Yes, very disappointing that their earnings declined after a double of their plant size. They got negative leverage off the capital investment. I still suspect some of that might be temporary. Although they haven't disclosed it, I'm still guessing that costs associated with the April/May product recall were not insignificant. And their operating costs have probably gotten ahead of the relative plant capacity increase. Didn't the added machines and bigger plant cause them to run out and hire another layer of management? Operations Manager or Director?
Other than acting as a primary vendor for Polaris, I think we're going to need to accept the fact that WSCI's future lies in being a go to for spillover product demand. Perversely, our nation's increasing energy production (although that's not leading to increasing sales in WSCI's energy biz) is causing our dollar to strengthen. That's only going to make matters worse for WSCI in the future. Buying from overseas machine shops will get cheaper in the future relative to domestic producers like WSCI. We'll be relegated to only serving quick delivery needs. That's a very tough, less profitable, position to be in.
And .... maybe the prospect of a strengthening dollar is the primary factor that keeps a ceiling on this stock now, and for some time to come.
Yep. Makes sense. Same ratio as me of shares given in oversubscription ... to ... shares from exercise of original rights ... 4889/1428 = 3.424.
Yes. There were journal entries hitting my acct at Fidelity before the mkt close today. At that point, I could have called in and they would have let me know how many shares I got from any oversubscription request. Then, I could have simply shorted that many shares and closed that short against shares delivered from the rights offering. I suspect that's what you were seeing today, and most of that was likely coming from hedge fund activity. However, most of the selling action will happen tomorrow, when people will log in and see the shares in their accts. Tomorrow (Tuesday) should be a massive volume day that will put today's volume to shame.
IB. Just posted (10/27). Oversubscription results. Requested ratio, oversubscription shares to shares from exercise of original rights 23:1. Actual allocated 3.4:1
Fidelity. Posted to my acct after mkt close today (10/27). Was able to have them immediately journaled as an offset to existing short position to stop the meter on carry costs on the short.
IB. Nothing yet. Probably before open tomorrow (10/28).
Just got off the line with Fidelity. Some funky journal entries were hitting my acct. within the last 10 to 15 minutes. They are making the necessary entries to deposit the shares into the acct after market close today. So, they will be available for trading tomorrow.
Yes. They were part of an offering of rights. If you owned the stock prior to 9/17, you were issued 1 right for each share you owned. You could trade 7 rights + $5.75 for a share of GAB. And, if you exercised all your rights, then you could also request to buy some of the stock that other right holders did not buy (oversubscription). However, your requests had to be submitted by 10/17. The stock that resulted from that rights offering is due to hit accounts at some point today or tomorrow. But, the opportunity to get GAB at $5.75 is now behind us.
Footnote 3. If that debt was termed out over a 15,20,25 year period, I'd agree. But almost all of it is due within the next four years. And, for a company in a highly cyclical industry, carrying a 30 - 40% debt to equity load is about right. Beyond that is a stretch. So, what happens if a nice contract comes in, but the company needs specialized equipment to complete the work?
I'd rather see them put a concerted effort into finding longer-term financing on their facility. That $4.2 M maturing in 2018 puts a real pinch in their financial flexibility. If they could get that debt termed out over the next 25 years, instead of a balloon within 4, then maybe there could be room for a dividend boost. Until then though, best to hold cash, focus on debt repayment. IMHO.
But, what the heck do I know? I think WSCI should be a $7 to $8 stock now, on its way to $9+ within the next year. It's not even close. So, obviously, I'm clueless.
A dividend rise would not be wise. Once they start paying cash taxes, then cash flow declines appreciably. And too, this is a highly cyclical industry. Best to strengthen the balance sheet right now, pay down some more debt.
The shares from the offering are supposed to be posted into our accts today. If anyone has seen those shares posted, please indicate here and the brokerage you're dealing with. I am curious as to whether this is done uniformly across all brokerage firms, or whether there can be lags of 1,2,3 days, depending on your broker.
Unless there's something that has not been communicated to us, WSCI is anywhere from 20 - 50% undervalued right now. I can't see why we shouldn't be assuming EPS to be in the .50 - .60 range in FYE 2015. Can you? Just one more piece of business and .50 - .60 could be conservative. It could be higher. Put a reasonable 15 PE on the .50 - .60 though and we should be trading between $7.50 and $9.
So what's driving the sellers to let this stock go so cheaply? What information do they have that the rest of us don't yet see or understand?
The math is a little more complicated than you think. The average ratio of oversubscription shares requested to shares from original rights exercised was about 3.1 to 1. If your request had a higher ratio than 3.1 to 1, you'll get less than 1/2 of what you requested. If you're about at 3.1 to 1, you'll get about 1/2 what you requested. If less than 3.1 to 1, you'll get more than 1/2.
sec-bubba, it appears you requested about 8500 shares compared t the 1428 you got from exercise of original rights. That's a ratio of about 5.95 to 1. I suspect you'll get somewhere between 30 - 40% of your request. That's just an educated guess on my part and I could be wrong though. But, it will be interesting to find out. So, let us know.
This is why I'm so upset about the lack of disclosure on any expenses associated with the April/May recall. We know that about 80 to 100 motorcycles were involved. The problem was insufficient gap between crankshaft and crankcase. We know the motorcycles could not be ridden. Customers had to find a way to transport them back to a dealer for inspection and repair. So, there were transport, inspection, new part, and repair labor costs. And there's no telling how many other parts in inventory had to either be junked, or re-worked. Even if WSCI only incurred $300 or $400 K in costs associated with this recall, that's still around 7 cents a share. If we knew this, we could discount the 7 cents into their results. It would be then reasonable to see this last quarter as a .17 quarter if not for this one-time event. And, it would be reasonable again to assume that on average, the company could be earning about .14 - .18 per quarter x 4 = .66 per year, going forward. Put a 15 PE on that and you have a $9+ stock !
Instead, we know nothing about the recall costs. We assume that they will only be doing about .10 x 4 = .40 a year x 15 PE ... $6 stock.
The lack of disclosure could easily be costing us 50% upside on the current price of the stock.
This is why disclosure is Sooooooo important. And we aren't getting enough disclosure here. Paul and Ben are to blame. And if I was sitting on the BOD, I'd be ripping them a new a**h*le and taking away bonuses. There's no excuse for keeping shareholders in the dark over important issues like this.
With all the Aerospace work going around these days as a result of $BA pushing the envelope in production, you'd think that WSCI could break into that market. It will happen. And when it does, it will come out of left field. And it only takes one contract to send this business soaring. And ironically, even a $30, $40, $50 M piece of work would be peanuts to the likes of a $BA, $UTX, $TGI, $HON, et al., but be absolutely massive to WSCI.
But that brings up another critical issue that this mgt team never addresses. Where does WSCI stand in terms of capacity utilization of their plant and labor?
e9wood, next time you talk with Paul, ask him why they don't disclose this key piece of operating data. And see if you can find out where they stand on this. Thanks for your help and contribution to this board e9wood.
e9wood - Yeah, but how's the WSCI / Polaris relationship these days given the April/May recall? Ask Paul next time you talk with him.
Their energy business did not grow this past year, while domestic shale drilling and rig counts were hitting all-time highs. So, if it didn't grow this past year, I don't think we can count on it growing next year. Domestic drilling will fall in 2015 because of the weakness in oil prices.
Energy is such a minor part of WSCI's business anyway. And, I suspect that WSCI is only being used as a secondary producer of energy part(s). The primary is likely a low labor cost Chinese vendor who ships the slow boat to the US. If the boat doesn't arrive on-time, a call is made to WSCI for quick delivery. More and more, that's the primary role that domestic machining companies play. Either that, or a roll like WSCI plays with Polaris .... quality and JIT (just in time delivery) are key to customers like Polaris.
Don't get me wrong. I am long WSCI and have high hopes for them into 2015. But, I suspect much of today's weakness is coming from a lack of communication from WSCI. We still heard nothing about the April/May product recall. OK, so maybe it had no or little financial impact on WSCI. But, did it impact their relationship with Polaris? It was a tremendous disappointment that they have still not addressed this issue.
When I look at my IB acct, the GAB is either indicated as GAB.EX - shares for rights exercised, or GAB.OS - oversubscription shares. Again though, these are markers only. They can not be traded. They simply serve to offset the fact that cash has been removed from my acct and sent to Gabelli. But, that does not assure that I will receive all the shares I asked for in oversubscription.
Fidelity is not so elegant. They simply remove the cash and use no markers. So, on a temporary basis, it appears that my account value has declined in value by the amount taken and sent to Gabeilli for rights exercise. Those shares likely won't show up though until next week.