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rijk

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Posts posted by rijk

    Mr. Market The Bucking Bronco

    in General Discussion

    Posted

    parsad, very good to see that you keep such a good mood!

     

    regarding the wish list, i would be really interested in FFH however, FFH has hardly blinked while everyone else is crumbling, you reckon we can get FFH below $350 before this drama is over?

     

    regards

    rijk

    Hedging - VIX

    in General Discussion

    Posted

    agree the risk of "doubling" which happened in 2008/2009 and the psychological strength you need to handle that, is the biggest risk

     

    there have only been 5 instances during the last 2 decades when the VIX exceeded 40

     

    - may - jun 10 - peak 45

    - sep 08 - may 09 - peak 80

    - jul - oct 02 - peak 45

    - sep - nov 01 - peak 45

    - aug - oct 98 - peak 45

     

    looks like a decent risk/reward if you want to benefit from market panick, as long as you enter > 40 and keep a modest position......

     

    regards

    rijk

     

     

    Fairfax to lead group investing in Bank of Ireland

    in Fairfax Financial

    Posted

    one element of the 2011 BOI restructuring plan was to convert approx €2 billion junior debt to equity at discounts up to 90% of face value

     

    in 2009 and 2010 BOI reported €1 and €1.4 billion "gains on liability management excersizes" (page 56 & 57 attachment)

     

    during the recent restructuring, approx €2 billion equity has been raised by debt to equity conversion at steep discounts (40-90%??)

     

    does anybody have an estimate for the 2011 "gains on liability management excersizes" figure?

     

    can anybody explain the theoretical process to calculate this number, for example, if €2 billion was raised at 40% discount, does that imply that the original face value of the debt was €5 billion and that consequently €3 billion would be reported as "gains on liability management excersizes"?

     

    regards,

    rijk

     

     

    http://www.thejournal.ie/bank-of-ireland-deal-knocks-e2bn-off-taxpayer%E2%80%99s-bill-162377-Jun2011/

     

     

    Fairfax to lead group investing in Bank of Ireland

    in Fairfax Financial

    Posted

    rijk, What you are really proposing by shorting IRE is insurance on the stock going lower, or never rising.  The most likely outcome is that the BKIR shares rise to the value of the ADR units.  In that case there would be no gain with your proposal.

     

    Better to work out if one thinks the capitalization will be enough, and buy the BKIR shares and forget about the ADRs. 

     

    agree that today, after a successful recapitalization, which looked doubtful not so long ago, the future looks a bit brighter for BOI and a long BKIR looks like the right bet......

     

    however, if you enter the short IRE and long BKIR position, and BKIR increases while IRE stays flat, you make a 60% return

    more importantly, you have a market  neutral position, even if BOI would go bankrupt, you would still earn 60%

    the only way to loose out would be for the spread to increase in the short term, forcing you to close the position and take a loss, or alternatively, the spread could stay at these levels indefinitely....

     

    regards

    rijk

    Fairfax to lead group investing in Bank of Ireland

    in Fairfax Financial

    Posted

    "It is however impossible to arbitrage.  Very strange."

     

    yes and no, direct arbitrage is blocked as the ADR program has reached it's pre-approved limit, so you cant buy BKIR and exchange them for ADRs, however, if you are patient, you can short IRE, buy BKIR (London SE) and wait.....

     

    looks like the size of the ADR program, definitely after the more than five fold dilution, is relatively small to the number of BKIR shares, consequently, IRE can be very volatile in the short term, long term, prices should get closer to parity.....

     

    regards

    rijk

    Fairfax to lead group investing in Bank of Ireland

    in Fairfax Financial

    Posted

    "I find this IRE deal fascinating."

     

    it's a BKIR deal not an IRE deal, for some incomprehensible reason, IRE shares are valued at more than double ($1.52) the price of BKIR shares (€0.11) (1 IRE = 4 BKIR)...... I don't think that Watsa would have invested in the Bank of Ireland if he had to pay the IRE share price, yet all IRE ADR investors happily spend double on exactly the same investment????

     

    regards

    rijk

    Really Great Piece from II on Chandler Brothers

    in General Discussion

    Posted

    thanks hester & pof

     

    fascinating story and incredible returns!

     

    looks like they beat buffett & watsa by a wide margin, do we really believe these figures?

     

    from reviewing annual reports and following the whole story, I have zero confidence in a clean sino forest

     

    it looks like chandler has plenty of experience with shady management that operates in difficult environments

     

    going to be interesting to see how this turns out.....

     

    regards

    rijk

    US Home Builders

    in General Discussion

    Posted

    NVR sure was a good investment, their success seems to be related to using option contracts to buy land vs direct buying and pre-selling versus keeping inventories...

     

    this is the past, what's relevant now is the future, how durable are NVR's competitive advantages?

     

    having listened to several conference calls, it sounds like other builders are moving towards using more options to buy land and more pre-selling versus speculation.....

     

    so the "durability" might be in question, additionally, what used to be a competitive advantage in a down market might turn out to be a disadvantage in a recovery, example, PHM's $3 B land might become a competitive advantage once the cycle turns, availability shrinks and conversion from raw land to finished lots takes 1-2 years

     

    regards

    rijk

    US Home Builders

    in General Discussion

    Posted

    several home buiders are trading slightly over tangible book value while this book value will rapidly and significantly increase when housing turns around

     

    does anyone have examples of construction related businesses with moats that are trading below book value?

     

    USG would be one such company, however it is trading at 2.6 x BV and has a weak equity buffer/staying power with equity $540 k, debt $2.3 B and cash $600, imagine it takes 2-3 more years for housing to turn around, USG would suffer from strong dilution in this scenario while some of the home builders operate at break even now with decent liquidity positions...

     

    regards

    rijk

    US Home Builders

    in General Discussion

    Posted

    buffett has repeatedly stated that it is only a matter of time for construction to rebound with family formations > 1 million and new starts < 500k

     

    since the sector is clearly out of favor, there might be some interesting opportunities here...

     

    most home builders that are still around have adjusted their business models to current economic reality and operate at break even levels at a fraction of the peak years activity....

     

    an "orientational dive" in the sector yields the following quantitative information, feedback and qualitative comments would be highly appreciated.....

     

    the companies are ranked from strong to weak (financial staying power), i used average 2001-2004 earning to estimate earnings power, knowing that this method is far from accurate but represents, i hope, a conservative valuation approach

     

    MDC

    - very strong equity buffer/staying power, $1 B equity, $1 B debt, $1 B cash

    - earnings power $200 M and MC $1.2 B = P/E 6

    - Whitman sold in 2010 with significant loss????

    - $200 M fully provided DTA

    - P/BV= 1.2

     

    DHI

    - strong equity buffer/staying power with $2.6 B equity, $2 B debt and $1 B cash

    - earnings power $500 M and MC $4 B = P/E 8

    - $900 k fully provided DTA

    - P/BV=1.4

     

    RYL

    - reasonable equity buffer/staying power $540 M equity, $900 M debt, $600 M cash

    - earnings power $200 M and MC $750 M = P/E 3.5!!!!!

    - P/BV = 1.4

    - $250 M fully provided DTA

     

    PHM

    - reasonable equity buffer/staying power with equity $2 B, debt $3.4 B and cash $1.4 B

    - earnings power of $500 M and MC $3 B = P/E 6

    - owns $3 B land, entitled land might get scarce and takes time to develop, looks like a good competitive advantage

    - $2 B fully provided DTA

    - P/BV= 1.7

     

    LEN

    - reasonable equity buffer/staying power, $3 B equity, $3 B debt, $1 B cash

    - earnings power $600 M and MC $3.5 B = P/E 6

    - $1 B fully provided DTA

    - P/BV= 1.3

    - earnings from Rialto distressed real estate investment fund

     

    NVR

    - incredible ROA & ROE 2001-2005

    - earnings power $350 M and MC $4.4 B = P/E 12

    - P/BV=2.4   expensive……

    - no losses during housing crisis???

     

    BZH

    - cheap but no equity buffer/no staying power

     

    KBH

    - cash $800k, debt $1.8 B, equity $440k

    - high leverage, minimal equity buffer in case housing doesn’t recover soon

    - very cheap based on earnings power of $300 M and MC $750= P/E 2.5!!!!!!

    - too risky……..

     

    TOL

    - earnings power $250 M and MC $3.5 B = P/E 14, too expensive……

     

     

     

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