Iofina
Seems Iofina have now stated (the obvious) what I had commented on via Markets Live. Increases in stock, declines in the Iodine market and the progress of the company being slower than envisaged with inventory being built up. Iofina PLC 2013 Review and 2014 Outlook announcement today has caused a significant risk, for me it's an avoid until its settled.
Its suspected that some trying are trying to grab some profit on what they should have taken many times over at £2, £2.5 £1.5 and the like and didn't...told you so? No not at all, we all have our own investment strategy, but I would personally be giving myself a good talking to if I had not taken profit a lot higher, closed positions and better still sold via a Reserve Stop Loss because of the 'news and position in the company changing. Anyway, enough of trading, that's hindsight for those stuck and a pleasure for those whom did the right thing without the need for hindsight.
What the company does state is the forecasts are now back to the levels of 2012's EBITDA, so will the market reflect that with a price of say 20-40 pence? Could be interesting to watch as I think its too early to say for certain. Overall, its disappointing for a technology that has so much value but all the same, I would await a greater visibility. Please note the volume again...
On to Bonds, as there's another crisis looming, yes Chinese.
I started researching Solar 'outfits' when I received an email in August 2009 about PVCS being a buy; albeit it did have validity in the argument it go me thinking about the entire Industry, and looking at the likes of Q-Cells of Germany, Solyndra of California and this led me to Suntech Power.
At the time I was just learning about shorting, and also had a negative opinion of shorters; they were Satan spawned. However, little did I realise my entire position would change within 3-6 months to shorting most items. Yes I belatedly realised there was a LOT of crap out there and still is. My long portfolio you would laugh at in terms of how small it is now in comparison to my shorts. This will change I am sure but I call myself a negative trader now. Not devotedly going negative but it seems so much easier to find crap than it does good! Or should the term be bad news or pathetically overpriced rubbish!
Anyway, back to 'solar', I was thinking about a couple of shorts I spent significant time researching around Solar Panels, the likes of PVCS, but my main short was Suntech Power Holdings, (Now Departed from the NYSE). The problem these Chinese companies had/have is the bonds they issued were based on the view there never being a downturn in the market and on the back of Development Loans from Chinese Depts. Solar panel prices were declining so fast, it was clearly becoming a problem, resulting in Suntech not filing any a/cs since Q2 2012.
The market valued the company when the entire industry with the exception of a couple of businesses was in dire straits. As such the oversupply and downturn (also the continued over production) caused the prices of wafers to fall a good 70% and still currently be 60% off the 2010 prices . So led myself to double up on shorts as it was clear the market had not realised that bonds were due. Defaults have happened in China with Local/National Governments supporting some of the Solar Companies via grants etc...The market has slowly turned but the problem appears to be China tried to access and oversupply an industry that was reliant on strict supply and demand controls. The marker in essence was broken by the juggernaut of Chinese production (automation) trying to undercut the Japanese and German suppliers.
The solar market looks to have bottomed, progression will be far from as quick as the monies are not being spent on R&D to develop products. One to follow to keep partially abreast of the sage is Pure Wafer PLC 2013 Final Results: A Transformational Year. With Debt now reduced and cashflow improving, it looks like the tide has turned...However, as its consolidated, in the absence of news there's no rush. (I'll perhaps discuss consolidation at a later date, but for those that used to read my board, I short a lot of stocks that consolidate for limited periods of time after consolidation).
Coal Bonds So my point, (I'm getting there honest!), is the Coal Industry in China has been for some time stressed and in decline as has the American support is all but gone for their Coal Mining Industry. This is a very similar story to Solar Wafers. The market for sometime has been in decline, i.e. ArchCoal share price as an example and their results. So China won't be any different, albeit perhaps more protectionary of their Industry. What the concern is for one of China's Coal Co's is the significant dawn approaching due to default. Coal group’s woes threaten China’s trust industry By Simon Rabinovitch in Beijing.
What the article does not mention is the a lot of the "shadow" lending banks that were formed to plug the restrictions in lending to miners are funded on cheaper monies borrowed from the "real" banks then pumped into assets (alleged) and bonds that pay a higher return. Akin to what the UK had as stooging, (borrowing and zero % and placing in savings a/c's at 5%+). Some did well, but on the whole people were not controlled enough to repay the monies instead racking up further debt...So as it stands, Thermal Coal may in the short-term do well as demand/supply issues arise as companies default/go bust, but with the supply clearly being more than demand over the longer term, it does not bode well for the Thermal Coal sector.
Coking coal (what is also called metallurgical coal) will perform a lot better...for those geeks out there it takes around 3Qtrs of a Tonne of coking coal to to produce 1 tonne of steel. Coking coal is likely to be better supported than the likes of Thermal Coal (Pending China's growth). This will be supported in part by Countries switching away from Coal to cleaner forms of energy i.e. Gas. Albeit Japan is building two new coal power fire stations by end of 2014 to plug their Nuclear gap. Bangladesh and the Indian continent might provide some support as well. (World Coal Facts for the Geeks)
It shall be interesting going forward, perhaps the US will see a significant consolidation of the Industries like Solar has seen, where instead of 170 companies in China on the Solar train, there will be 12?
Fraser- thx for your thoughts again- Im sure you thought like me that the IOF stated aim of starting up 6 plants pa for the coming years was too ambitious and so its no big surprise to see todays more realistic RNS reducing the number down. The reference to 2013 figures being similar to 2012 sees the turnover drop from the mkt consensus of £16m to around £12m, with a small profit (circa £1m) being replaced by a similar sized loss. One would hope they have "kitchen sinked" the bad news this time, so there are hopes for positive operational surprises through 2014. They are in a more advanced position than 2012, but they now need to deliver to get support from the mkts, so it would be foolish to give them a new target price at present and Im not tempted to top up at present.
ReplyDeleteCheers. The Leggie
Leggie, your guidance won't be far off as the 'top end' of the range.
ReplyDeleteWhat the market was expecting was significantly higher. In fairness to Chris Fay, he's clearly taken the opportunity to purchase more stock
http://www.investegate.co.uk/iofina-plc--iof-/rns/director-dealing/201312171535167795V/.
Is he Shrewd? Well it covers a few questions by the purchase, a) he's willing to align his interests b) it was very quick c) no other news due any time soon. As such...I have to wonder what the issues were "with the Water permit." I'm sure they will enlighten the market in due course. Was it the proposal itself or other issues...I am sure the department would have highlight the items, alas that's for them to know and us to find out. Sidelines for me as I had openly stated...
Atb Fraser
Fraser- IOF has some great projected figures for the next few years, which will presumably need moving back a bit by all participants- I noticed that their house broker, Investec came straight in to defend their £2.30 target today in a fairly ballsy fashion. Its below, if you have seen it-
ReplyDeletehttp://www.proactiveinvestors.co.uk/companies/news/64237/update-iofina-says-iodine-plant-roll-out-is-on-track-64237.html
I am also more than a little suspicious re the immediate director buys today but I guess they could see a bargain from their side of the equation. I would guess that the water permit issue will be a delay, based on lack of familiarity with the requirements rather than any fundamental problem, but we will see as this could be a break from their bad news announcements.
Cheers. The Leggie
The link you provided has some issues. Firstly, revenues delayed and as far as I'm aware production has not been reduced by the majors which in part explains the price drops. The Director buys and note appears desperate but that is the nature of AIM. A lot of investors do not understand the Iodine story, and likewise the note is showing some of the lack of knowledge in its commentary.
ReplyDeleteSQM have cut back production this year to a guidance to 9.5 10K tonnes because of competition from Algorta Norte. Just to bore people I'll break it down. SQM are aiming for 9.5-10k tpy (Tonnes Per Year) (but I suspect it will a little lower near 9250 tpy) to avoid impacting on prices more than 10%) from 2014 they’re guiding 13k+tpy if they achieve 90% capacity which actually needs to be nearer 96% to keep costs low. At the same time Algorta Norte are upping their guidance to near 3.8-4k tpy from 2014. This will impact on the price is demand stagnates as it has done.
What surprised me is the Iodine industry is more savvy than say the “Iron Ore” markets, they merely avoid the higher costs and wait until the price settles down. This is I believe 50% of the reason for the 30% decline in Iodine prices…please note NOT 20%. Also, at what stage where Iofina going to inform the markets on the material decline in Iodine prices. In their Interim Results September 2013, they mention a softening in prices. I don’t consider 20 or 30% a softening, that’s a material change in my view.
Continuing with that theme and to add some research pointers I advise people to cover the Urruticoechea family whom own most of Algorta Norte and ACF Minera; their total capacity is near 5k tpy. From what I can make out from the Global market is there’s a current surplus of around 600-700tpy which has caused more than the 20% decline that Iofina suggest, the market varies admittedly but those companies I research attained prices near $54-49 per Kilo and that was the last time I reviewed, which was September 2013. This will take near 2 years to remove any surprlus by demand increasing on a 4%+ per annum
As such, I predict a convergence of prices, for those that trade the London Metals Exchange will know the importance of this, especially over the price of delivery/supply. However, the price in my view will decline a further 15% to a mid-$45 point. That is my view, based on increasing capacity and over supply, especially companies increasing inventories. This should bode well for Iofina, albeit if they can shift their stock from shelf to consumer, something that 'does not appear to have happened to date.'
We shall see, but I certainly haven't got rose-tinted glasses on. When the investor understands that 'supply is increasing' without demand increasing they may be able to get a fuller picture, Iofina will need cashflow. As such I now feel the market (my view) has reacted accordingly having been able to understand the news better.
Am I short? No nor do I currently hold ANY stock; this does not mean that this won’t change as I get a better understanding. The company on fundamentals, is weak due to the lack of revenues. The value of the tech in my view is the driver, there could be three suitors, I suspect Japan may win albeit, my monies on SQM. One to watch…greater profits favour the brave, the ones with patience often have a better investment!
On a positive, Iofina look well set to reduce their costs per Kilo further and better still attain the lowest production costs. This surely sets them well placed for growth…but when!
Along similar lines Fraser by Tom W. http://www.shareprophets.advfn.com/views/3164/iofina-profits-warning-red-flags-all-over-the-shop-shocker harsh analysis I followed your comment on ML Fraser & sold the other day. Thanks Yoni
ReplyDeleteFraser- thanks for your reply and insight. As a new disruptive low cost supplier into a fairly small market like iodine, I guess IOF was always going to depress the market price for iodine, but they now need to concentrate on delivery of their lowered targets in 2014 to get back some credit from the markets. I too feel the house broker assessment was too knee jerk and doesn't seem in line with the likely outcomes over the next few years, but at least its supportive of the company, however flawed its rationale.
ReplyDeleteCheers. The Leggie
fraser i grabbed you discussion on the transcript for markets live. nice call. I dont like shorters I think its a bad day when shorters play & unfair overall just my view. thanks anyway, you & ian saved me a few quid i sold a lot higher on iof.
ReplyDelete