Canadian Finance and Economics
Nothing that most of the resource stocks are trading at a larger percentage down than their underlying commodities, so it’s clear that there is some sort of supply dump going on. The question is – how much and how far will this rotation go?
Although my portfolio is substantially all cash and this is pleasant for me to see, I think this brief downturn is just that – brief. Still being patient.
First Uranium (TSX: FIU) sold all of its principal assets today, pending shareholder approval.
First Uranium had two assets: a profitable Mine Waste Solutions asset, which was sold to AngloGold Ashanti for $335 million in cash; and a woefully cash-sucking and unprofitable Ezulwini mine, which was sold for $70 million in cash.
Most notably is the impact to the debtholders. The subordinated convertible debentures get the following (if they approve of the various changes proposed):
Furthermore, Debenture holders will agree to accept on closing of the Transactions a cash payment of 95% of the principal amount of the Debentures, an additional 2% of the principal amount if they have executed and delivered a validly completed form of election proxy voted in favour of the Company’s proposals on or before the early consent deadline to be set (the 2% will be allocated pro rata to holders tendering by the deadline) and an additional payment of the lesser of (i) 3% of the principal amount or (ii) the total amount released to the Company from the Escrows, in priority to any distribution to FIU shareholders from the Escrows.
It is likely that these holders will receive 97% of principal value, which is significantly better than the 70% the market had them pegged at a week ago. The debenture holders will have no choice to accept the deal since otherwise they will be converted into common equity of the company.
Debentures (TSX: FIU.DB) are trading at bid/ask 90/91 cents on the dollar, so people wanting to pick up the cigar butt off the street for one last puff still have a shot here.
The noteholders will get paid 100% of par value, and also accrue interest up to March 31, 2012. They are likely to be made whole whether they vote for or against the agreement; in the event they vote against the agreement, it brings up an interesting risk scenario. I am wondering why the company did not include a small sweetener for the noteholders as they have the ability to really botch things up for the company by voting against a change in their sledgehammer clause which gives them security over both Mine Waste Solutions and Ezulwini.
Notes (TSX: FIU.NT) are trading at bid/ask 96.5/98.5, so again, there is opportunity to squeak out a few percentage points at the risk of having your capital wound up in some calamity in the unlikely event the vote fails.
Once this is done, the rest of the corporation is going to be winded up.
This ends the sad, sad tale of First Uranium. Onto bigger and better things.
Tim Hortons (TSX: THI) dodged a lawsuit concerning the methods that it uses to bake goods and cost allocation between franchisees and the parent company.
The key quotation is the following:
Under what’s known as the “Always Fresh Conversion” several years ago, the company stopped making baked goods from scratch in each location every day, and instead started shipping partially baked items that had been flash frozen before final baking in ovens at all Tims locations every morning.
This “several years ago”, to my own experience was nearly a decade ago. While I was not a huge consumer of doughnuts to begin with, they were good for parties and the like. After they did this conversion I no longer purchased them and notably did not find any substitute products that were baked of sufficient quality that I could go to.
I’m somewhat surprised that Tim Hortons is able to retain such a high amount of customer share despite the perception of product quality being somewhat worse than McDonalds (NYSE: MCD). Financially, Tim Hortons is quite well managed, with them reporting a 2011 fiscal year earnings that was about 11% better in operating income than in 2010 (adjusting from a one-time gain from the sale of their bakery). Their balance sheet is relatively clean, with a year’s worth of income of long term debt.
They do appear a tad expensive, with a valuation of 22.5 times 2011 earnings.
The lesson for investors is that product branding is a very strong intangible asset of a business. It takes more than flash-frozen not-so-fresh doughnuts to turn off consumers and their fast food habits.
I guess my sour grapes is still remembering staring at my computer screen in 2003 and seeing McDonalds trading at $15 a share and thinking that despite its operational woes at the time, the company was worth purchasing. The original parent of Tim Horton’s, Wendy’s (NYSE: WEN) just doesn’t have the allure at current valuations either – their branding is much, much less valuable. Everybody around the planet knows about McDonalds and this is what makes their brand so powerful.
Apple’s market capitalization is $469 billion. Let’s see what you can buy with $469 billion?
Microsoft’s market cap is $257 billion, and Intel is $136 billion. Throw in Dell for some chump change ($32 billion) and you still have $44 billion left to blow on beer and popcorn.
Alternatively if you wanted to go for a more “online model”, you could pick up Google for $199 billion, and throw in Ebay for $43 billion, Yahoo for $20 billion, LinkedIn ($8.5 billion), Amazon for $87 billion and still have $112 billion left to pick up things like Facebook (presently the IPO is not priced yet).
I’m not saying that Apple is a buy or a sell at existing prices, just that its market gigantic market capitalization means it will be facing the law of large numbers, mainly it becomes more and more difficult to increase your size on a constant percentage basis when you get bigger.
There are some interesting companies available that do not give out dividends.
I’ve started to build a position in a company that is another leader in its niche, in the $500-$1B market cap range, enterprise value roughly equivalent to its revenues. It is seemingly a bit expensive, trading at about 25 times projected 2012 earnings, but it is in a sector where it will obviously be a growth industry and likely they will be able to increase such earnings over the long run.
The most dangerous investment right now appears to be locking your money up at 2% for 10 years in government bonds. Even cash seems to be better than this.