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Pep Boys - Manny, Moe & Jack Message Board

hageneriksson 529 posts  |  Last Activity: Nov 21, 2014 12:52 PM Member since: Oct 13, 2009
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  • So I will try to explain what happened:

    15 months ago the company issued the convertible note carrying a 5% coupon to TPG together with 12 million shares (equivalent to 6 mln ADRs) at an issuance price of $5.48.

    Clearly the investment was ill-timed by TPG as China's housing market did run into major problems almost immediately at that time. With the shares down more than 50% just 15 months later and XIN having been technically in default with some of the note covenants for some time now TPG is now looking for an exit strategy. With the shares still carrying a dividend (though I suspect it will be eliminated soon) and considering the low daily trading volume TPG at this time can not get rid of the equity stake without causing further heavy damage to the share price.

    But with the notes being in default for some time now they were able to put them back to the company. Given that they are still sitting on an deeply under water equity stake it was in both sides interest to negotiate an amicable solution to the matter. But clearly TPG pressed very hard to get at least partly compensated for the decline in the equity stake and XIN has to pay a roughly $10mln penalty in addition to the nominal amount and accrued interest. All together XIN will have to pay roughly $90 mln to TPG to leave this matter behind them.

    TPG will still remain with the equity stake at this time but frankly speaking they really have no choice here other than converting the shares to ADRs and selling them on the NYSE. The magnitude of share supply would easily cause the share price to tumble below $1 before TPG would be done with selling 6 million ADRs. If XIN will indeed eliminate the dividend in the near future TPG might still decide to exit their stake regardless of the share price implications.

    Clearly TPG has lost patience with the company (or perhaps with the Chine housing market overall) and is actively trying to reduce exposure.

  • The latest earnings were bad - really bad. The company continues to struggle with almost everything and there were no real improvements visible from an already very weak Q1. Gross margins dropped 4.1% qoq which is almost too bad to be true. Given the ongoing dismal performance of the company some investors obviously feared bankruptcy to become an short term option and sold out regardless of the price point.

    And while bankruptcy might very well be in the cards at some time going forward the company isn't there yet. Delia has a few million dollars of cash on hand coupled with more than $8 mln in restricted cash (supporting letters of credit). And they still have $16 mln available under the Salus Capital credit line.

    They also carry almost $30 million dollars of inventories on the balance sheet while bank debt and accounts payable stand at a combined $20 mln.

    At current prices the market cap of the company is just around $20 mln which clearly is a "left for dead" valuation especially when considering that the company has NO current or even medium term liquidity issues given the balance sheet and the huge credit line availability. Furthermore I would doubt that the activist investors involved with the company would give up on Delia even after some more poor quarters.

    Even more noticeable management guided for some improvement in Q3 on the call - and given the bombed out share price ANY kind of improvement in revenues or gross margins might trigger a huge rally in the shares.

    Even with another ugly quarter the company is not at risk of immediate bankruptcy so I guess the shares shouldn't drop much further anyway.

    Would expect the shares to recover most of their earnings related losses going into the Q3 earnings release in December.

  • hageneriksson by hageneriksson Oct 3, 2014 1:10 PM Flag

    another bad deal with Orbomed - company forced to sacrifice even more of potential future revenue streams just to stay afloat here. Obviously cash has been running dangerously low - AGAIN.

  • hageneriksson hageneriksson Sep 11, 2014 2:00 PM Flag

    They were spot on GOMO and they put out a pretty detailed report on VNET which has months of field work in it so they clearly have some valid points here.

  • The only way the company seems somewhat cheap here is using the overall FY2014 expected eps number of $1.99. But that will soon be history.

    Going forward into FY2015 margins will be much lower and tax payments will move up from basically zero to a whopping 30% rate. Current FY15 eps estimates still seem way too high here given the new information revealed on the conference call yesterday.

    To make things worse the Wolfson acquisition is a major failure at least for now as the business all of a sudden needs huge capital investments while their revenues and margins are falling off a cliff. And despite the troubles at Wolfson they did not renegotiate the purchase price.

    The ever decreasing margins with regards to the Apple business are an ongoing theme but clearly they don't help things here either.

    So looking to FY15 eps is currently projected to go down 25% to $1.51 but these estimates will soon have to come down significantly given the new margin reality, the Wolfson issues and the huge tax rate increase.

    Putting all this together an FY15 eps assumption of $1.30 still looks pretty optimistic here - the truth might come closer to $1.10 to 1.20.

    Using the current $19 share price you have a company with decreasing margins, increased tax rate, a poor looking acquisition and still severe customer concentration trading at a forward p/e of around 17.

    I don't know of any other company with these characteristics that trades at a p/e that high. I see downside for the shares to around $12 here just to kep their current p/e valuation going into FY15.

  • hageneriksson hageneriksson Oct 30, 2014 2:10 PM Flag

    you will of course lose even more as there is not a single catalyst for educated or institutional investors to buy the shares here.

    (1)
    The huge cash position has turned into net debt due to a seemingly ill-timed and perhaps even ill-fated acquisition. No chance for dividends anytime soon.
    (2)
    Ever decreasing margins.
    (3)
    New 30% tax rate.
    (4)
    Initial IPhone 6 ramp soon history with Apple revenues falling back to a more sustainable level going forward (as always).

    So I guess peak revenues, lower margins, higher taxes, net debt levels and a major acquisition underperforming expectations by a wide margin arent't the ingredients to make the shares a strong buy.

    The shares are expensive at these levels and actually most of the smarter guys in the market are pretty much aware of this fact as evidenced by today's price action. One of the best short ideas in the market currently.

  • Reply to

    Conf Call

    by graffpw Nov 12, 2014 12:15 PM
    hageneriksson hageneriksson Nov 12, 2014 12:37 PM Flag

    utter nonsense - the payment timing does affect the cash position at quarter end but NOT reported revenues and margins. It also doesn't explain the lowered FY14 revenue guidance and the giant miss on gross margin guidance. And of course it does not explain the push out of profit targins for another year. The company stinks, management stinks and the shares should be avoided at any cost.

  • hageneriksson hageneriksson Sep 16, 2014 8:52 AM Flag

    yes - they are right - PIP is prevented from any kind of enforcement action under chapter 11 - same thing was done by the asbestos companies 20 years ago.

  • Reply to

    AT shareholders in panic mode

    by jewhoo3 Sep 16, 2014 10:46 AM
    hageneriksson hageneriksson Sep 16, 2014 1:03 PM Flag

    most shareholders remained in the stock because of the dividend - with this incentive mostly gone investors are moving on. I can't blame them. The stock is dead money at the very best but I wouldn't be surprised at all if this will undergo chapter 11 proceedings with two or three years from here.

  • Reply to

    Just hit ...

    by epb2840 Sep 23, 2014 7:35 AM
    hageneriksson hageneriksson Sep 23, 2014 8:39 AM Flag

    Great they waited until their stock has become almost worthless to do a mostly stock based deal. Looking at the CEO pictures the Nexage CEO can now refocus on heavy drinking obviously. Nexage is a shame of a company which has mostly worthless inventory in its exchange according to adexchanger.

    Analysts not impressed at all on the conference call with some questions about the cash cushion arising. "24 months" was managements' answer. So we are looking for CH11 at the end of 2016 at the very latest.

  • hageneriksson hageneriksson Sep 22, 2014 3:25 PM Flag

    as long as the current margin weakness persists the shares should be avoided at all costs

  • I feel pity for the buyers of the shares this morning

  • hageneriksson hageneriksson Oct 3, 2014 7:03 PM Flag

    Sure - they will do a reverse split after the rights offering is done to keep the listing - actually there's really nothing wrong about that. Until then they would easily get an exception from the NYSE.

    That said at the moment it is really not important for Standard General if the company has a NYSE listing or will be traded on the OTC as their investment will take years to play out. The $120 million equity injection won't be the last cash infusion as Radioshack easily burns triple that amount within a few months. After being diluted to 20% in the first step current shareholders will be diluted further beyond recognition as Standard General can easily dictate the price of new debt conversions.

    Current equity holders will soon own close to nothing of RadioShack while Standard General will most likely be at 99,9% within a few months. If they will be able to turn the company around they will stand to earn all the profits while current shareholders get nothing (or very very close to nothing).

  • Reply to

    Earnings out - much better than Q1

    by loontrader Aug 28, 2014 6:38 AM
    hageneriksson hageneriksson Aug 28, 2014 8:00 AM Flag

    nonsense - company didn't deliver on its own shipment and especially margin guidance. All metrics have worsened compared to Q1 and guidance is for continued gross margin pressure going forward. There's no way the company will turn a profit in Q3 or even Q4. Would like to hear how they plan to address the upcoming convert maturity.

    VERY disappointing results and outlook - much worse than other companies in the sector when looking at the gross margins

  • Reply to

    wow - things get worse at UNIS

    by hageneriksson Oct 3, 2014 1:10 PM
    hageneriksson hageneriksson Oct 3, 2014 2:12 PM Flag

    There's no other reason why they had to go back to Orbimed sooner than expected and beg for more cash. They needed the cash BADLY and they needed it now. And they need even more as evidenced by another $10 mln they hope to get soon.

    And because they caught Orbimed by surprise they had to make further concessions which means they are sacrificing future potential revenue streams to Orbimed. I would love to learn about the details of the new concessions as they will be pretty substantial once again.

    The company remains uninvestable and with all potential future revenue streams already mortgaged to Orbimed there's little for shareholders to recover once they run out of cash sometime at the end of next year.

  • Reply to

    wow - things get worse at UNIS

    by hageneriksson Oct 3, 2014 1:10 PM
    hageneriksson hageneriksson Oct 3, 2014 2:06 PM Flag

    You must be joking - if they had ANYTHING to offer they wouldn't be forced to make even more concessions to Orbimed to get some much needed cash. This has been a bad deal from the beginning and now things have become even worse. What the hell does management do with all the cash they are burning so fast ???

  • hageneriksson hageneriksson Aug 28, 2014 2:02 PM Flag

    obviously PLUG shareholders are even too stupid to check the SEC site for the filing

  • hageneriksson hageneriksson Oct 8, 2014 10:06 AM Flag

    $11 but this will go much lower - the company was lucky to improve its balance sheet during these glory days of huge margins but once again some business decisions look outright dumb here. The restart of the Madera plant will be a severe drag to margins due to start up costs and even worse negative margins on the ethanol produced. I don't expect anything else than disaster on the next conference call. Should the current business conditions persist the stock is hard to value but should be no higher than $3

  • hageneriksson by hageneriksson Oct 30, 2014 9:13 AM Flag

    gross margins projected to move even lower next quarter while revenues will stay the same - company is going to evaluate their procedures to go after new contract signings to avoid more losses

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