- I don’t know why they’re using
a sales multiple of fi ve times instead
of an operating multiple and adjusted
cash fl ow. They don’t tell you what
they’re adjusting cash fl ow for. So
based on who knows why they’re getting
an IRR of 38.9% (which is acceptable),
but who knows what it’s based on. This
year their margins are up to two million
seven. I’m fi guring you could sell it
for say seven times that. That’s about
17 million dollars and they’re putting in
7 million in debt and 1.5 in equity. So
that would make a decent return, but not
38.9% that they claimed. - They think they know what fair
value the company has, and they think
they’re getting a very good price for it.
But there is nothing in here that really
tells me that. Nothing tells me the
rationale for the price. - If this was any one of my
partnerships, I’d be on the phone
telling them this is a piece of trash.
12. Book value per share is only $5.60. And
they’re recommending $150 value for this
company. I don’t know about that.
26. They don’t tell me why the current market
only values it at seven times its earnings.
Obviously some investors have different views.
27. Then they give me an Estimated Segment
Earnings Model. If I was really knowledgeable in
the industry that might interest me, but probably
all I really care about is the bottom line, which is
operating income, interest expense, pretax income,
etc. and would probably just prefer a note that
says if I want further information, contact my
account representative.
50. Okay, a question that keeps coming back to
my mind is that this is obviously a very cyclical
industry. I take it that they’re building their price
estimates up to 21 P/E based on the fact that the
industry is expanding. My question is, however,
are investors going to buy that?
Risks and
liabilities
- Murray and Robins are the
managing partners, so they have the
liability, everybody else is limited - I’m kind of wondering at this
point why they don’t say anything
about the bankruptcy. This gives
background information, which
you have to read to fi nd out where
the company is coming from. But
they’re leaving out the most important
information of all. Why did the
company go down the tubes in the last
three years?
40. So the fi rm’s profi tability is very sensitive to the
chlorine open market price, for which I see no future
estimates. If I were these guys, I’d surely want to
make sure you were in bed with Georgia Pacifi c. But
if GP goes down.... I don’t see any future analysis
of GP’s market, who is their big buyer.
41. So 50% of this company’s earnings appear to
be tied to one industry, the paper industry. I’m
not sure what that says about the future from
what they’re telling me.
56. One of the things they haven’t talked about
is liability. When you manufacture and sell
chemicals, you have to consider any liabilities,
environmental suits, etc. they may face.
Management
qualifi cations
- The two guys who are managing
partners were with the Highland
Company when the Highland
Company bought it, so they’re familiar
with the business.
[Note: No mention was made of management
qualifi cations in the report or by the investor.]Management
strategy and
action plan
- I want them to tell me “We’ve
had experience with this company in
the past and there are two key things
we need to do to turn this company
around, and how we’re going to do it.”
Something like, “We can cut costs by
doing this, and we can increase sales by
doing this.” - If it’s the competition that is the
problem, then what are they going to
do about it? They didn’t talk about the
future at all.
46. But I still don’t see what these guys’ big
advantage is.
51. I don’t see a good analysis of how these guys
fi t into the industry, and the industry’s movements
together.
63. One of the questions that kept coming back to
my mind, is where is DuPont? Where are some of
the other companies in this industry?
64. My gut reaction is, I don’t understand why
these guys are better than buying Dow Chemical
or anybody else, and therefore I probably would not
invest in them.
65. This report is very lengthy. I don’t need to know or
care how they make these chemicals. What I want to
know is: “Is it profi table? Why is it profi table? What
are their advantages?” If it’s important to be technical
because they have an advantage in a certain process,
that’s fi ne. But if they make it the same way everybody
else does, I really don’t care.