes a few days of Arlington results as well. So on a pro forma basis EBITDA is going to be more like $55-60MM with about $10MM of capex (conservative) and $8MM of interest per quarter. So, quarterly free cash flow will be in the range of $37-$42MM which should more than cover the $28.9MM required to meet the $0.50 dividend payment/quarter on the post acquisition 57.9MM shares. There is also over $100MM of cash on the books now too to cover any short falls. Also, very important I think, is the company paid its full dividend for the quarter last week, even though most of its competitors have cut theirs. If GMR were to cut the divy the time to do that was last week as almost all the other divy paying companies have done. This is uplifting news. A few other points...
gross PP&E is now on the books at $1.5Billion and net PP&E at $1.3Billion. With the stock currently at $6.86 ($400MM market cap) and net debt outstanding of $886MM the enterprise value of the company is $1.28Billion. That means the stock is currently trading under its gross and net pp&e book values as well. Another positive fundamental metric.
The one thing that has me not all out loading up on shares is the latest S3 filing by the company up to $500MM. I suspect the company is going to issue more debt to either make another acquisition, buy back shares, buy more tankers or a combo of a few. The company is already levered over 4x EBITDA, so that may be spooking investors as well, especially in the current times of deleveraging. The filing is just the start of the process, so who knows if it will ever get done and for how much, but nevertheless it is interesting they have filed to take some sort of cash raising. The existing debt doesnt start to become due until 2011. The difference between GMR's debt and most other companies is it is backed by their tankers, so they get ridiculously low interest rates. Current average rate on existing debt is below 5%. So, more debt isn't necessarily bad, it's just something that I need to follow...especially to find out its usage.
Overall I am happy with the results and am looking to lock in some good shares at these low prices. My valuation models have the stock worth anywhere from $4 to $22 depending on future growth rates. But, my conservative average price is $10.63/share. With the current $2.00 dividend yield over 25% and expected payment continuation, I see no reason to not start buying shares. A 25% annual return over the long run should be well worth any short term downside in price, if that should continue. The risk/reward is now skewed heavily to the upside, unless something happens with the oil market or international shipping laws.
Good Luck. Next update when any major news comes out.
I am still a believer, especially with the stock below $7.00/share. GMR's earnings on the surface were bad because of some one time severance charges as part of the merger which I think may be part of the reason for the selloffs of late, but the ongoing expectations are for an even lower base of SG&A costs which should push EBITDA margins north of 50% permanently. Looking at the 4Q alone, adjusted EBITDA was 53% of revenues or $47MM. This number only includes a few days of Arlington results as well. So on a pro forma basis EBITDA is going to be more like $55-60MM with about $10MM of capex (conservative) and $8MM of interest per quarter. So, quarterly free cash flow will be in the range of $37-$42MM which should more than cover the $28.9MM required to meet the $0.50 dividend payment/quarter on the post acquisition 57.9MM shares. There is also over $100MM of cash on the books now too to cover any short falls. Also, very important I think, is the company paid its full dividend for the quarter last week, even though most of its competitors have cut theirs. If GMR were to cut the divy the time to do that was last week as almost all the other divy paying companies have done. This is uplifting news. A few other points...
gross PP&E is now on the books at $1.5Billion and net PP&E at $1.3Billion. With the stock currently at $6.86 ($400MM market cap) and net debt outstanding of $886MM the enterprise value of the company is $1.28Billion. That means the stock is currently trading under its gross and net pp&e book values as well. Another positive fundamental metric.
The one thing that has me not all out loading up on shares is the latest S3 filing by the company up to $500MM. I suspect the company is going to issue more debt to either make another acquisition, buy back shares, buy more tankers or a combo of a few. The company is already levered over 4x EBITDA, so that may be spooking investors as well, especially in the current times of deleveraging. The filing is just the start of the process, so who knows if it will ever get done and for how much, but nevertheless it is interesting they have filed to take some sort of cash raising. The existing debt doesnt start to become due until 2011. The difference between GMR's debt and most other companies is it is backed by their tankers, so they get ridiculously low interest rates. Current average rate on existing debt is below 5%. So, more debt isn't necessarily bad, it's just something that I need to follow...especially to find out its usage.
Overall I am happy with the results and am looking to lock in some good shares at these low prices. My valuation models have the stock worth anywhere from $4 to $22 depending on future growth rates. But, my conservative average price is $10.63/share. With the current $2.00 dividend yield over 25% and expected payment continuation, I see no reason to not start buying shares. A 25% annual return over the long run should be well worth any short term downside in price, if that should continue. The risk/reward is now skewed heavily to the upside, unless something happens with the oil market or international shipping laws.
Good Luck. Next update when any major news comes out.
GMR Emails 2-25-09 2 parts
To: Friends and Family
Subject: GMR earnings tonight; Price below $10 again
Email 1
GMR announces its 4Q 2008 results which will have a few days worth of the Arlington acquisition too, tonight...should be interesting. I have heard a few of the other oil tankers have dropped their dividends, but those ones have been also been a lot more overvalued from a share price perspective and the announcements came months ago. No such announcement yet on GMR. From a Free cash flow perspective this thing is still spitting out over $150MM of EBITDA/year with interest expenses of $27MM; so over $100MM of pure cash a year to do as it pleases on 31MM shares ($3.00+/share/year). The stock is currently tanking hard today on very light volume (giving up all of its gains yesterday) which makes me happy because I am going to put in a little slug of shares sometime today before the earnings call. These numbers are all pre acquisition, but should be similar in nature pro forma for Arlington.
If they don't cut their dividend today, then I don't see them doing it anytime. Now is the time to cut since everyone else is. So today is D-Day so to speak.
I expected a final move down, and am getting it. I think it could still fall farther as oil falls below $35 again and the market makes a new low, but I don't want to miss out in case they do have a great quarter. Being a long term investor we have the luxury of being early. With that, I am adding a little whip cream to my existing slice of pie.
I will try to send out the updated model thursday/this weekend. Good Luck,
Email 2
One other thing I just noticed too is that the company has recently registered to file $500MM in a secondary share offering. At first thought, this is not a good thing. Why would they be willing to sell $500MM worth of shares while the stock price is at a multi year low? Sounds like GE when they were buying back shares at $30 and then recently issued shares at $15...losing $15/share in cash
I am going to assume the purpose is to pay down debt, which is arguably a decent thing to do in these times, but I would counter argue that when their debt is at a very low rate of like 5% doing so may not be prudent. Also, they could easily pay down $50-$100MM/year using free cash flow. Just doesn't make sense. Notice too that the offering never hit the news wires. I found it on the SEC website. Perhaps they are going to continue to be acquisitive as well...who knows. Tomorrow we find out.
I am on guard though and may reverse the purchase I just made to wait and see.
This call tomorrow will be interesting. It is at 10am central.
Subject: GMR earnings tonight; Price below $10 again
Email 1
GMR announces its 4Q 2008 results which will have a few days worth of the Arlington acquisition too, tonight...should be interesting. I have heard a few of the other oil tankers have dropped their dividends, but those ones have been also been a lot more overvalued from a share price perspective and the announcements came months ago. No such announcement yet on GMR. From a Free cash flow perspective this thing is still spitting out over $150MM of EBITDA/year with interest expenses of $27MM; so over $100MM of pure cash a year to do as it pleases on 31MM shares ($3.00+/share/year). The stock is currently tanking hard today on very light volume (giving up all of its gains yesterday) which makes me happy because I am going to put in a little slug of shares sometime today before the earnings call. These numbers are all pre acquisition, but should be similar in nature pro forma for Arlington.
If they don't cut their dividend today, then I don't see them doing it anytime. Now is the time to cut since everyone else is. So today is D-Day so to speak.
I expected a final move down, and am getting it. I think it could still fall farther as oil falls below $35 again and the market makes a new low, but I don't want to miss out in case they do have a great quarter. Being a long term investor we have the luxury of being early. With that, I am adding a little whip cream to my existing slice of pie.
I will try to send out the updated model thursday/this weekend. Good Luck,
Email 2
One other thing I just noticed too is that the company has recently registered to file $500MM in a secondary share offering. At first thought, this is not a good thing. Why would they be willing to sell $500MM worth of shares while the stock price is at a multi year low? Sounds like GE when they were buying back shares at $30 and then recently issued shares at $15...losing $15/share in cash
I am going to assume the purpose is to pay down debt, which is arguably a decent thing to do in these times, but I would counter argue that when their debt is at a very low rate of like 5% doing so may not be prudent. Also, they could easily pay down $50-$100MM/year using free cash flow. Just doesn't make sense. Notice too that the offering never hit the news wires. I found it on the SEC website. Perhaps they are going to continue to be acquisitive as well...who knows. Tomorrow we find out.
I am on guard though and may reverse the purchase I just made to wait and see.
This call tomorrow will be interesting. It is at 10am central.
GMR Email Dec 22, 2008 - Suspicions Correct Part 2
An email I sent to a larger audience...
Subject: GMR Update...new post merger trading valuation occured today
Please see my emails from Wed and Thursday as reference. We nailed it. My suspicions last week were correct. The selloff did finally occur, as we knew it would/should; luckily we were smarter than the market and knew that it should have occured simultaneously as the share increase (dilution), but it didn't. For some reason it took the shareholders a few days to do the analysis, and thus was an all out gift to us by them last week. I sold a majority on Thursday and saved myself a few $s. Today's price is roughly equal to the pre merger price of $15.00. From a valuation standpoint we are at the same level we were early last week ($15.00/1.34 more shares we received).
I still feel the same about the long term prospects of GMR...a buy. I will be looking to buy again once the next market sell off occurs. $2.00 divy is still their target and should be easier now with the new acquisition (yield of 20%+). At lower levels GMR will also be a takeover target as its price approaches the value of the fleet on its books.
Good luck.
Subject: GMR Update...new post merger trading valuation occured today
Please see my emails from Wed and Thursday as reference. We nailed it. My suspicions last week were correct. The selloff did finally occur, as we knew it would/should; luckily we were smarter than the market and knew that it should have occured simultaneously as the share increase (dilution), but it didn't. For some reason it took the shareholders a few days to do the analysis, and thus was an all out gift to us by them last week. I sold a majority on Thursday and saved myself a few $s. Today's price is roughly equal to the pre merger price of $15.00. From a valuation standpoint we are at the same level we were early last week ($15.00/1.34 more shares we received).
I still feel the same about the long term prospects of GMR...a buy. I will be looking to buy again once the next market sell off occurs. $2.00 divy is still their target and should be easier now with the new acquisition (yield of 20%+). At lower levels GMR will also be a takeover target as its price approaches the value of the fleet on its books.
Good luck.
GMR Email Dec 22, 2008 - Suspicions Correct
An email I sent one of my buddies...
Subject: My ahha moment
My call last week on GMR was genius. Just wanted to let you know. Last week was literally a gift. I should have bought some puts on top of my cashing out. Stock down 25% in 3 days working its way back to the 34% dilution from the merger. It was just too obvious that the stock's price did not adjust with the new shares that I received. It should have acted just like a stock split, but didn't. I literally received $2500 in GMR shares last week and the price only went down $500 worth; I got a $2000 xmas gift.
I'll buy more when this move down ends. Long term all these prices are too low. $2.00 divy on a $9.80 stock.
Subject: My ahha moment
My call last week on GMR was genius. Just wanted to let you know. Last week was literally a gift. I should have bought some puts on top of my cashing out. Stock down 25% in 3 days working its way back to the 34% dilution from the merger. It was just too obvious that the stock's price did not adjust with the new shares that I received. It should have acted just like a stock split, but didn't. I literally received $2500 in GMR shares last week and the price only went down $500 worth; I got a $2000 xmas gift.
I'll buy more when this move down ends. Long term all these prices are too low. $2.00 divy on a $9.80 stock.
GMR Email Dec 18, 2008 - Suspicions Abound
It looks like my suspicions were correct. GMR added 34% more shares to our accounts yesterday, but only took a 10% haircut in price. It is now down another 6% today. In theory the price should have fallen the same 34% as the increase in shares, but it hasn't yet. I expect the market to realize the dilution that occured and adjust down by that 34% level.
That is why the stock is down 6% today. The market will figure it out. I just think we have figured it out quicker.
I am going to sell a few more lots and buy back cheaper in a few weeks.
I still think this is a wonderful long term stock. I actually read somewhere that oil is now in a "Contango" in the futures market, which means it is now profitable to buy pysical oil, store it and then sell it a future point. The Feb/March futures are trading at like $60 with the current oil price around $40. There are stories that people are actually leasing ships (like GMR's) to just store the oil, not ship it.
Good luck.
Give me a ring if you have questions.
CK
That is why the stock is down 6% today. The market will figure it out. I just think we have figured it out quicker.
I am going to sell a few more lots and buy back cheaper in a few weeks.
I still think this is a wonderful long term stock. I actually read somewhere that oil is now in a "Contango" in the futures market, which means it is now profitable to buy pysical oil, store it and then sell it a future point. The Feb/March futures are trading at like $60 with the current oil price around $40. There are stories that people are actually leasing ships (like GMR's) to just store the oil, not ship it.
Good luck.
Give me a ring if you have questions.
CK
GMR and Market Update Email Oct 15, 2008
This is an email I sent to my dad.
Subject: Market moved 20% in 2 days - another good chance to lighten up on stocks.
That was a nice bounce on Friday afternoon/Monday morning. Unfortunately I think that may be all we will get until election time. I will know more after tomorrow, but basically if we sell off tomorrow, I am expecting a continuation of the downtrend with new lows in site. A bounce tomorrow may give us a better opportunity for another rally higher, but after that, the next move is still to at least a double bottom of last week, but most likely to new lows. No need for us to try to time this thing perfectly. The prevailing trend is still down--by far.
I would suggest getting a lot of your stocks into cash this week with a plan of keeping it that way for awhile. You should have over 70% of your assets in non equity anyways (bonds, cash, land, homes, gold coins, etc) if you are within 10 years of retirement. Bonds are on the verge of breaking down too, though, so cash, money market, annuities, land, high yielding stocks (dividends), etc.
Stocks like GMR I see no harm in holding, as long as you are comfortable continuing to dollar cost average for the next few years (the dividend will do this for you as well). It won't be immune necessarily from a market selloff, but it should hold up better than the market in general and obviously has the ability to turn around quickly as we saw this week. Plus a 15-25% yield (which also equates to a 15-25% increase in your stake every year if you roll into purchasing new shares) will be incredible when the markets finally do turn. Anything below $10 on GMR is a firesale price. And nothing like cash continuously in your pocket.
Right now is not a time to worry about taking losses, etc; it is a time of preserving capital. Remember, the bear market of 2000 lasted over 2 years...this one is barely 1 year old and by most calculations this one will and should be larger than the one in 2000 (it already is by pretty much every measure); that implies at least another 20% down move from here to under $780 on the S&P500.
I am buying puts this week to capitalize on the next major down move. If you don't necessarily want to sell out and/or you want to try to capitalize on the next move down, then I would suggest buying some SDS, QID, or DDM. These are those ultrashort ETFs I was telling you about. They move opposite the market at a two times rate...so if you buy $10,000 worth and the market moves down 10%, then these things go up 20% providing you with portfolio protection. I would definitely suggest putting some of these in your portfolio, if nothing else but to add some insurance.
And finally, one thing to think about is there are already a lot of boomers who are closer to retirement than you are. I don't think they will be putting their money back in this market with the kind of risk they've taken the last year. That will be a BIG headwind for the upside in the next 20 years+. If they do, it will be at much smaller percentages of their total portfolio.
Sorry for the long email, but it is time to get bearish again...the rally after the bailout announcement in mid sept. was only 2 days long, and it looks like this one may only be 2 days long as well. There will be longer ones down the road, but unfortunately I think they will be at lower prices.
Buy and hold was a product of the 80's and 90's bull markets. It is not a viable strategy anymore.
Good Luck
Chad
Subject: Market moved 20% in 2 days - another good chance to lighten up on stocks.
That was a nice bounce on Friday afternoon/Monday morning. Unfortunately I think that may be all we will get until election time. I will know more after tomorrow, but basically if we sell off tomorrow, I am expecting a continuation of the downtrend with new lows in site. A bounce tomorrow may give us a better opportunity for another rally higher, but after that, the next move is still to at least a double bottom of last week, but most likely to new lows. No need for us to try to time this thing perfectly. The prevailing trend is still down--by far.
I would suggest getting a lot of your stocks into cash this week with a plan of keeping it that way for awhile. You should have over 70% of your assets in non equity anyways (bonds, cash, land, homes, gold coins, etc) if you are within 10 years of retirement. Bonds are on the verge of breaking down too, though, so cash, money market, annuities, land, high yielding stocks (dividends), etc.
Stocks like GMR I see no harm in holding, as long as you are comfortable continuing to dollar cost average for the next few years (the dividend will do this for you as well). It won't be immune necessarily from a market selloff, but it should hold up better than the market in general and obviously has the ability to turn around quickly as we saw this week. Plus a 15-25% yield (which also equates to a 15-25% increase in your stake every year if you roll into purchasing new shares) will be incredible when the markets finally do turn. Anything below $10 on GMR is a firesale price. And nothing like cash continuously in your pocket.
Right now is not a time to worry about taking losses, etc; it is a time of preserving capital. Remember, the bear market of 2000 lasted over 2 years...this one is barely 1 year old and by most calculations this one will and should be larger than the one in 2000 (it already is by pretty much every measure); that implies at least another 20% down move from here to under $780 on the S&P500.
I am buying puts this week to capitalize on the next major down move. If you don't necessarily want to sell out and/or you want to try to capitalize on the next move down, then I would suggest buying some SDS, QID, or DDM. These are those ultrashort ETFs I was telling you about. They move opposite the market at a two times rate...so if you buy $10,000 worth and the market moves down 10%, then these things go up 20% providing you with portfolio protection. I would definitely suggest putting some of these in your portfolio, if nothing else but to add some insurance.
And finally, one thing to think about is there are already a lot of boomers who are closer to retirement than you are. I don't think they will be putting their money back in this market with the kind of risk they've taken the last year. That will be a BIG headwind for the upside in the next 20 years+. If they do, it will be at much smaller percentages of their total portfolio.
Sorry for the long email, but it is time to get bearish again...the rally after the bailout announcement in mid sept. was only 2 days long, and it looks like this one may only be 2 days long as well. There will be longer ones down the road, but unfortunately I think they will be at lower prices.
Buy and hold was a product of the 80's and 90's bull markets. It is not a viable strategy anymore.
Good Luck
Chad
GMR Email Oct 12, 2008
Email Subject: good signs for GMR
On a day when the markets got hit pretty hard again and the oil tanker industry was down, GMR posted a 17% gain on heavier than normal volume. I don't want to speak to soon, but those are signs of a bottoming process. UP on higher than average volume and relative strength within the sector. Yield still at least 18%. An 80% move would get this yield back to 10%. One day does not make a trend, but Im seeing signs of life. Scroll down on the link to see the competitors
http://finance.google.com/finance?client=ig&q=GMR
Good luck.
On a day when the markets got hit pretty hard again and the oil tanker industry was down, GMR posted a 17% gain on heavier than normal volume. I don't want to speak to soon, but those are signs of a bottoming process. UP on higher than average volume and relative strength within the sector. Yield still at least 18%. An 80% move would get this yield back to 10%. One day does not make a trend, but Im seeing signs of life. Scroll down on the link to see the competitors
http://finance.google.com/finance?client=ig&q=GMR
Good luck.
GMR Email Oct 9, 2008
Email Subject: GMR Yield now at 19% even before acquisition
Yield will be 20-25%+ after the merger...my suggestion is to dollar cost average and ride out this wave of selling which must be someone selling who needs cash badly! Fidelity is a large holder and so is Allianz. I wonder if they are seeing massive redemptions from investors. It also is a small part of a few small index funds which can add to the downward spiral. At current prices ($334MM Market Cap), this thing is trading almost at book value ($334+ Debt of $655 on assets of $865MM (85% PP&E) is 1.1x book value)...and that assumes the 10 year old ships and steel on their books is at market value! The company reiterated its dividend policy of $2.00/share just in August, so I do not expect that to not happen. Dividend announcement should be mid-end of this month...hopefully the price is still this low so we can roll it into these firesale prices. There should be a 50 cent dividend announcement in the next few weeks. This thing is a steal at this price. No stock will stay at 20% yields for very long.
Yield will be 20-25%+ after the merger...my suggestion is to dollar cost average and ride out this wave of selling which must be someone selling who needs cash badly! Fidelity is a large holder and so is Allianz. I wonder if they are seeing massive redemptions from investors. It also is a small part of a few small index funds which can add to the downward spiral. At current prices ($334MM Market Cap), this thing is trading almost at book value ($334+ Debt of $655 on assets of $865MM (85% PP&E) is 1.1x book value)...and that assumes the 10 year old ships and steel on their books is at market value! The company reiterated its dividend policy of $2.00/share just in August, so I do not expect that to not happen. Dividend announcement should be mid-end of this month...hopefully the price is still this low so we can roll it into these firesale prices. There should be a 50 cent dividend announcement in the next few weeks. This thing is a steal at this price. No stock will stay at 20% yields for very long.
GMR Email Oct 6, 2008
This is an email I sent to friends and family on Oct 6, 2008 concerning GMR. I will try to figure out if I can backdate or achive these previous emails.
As you all prolly know GMR has been tanking along with the other tankers out there. It is down about 50% in 2 months, yet nothing has changed from a financials perspective. It is getting hit with oil, although the lower oil prices are actually better for the company since that is its largest expense (Duh! It's a tanker!).
What you may not know is GMR announced a merger on August 5th that looks pretty attractive. I have put together a summary of what's going to happen, but all in all existing GMR shareholders will get 1.34 shares in the new company. The big news out of the deal is that the combined company will keep its $2.00/share dividend. I missed this when I glanced over the news report in August. See the spreadsheet attached.
The new company will have roughly $57MM shares outstanding. At current prices the combined company will have a market cap of roughly $617MM, or 7.6x EBITDA. Divide the $617 by $57MM and get a $10.74 combined new company share price. This makes sense considering existing GMR shareholders will get 73% of the new company (73% times todays stock price of $14.55 is roughly $10.60 and is made up by the 1.34 shares we will get ($10.60*1.34=today's share price).
The BIG NEWSis that the $2.00 divy will continue. Do the math: $2.00/$10.74 combined company share price equates to an awesome 18.6% dividend yield. Since GMR's time charters cover the dividend alone, there is very little risk that they will lower their Dividend (unlike Bank of America who just lowered there's 50% tonight!) About 80% of the combined company will be under time charter contracts until at least 2010 with the other 20% at the more volatile spot rate which has actually been taking a hit lately.
I dont think people have picked up on the new Dividend yield...either that, they don't care, or they don't expect it to continue. I added some more GMR to my 401k today and will probably liquidate something else to add into GMR tomorrow. I plan on holding this one and rolling the Divi into more shares for as long as possible, hopefully until im 100 years old!!!
As you all prolly know GMR has been tanking along with the other tankers out there. It is down about 50% in 2 months, yet nothing has changed from a financials perspective. It is getting hit with oil, although the lower oil prices are actually better for the company since that is its largest expense (Duh! It's a tanker!).
What you may not know is GMR announced a merger on August 5th that looks pretty attractive. I have put together a summary of what's going to happen, but all in all existing GMR shareholders will get 1.34 shares in the new company. The big news out of the deal is that the combined company will keep its $2.00/share dividend. I missed this when I glanced over the news report in August. See the spreadsheet attached.
The new company will have roughly $57MM shares outstanding. At current prices the combined company will have a market cap of roughly $617MM, or 7.6x EBITDA. Divide the $617 by $57MM and get a $10.74 combined new company share price. This makes sense considering existing GMR shareholders will get 73% of the new company (73% times todays stock price of $14.55 is roughly $10.60 and is made up by the 1.34 shares we will get ($10.60*1.34=today's share price).
The BIG NEWSis that the $2.00 divy will continue. Do the math: $2.00/$10.74 combined company share price equates to an awesome 18.6% dividend yield. Since GMR's time charters cover the dividend alone, there is very little risk that they will lower their Dividend (unlike Bank of America who just lowered there's 50% tonight!) About 80% of the combined company will be under time charter contracts until at least 2010 with the other 20% at the more volatile spot rate which has actually been taking a hit lately.
I dont think people have picked up on the new Dividend yield...either that, they don't care, or they don't expect it to continue. I added some more GMR to my 401k today and will probably liquidate something else to add into GMR tomorrow. I plan on holding this one and rolling the Divi into more shares for as long as possible, hopefully until im 100 years old!!!
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