As expected, CLP posted smashing results this quarter, with FFO beating estimates by a full 10%. The company posted a small loss this quarter, again the same story as AEC; depreciation is artificially bringing results down, these companies are expanding so aggressively, have such improving cash flow, and are being so well positioned, that they will be set to make record profits in the coming years.
Yesterday at the close, CLP locked in a new credit facility, which they borrowed against immediately. That’s after they arranged the option agreement. They are putting cash to work in a big way.
And I must confess; I am intrigued.
I purchased the shares yesterday with the intention of playing the earnings casino, and selling them rather quickly. This was to be a scalp trade, on top of my core, long term position. But, after seeing the performance this quarter, and the recent terms of their right to sell option, I feel I’d rather just hold all the shares in covetous fashion.
This option agreement is the foundation of a big deal. 6% of their assets is no small matter to be putting on the line. Let me lay out a few goals that management might have in any asset swap that might come from this. They could:
1. Purchase younger facilities, cutting down on amortization costs.
2. Purchase in hotspots where they feel rent rates are set to rise most.
3. Purchase into higher occupancy areas.
4. Purchase locations closer to other existing operations, cutting down on maintenance costs by sharing resources and higher leverage negotiations with resource/service vendors.
5. Or, best of all, they could do some combination of all prior ideas.
How much additional revenue could the company free up, on 6% of net assets, if they manage this swap properly? They already managed to have a quarter of higher revenue with lower costs. Imagine if they did it again, but in a bigger way.
And by not selling the assets first, they manage to retain revenue on the prospective sale properties in case no suitable purchases can be found. Worst case, there’s nothing here and they drop $250,000 to break the option while still making money on these properties.
The potential for a big deal here is just too great; the kind of deal that puts a smile on my face and gives me a massive erection, as I skip down the street waving from the sidewalk.
BG also reported 2Q performance today. As usual, they absolutely destroyed estimates and made a bundle of money, resulting in an immediate sell off of shares, which were down 3% last I looked.
Fucking ridiculous…
At least this time I can sort of follow what may have spooked people. In their performance, they state they’re recording 10% tax rates for the remainder of the year, down from more than 20%. Obviously, if that isn’t true, then their performance is going to suffer; maybe this was even a bad quarter.
But really, they started a call an hour ago. You’d think people would be patient enough to wait and find out why exactly management thinks they won’t pay as much in taxes? Especially with the company trading so freaking cheap (not to mention they record their agriculture products at cost, which right now is significantly lower than selling price), it’s not like there’s a huge risk here.
Unless you’re thinking the shares should just be given away for free?
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I finally got around to read the BG call transcript.
Correction, I said the tax rate was over 20%, and it was 15%. They are now expecting 10%. Apparently, they had favorable developments and they were aiming high.
No biggie.
Also, the operations report was excellent. They have all sorts of new facilities coming on line, from Canada, to America, to a massive new port in the Ukraine.
I’ll be sure to comb through the next statement, but really, the market has been so luke warm to this company, I’m inclined to believe everything they say over price action.
One day, four years from now, they’ll have sufficient earnings to put BG on the radar of fund manager monkeys, and by then the company will be trading over $100.
Bless you, sir. I lost the energy to follow these guys. I am so glad you have the energy to keep it up. Do be sure to tell me when you are fed up with BG/ADM so I have the signal to not be so lazy.
These guys sound like solar: “Bad news? Sell it! It’s getting worse!” or “Good news? Sell it! It’s a top!”
I guess my only question is “what was ROIC?” If better than WACC, this would make two Qs in a row and mean the stock should be bought. Visually I would prefer something closer to $60 to make sure my money wins, but if this is two Qs in a row we might never see $60 again.