1/
Can I tell you about a company that grew Adjusted EBITDA 8x in H1 & is below 3x earnings?

Grew? I thought you were a Value guy

I am

And we want growth

we just don’t want to pay too much for it

What’s with the EBITDA reference, I thought you don’t like that metric?
2/
I don’t really

Because companies with a huge & unaffordable interest bill can look great with Earnings BEFORE Interest…

They just look shoddy afterwards

But I look at EBITDA because it shows me a different angle

Like looking at yourself in the mirror at various angles
3/
although I do that less these days..

I just don’t STOP at EBITDA

Because it's like stopping at a good looking Cash Flow number

but not noticing it’s due to lower inventory – you can’t cut inventory forever

Or stopping at the Cash on the Balance Sheet

but not spotting
4/
the huge accounts payable balance that needs payment the day after the quarter-end

Now convention says to use Enterprise Value when using EBITDA

Mkt cap + debt and - the cash

The theorists think it’s harsh to penalise the valuation with the debt AND the interest bill
5/
which is why you add the debt but ignore the interest - EBITDA

But I think high debt deserves harsh treatment

Because I don’t want to lose my shirt on any stock

especially if I’m not looking good at various angles

Now you deduct cash in the EV calc

while remembering
6/
my point about inflated cash & high payables

Net current assets is R4.5bn and cash is R3bn so I'm safe in this case

Now for the debt, you normally use long term, interest-bearing debt but let’s be conservative and use all non-current liabilities of R7bn (deferred tax,
7/
environmental provisions) because if you acquired the entire company, they’d be yours

So EV = mkt cap of R8bn + R7bn – R3bn = R 12bn

A conservative number

They made R2bn in H1 so shall we go with R4bn for the year?

= 3x EV/EBITDA

Except H2 should be FAR more profitable
8/
because the Rand Coal price is currently 50% higher than H1’s average

And operating leverage doesn’t get better than with coal companies

Sorry, did I not tell you this was Thungela Coal (TGA LN, TGA SJ)

Oh, you want Green energy?

Like Siemens Gamesa the massive wind
9/
turbine guys?

that made R11bn of EBITDA in H1

only 5.7x TGA’s (lower if I use my H2 guess)

but has an EV of R400bn

nearly 50x TGA’s

yes, 50x

oh and they dropped R8.3bn of negative cash flow in H1

and in Q3 complained of:

“a very difficult environment…the impact on
10/
backlog profitability of rising commodity prices … higher-than-expected ramp-up costs …resulted in a provision for onerous contracts”

with a share down 35% since Jan

You’d rather own that?

Be my guest

I just think if you really want to make a difference & help
11/
the planet, buy solar panels, energy-efficient appliances/cars, bikes, drink oat milk lattes, eat plants & watch #seaspiracy

Buying a “green” stock / ETF might make you feel good

But it won’t help your returns

Nor your angles

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More from @SeanPeche

3 Sep
1/
I looked up Equity #ETFs with #ESG in their description using the Bloomberg function, "ETF"

$334bn in total AUM

Wow, investors are hungry for this

so took a “deep dive” into the largest - $22bn iShares ESG Aware MSCI USA
2/
“composed of U.S. companies that have positive environmental, social & governance characteristics as identified by the index provider”

“.. that applies the following business involvement screens:

civilian firearms, controversial weapons, tobacco, thermal coal and oil sands”
3/
Seems clear

First up, Tobacco

WHO says it kills 8m / yr

And I detest smoking – this is easy

I also hate guns, will never own one

But how many people do firearms kill?

Amnesty Intl, - 1.4m firearm-related deaths globally between 2012 & 2016
Read 12 tweets
1 Sep
1/
Imagine I told you in early June that $100 invested in an old discarded coal company would be worth $286,

while $100 invested in a Chinese darling, BABA & Tencent, both rated “BUY” by over 90% of analysts & forecast to grow earnings forever & beyond,

would fall to $77 & $ 81
2/
In 3 months

I think you may have sent me a get-well-soon card and muttered

“some people just don’t want to get it”

Is there a lesson in here?

Yes, it reminds us that the future is unpredictable

Which means the common narrative might not play out
3/
No matter how common

Be it:

Growth is Great

or

ESG is Everything

or

Inflation is Transitory

or

Passives not Actives

So what do I do?

Be diversified

Don’t bet on one strategy and

Ensure there’s a margin of safety
Read 12 tweets
23 Aug
1/

In 2001, I arrived in the UK eager to look at leading global companies

One was GE, led by the late Jack Welch, who had just published a book, “Jack: Straight from the gut” about his “career running one of the largest and most successful corporations”

The stock sold at
2/

15x earnings - seemed fair value for a “wonderful business run by brilliant management"

Cash from operating activities of $32bn less capex for equipment of $15bn = free cash flow of $16bn

(although we didn’t talk about free cash flow back then)

ROE was 27%
3/

And a payout ratio of 50%

I could use the historic EPS trajectory as a ruler – linear growth of 15% p/a and on track for $11 per share

maybe there was something to this Sustainable Growth Rate (SGR) formula

But then I looked at the balance sheet
Read 12 tweets
3 Aug
1/

If you’ve spent recent days trying to guess the moves of Chinese Govt, you may have missed Australia’s largest-ever deal

US$29bn

No, no one acquired Newcrest, one of the world’s largest gold miners at a 70% premium

Square bought, “Buy now, pay later” company, Afterpay AP
2/

They must have some unique technology

No, but they do have a great Vision

“Fairness and Financial Freedom for all”

and Visions aren’t cheap

Well I value Fairness & Freedom

But does Square get anything else for $29bn?

They get 4 values:

Keep it real

Do the right thing
3/

Be brave

Shape the future”

AP advertises:

“No external credit checks, no interest, no fees - when you pay on time, no surprises & our customers love us for it”

Well, no one wants surprises right now, least of all Chinese tech investors - their nerves are shattered
Read 11 tweets
28 Jul
(thread)

In October 2003, one of the World’s wealthiest men flew home in his Gulfstream

As he disembarked, he was arrested at gunpoint, sent to a remote prison beyond reach of journalists, charged with tax evasion, & spent the next 10 yrs in a Siberian gulag

He is
2/

Mikhail Khodorkovsky (MK), the CEO of Yukos, one of the world’s largest oil companies at the time

But unfortunately for MK & Yukos, this wasn’t a televised Olympic Judo contest where a neck lock ends with a double tap

This was an: out of sight, zero-rules, cage fight
3/

against an angry, Russian Bear

With only one winner

the Bear

who levied $30bn of tax charges against Yukos,

disembowelled their key assets at rigged auctions,

& left MK & his foreign shareholders with "nada"

There was never any tax evasion

because when it was all over,
Read 12 tweets
26 Jul
1/

Let me tell you a story about a company whose share price has risen 50x since 1999

Compound growth of 19% for 21.5 years

Wow, a tech company?

No, a retailer

on-line?

No

Well, then they must have opened lots of stores?

At a rate of 4% per annum so 3x the store base,
2/

not 50x

So they’ve increased sales in each store?

barely changed +1.5% CAGR

Ok, a massive increase in profitability per store?

Some – grown at +4% CAGR – increased efficiencies & operating leverage of spreading the fixed costs across more stores

Still doesn’t
3/

explain the 50x growth in share price

oh I know, the share has rerated massively from a low PE to a high PE

No, gone the other way from 20x to 18x

I give up how did the share price go up 50x?

Here's a clue

Because EPS went up 55x

But you said they didn’t grow massively,
Read 11 tweets

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