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Standard Pacific Corp. Message Board

  • oldschoolbuilder oldschoolbuilder Feb 1, 2007 9:14 PM Flag

    All things considered, a GOOD QTR

    Let's put this in perspective:

    Debt (that is, revolving credit line) fell by over $300 mil. (MORE THAN THE $200 MIL. PROMISED BY MGT.!).

    That means the company now has over $700 million of free capacity on its revolver. That's the most important thing. Liquidity crisis? I think not!

    Moreover, the company should easily be able to pay down the remainder of the revolver in 2007 (AS PROMISED BY MGT!) by further reducing inventory.

    Yeah, the impairment charge was nothing to sneeze at but it's not much different than what other builders are doing. More importantly, closings were better than expected AND at reasonable gross margins (19%) AND SG&A was lower than expected--which means the company is executing well on its strategy to liquefy the balance sheet and delever.

    In addition, it appears as if demand is improving and cancellations are falling. This should ultimately enable the company to improve its balance sheet further and be well positioned for the eventual upturn.

    2007 closing guidance assumes a 20% decline from 2006. This may be a little tough yet doable given the increase in communities slated for 2007. Margins seem in the ballpark but depend on market conditions. But even if SPF earns $0 profit in 2007 (before impairments) while reducing debt by $300-500 million, it will be in good shape from a balance sheet standpoint to participate in the eventual upturn.

    Focus on the cash flow. Nobody cares about profits in 2007. Having a good balance sheet for 2008 is what counts.

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    • <Debt (that is, revolving credit line) fell by over $300 mil. (MORE THAN THE $200 MIL. PROMISED BY MGT.!).>

      MAYBE BECAUSE THEY DELAYED COMPLETING THE OVER 3600 HOMES UNDER CONSTRUCTION AND OPENING SOME COMMUNITIES?

      <That means the company now has over $700 million of free capacity on its revolver.>

      YOU WANT TO BET? NOTICE THEY DIDN'T MENTION HOW MUCH WAS LEFT ON THE REVOLVER? AT THIS POINT, THEY ARE VERY LIKELY NOT MEETING THE INTEREST COVERAGE RATIO REQUIREMENTS AMONG POTENTIALLY OTHER COVENANTS LIMITING BORROWING CAPACITY. HOPEFULLY THIS ISSUE WILL BE ADDRESSED ON THE CONFERENCE CALL TOMORROW

      <Focus on the cash flow.>

      WHERE DO YOU THINK THESE GUYS ARE GOING TO GET THE CASH TO COMPLETE SPEC HOMES AND OPEN 100 COMMUNITIES?

      • 2 Replies to alstry
      • Q: How much is left on the revolver?

        A: $289.5 mil -- down from $593.8 mil. -- look at the balance sheet please.

        Q: How will they build out specs and communities?

        A: Inventory initially goes up--funded by ST working capital financing--then goes down -- as the buyer pays for the home delivered to him. Cash levels typically go down in 1H as homes are being built and then rise in 2H as homes are delivered. The company has over $700 million in working capital financing capacity. Is that too difficult to comprehend?

        Q: Will covenants be violated?

        A: Probably not as EBITDA (measured before impairments) is likely to comfortably exceed interest costs. Covenants can be changed if things get too hairy.

      • Follow up to the following:

        WHERE DO YOU THINK THESE GUYS ARE GOING TO GET THE CASH TO COMPLETE SPEC HOMES AND OPEN 100 COMMUNITIES?


        And spend the money to build the homes currently in backlog and not to mention paying the over $40 million per quarter in interest and those pesky salaries of the executives and employees and all the other overhead and advertising expenses?

        Are you related to these guys?

    • Sounds great! So what's the stock worth? Is it the normal historical cyclical industry multiple for the builders, or do we take that multiple down a notch because we have at least another year of even lower earnings?

      Once you figure out what that price range is, take a look at what the stock is trading at now.

 
SPF
8.00-0.13(-1.60%)Sep 19 4:01 PMEDT

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