Monday, 8 November 2010

Rumour Mill Yahoo and AOL

Some rumours going on about a merger between Yahoo and AOL or some form of takeover.

Probably spread as someone wants to either offload shares in AOL or Yahoo without tanking the market.

Just look at the spread on Market Cap of each company. It would be like Microsoft  going off to buy Palm - what would be the point ?

Does this deal make sense ? Aside from Blodget who believes the deal makes sense, I doubt management of Yahoo do.

Why would Yahoo want to purchase a stream of dying revenue at a premium price ? If they had the money they may as well go to AIG and purchase an annuity, it would return higher and be less hassle.

AOL's turnover is decreasing rapidly. Current market valuation is way too high and and any premium above this is ridiculous. Consider all the effort to rationalise both organisations and it will detract Yahoo management even longer so the competitors can get even further ahead.

I haven't been a great fan of yahoo, but this merger would be detrimental to Yahoo. The last company that got into bed with AOL incurred a $16billion loss.

So what could Yahoo do ? Well they need to be a bit further on the ball. Yahoo and hotmail have had mail services a lot longer than google...yet google came in and have taken market share. Why ? Yahoo dont even test their email system on linux machines !! How pathetic is that ? Promoting open source OS should be the first thing on their mind when it comes to hurting their competition.

Yahoo's site for feedback is pathetic. There has been some recent improvements but it was an effort to actually send feedback to yahoo. They made it as difficult as possible. Yahoo finance is very good but the lack of quality updates to this destroys the quality and reliability of the data.

If these things I have listed are common across the entire organisation it is no wonder they are experiencing reducing turnover.

An example slow yahoo is ? Where is yahoo's urls shortner ?

Wednesday, 3 November 2010

Quote of the Year - AAPL (Apple)

This has got to be the quote of the year.

RBC Capital analyst Mike Abramsky says he is cutting Apple (AAPL) to underperform from sector perform and his $125 price target to $70 on reduced growth expectations, visibility and near-term leadership uncertainty. He sees a revaluation in the stock toward a market multiple. (15th Jan 2009 - Bloomberg Business Week).

If anyone know where this analyst is now working or whether he has any further tips, let me know. Just do the opposite and you will be sure to make money.

Shorting PLT (Plantronics)

Current Market Capitalisation is $1,800bn. Sales for next quarter estimated to be around $180m. Annual sales say $1,000bn. That is still $800m more than market capitalisation of the company.

Quarterly cash generation "“We generated approximately $25 million in cash flow from operations in the current quarter" from earnings report Plantronics Announces Second Quarter Fiscal 2011 Results.

That is $100m a year. Market Cap is 18x free cash flow. No debt though.

Logitech, Motorola, Jabra all competitors where the items sell for around 50% of the price.

Short Strategy.

40% Shorted now at $37.82 (4000 shares)

Further Positions

20% Shorted at $40.00 (if it gets that far !) So another 2000 shares.
50% Shorted at $42.00 (if it gets that far!) So another 5000 Shares
20% Shorted at $35.00 ( if it falls that far) So another 2000 Shares

Below $34.00 start taking off the short positions at 10% for each 50c below $34.00

So today I have shorted 3000 shares at $37.81.

I have not hedged this against the market, as I feel the market is very high right now. If the market falls another 5% over the next week, I will then go long on the market by the same amount.

Monday, 9 August 2010

Gartner (IT)

IT - Gartner - Share Price 25.28 - Pre Earnings 17th August 2010.

Position : Short Prior to Earnings

Market Cap 2,460m. Revenue last year $1,139m. Net Income last year $83m. Net income prior year $103m. PE of between 24-30. IBM PE is 13. HPQ PE is 12. MSFT PE is 12.

So massive growth ? Well no. 2006 Revenues 1,060m. 2009 Revenues 1,139m. An increase of 7% . Hardly worth a PE of 30.

They have deferred revenue to manage the top and bottom lines. But you cant manage cash flows. Cash flow $162m for 2009 and $184m for 2008. Market cap is still 15x cash flow !!.

Short interest has increased in the last month, though is still low.

Balance sheet - looking not too good. Excluding the deferred revenues and goodwill there is a net deficit of around $67m. The point being there is not a large amount of cash or other assets on the balance sheet.

Operating cash flow for the last quarter was a negative $8m.

Analyst are expecting revenues of $306m for the year with an annual revenues of $1,270m for the current year and $1,410m for the following year. Quarter earnings are expected at 22c.

Estimates of EPS is 1.04c for the current year and 1.26c for the following year.
In reality during the boom times the company has only achieved 1.02c in 2008 and 0.88c in 2009. Last quarter the company acheived 20c.

Even if revenues are fudged, I still cant see how a company that earns $1 in a year is worth $25.3.

Apple is forecast to earn 17.47 for next year. Share price is 260.45. Giving a forward PE of 14.88.

This company is forecast to earn 1.26c giving it a forward PE of 20. Apple at least has a good chance of achieveing this earnings traget.

In terms of options activity there is not much going on to provide any insight.

I am going to short this one on the basis that even if it hits both earnings and revenue targets, unless it is going to compete with the Iphone, the PE ratio is unsustainable, compared to say Accenture, IBM and the like.

Rising Food Prices

On my radar for the next 3-6 months is the increasing cost of food. As the middle classes grow in BRIC countries they will want their share of the food and much more than before. This will have an upward pressure on food prices. This could potentially cause US incomes to drop significantly as a larger proportion of US and European wages are spent on food costs, leaving less around for the discretionary purchases.

Bear in mind though the US wastes a lot of food, so the increasing costs may just cut out the wastage and make people a little slimmer, reducing the economic burden of fat people on the western economies. This will save the US around $117bn a year.

Monday, 19 July 2010

Yahoo Earnings

19th July 2010. Recent upgrade from Thinkequity. Personally I dont believe in upgrades. Looking at the fundamentals.

Market Capitlisation $20.91bn

Sales $6,400 Dec 2009. $6,400 December 2006. So between 2006 and 2009 Yahoo has not increased sales.

Net underlying earnings $724m Dec 2009. $736m Dec 2006.

PE ratio based on underlying earnings 28.9

The only growth in earnings has been in March 2010 of a mere $0.2bn.

Google PE ratio is 19. Sales December 2009 = $23,650. Sales December 2006 $10,640.

Typically I would say that a short on Yahoo would be worth it.

Revenues are expected to be $1,160bn. Earnings per share around 14c.

Expected revenues have already been reduced to take account of Yahoo's loss of market share, so there could be an easy beat, prompting uneducated investors into the share.

However I cant see how the valuation stands up in comparison to its peer group given the lack of growth.

Todays Trading 19 July 2010

19 July 2010. Im looking at the following stocks today. IBM, TXN with earnings to be released AMC today. JPM I am looking to see if there is some sort of bounce after an apparent upgrade and a bashing on Friday. GS gave away gains made on Friday pre market after the agreement with the SEC.

MAT was also bashed on Friday - should be looking for a bounce, it only missed by 1c and Toy Story 3 is a big hit for DIS. Sales of merchandise should help MAT.

EDU - if this misses estimates this will fall big time.

Bank Stress Tests

19th July 2010.

The bank stress test results are being published at 16.00GMT on Friday 23rd July 2010. They will be after markets close st 16:00 GMT.

The banks I am watching this week in the UK are ;

Barclays (BAR)

Im staying well away from other European banks (except Spanish). The German banks have some serious real estate debt and other banks I'm sure they have been lending to some of the former eastern European companies with significant property valuation issues.

Sunday, 18 July 2010

Good news for the Euro

July 15 2010. Spain's sale of 15-year government bonds successful. Italian government wins backing for austerity package. Greece pushes through wage deal, widens pension reform.

Saturday, 17 July 2010

Earnings for 19th July 2010

The following are notable earnings for next week.





Friday: IR, JCI, KMB, ERIC, MHP, SLB, SPAR, VZ, and WIT.

Trading Ideas 17th July 2010

This last week has been a bit manic, no matter how far analyst expectations have been beat, the companies the share price has gone down. The banks particularly have been beat down and given the new finance regulation that is coming into force their future profits should be impacted due to the reduction in risk taking.

In the back of my mind the US employment situation is a bit of a concern, particular for companies that are largely focused in the US.

Next week there are significant number of earnings release and whether this will move the market considerably is yet to be seen.

For the coming month I have put in orders to go Long on the following for EURUSD

1 contract at 1.3215
2 contracts at 1.3420
3 contracts at 1.3625
4 contracts at 1.3830

My rationale is that the US is accumulating considerable debt and the local states are also having significant cash flow issues.

The Euro has been beaten down due to debt issues in Greece, Italy, Portugal and Spain. However what a lot of people fail to understand is that these countries do not suffer from excess spending, more so incompetent and corrupt tax collection policies. An increase in tax collection methodologies together with reduced government spending should see things level out in the medium term.

The other point here to note is that although the Euro has been bashed lately the USD is in much the same position but not yet caught the attention of anyone.

Monday, 12 July 2010

Microsoft - Analyst Recommendation

Janney Capital analyst Sasa Zorovic this morning raised his rating on Microsoft (MSFT) to Buy from Neutral while maintaining his $30. - 12th July 2010.

The last few recommendations, I did exactly the opposite to what Sasa has recommended and was very in the money. This latest upgrade for Microsoft would indicate a good selling opportunity base on the analyst recommendation.

Microsoft trade on very low PE - not far off a company that has zero growth prospects.

Its search engine and mobile apps are about as dead as can be. It has had years to sort out Windows mobile and all it did was provide us with recurring crashes, leaving the gates wide open for Apple. Windows Vista was a disaster and Windows 7.....well we will see. I have in fact moved to Linux as a result of Vista and will never go back to Windows again if I can help it. Nor would I ever by a mobile device with Windows on it.

I know many company CIO's don't like windows...but there once was no alternative. Now with apple coming in, cloud services more available and enhanced security issues...particularly with Windows could be the end to the monopoly on the desktop. Even end users are more familiar with the apple desktop than before. It is far more secure and requires a lot less software to control.

On the server side we all know how unreliable a Microsoft run server is. Unfortunately a lot of software will only run on windows....historically there was no alternative. Now however there are a lot more software developers looking to provide their services on more than one platform as companies seek out cheaper and more secure alternatives.

Could Microsoft be for 2010 what IBM was for the 1990's ? A sitting dead duck ?

Alcoa Earnings 12th July 2010 - AMC

Alcoa Q2 2010 Earnings Release - 12th June 2010

All estimates since last quarter have been revised downward
Price of Aluminum very low over the last quarter

Market Cap is $11,170m

Current Asset - $6,619m. Total Liabilities $21,985. Net deficit $15,366.

Operating Cash flow $200m for the prior quarter Q1 2010 Prior year $1,379 - 2010.

A valuation of $11bn feels high. Historic results are probably not much to go by as we experience an exceptionally high global boom through considerable overspending.

A loss has been made in last 6 quarters except 1.

Large pension scheme deficit

Earnings estimates around $5,050m and 12c a share.

Prior quarter a loss of 19c a share.

Sales growth in the last 2 quarters, compared to same quarter of the prior year of 16% and 17% respectively. Taking prior year June 2009 quarter this would put revenue to $4,960m for the current quarter if this growth continues.

Aluminum prices have seen downward trend over the last 3 months.

USA accounts for 50% of the 2009 sales. The total sales to countries which have or will have some for of austerity measures is around 12%. This could prove detrimental for guidance.

Although China and India are growing the sales to these regions are not substantial. Construction in USA has not picked up and we will not see levels of activity achieved in 2007/2008.

There could be increases to supply in Germany and France due to increases in Car sales though this is unlikely to offset the downward aluminum prices together with the potential lower expenditure as a result of the austerity measures.

In December 2009 Alcoa had revenues of $5,433m yet obtained loss of 19c on these revenues. For March 2010 there was an improvement - revenues of $4,887m but on these revenues returned 2c underlying. So how $5,000m of revenue is going to be achieved with 12c a share as any ones guess. The option buyers though look like they are in the know.

Overall it would appear that both revenue and earnings are unlikely to be beat.

However looking at the current open interest, there is a significant number of calls to puts.

Currently (12th July 2010) there is 229,547 out of the money calls. That is for 229m shares at $10 a share would be $2,290m of value. With a market cap of only $11,170 this is a significant number of call options.

However the call options could have been placed as a result of getting buyers in with a view to close prior to results or alternatively to cover heavy short positions.

Shares as % of float have slightly increased since the last quarter but the shorts are not significant.

Recommendation :

No trade. I would like to short on fundamentals this but I believe the call options buyers are in the know !

Thursday, 8 July 2010


"Given the stock's valuation, there is greater downside risk than upside potential to," wrote Goldman Sachs analyst Sasa Zorovic. He reiterated his sell rating and $53 price target. 05/22/08

Another great quote from a great analyst.

Sales force is now $91.00

Overvalued Companies

The following companies are overvalued in my opinion most of them supported by either large shareholders or incompetent fund managers.

NILE (BLUE NILE) - PE Ratio 53 - Current Share Price 45.98
DG (DOLLAR GENERAL) - PE Ratio 23.76, massive debt , Share price 27.95
FAST (FASTNEAL) - PE Ratio -38 Share price 50.21 (A retailer with a cure for cancer)
ADSK (AUTODESK) - PE Ratio 45 Share Price 24.73 - Anyone would think they invented the iphone
COLM (COLUMBIA SPORTSWARE) - PE Ratio 23 - Share Price 45.68

S&P is currently 1060.

By contract PE ratio for Apple is 21.95.

HELEN OF TROY (HELE) - Updated 8/7/2010

Earnings came in at around 0.60c against expectation of 58c Reported earnings were 59c including the impairment charge. Stripping out the impairment charge gives 60c underlying.

Historically the May quarter has the lowest earnings.

Net Income for the quarter was $18.3m. Extrapolating this at x4 provides for $73.2m in earnings. Market capitalization is $676m. This would be a simple PE of 9.23 excluding any growth.

EBITDA is $26.8m. Say $110m for the year. Using a discount rate of say 15% would provide a valuation of $733m. There is also a further $100m of assets after paying off all liabilities not to mention the property that the company hold. This would bring the valuation between $750 - 850m. About 10% higher than the current share price at a very conservative measure.

Update : Post results the stock has risen by around 5% to 23.17 (at the time of the posting) 8/7/2010.

Wednesday, 7 July 2010



Q1 2011 - 7/7/2010

Share Price 21.71. Earnings out 8/7/2010 before markets close.

Recommendation : Buy


Range of brands. Recent purchase of Sure (large market in UK) and Pert Plus (large shampoo market in US)

Paid $69m for the acquisiton.

Approximate sales from acquisition are expected to be around $65m. If assume a gross profit margin of 35% on this acquisition then they will make around $24m per annum on this purchase.

There will be a strain on the SG&A of around say $6m as a result of increased marketing and product support costs for this acquisition. This will still provide for a revenue stream of around $18m. This pays for the acquisition in around 4 years. If there is amortisation of the acquisition costs over 20 years. This will strain earnings by around $3.5m.

Net annual earnings from the acquistion should be around $14.5m with cash flow at around $18m.

Earnings Target

Earnings target for the year is $2.56.

Revenue is expected to be $161,320m.

Q1 sales for prior year were $143m. Including a 6% increase this will bring sales of the existing product range to $151m.

The acquisition is expected to bring in sales of around $65m. Assuming even spread of revenue this should bring in a further $15m. This will bring sales in around $168m. ?? Not sure why analyst are expecting $161m but will see.

The revenue target therefore seems a little off.

Earnings analysis

On $161m of revenue earnings will be $0.58c assuming SG&A stay where it is - based on analyst expectation.

Potential amortisation strain of Pert acquisition as goodwill is amortised.

SG&A Analysis : Incentive compensation costs were $7.06 million lower in fiscal 2009. Incentive compensation is a very high proportion of overall profits. Around 10%. The prior year SG&A was impacted in the main by compensation payments and increased due to the share price increase and low ball targets. We shouldn't see this happening again.

My view is that if I take the prior quarter earnings of $16,658m which gave around 55c and add on say a further $3m from the acquisition we should get around 63-65c prior to any one-time restructuring charges.

Stock Price

The stock price has underperformed the market over the last 3 months.

Other notes

Effective tax rate is around 10%


Both price earnings and valuation look cheap. The company has some debt but enough cash to pay it off. They are acquiring smaller companies to assist with growth and paying out of current cash flow. Although this hits earnings due to the amortisation of acquisition costs, the cash flow increases.

On a valuation basis the company is around $671m in market cap. Revenue is expected to be around $750m. There is also around $100m of assets left after paying off all short and long term liabilities.

Year ended Feb-10 earnings were $71.817m. The recent acquisition should add around $14.5m to that earnings stream. This brings net earnings to around $86.3m per annum giving a PE ratio of around 7.7m.

Cash flow from operating activities should be around $90m. Assuming all paid out as dividend in the absence of growth opportunities - this provides for a yield of around 13% on current market cap.

Tuesday, 6 July 2010

Analyst Recommendations AMSC

Wunderlich Securities equity analyst Theodore O'Neill reiterated a buy rating and $50 price target on shares of American Superconductor (AMSC) on June 18 2010. Price then was $31.44. Price now on 6th July 2010 is $26.66. Excellent call Theodore.

Analyst Recommendations

Janney Montgomery Scott equity analyst Sasa Zorovic reiterated a buy rating and $40 fair value estimate on shares of Adobe Systems (ADBE) - June 18th 2010. Stock Price then was $33.12. Price as at 6 July 2010 $26.28. Well done Sasa excellent call !

About Me

I try and work a broadly market neutral strategy and based purely on fundamentals and my gut feel.