Thursday, July 29, 2010

Nevada Gold Earnings and Conference Call.

When reading the most recent press release and listening to the conference call for Nevada Gold, I was stunned by how well things are going.

It is looking like the company will be having $4-$4.5 million in EBITDA over the next year- the best part, is that they expect to be making money in the coming year, which, after today, is pretty damned obvious. They are not done doing acquisitions and will be very diligent responsible in their pursuit. There may well be a bigger acquisition, with the help of the company's predominant lender, who has voiced interest in helping the company out. They have also been looking at other funding options.

The acquisition prospects of SunCruz is all but dead.

When looking to buy more casinos in Washington, while wanting to "play in a bigger sandbox" the company wouldn't mind buying more mini-casinos at the right price, due their being "little cash cows". Presently, they want to let the dust settle operationally.

The company had a small loss for the quarter when excluding 1 time charge offs and such; the main one, was an impairment to goodwill, which doesn't really change my estimation of what the company is worth...

In the last 2 days of conference calls, I was VERY pleased with this one and less than thrilled with CTHR's (despite them doing what seems to be a good job). Overall, I am happy. Again, the results for UWN vastly exceeded my expectations and I look forward to seeing what the guys in Houston are going to be to pull with this growing company.

Disclosure: I am long UWN and have no position in any other securities mentioned. Always do a ton of your own research when doing or thinking about anything that I talk, do, or even think about!

Wednesday, July 28, 2010

Charles and Colvard Earnings and Conference Call

Reading the 8K with earnings and revenue info, all I have to say is "Wow. This has the potential to be really impressive. They sold a ton of stuff, but, didn't get paid for it."

This quarter, over the same one from a year ago, revenue is up 152%. Accounts receivable are up by over 700%; from $.363 million, to $2.59 million. The bottom line improved by $1.5 million, meaning that the company earned 2 cents a share. For a different perspective on revenues, accounts receivable are up, over the last 6 months, from $1.04 million, when they had $2.36 million in revenue, to $2.58 million at the end of the present filing period, on revenue of $3.32 million.

Note how the company recognizes revenue from the last 10K:

Revenue Recognition - Revenue is recognized and title passes when products are shipped from our facility, excluding consignment, or memo, shipments as discussed below. Our standard payment terms are generally between 30 and 90 days. Some customers are required to prepay prior to shipment. At the time revenue is recognized, an allowance for estimated returns is established. Any change in the allowance for returns is charged against net sales. Our return policy allows for the return of jewels for credit within 30 days of shipment and must be returned for a valid reason, such as quality problems or a shipment of the wrong jewels. Some customers have a contractual right to return a certain percentage of goods for any reason. In these instances, we only recognize revenue when the contractual right of return is exhausted. Periodically, we sell jewels to customers on memo terms. For shipments on memo terms, the customer assumes the risk of loss and has an absolute right of return for a specified period. Our customers are generally required to make payments on memo shipments within 60 days upon the customer informing us that it will keep the jewels. Accordingly, we do not recognize revenue on these memo transactions until the earlier of (1) the customer informing us that it will keep the jewels or (2) the expiration of the right of return period.

As I read it, the earnings of 2 cents a share are not yet cash, and, really, are reliant upon jewelry stores and distributors selling (what I will sarcastically refer to as) a mine's load of Moisonite. This is a typical company that is in the process of making a niche for itself, and without said niche, is screwed. With that said, insiders have been buying, which gives a shareholder some level of comfort. To get rid of $2.5 million in product, it would be like 250 stores selling $10K of Moisonite jewelry each... Which, with margins that are acceptable for the jewelry industry, seems could be sustainable (to just pull a number out of the air for the illustration).

In the conference call, they were sure to note that costs are getting under control due to cost saving initiatives and that cash levels are up.

They changed accounting for inventory, from FIFO to average cost, which, I suppose makes sense when you are dealing with something that is essentially a branded/non-essential/commodity that doesn't have a shelf life. It could be a way of hiding cost increases or decreases of the item, though.

The company is distributing to military stores, mail marketing catalogs, Home Shopping Network (starting in October), and opened of a store in Asia. Reorders for loose stones are up month over month. And they are working to grow their foreign markets, such as Russia and India.

On the call, a whopping 3 1/2 questions were asked by 1 guy... I should have been on the line, rather than streaming, but oh well... Here is a summary of the Q&A:

Q: Opening of Jewelry Outlet, is it part of the business model?
A: Would love to see it expand, more of a test

Q: Do distributors mind the fact that they compete with you?
A: No, they are open with the distributors, and generally don't compete with them in the same channels (eg military bases and HSN)

Q: Christmas season distribution?
A: Hopeful for the prospects, but when working with big companies, things tend to move slowly. Very hopeful for the future of the company due to the shows they have been a part of.

We are way out of net-net turnaround territory. Now, it seems that we are betting on the marketing that the firm can do for what Debeer's and every other diamond vendor will call "fake diamonds". With that said, if there is any company that can pull this off, I think that CTHR is a likely one. The only problem is that it is so hard to quantify what the company is worth, that I wouldn't want to think about buying shares at these prices; there is no doubt that there is less of a margin of safety than last year. Things were a lot easier and more clear when the company was at (and below!) net cash, all while in the midst of getting some great executives... It was obvious that it was worth more than that!

Tomorrow, it will be interesting to see how the market reacts to the filing. I will look forward to seeing if Ollin Sykes continues on his buying spree.

Disclosure: Long CTHR. This is not investment advice. Always do a ton of research and thinking before you do anything that I say, think, or do.

Monday, July 26, 2010

Nevada Gold Mini-Casino Acquisition.

Here, we learn a little bit more about the UWN acquisition of 7, no, scratch that, 6 mini-casinos in Washington.

I think that it certainly is attests to the shrewdness of management that they were able to back out of the purchase of one of the casinos. They only allocated a dollar for the purchase of the money losing mini-casino.

It is reassuring to know that management doesn't seem to only care about growing the top line of the company. Having the foresight and ability to structure a deal in this manner are impressive; having the guts to not allocate capital after having previously committed it, is truly business like and unemotional in the best way.

I do like that the company is buying 6 casinos, rather than 7, at 3-4x EBIDTA. This will not only keep fixed costs from rising so quickly, but, will also let the company focus their efforts. Synergies are vast, considering that Nevada Gold already has a good chunk of the mini-casino market in Washington. Additionally, the final numbers (as a multiple of EBIDTA) could be better than expected, since, the 7th casino was likely bogging down results.

UPDATE: Here, we learn that there will be a conference call on this Thursday, where the company will discuss financial results. I am looking forward to this and will post some notes and thoughts on the matter. :)

Disclosure: I am long UWN. This is not investment advice. Don't do anything that I think or write about without doing a ton of thinking and research on your own.

Thursday, July 22, 2010

Sometimes, it's best to take a pass... (SEYE)

As investors, we only like to talk about the things that we did right. This is not going to be one of those posts... Despite the dent that it might put in people's perception, I think that it is important to talk, and more importantly, THINK about dumb things that you have done, why you did them, learn from it, and not repeat the screw up. If you have any of your own stories, email me. We can discuss them and if you want, I will even post your stories.

Feel privileged, this is about what is probably the most boneheaded capital allocation decision that I have made in the past 5 years. While it didn't hurt much financially, as far as errors of thought and logic go, it is right up there with me burning money on a bank that looked cheap a few years back...

This stock that I had at one point been building a position in, was Signature Eyewear. As the company had been making strides to reduce debt and raise cash, I was naturally quite impressed with the financial results of the company. Trading at a P/E of just under 5, there seemed little that could go wrong on, the face of things.

The company basically just designs and sells eyeglasses, under license agreements with brands such as Dakota, Bebe, and the like. It also has it's own value line that has generated pleasing results. Insiders own a ton of the company and are incentivised- another plus.

One thing that I noticed before starting to initiate my buy orders (in a series that lasted well into the new year), was that the company generated A TON of their sales from 1 product line (literally, around 1/2 of revenues): Bebe. Since the license agreement didn't expire for nearly 9 months, I figured that I could send emails in regard to the renewal process to management (with some other questions about the business), as I was buying, rather than before. "After all," I thought, "I don't want for this potential multi-bagger to fall through my fingers!" Mistake.

My communications with management? You ask? Not only did I not once receive an answer to my numerous emails (spaced out by a matter of weeks, just so I wouldn't get annoying), I didn't receive a single answer to any of the numerous phone messages that I left. What really made me angry, was that I was in a position to own a significant amount of the company, and couldn't get into a 5 minute conversation with a guy, who, by definition, works for me! Furthermore, I was trying to contact the person whose contact info was on their press releases for communications!

After deciding that I had enough, and after many weeks, I was finally able to get rid of my shares at a slight loss. Had it not been for some scheduling conflicts involving the VIC West, I would have gone to the annual meeting of shareholders for SEYE, just to try to get an answer to the reasonable questions that I had; it isn't like I was wanting insider information, just some general info about the business! But, I needn't digress.

As of today, literally, many months later, there has been no word on if the license has been renewed, though, there was a CT Order filed with the SEC. Lots of times, these sorts of orders are to protect trade secrets and such. Regardless, we presently have no idea what is going on with either the filing or the Bebe agreement. I guess that we are supposed to wait until the next 10Q to find anything out about this Material Contract. Maybe, the contract was renewed, and there was no need to report the contract... I honestly don't know. But what I do know is this, in virtually every other contract that they have renewed or begun, they announced it publicly. I also know that the whole situation makes me uncomfortable.

Personally I think that when management won't talk to the very people whose capital they are allocating, it is best to simply take a pass; unless of course, you plan on going activist, such as is/was the case with the Polonitza Group at ITEX, Carl Icahn at Motorola, or The Lion Fund at Friendy's or Steak 'n Shake. In the case of Signature, it is particularly disturbing, since generally, managers in small companies love to talk to you. Some of the most educational conversations that I have ever had, involved sitting down with the CEO of a nano-cap company (either in person or on the phone) and just asking questions.

While I admit that there is potentially a ton of upside for the stock of Signature, there are a lot of companies out there with a greater margin of safety, simply because they are more transparent.

Disclosure: I have no position in SEYE. This is not any sort of advice and is merely opinion. Do your own research when even so much as thinking about anything I talk or think about!

Monday, July 12, 2010

The importance of a good track record for compensation.

In the Case of Nevada Gold (UWN) a potential pitfall of an investment (in a company that is presently losing money) is that executive compensation seems verrrry high considering the small size of the company. If a potential investor would only look at, say, a 10Q or the income statement, they could have the potential to be repulsed and pass over what could be a great investment.

In the case of UWN, when looking at the proxy Robert Sturges is compensated quite well... to the tune of more than 1/2 a million dollars a year, in addition, he some outstanding options. Other execs are compensated quite well, also. One of the nice things that we see in the proxy is a brief history of execs employment, which you can do some research on. Here is what the company has to say about Bob:

Mr. Sturges has been CEO of Nevada Gold since October, 2006. He has over 25 years of gaming industry experience including over 15 years with Carnival Resorts & Casinos and Carnival Corporation. Among his many accomplishments as President of Carnival's Gaming Division, Mr. Sturges oversaw the development and operation of the Casino Rouge Riverboat in Baton Rouge, Louisiana, and Casino Rama Resort and Casino in the Toronto, Ontario, Canada market. Earlier in Mr. Sturges career, he also served as Deputy Director and Director of the New Jersey Division of Gaming Enforcement. Until recently, Mr. Sturges was a board member of Benihana, Inc. (Nasdaq: BNHN - News) and served as the Lead Independent Director, as well as a member of the Audit, Compensation and Executive Committees. Mr. Sturges is a limited partner of the Miami Heat NBA franchise. He is a graduate of Dartmouth College and a cum laude graduate of Rutgers School of Law.

Now, certainly, this is a statement that could be fudged or even lied in to make the company sound a lot better than it should. However, in an age where Google can find just about anything, we can learn a lot more about the previous statement.

For example, we can see the great appreciation in the stock price of Carnival Cruise lines while Struges was involved in the gaming operations of the company, a time in which he was working with Micky Arison the CEO of Carnival Corp. Their relationship continues to this day, with the Miami Heat.

We can also learn a bit about Sturges' and Arison's involvement with the Miami Heat. Apparently, he was instrumental in getting the team to Miami, is presently a limited partner in the team, and
surrounds himself with smart people. In addition, the futures market provided to us by sports betting favors what the heat have managed to do by buying a triumvirate of awesome. In predicting a champion for next year, it appears that opposing teams (other than the Lakers) will have to assassinate players on the Heat to stand much of a chance.

Take a look at the director positions that Sturges held in the past: Benihana and Americredit. One had a pretty bad impairment and some dumb debt usage that put the company in a precarious position with a credit crisis bank. The other seems to be well run. To make a long story short, Sturges resigned from the one that went downhill and is still with the good one. Notice in the press release from Benihana, the company makes no mention of him not disagreeing with management or the board- a rarity, at best. Again, Sturges is still with the one that is making money, which also is fortunate enough to have the Leucadia guys on board.

Sturges is also connected in with the New Jersey Division of Gaming Enforcement; I can't think that this sort of connection would ever hurt a company. With the company engaging in management of various casinos both in Vegas and formerly in the Caribbean, butting elbows with people that know gaming in the North East as well as in other areas may well provide valuable leads and relationships for the company; people like to do business with people they know.

I will re-iterate that the company is embarking on an expansion plan that I like: buying casinos for 3-4x EBIDTA. If one looks at the numbers, it appears that they are buying these things with cash and debt for significantly less than they were purchased in previous years. The debt is issued in the form of notes, which have favorable terms for all parties involved. Furthermore, when integrated into the system of casinos that they presently have in the area, cost efficiencies will occur and earnings will improve.

Bottom line, I think that, as a shareholder, I am getting a good deal on Sturges. As icing on the cake, he has some outstanding options, and owns a chunk of the company, which provides him with some good incentives.

I will add in that I don't think that the company will immediately become profitable. However, I think that the prospects are great for the casino owner/operator, and when coupled with the potential sale of a ton of land that the company owns, makes for an interesting company. This company will be doing a ton in revenue in no time and it looks like it will be generating nice returns on invested capital. Also, when calculating out an intrinsic and/or liquidation value for the company, you probably want to stay away from a heavy reliance on book value for any sort of back of the envelope calculation or rule of thumb thinking... There is a lot, and will continue to be a lot of goodwill on the books that may make a net-net Grahamite uncomfortable. I reiterate that the earnings power of the company has the potential to be tremendous.

Disclosure: I am long UWN. This is not investment advice. Don't do anything that I think or write about without doing a ton of thinking and research on your own.

Saturday, July 3, 2010

International Baler Quarterly Filing Thoughts.

After having a few days to think on the 15 pages that make up the most recent International Baler (IBAL) 10Q I am just as happy with the results as I was when I saw them yesterday. I was happy to see that the company had better results than I had originally expected.

The day after the release, I was surprised that no shares changed hands, and the bid/ask spread stayed roughly the same. Regardless, here are some brief thoughts.

Income: The company earned 2 cents a share; which, if extrapolated to 4 quarters, gives the company a super reasonable P/E of ~7 1/2. I will be absolutely shocked if the company can get to fiscal 2008 revenue/earnings, but 2007 seems reachable in the coming quarters; if that happens, we can expect a super low P/E of 5; it seems irrational for the market to value the company in such a way, especially in the low interest rate environment that we are in.

Cash Flow: While cash flow was negative, it was offset by increased inventory and accounts receivable levels over the last quarter. I view these 2 increases as close to money in the bank, and a show that revenues in the next quarter will be bolstered by the increased in inventory levels.

Balance Sheet: The company presently has cash of $1.25 million against a market cap of $2.9 million. In addition, when comparing customer deposits to the last quarter, they swelled by over 400%; from $107K to $445K this is a very good trend for the company, and is certainly a symptom of the the recovering economy. It sheds some light on coming revenues; which will undoubtedly be healthy, especially if the economy continues to improve or even putter along.

One of my favorite facts about the company is that it has a balance sheet that could take years of record low revenues; such as the ones that occurred in March of last year, when the bottom of the world fell out.

Sarbanes Oxley Risk: Here (thanks to Alex for passing the article along to me) and here, we see that Rep. Barney Frank expects for small public companies to remain without some of the burdensome costs of Sarbanes Oxley. I suppose that this makes me feel better since almost all of my stock holdings are in nano-caps; but, even if lawmakers would hurt them, I would imagine that companies would implement some form of reverse share split, get below 300 shareholders, quit filing with the SEC, trade on the Pink Sheets, and ultimately save some money.

Regardless of what happens with the legislation, it probably doesn't matter much, either way; I can't imagine that OTC investors would be scared away by their stocks trading on the Pink Sheets. Furthermore, if legislation doesn't force tougher audit laws, then we are essentially where we are now. The only foreseeable result of this that would piss me off would be if the company was taken private with some super low ball offer that values future cash flows at nothing, much akin to what the Steiner Family attempted to do with Dry Clean USA (now, Envirostar). I doubt that this would be able to happen though, since the company would probably lose it's NOL's.

Frankly, this company offers a TON of upside with minimal downside. It is likely, in the event that the company would liquidate, it would end up returning money to shareholders. While I don't want for or think the company will liquidate, it is a way of seeing the safety in the investment. In light of there being no litigation against the company, a chunk of cash, adjustable SG&A, real estate on the books, insider buying, and owners/operators/board members that are business savvy, I reiterate what I have said in the past: I see no reason why this company is not trading at book value. This company is exactly the sort of thing that Warren Buffett would have invested in back in the partnership days.

For those of you that want some more info on balers check out the stuff here.

Disclosure: I am long shares of IBAL. This is not investment advice. Do your own research before doing anything related to anything I talk or even so much as think about.

Baling Machines

Thanks to Bryan @ Forex Fraud for getting in contact with me and doing this write up.

Disclosure: I own shares of a company engaged in the design, manufacture, and sales of balers. Do your own research before doing anything that I so much as think about. Stocks can be risky.

Baling Machines

In today’s green-friendly business environments, baling machines (or balers) are increasingly playing a more important role. Instead, of wasting materials by immediately disposing of them, both companies and consumers are looking at ways to recycle materials. Thus, these recyclable materials are also valuable from a business investment stand-point and forex market standpoint as well. In fact, according to a recent report, a baling machine company in Manchester recently received funding for £300,000 to purchase a new piece of equipment.

More specifically, baling machines are important for a number of reasons. Baling machines can make the act of recycling materials a much more profitable endeavor. With the help of a baling machine, recyclables can be reshaped into a smaller, more manageable form. In turn then, the recycling process becomes more efficient. For instance, the compressed materials would take less space (and therefore less cost) to transport. The compressed forms are also easier to both handle and store. Baling machines also make complying with local recycling regulations possible. As an example, many organizations will only pick up large quantities of metal can if they are in a compressed form.

Baling Machine Types

Just like other machinery, there are different types – and sizes - of baling machines available to companies that need to purchase these items. For instance, horizontal balers are perfect for baling large volumes of recyclable materials. These balers are generally fully automatic ones that load from the top of the baling machine via a forklift or conveyor belt. In general, this type of baling machine can reach an output of sixty tons an hour and beyond. Further, the applications on these horizontal balers can be custom-fit to a company’s specific requirements.

On the other hand, vertical balers are excellent for compressing smaller amounts of recyclable materials. Vertical baling machines are great for companies that do not need to compress a large volume of recyclable materials and are looking for a cost-efficient option. Vertical balers can also compress many different materials – while taking up minimal floor space, As such, this type of machinery is perfect for grocery stores, small manufacturers, retail stores and other similar operations. These baling machines are also manually operated and all materials are loaded from the front of the baling machine.

To suit companies that require specific needs, there are also other types baling machines that are available. One such example is a textile baling machine. This type of baling machine is especially designed to work with second-hand cloth items such as wiping rags, towels, and other textiles. Higher quality textile balers usually include a double chamber design and doors on both the rear and front of the textile baling machine to permit easy loading and unloading.

When purchasing a baling machine though, it is important to obtain all pertinent information before a company or individual makes a final decision. Most of this information can be found on a baling machine company’s website.

Overall then, baling machines are becoming an ever-increasingly important piece of machinery in today’s eco-friendly business environment.