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tyska
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Just wondering if anyone has had the rights show up in their account yet. Nothing in my TD account yet, I see that a tiny amount has traded the last couple of days at 5 and 6 cents.

 

Nothing in my TD account either. What symbol are the rights trading under and where can you find quotes/volume?

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"PIX remained at us$1012.09 in the U.S. and rose to us$975.70 in Europe for NBSK."

 

I am questioning myself constantly as to why I am still holding this position? I am wondering if I am not playing the greater fool game considering the slowdown that seems more and more real with every piece of data that gets released.

 

Of course the price looks cheap and the upside looks high, but that is assuming pretty high pulp prices. What are you guys assuming as an on-going price for pulp, say the average for the next 3 years?

 

Unless we can get rid of this "hot potato" to an acquirer who does not mind buying a high cost producer over the next few months (another greater fool?), I think that we will need to figure out the answer to this question.

 

Cardboard

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PIX remained at us$1012.09 in the U.S. and rose to us$975.70 in Europe for NBSK.

http://www.paperage.com/foex/pulp.html

 

 

 

Note that the Paperage site quotes the FOEX indexes that are initially posted ever Tues on the FOEX website:

http://www.foex.fi/

 

I find the brief weekly market commentaries there to be an interesting read.  

 

PS:  No rights in my BMO account yet, either.

 

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Cardboard you bring up some really good points and I share several of your concerns. I like following you because you focus much more on downside than me.

 

Its tough because I think this will work out by December (Share price increase based on debt reduction / increased earnings, or a sell) or I fear we will trout along like any commodity producer (rallying on price increases, and falling when prices reduce). I think BK risk is gone though.

 

This was more of a trade for me. Commodity producer, survives the downturn, restructures, commodity increases due to factors (Chile, Strikes, Demand / Supply). I thought I could capture the spread while the market digested the new info. When the earth quake and strike hit I thought it was a perfect storm and figured Q1 and Q2 would show a nice windfall. With the high prices we are probably at best near the top of a plateau and sooner or later prices will head down.

 

Holding for much longer will require me to change my thesis and will make this more of a long term investment. Still tough to sell until I know what Management had in mind / what things look like without the debt and post conversion. I respect Management for what they have done, and figure they have some sort of plan.

 

It looks like simply selling the US business will put them on better ground. I ignored this thread from $4 down to cents and dont want to be one of the ones repeating that round trip. After the Q2 release I will have to rethink my thesis, I am also hoping to get a decent run rate at that point, but Q3 would be better for that.

 

----

 

I think a long term outlook for any commodity is a useless endeavor. Look at oil. Over the next 10 years I am 100% sure it will be higher. That wouldnt have helped at all over the last 2 years. I think you buy when its in the tank and folks are losing money. When people start projected out years on end you sell. Unless you have a serious Macro view / outlook based on something tangible.

 

I feel ok about Pulp with India and China coming online, but have no idea where its going once the supply that was taken offline is cut back on. I would guess supply and demand will stabilize, then inventories rebuild, then prices start to go down. I think we have at least a few quarters.

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Cardboard, Just curious, my average cost basis for sfk/fbk is 0.68/share.  If I sell today I am still up almost double my money on what I still hold.  Why dont you just sell out or are you hoping for the greater fool?

 

I am not meaning to be flippant or sarcastic.  I am planning on exercising my rights because I think fbk is worth more than $1.01.  If someone thought it was worth over 1.50 as recently as three weeks ago, with the same apparent information, as we have today, then it is very possible that someone will think it is at least 1.50 in the coming month or two.  Maybe alot more.  

 

 

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Cardboard, I bought SFK/FBK at $1.20 after the Chilean earthquake, added to the position at higher prices, and then completely sold out for a small loss prior to the announcement of the rights offering.

 

I just can't get comfortable with what pulp prices will be like over the long run, and I didn't want to rely on SFK selling its US assets or being bought out in its entirety by another company in order to realize gains.  The other thing is that I felt I had other opportunities with just as much upside and much less risk so there was no point in holding on given that I could deploy the cash into other investments and offset some capital gains.

 

This is not to say that SFK/FBK will not work out.  Given the intelligence of the investors involved in this thread, there is a high likelihood that many holders, especially those with 0.68 cost bases(!), will make good money off of it.  But my aversion to cyclical, secularly declining commodities remains as strong as ever, and I will watch from the sidelines on this one. 

 

I think it's very good to have you on this board voicing your concerns.  Gotta keep everyone thinking about the downside!

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The rub is that within 2-3 months FBK could easily go up to the $1.55 (35%) with a P(x) >60% - & not much else offers similar opportunity within the same timeframe. Add in only a small P(x) of a fall > 20%, & you have roughly 5:1 upside – IF you can tolerate the volatility.

 

Because FBK has many options here, & most will become apparent over the 1-2 quarters, you really need to see FBK as a series of different potential market values related to specific events  [P(specific event) x Expected Price]. The question should be, how much of FBK would you be comfortable holding at each of these specific events.  The higher your risk tolerance, the bigger your holding.

 

SD

 

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I don't know what options are available to management in term of finding ways to lower cost, but I was thinking that maybe this is no such options on the table and the fresh 40M$ from the warrants are just going to stay in the company's coffer only to serve as a security in case a serious bad market(like in 2009) comes in again.

 

an another option I guess.

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All players involved in pulp have come down since their April/May peak: TMB -31%, MRI -32%, UFS -31%, CFX -9%, FBK -43% (-41% adjusted for rights).

 

It seems that the only reason why FBK has declined more than the average is the dilutive effect of issuing more shares. While CFX has declined less because of dividend hungry investors who always stick around until it gets slashed.

 

The way I interpret this is that investors have applied a hair cut to the entire industry for the risk that pulp prices decline due to a weakening economy.

 

If I am correct, then the fact of the rights being out there has no to little impact on the share price currently. The cash will come into the company one way or another with Fairfax backstopping and the number of shares is now known. So, I would not expect any kind of pop post July 15 due to that alone.

 

What has not changed is that we are still undervalued relative to the industry, but we are a high cost producer mainly due to our RBK production. Conversely, we are also likely overvalued if we are to see a repeat of 2008. Bankruptcy may be off the table with the rights and with some cash on hand, but how much is worth a company producing losses?

 

IMO, there are two ways to make money with this company:

 

1- Pulp prices remain high for 1 to 2 more years and we accumulate enough cash to turn essentially debt free. It is a case of Enterprise Value shifting from the debt holders hands to shareholders. You also see earnings improvement with less interest charges over time.

 

2- Assets are sold giving us more cash upfront than they can generate in the near to medium term. Unfortunately, options are very limited for this company. There are 3 plants. You can sell 1, 2 or all. That is it! Considering that they are all higher cost it is not like you have buyers salivating at the door. Especially when players are worried like investors that we could see a 2008 repeat.

 

Cardboard

 

 

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Cardboard,

 

I dont know if you didn't read back a few notes but I basically asked you why you are still holding if you think the prognosis is so lousy on this company?

 

I think that once everyone receives their rights and makes their decisions then you may see a rebound in the stock.  It takes a while to absorb what is essentially a 50% stock dilution.  So I will hold for now. 

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Uccmal,

 

I am still holding because it is cheap AND pulp is still high. Day by day FBK is getting stronger, but we need a lot of days! My main concern right now is macro and its impact on pulp prices in coming months/quarters. If fundamentals deteriorate and pulp goes back down then you can be pretty sure that we will have a round trip with this one. You have been through it with them before, so you must be sharing similar concerns, no?

 

What I have tried to do to hedge against this macro risk is to short bad/overvalued companies in order to retain companies in my portfolio that have high upside if macro remains flat to better. Unfortunately, it is not a perfect hedge since they are not even in the same industry.

 

Cardboard

 

 

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Cardboard, That's entirely reasonable.  I was just curious. 

 

Yes, I worry about a round trip, hence my earlier grumbling.  I know of no real way to hedge out the risk on this.  Thats part of the deal.  I have practiced a fairly disciplined sell program earlier but this rights issue has me perplexed.  The couple of times I have participated in rights have been a disaster - financing a sinking ship.  I dont think that is the case this time but who can know ultimately. 

 

FFH backing it gives me no confidence since one of my prior rights experiences was Lindsey Morden and we all know how that ended up.  FFHs history is littered with the carrion of dead companies.  I'll never forget Prems 2/5 rule - 2/5 of their investments will be failures. 

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  Along the lines of my original question, were are these rights coming from that are being traded if they haven't shown up in any ones accounts yet. Are you able to trade shares that you anticipate receiving?

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