|submitted by HiIAMCaptainObvious to BitcoinAll [link] [comments]|
*** Updated Researchsubmitted by Bruticus91 to ASX_Bets [link] [comments]
SWK provides an amazing opportunity to take advantage of the bull market in precious metals at an undemanding valuation with excellent operational momentum.
Precious metals have had a phenomenal ride lately; both due to fear arising from COVID-19, and coordinated monetary policy stimulating economies at an unprecedented level. The graphic below shows the recent parabolic move in GLD (overshadowed by SLV) and reflecting upon the 08 crisis and the numerous QE policies that followed, this upward trajectory may continue further.
GLD vs DJIA (2006-Present)
With rises in commodity prices, the logical next step is to get some operating leverage and purchase the gold miners. No doubt, this second level thinking has been handsomely rewarded albeit encountering the sovereign and FX risks with many of the global miners domiciled in South Africa and Russia:
DRDGold, Polyus and Polymetal (April 20 - Present)
Since many of these miners are in the process of expanding production, cash flow won't be realised for several years and operating margins may not improve as much as managements' forecast (i.e. ASX: DAC). Further, since the market has drawn the logical connection between commodity prices and miners, these companies have run a very long way in the last few months.
This is where SWK provides us with a cheaper and lower risk opportunity to gain access to this thematic. SWK provides drilling services to large miners of metals (i.e. nickel, silver, gold etc.) in US, Canada, Europe and Australia. Specifically, they use specialised drills to extract samples, which they analyse to then assess to the viability of a site. Increasing demand for mining exploration will, intuitively, increase drilling utilisation and drilling rates. SWK also entirely owns Orexplore, which provides mobile sample analysis to determine the characteristics of extracted cores. This improves the efficiency of examining the quality of a site by removing cost (transportation and storage), timing (it can be conducted on-site), and operational risk (damage in transit) all of which further benefit the mining co. and embed SWK into the exploration process.
SWK’s competitive advantage is being able to a world class cost effective and efficient underground drilling. For example, their development of DeepEX allows for longer hole from underground that are cheaper than many shorter surface holes. Their recent contract extension from BHP at Olympic Dam despite competitors (i.e. MSV and BLY) rigs being used onsite is testament to their value proposition.
SWK has also invested heavily (~$25mn) into their Orexplore technology in an attempt to move up the value chain away from high-capital intensive drilling into a higher margin business. This technology removes significant operating expenses (employees and equipment), reduces lead time (can be built and shipped globally within 2 weeks), is very simple to use (technical training is not required), and most importantly, is currently being purchased for free and is the main catalyst in this investment (more on this later).
Furthermore, SWK has made a concerted effort to increasingly diversify their product offering to different miners (with exposure to various commodities), and geographically. Their global and diversified footprint has provided them with a world-wide footprint, with costs to build their global business already incurred (most recently in Pogo – Alaska), further encouraging a buyout (more on this later).
FY19 Financial Report
H1 2020 Financial Report
Catalyst and Valuation:
The primary catalyst for a revaluation in SWK is a huge macroeconomic tailwind providing momentum that might facilitate a sale of the drilling business to a strategic buyer. Without doing too much crystal ball gazing, I view the exit opportunities as follows:
5% - Amazing sale of drilling business = >100%+ returns;
65% - Solid sale of drilling business = 50-100% returns;
20% - No sale and general re-rate = 25-50% returns;
10% - Languishing business and capital destruction = -25%-0% returns.
Given management’s firm guidance towards the sale (https://www.openbriefing.com/OB/Swick-Mining-Services-Ltd/2020/2/25/Swick-HY20-Results-Conference-Call/3716.aspx at ~08:00) I will focus on our base case that entails: (i) selling or closing surface drilling business as it’s the lowest margin / weakest vertical; (ii) selling underground drilling business; and (iii) refocus towards Orexplore either through taking the business private, IPOing a new entity or rebranding SWK.
Given shareholders have been frustrated with SWKs delay in progressing the business towards a sale and having difficulty commercialising Orexplore it has been important to wait for a noticeable inflexion point in the business to attempt to “time” entry as much as possible. Let’s see how the inflexion point is here beyond the macroeconomic environment above.
Miners around the world are aggressively looking to expand their operations due to increasing commodity prices and SWK's services become front of mind. Recent news is ticking all the boxes and adding huge momentum in the stock to catalyse a re-rating.
ASX Announcement 1
ASX Announcement 1
ASX Announcement 2
ASX Announcement 3b
Ok, so let’s turn our attention to the forward guidance and conservative estimates for SWK. SWK against mostly all metrics is very cheap. Management have forecast EBITDA to be ~$25mn in FY20. Although I think we can conservatively estimate this to grow significantly throughout FY21.
The improvements to EBITDA will come from the following: (i) commercialisation of Orexplore = $0.5-1mn, (ii) ~$3-4mn in reaching steady state (20%) margin from the Pogo contract as costs normalise and backdated earnings flow through; (iii) ~$2mn in operating expense reduction during COVID-19; (iv) the $120m increase in the order book between 30 July and 14 August implies $120/5 = $24m p.a. at a slight discount to target margin of ~15% gives another $3.5mn EBITDA. Putting this all together FY21 EBITDA might be ~$35mn.
In addition to the purchase of Deepcore, we can use the current valuation ratios of MSV and CAPD as a guide. Currently competitors trade between 3.5x (CAPD) and 4.5x (MSV) EV/EBITDA multiples. If we use 4x as a reasonable multiple on current EBITDA, this would imply an enterprise value of ~$100mn (or a 30% upside) whilst paying nothing for Orexplore. Upon conservative forward FY21 EBITDA figures, the enterprise value could easily reach ~$150 (or a 100% upside) again paying almost nothing (only $1mn / $35mn in EBITDA) for Orexplore.
By way of reference, SWK with similar metrics in 2011/12 was trading at a ~100% premium (i.e. ~40c (market cap $90-110mn) whereas now it is ~$20 (market cap $50mn). A decade ago, it also did not have the same existing clientele and large-scale contract wins (see 3a above with a forward order book of $363mn (relative to current revenues of ~$150mn).
The cherry on top of this investment is Orexplore, which we buy for free. None of the revenue and earnings multiples above include any real impact from Orexplore. On 14th August the commercial viability of Orexplore was been partially validated with their first contract win. Although its value is only $700,000 over 6 months this call option like payoff comes entirely for free. Further, the true profit margins of SWK has been hidden due to the losses incurred from Orexplore, which has to date cost $25mn in R&D (or equal to almost 10yrs of earnings), the amortisation of associated software development, and continued global expansion (Portugal and Europe before North America) each requiring initial costs prior to achieving target margins. Even better we get a first glimpse at how attractive Orexplore might be. Combining discussion in the latest conference call (https://www.openbriefing.com/OB/Swick-Mining-Services-Ltd/2020/2/25/Swick-HY20-Results-Conference-Call/3716.aspx 04:30 - 06:30) with the recent contract we can conclude the following: (i) 3 machines at Sandfire will generate ~$3.6mn in revenue covering approx. 50% of cash flow with nearly no operating expenses; (ii) $700,000 for 6months scanning 1500m of core per month implies ~$75/m (against an estimated $100m from guidance). As per guidance, if we assume Orexplore machines can scan ~$4m/hr ($300hr) and total costs may include one unskilled technician and minimal overheads ~$50mn this provides a gross margin of ~75% (or almost 4x undergrounding drilling). Due to the profitability of Orexplore, 15-20 operational machines on yearly contracts would provide greater earnings than SWK’s entire business. Hopefully the publicity of Orexplore at Sandfire can attract some attention, and in turn some additional contracts.
No investment is without its risks, and for SWK they fall into: (i) capital mismanagement; and (ii) poor communication / delays. Firstly, the recent capital raise at ~23c followed by aggressive buybacks at ~12.5-14c-17c seems unwise. Although buying now avoids this dilution, it is unclear why excess capital was required if dividends and buybacks were announced shortly thereafter. Secondly, the share price has historically languished due to a lack of publicity and detail on the transformational Orexplore. It is likely that management were unwilling to oversell the Orexplore narrative before genuine contracts were won and the technology was established. Now that these are in place, hopefully the corporate restructure can take place and the upcoming strategic review can provide a clearer picture for the near term.
Hi,submitted by Dr_Sargunz to CanadianInvestor [link] [comments]
This is my first attempt at writing a DD report. I hope it makes sense.
Just a few cautionary words:
IntroductionToromont Industries Ltd. (TSE:TIH) provides specialized equipment in Canada and the United States. The Company operates two business segments: The Equipment Group and CIMCO. The Equipment Group supplies specialized mobile equipment and industrial engines for Caterpillar Inc. (NYSE:CAT). Customers for this business segment vary from infrastructure contractors, residential and commercial contractors, mining companies, forestry companies, pulp and paper producers, general contractors, utilities, municipalities, marine companies, waste handling companies, and agricultural enterprises. CIMCO offers design, engineering, fabrication, and installation of industrial and recreational refrigeration systems.
The Company was founded in 1961 and operates out of Concord, Ontario. As at December 31, 2019, Toromont employed over 6,500 people in more than 150 locations across central/eastern Canada and the upper eastern United States.
The primary objective of the Company is to build shareholder value through sustainable and profitable growth, supported by a strong financial foundation.
Description of the 2 Main Business Segments
ManagementCEO, Scott J. Medhurst has been with the company since 1988. He was appointed President of Toromont CAT in 2004 and he came into his current position as President and CEO in 2012. He is a graduate of Toromont’s Management Trainee Program.
CFO, Mike McMillan joined the executive team in March of 2020. His predecessor, Paul Jewer is retiring this year and has been working with McMillan during the transition period.
VP and COO, Michael Chuddy has been with Toromont since 1995.
On average, leaders have 29 years of business experience and have served at Toromont for 19 years. Seeing long tenures, good stock performance, excellent business planning and execution is usually a sign of strong leadership. In addition, insiders hold more than 3% (~$175 million) of the company’s outstanding shares. Medhurst owns more than 170 thousand shares, Chuddy owns just under 100 thousand shares and the former CEO and current Independent Chairman of Board of Directors, Robert Ogilvie owns more than 2 million shares, making him the 4th largest stockholder. High insider ownership typically signals confidence in a company's prospects. Compare this to Toromont’s main Canadian competitor, Finning, where insiders own less than 0.4% ($12 million) of the company (this number varies depending on where you look, I just took the highest one I found).
Recently insiders have been selling stock (Figure 1). I cannot speak to the reasons why insiders are selling but the remaining position owned by the insider is sizable and demonstrates that the executive still has confidence in the company. Some of the reasons insiders sell are: they don't believe in the company’s future, they need money for personal use, they are rebalancing their portfolio, among others.
Figure 1: Buy and selling activity of insiders (the data is from MarketBeat, so take that for what it's worth).
On a somewhat unrelated but still related note, 50% of Toromont employees are also shareholders.
Growth StrategiesToromont has five growth strategies (expand markets, strengthen product support, broaden product offerings, invest in resources, and maintain a strong financial position). I chose to focus on the following two strategies, as they seemed most prevalent.
Growth Through AcquisitionRapid growth in this industry is generally driven through acquisitions. Toromont has gone through multiple acquisitions since the 90’s:
This acquisition allowed Toromont to make headway into the Quebec, Western Labrador, and Maritime markets, as Hewitt was the authorized Caterpillar dealer of these regions. Hewitt was also the Caterpillar lift truck dealer of Quebec and most of Ontario and the MaK marine engine dealer for Québec, the Maritimes, and the Eastern seaboard of the United States (from Maine to Virginia).
Toromont had total assets of $1.51 billion before the acquisition, the acquisition added $1.024 billion in assets, nearly doubling the balance sheet (look at Figure 2 for more details about the acquisition).
Figure 2: (all numbers are in thousands) The final allocation of the purchase price was as of Dec 31, 2018, Note 25 of 2018 Annual Report. $1.024 billion was added to the Toromont’s B/S
Large acquisitions like this one can be the downfall of a company. Here are some of the risks highlighted by management at the time of the acquisition:
The result of the acquisition and Hewitt’s integration with Toromont’s existing business produced a 39% increase in EPS in 2018 and 14% increase in 2019.
DividendToromont pays a quarterly dividend and has historically targeted a dividend rate that approximates 30 - 40% of trailing earnings from continuing operations.
In February 2020 the Board of Directors increased the quarterly dividend by 14.8% to $0.31 per share. This marked the 31st consecutive year of increasing dividends and 52nd consecutive year of making a dividend payment. The five-year dividend-growth rate is 12.09%.
Table 1: Information about the last eight dividends
Risks/Threats and MitigationDependency on Caterpillar Inc.
It goes without saying that Toromont’s future is heavily dependent on Caterpillar Inc. (NYSE:CAT). For those who don't know, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. It has a market cap in excess of $68 billion. All purchases made by Toromont must be made from Caterpillar. This agreement has been standing since 1993 and can be terminated by either side with 90 days notice.
Given that the vast majority of Toromont’s inventory is Caterpillar products, Caterpillar’s brand strength and market acceptance are essential factors for Toromont’s continued success. I would say that the probability of either of these being damaged to an unrecoverable point are low, but at the beginning of this year, I would have said the probability of the world coming to a complete stop was very low too and look at what happened. Anything is possible. The reason this is a major consideration is because it's a going concern issue. Going conference is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary. This term also refers to a company's ability to make enough money to stay afloat or to avoid bankruptcy. If there was irrevocable damage to Caterpillar’s brand, Toromont is no longer a going concern, meaning the company would most likely be going bankrupt or liquidating assets. The whole Company might not go under because the CIMCO, SITECH, and AgWest business units would survive but, essentially ~80% of the business would be liquidated.
In addition to the morbid scenario I laid out above, Toromont is also dependent on Caterpillar for timely supply of equipment and parts. There is no assurance that Caterpillar will continue to supply its products in the quantities and time frames required by Toromont’s customers. So if there is supply chain shock, like the one we just saw, there is the chance that Toromont will not have access to sufficient inventory to meet demand. Which in turn would lead to the loss of revenue or even to the permanent loss of customers.
Again, both of these threats have low a probability of occurring but either could single handedly cripple Toromont’s business. As of now, Caterpillar continues to dominate a large market share (~38% as per Gurufocus) in the industry against large competitors like John Deere, CNH Industrial, Cummins, and others.
Caterpillar's stock has been on a slow decline for a couple years but that is due to reasons beyond the ones that directly concern Toromont’s day-to-day operations. I would say if you don't believe in Caterpillar’s continued market share dominance, investing in Toromont is probably not for you.
Shortage of Skilled Workers
Shortage of skilled tradesmen represents a pinch point for industry growth. Demographic trends are reducing the number of individuals entering the trades, thus making access to skilled individuals more difficult. Additionally, the company has several remote locations which makes attracting and retaining skilled individuals more difficult. The lack of such workers in Canada has caused Toromont to become more assertive and thoughtful in their recruitment efforts.
To combat this threat, Toromont has/is:
Cyclical Business Cycle
Toromont’s business is cyclical due to its customers' businesses being cyclical. This affects factors such as exchange rates, commodity/precious metal pricing, interest rates, and most importantly, inventory management. To mitigate this issue, management has put more focus on increasing revenues from product support activities as they are more profitable than the equipment supply business and less volatile.
Environmental Regulations Affecting Customers
Toromont’s customers are subject to significant and ever-increasing environmental legislation and regulation. This leads to 2 impacts:
Impact of COVID19
While the company had been declared as an essential service in all jurisdictions that it operates in, Q1 2019 results were lower as a function of COVID19 reducing activity in many sectors that Toromont services. Decline in mining and construction projects lead to a decrease in demand for Toromont products in the latter part of the quarter. Revenues were trending for 5-7% growth for the quarter before the effects of COVID19 were felt.
Management cannot provide any guidance on how to evaluate the impact of COVID19 on future financial results. They are focusing on ensuring the continued safety of employees and working with customers and the jurisdiction they operate in to evaluate appropriate activity levels on a daily/weekly basis. Lastly, management is keeping a close eye on how this crisis has led to an increase in A/R delinquencies and financial hardship for customers.
The Executive Team and the Board of Directors have taken a voluntary compensation reduction. Wage increase freezes and temporary layoffs have been implanted on a selective basis. Management believes that expanding product offerings and services, strong financial position, and disciplined operating culture positions the Company well for continued growth in the long term.
Toromont competes with a large number of international, national, regional, and local suppliers. Although price competition can be strong, there are a number of factors that have enhanced Toromont’s ability to compete:
Main Competitor in Canada: Finning International Inc.Finning International Inc. (TSE:FTT) is the world's largest Caterpillar dealer that sells, rents and provides parts and service for equipment and engines to customers across diverse industries, including mining, construction, petroleum, forestry and a wide range of power systems applications. Finning was founded in 1933 and is headquartered in Vancouver, Canada.
I am sure there are some people looking at this table and thinking Finning looks rather promising based on the metrics shown, especially in comparison to Toromont. Finning’s dividend yield, P/E, and price/book look more attractive. Their top line is 2x. Not to mention it operates worldwide and is the only distributor in the UK, while Toromont only operates in half of Canada.>! Before you go off thinking “I need to use my HELOC to buy some Finning,” as some people on this subreddit are prone to do, ask yourself: do you see any cause for concern in the metrics listed above? !<
One glaring question I have is: why is Finning trading at half of Toromont’s market cap given that it operates internationally and has twice the number of employees and revenues of Toromont?
Q1 2020 Financial Results
Figure 3: Q1 2020 Income Statement
Overall operating income, net earnings, and EPS all decreased even though Toromont saw an increase in revenue for the quarter compared to Q1 of 2019.
Assuming the world does return to “normal,” many of Toromont’s customers (especially in mining and construction) may try to catch up for lost time with increases to their operational activity, leading to an increase in Toromont’s sales for the remainder of the year. Of course this is a major assumption but it’s a possibility.
Below is a comparison of the last eight quarters. You can see the clear cyclical nature of their business.
Figure 4: Last eight quarters of earnings
Sources of LiquidityCredit
Financial AnalysisAnalysis of Debt
Historically, Toromont has had very low debt levels. The spike in late 2017 was due to the acquisition of Hewitt. Management paid off the debt aggressively in 2018. At the end of December 2019 Toromont had $650 million of debt maturing between 2025 and 2027. As a result of COVID19 the company has taken on more debt. This additional access to debt accounts of the slight uptick in historical debt in 2020 (Figure 5).
Figure 5: Toromont’s historical debt, equity, and cash
The long-term debt to capitalization ratio is a variation of the traditional debt-to-equity ratio. The long-total debt to capitalization ratio is a solvency measure that shows the proportion of debt a company uses to finance its assets, relative to the amount of equity used for the same purpose. A higher ratio means that a company is highly leveraged, which generally carries a higher risk of insolvency with it.
The debt-to-equity ratio is at 47% and debt-to-capitalization ratio is 32%, Toromont has $388 million in cash that could be used to pay down debt by nearly 50% and bring the net debt-to-equity to 23% and net debt-to-capitalization to 18%. As mentioned before, management is holding on to cash to insure sufficient liquidity during these times.
The implication of these ratios is that Toromont does not take on large amounts of debt to finance growth. Instead the Company leverages shareholders equity to drive growth.
For comparison, Finning has a debt-to-equity ratio of ~100% (it differs between WSJ, 99%, and Yahoo Finance, 101%). The nominal amount of their total debt is ~$2.2 billion, which gives them a long-term debt to capitalization ratio 62%. Finning carries $260 million in cash.
Figure 6: Toromont’s debt-to-capitalization and debt-to-equity ratios
Return on equity (also known as return on net assets) measures how effectively management is using a company’s assets to create profits.
Toromont’s return on equity is generally around 20%. Go to Figure 6 to look at the ROE for the last 4 years. In comparison, Finning has had a ROE of ~11% for the last three years, about 3% in 2016 and a negative ROE in 2015 (as per Morningstar).
Return on capital employed (ROCE) tries to find the return relative to the total capital employed in the business (both debt & equity less short-term liabilities). Toromont’s ROCE (ttm) for March 31 2020 was 22%. This means for every dollar employed in the business 22 cents were earned in EBIT (earnings before interest and tax). Finning had a ROCE of 11% as of December 2019.
Working capital is the amount of cash and other current assets a business has available after all its current liabilities are accounted for. In the last ten years, Toromont’s working capital has fluctuated between 1.6 at its lowest (2018) to 2.8 at its highest (2016). At the end of 2019 it was at 1.8. Meaning current liabilities equate to 60% of current assets.
Interest coverage ratio is used to determine how easily a company can pay their interest expenses on outstanding debt. Toromont has an interest coverage ratio 15x (as per WSJ). Finning on the other hand is at 4x. At this point I feel like I'm just beating up on Finning.
For those of you who made it this far, I have to admit something to you. This whole post is just a facade to ask you a question that has never been asked on this subreddit before: Should I buy BPY.UN? It keeps going down and I'm worried if I buy it, it will keep going down and I'll lose money. I don't want to lose money. Although if you go through my post history, you'll see I've been looking at/buying penny stocks.
Key Performance MeasuresBelow is a chart with key financial measures for the last four years. A few things I want to highlight:
Price Chart ComparisonsI don't do technical analysis. To those who do, good luck to you because let's be real, you'll need it. This section is just to get an idea of past performance and evaluate the opportunity cost of investing in Toromont compared to a competitor or a board based index fund.
I thought it would be easier to look at pictures as opposed to reading a bunch of numbers off a table.
For the sake of not creating a picture album of screenshots, I just looked at charts for the last 5 years. If you're interested in looking at different time intervals you can do so on google finance.
These are the only two Caterpillar distributors on the TSX, making them direct comparisons. If I was looking for exposure to this industry, I would be choosing between these two companies (on the TSX anyways). There isn't really much to evaluate here. It's like they saying: “A picture is a thousand words,” or in this case, it's 128%. If you have time, go look at the graph from August 1996 to now. I can safely say it hasn't been much of a competition. Toromont has outperformed by ~2500% in stock price appreciation alone. If you're a glass half full kind of person, I guess you could look at this disparity as Finning having enormous upside. LOL
If I'm not buying individual stocks, I’m buying the S&P 500 and to a lesser extent a Nasdaq index fund. This gives me a second look at the opportunity cost of my money. The story is not as bad as the Finning comparison. If you had bought $100 dollars of Toromont stock 5 years ago, it would have turned into $207 today, whereas the same $100 dollars in VFV would have became $157.
Just a quick aside, you can see the volatility in Toromont’s stock is much higher compared to the VFV. VFV has a relatively smooth trend upwards while Toromont trends upwards in a jagged path. This is the risk of single stocks, they move up and down more erratically, leading inventors who don't have a grasp of the business or conviction in their pick to panic sell or post countless times on Reddit asking why their stocks keep going down. “I bought the stock last week and it's done 3% already, do you guys think it’s going bankrupt? I thought stonks only go up???”
The S&P/TSX Capped Industrials Index isn't my favourite comparison for Toromont because its constituents cover many industries ranging from waste management (WCN), to railways (CNCP), to Airlines (AC, lol, had to mention it. I miss the days when there were double digits posts about AC. I wonder where those people have gone, because I can tell you where AC stock has gone... absolutely nowhere). Regardless, I used TTIN because I deemed it a better comparison to Toromont than the entire TSX. The story is on par with the other two comparisons. Toromont’s out performance is significant.
I just threw this bonus chart in here because when I saw it, I was like BRUHHH (insert John Wall meme)… It's completely unsustainable but that's impressive given the vast differences between the two.
Now, of course, past performance does not dictate future results and all that good stuff, but it really gets you thinking about how the rewards disproportionately favours winners compared to the overall market. People are generally happy getting market returns (i.e. the just buy VGRO people) but being able to pick even a few winners really pays. This reminds me of the Warren Buffet quote: “diversification is protection against ignorance.” The context of the quote is that if you are able to study a few industries in great depth and acquire a wealth of knowledge, you can see returns astronomically higher than those who diversify across the board market. The problem then becomes you put yourself at risk of having all your eggs in one basket. Look at what's happening with Wirecard in Europe right now. This is why the real skill in investing is managing risk.
Analyst Price Targets and EstimatesThe prince targets set for by analysts range from $63-$81. The average price target is ~$72, with the majority of targets within the 70-$71 range. Given the current price of $65.66, there is a ~10% upside. These price targets haven't changed much due to COVID19 even though revenues and EPS forecasts have been downgraded for 2020. The consensus estimate on 2020 revenues is $3.36 billion, down from the actual revenues of $3.69 billion in 2019 and the consensus EPS for 2020 is $3.01 down from actual EPS of $3.52 for 2019 and $3.10 for 2018. The fact that revenues and EPS forecasts have been downgraded, yet price targets remain untouched, for the most part, indicates that the effects of COVID19 are expected to be short-lived.
Figure 12: Earnings and estimate ranges for Toromont. Note: EPS numbers in this graphic are diluted EPS numbers.
Assuming P/E ratio stays the same as it has been for the last 12 months (~19x) and EPS goes down to ~$3.00 (as per analyst consensus), the implied price would be $57.
Using the last 12 months of revenues, the EV-to-Revenues ratio is at 1.56x. Assuming that ratio stays the same and with revenues estimated to be ~$3.36 billion, enterprise value (EV) comes out to $5.2416 billion. Using Q1 2020 figures for shares outstanding (82.015 million), cash ($388.182 million), and debt ($745.703 million), the implied price for a share is $58.94*.
\Note: Enterprise Value is equal to market cap plus total debt minus cash.)
Dividend Discount Model
The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value.
The average dividend growth rate is 12% for the last 5 years is 12%. There is no way Toromont can increase the dividend at this pace in the long term, thus, I chose a long term dividend growth rate of 5%. This is the assumed rate in perpetuity. The required rate of return will equal WACC, 6.85% (averaged from 2019 Annual Report). The dividend over the last year is $1.16 (two payments of $0.27 in 2019 and two payments of $0.31 for 2020).
The fair value equals $65.84.
Figure 13: DDM calculation.
Closing ThoughtsThere is no doubt that Toromont trades at a large premium. The current P/E is 19x and the CAPE ratio (Shiller P/E) is 26x. The fair value of the Company as per Morningstar research is in the mid $60 range.
Based on all valuations I did and analyst price targets, I would start buying in the high $50 range or maybe the very low $60 range, but my belief in the company has to do with long term thematic trends and how the Company operates, rather than today's price. Although I have to admit, the price does look more attractive now than it did in the beginning of June when the stock hit new all time highs. It seems like the only companies hitting new all time highs these days are tech companies, so it's refreshing to find a non-tech company achieving the same feat.
Toromont is not going to double next year or the year after that. It is a relatively low margin business, with slow growth and a cyclical business cycle. I like that the Company has strong financials, low debt, and good management. They don't take shortcuts or unwarranted risk. Future growth will mostly be driven through acquisition, but management is cautious with acquisitions and don't overextend themselves. One of the biggest problems Finning has been facing for the last couple years is political and social turmoil in South American countries which is affecting their mining clients and thus affecting revenues/margins.
The Q2 earnings are reported on July 22 202. We should have a clearer picture on the prospects of the Company from management. Hopefully we have a better idea of the COVID19 situation by then too. Regardless, I think the company is in a position where its services will always be in demand so short term fluctuations are not something that shake my confidence in this pick.
Limitations and Further Areas of ResearchBy no means is this an exhaustive due diligence report. This is enough for me to feel confident in the business and its trajectory. Limitations/further areas of the research include:
>! I know I took a few shots at people in this post. It's all in good jest. If you're offended well.... maybe you should be. I don't know, you have to figure that out on your own or you could make a post on Reddit asking random people on the internet whether you should be offended or not. !<
Remember I'm not an expert, I'm just a random guy on the internet.
DisclosureI am long Toromont. This information is not financial advice. Please do your own research and/or talk to a financial advisor. All data provided is current prior to the market opening on June 29, 2020. Inconsistencies in data can be due to many reasons, the foremost being that data was spruced from multiple different websites.
Alright you American autists, here's a gains post from the UK across the pond - listen up because it's pretty incredible, managed to screw over our broker to turn ~£8k into £98k / $128k USD by reading the small print, true u/fuzzyblankeet style.submitted by mppecapital to wallstreetbets [link] [comments]
Unfortunately, we don't have options trading, commission free robinhood which crashes, or any other US based degeneracy, but instead we British chaps can trade "CFDs" ie. 'contracts-for-difference', which are essentially naked long / short positions with a 10-20% margin (5-10x leveraged), a 'holding cost' and you could theoretically lose more than your initial margin - sounds like true wallstreetbets autism, right? Well grab a lite beer (or whatever you lite alcoholic chaps drink over there) and strap in for this stuff:
So, CMC Markets, a UK based CFD brokerage, wanted to create a West Texas Intermediate Crude Oil 'Spot' product, despite WTI contracts trading in specific monthly expirations which can thus have severe contango effects (as all of you $USO call holders who got screwed know) - this was just a product called "Crude Oil West Texas - Cash", and was pegged to the nearest front-month, but had no expiry date, only a specific holding cost -> already a degenerate idea from their part.
So in early April, just before when the WTI May-20 expiry contract 'rolled' at **negative** $-37, the "WTI Cash" was trading at $15 at the time, but the *next* month June-20 expiry was still $30+ we (I am co-running an account with an ex-Goldman colleague of mine) simultaneously entered into a long position on the "WTI - Cash" product, and went short on the "WTI Jun-20 expiry", a pure convergence play. Sure enough, the June-20 tanked the following week, and we made over £35k, realised profits. But meanwhile the May-20 also tanked, and we were down £28k. But rather than realise this loss, we figured we could just hold it until Oil prices recover, and profit on both legs of the trade.
However, CMC Markets suddenly realised they are going to lose a lot of money with negative oil prices (Interactive Brokers lost $104m, also retards), so they screwed everyone holding the "WTI - Cash" product trading at $8 at the time, and pegged it to the December 2020 expiry trading at $30, with a 'discount factor' to catch up between the two.
Now fellow autists, read the above email and try to figure out what the pure arbitrage is. CMC markets will charge us a 0.61% **per day** holding cost (calculated as the 10x levered value of whatever original margin you put up, so in our case £8k*10x=£80k*0.61% = £500 per day, £1.5k on weekends for extra fun) on our open positions, but also "increase" the position value by 0.61% per day vs. the **previous day's** WTI - Cash value. Got it yet? No? Still retarded? Here's where maths really helps you make tendies:-> If your 'cost' is fixed at 0.61% of your original levered position, but your 'gains' are 0.61% of the previous day's position, then your gains will be ever increasing, whereas your costs are fixed.
So we added some extra £££ (as much as we could justifiably put into a degenerate 10x levered CFD account) and tried to see if it works. Long story short, it does. At this point in July we were making **over £1k per day on a £8k initial position*\* regardless where the WTI Dec-20 fwd moved.
Unfortunately, eventually CMC markets realised what utter retards they were, and closed down the arbitrage loophole, applying the holding costs to the previous day's value. But not before we turned £8k into £98k, less holding costs.
Long story short, puts on $CMCX they're total retards, and given what a startup robinhood / other brokerages are, never assume that only they are the ones taking your tendies away, sometimes you can turn the tables on them!
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With margin trading, you’re effectively boosting your gains from market swings, opening up your trading horizons, and letting you, the trader, explore new trading opportunities and strategies. This then allows you to use leverage for the short, or long term gains on a variety of cryptocurrencies, giving you a bigger earning potential compared ... While they may seem fairly alike at first, there are a number of ways to differentiate between them when comparing the concepts of margin vs leverage. 1. Margins: 1.1. Margin trading is the practice of using assets owned by an individual as collateral for soliciting a loan from a broker. The loan received is used carrying out trades. Trading on leverage in a margin account contains a big dose of risk. If you haven’t properly calculated your money management strategy, you can easily wipe out your account and go bankrupt. What is the relationship between Margin and Leverage? You use margin to create leverage. Leverage is the increased “trading power” that is available when using a margin account. Leverage allows you to trade positions LARGER than the amount of money in your trading account. Leverage is expressed as a ratio. Leverage is often put in ratios like the one above when trading currencies. So in a currency transaction, if the leverage offered is 25:1, then for every dollar of your money in the transaction, you are borrowing 24 dollars. If you want to open a position worth $1000, at a 25:1 leverage you are putting in $40 and borrowing $960. Margin
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