The potential superstock of the week is BlueLinx Holdings, Inc (BXC) . BXC is a distributor of building and industrial products in the US. ...

Weekly Superstock Scan 21 Jan 2018 - 25 Jan 2018: BlueLinx Holdings, Inc (BXC)

The potential superstock of the week is BlueLinx Holdings, Inc (BXC). BXC is a distributor of building and industrial products in the US. BXC operates 39 warehouses across the central and eastern United States with approximately 1600 employees.




BXC derives its revenue from the sale of structural and speciality products that are utilised in home construction.

Technical



Since April 2017, BXC has been trading in a range between $8 and $11.10. Last week, price broke above the range to close at $12.96. The volume for the week is 984 thousand shares, 2.8 times its average weekly trading volume.

There was no news for the day of the spike. There was a repayment of mortgage announced the week ago but it is unlikely to be the catalyst. There could also be some progress on the closing of real estate transactions but that is just my guess.

Fundamentals



Including the most recent quarter, BXC recorded 5 consecutive quarters of year-on-year EPS growth. Please note that the EPS does not include the gains from transaction of real estates, which can swing the EPS upwards on quarters where there are transactions. Another interesting point to note is the current quarters is the fifth consecutive quarters that BXC experience positive EPS. Before mid 2016, BXC has been making losses for most of the quarters. 

Unlocking Value through Monetisation of Real Estate

BXC is confident that their owned real estate currently has sufficient market value to realise at least $250 million. BXC intends to quickly monetise enough real estate to pay down their existing mortgage. 

In addition, BXC is in discussions regarding sale leaseback transactions with respect to certain properties in which the potential sales prices similarly extrapolate to a total real estate value in excess of $250 million. 

As a the end of the third quarter, BXC is 7.9x levered. However, assuming BXC is able to fully monetise the remaining real estate for $250 million in pay down debt, the leverage drops to approximately 2.3x.

Asset Based Lending

BXC were able to finance the working capital needs of the company through a new 5-year ABL co-led by Wells Fargo and Bank of America. This new ABL would allow BXC to save approximately $2 million in cash interest each year, compared to their current ABL facility. 

Focus to Grow Sales

Due to the historical liquidity issues, BXC did not plan to grow their top line in the past. Now that BXC has additional capital due to monetisation and ABL facility, BXC has once again focus on growing the top line.

BXC has brought in specific sales team members and has also brought in John Tisera who will be fully responsible for the sales effort of the organisation from HD Supply.

BXC also believe that the macro-economic condition is favorable for BXC to grow, especially as single family housing growth need to hit 30% just to reach historical average.

Matrices
o Small float of 7.49 million shares with a average weekly trading volume of 0.1 million shares. The float is thus almost 75 times its average trading volume.
+ BXC is trading at 10.8 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:


  • Commodity Price - Many of the building products BXC distributes are commodities with prices and volumes determined in an auction market. At times the purchase cost may exceed the selling price, resulting in short-term losses. There is also the unresolved issue of the Canadian softwood lumber tariff which may affect BXC's profitability. 

The second potential superstock of the week is a company listed on the Singapore Exchange - Halcyon Agri (SGX:5VJ). Halcyon Agri i...

Weekly Superstock Scan 15 Jan 2018 - 18 Jan 2018: Halcyon Agri (SGX:5VJ)

The second potential superstock of the week is a company listed on the Singapore Exchange - Halcyon Agri (SGX:5VJ).



Halcyon Agri is a global leader in natural rubber. It sources a broad range of grades from all major origins globally, operates 33 natural rubber processing facilities in Indonesia, Malaysia, Thailand, China and Africa, and distributes to an international customer base through its network of warehouses and sales offices.

Halcyon Agri's supply chain model is designed to capture adjacent margins along the natural rubber value chain, and operates in the following segments:

  • Plantation segment: management of natural rubber estates.
  • Processing segment: procurement and processing of raw materials into high quality technically specified rubber (TSR) in its 33 processing factories
  • Distribution segment: Merchandising and distribution of natural rubber and latex.

Technical


Since June 2017, Halcyon Agri has been trading with a relatively tight range between $0.55 to $0.615. Last week, the price gapped up to close at $0.67. The volume of the week was 1.27 million, more than 4 times its average weekly trading volume.

Two events may have contributed to the gap. There was a symmetrical triangle that began since the start of 2017 and Halcyon Agri is trading at the apex of the triangle. CIMB gave a buy call the morning before the gap occurred based on this technical analysis.

More importantly, the CEO has revealed that Halcyon Agri is looking at strategic options to increase the value of the company, and also looking at rewarding its shareholders with a special dividend.

Fundamental


Including the current quarter, Halcyon Agri recorded 2 consecutive quarters of year-on-year EPS growth. 

Halcyon Agri had a few consecutive loss making quarters in 2016, and the recent quarter marks its fourth consecutive quarters in the black.

Three-Way Merger with Sinochem and GMG Global

Halcyon sold a 55% stake to Sinochem in July last 2016. Subsequently, Halcyon acquired all of GMG Global, which was 51.1%-owned by Sinochem, in a share exchange in the ratio of 933 Halcyon shares for every 1,000 GMG shares. In October, Halcyon acquired the rubber assets of Sinochem for $210 million by issuing a further 280 million new shares to Sinochem. In total, Halcyon issued 994.9 million shares for these acquisitions. The entire exercise was completed last December with the delisting of GMG Global.

Halcyon Agri turns profitable after the three-way merger and the new company has a much-improved balance sheet. Halcyon Agri continues to realise the positive impact of certain post-merger cost tightening and revenue synergies which together with an improvement in operating leverage has benefited its performance as seen in the most recent quarters.

Further Acquisitions

Halcyon Agri has been very active in the acquisition market. Recent acquisitions include the acquisition of RCMA polymer division, which will provide Halcyon Agri with the opportunity to create one of the world's largest distribution hubs for latex and speciality tyre rubber. 

Halcyon Agri also acquired four Indonesian crumb rubber factories, turning it into the largest producer and crumb rubber in Indonesia.

Matrices
- Large float of 358 million shares with a average weekly trading volume of 0.22 million shares. The float is thus almost 1630 times its average trading volume, limiting its potential for big moves.
+ Halcyon Agri is trading at 6.4 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:


  • Commodity Stock: The price of rubber is very volatile. Even if the company is doing things right, when the price of rubber falls for some external reason, Halcyon Agri will have poor performances.
  • Under-performing Thai Factories: Halcyon's Thai factories from the merger with Sinochem are losing money as the cost of production is higher than Indonesia and West Africa. There is also chronic over supply of rubber.


For this week's superstock scan, I have identified two potential superstocks - one from the US and one from Singapore. For my readers fr...

Weekly Superstock Scan 15 Jan 2018 - 19 Jan 2018: Denny's Corporation (DENN)

For this week's superstock scan, I have identified two potential superstocks - one from the US and one from Singapore. For my readers from the US, it is not advisable for you to read this in the middle of the night and hungry, as my first superstock of the week is Denny's Corp (DENN).






Denny's is one of America’s largest franchised full-service restaurant chains based on the number of restaurants. At December 28, 2016 , the Denny’s brand consisted of 1,733 franchised, licensed and company operated restaurants around the world with combined sales of $2.8 billion , including 1,610 restaurants in the United States and 123 international locations. 90% of the total restaurants were franchised or licensed, and Denny's is committed to the a 90% franchise model.


Technical


Since October 2016, DENN is trading at a relatively tight range of $11-$14. Last week, price finally broke out of the range to close at $14.80. The trading volume of the week was 3 million shares, slightly more than double its average trading volume.

The cause of the spike in price was Denny's announcement of the preliminary financial results for fourth quarter and fiscal year 2017 during the week. Denny’s fourth quarter domestic system-wide same-store sales increased 2.2%, including a 2.2% increase at domestic franchised restaurants and a 2.1% increase at company restaurants. DENN also reiterated its full year 2017 guidance expectations.


Fundamental


Including the most recent quarter, DENN recorded 15 consecutive quarters of year-on-year EPS growth. This level of consistency does not appear to have been factored into the price as the price of the stock remained fairly stable over the past few years.

Remodelling with "Heritage" Reimage Program

Denny’s rolled out its “heritage” reimage program in late 2013. The updated look reflects a more contemporary diner feel to further reinforce the America's Diner positioning. The remodelling program has been a key contributor to DENN's same store growth.


By end year 2017, more than 67% of the system has been remodelled, and DENN is targeting to remodel 80% of the system by end 2018.

New Franchisee Agreement

During 2014, DENN implemented a new franchise agreement, which included a royalty rate of 4.5% and an advertising contribution of 3%, excluding any incentives. Only about half of DENN's franchisee are operating under the new agreement. Existing franchisees will elect to migrate to the new fee structure over the next decade as incentives under previous franchise agreements expire, increasing the level of profits for DENN.

Denny’s On Demand platform

DENN is in the early stage of executing on the Denny’s On Demand platform initiative. Transactions through the new mobile online ordering platforms with built in partnership with Dispatched Delivery Network company Olo, have contributed approximately $12 million sales to-date towards the growth in their off premise business. In addition to the delivery capabilities through Olo, DENN has third-party master partnership agreements in place with post Postmates, GrubHub, DoorDash and most recently, UberEats.

Currently, off-premise sales represent about 8% of total sales. The Denny's on Demand platform also allows DENN to reach the younger demographics and also the late night diners. 

International Expansion

DENN's current international footprint of 125 restaurants has grown by more than 60% since 2009 with their current pipeline of approximately 80 planned openings. DENN announced a development agreement for the United Kingdom that will add 10 locations to the United Kingdom over the next several years with the first restaurant opened in Wales at the end of the 2017.

Matrices
- Large float of 59.3 million shares with a average weekly trading volume of 0.3 million shares. The float is thus almost 200 times its average trading volume, limiting its potential for big moves.
- DENN is trading at 26 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:


  • High Valuation: With DENN trading at 26 times its TTM EPS, there is a good chance that it is already fairly valued and upside might be limited.
  • Call to cut Anti-Biotics: An investor coalition that presses for corporate responsibility is calling on Denny's Corp to stop buying or producing meat raised with medically important antibiotics. Members of the Interfaith Center on Corporate Responsibility (ICCR) have had previous success in convincing most U.S. chicken producers to stop using medically important antibiotics. It may be a good thing if DENN to serve animals raised without antibiotics, but no doubt there may be addition to cost and reduction of profits.

Happy 2018 readers of the Trader Diaries. After a barren December, we entered a new year with new trading opportunities. In the first supers...

Weekly Superstock Scan 8 Jan 2018 - 12 Jan 2018: Sify Technologies Limited

Happy 2018 readers of the Trader Diaries. After a barren December, we entered a new year with new trading opportunities. In the first superstock scan of 2018, there are a number of stocks that passed the technical scan, but only one stock fulfilled all the criteria. That stock is Sify Technologies Limited (SIFY).




Sify is one of the largest integrated ICT Solutions and Services companies in India, offering end-to-end solutions with a comprehensive range of products, delivered over a common telecom data network infrastructure reaching more than 1400 cities and towns in India. This telecom network today connects 45 Data Centers across India, including Sify’s 6 concurrently maintainable Data Centers across the cities of Chennai, Mumbai, Delhi, and Bengaluru.

SIFY operates in 5 segments:
a) Telecom services
b) Data Centre services
c) Cloud and Managed services
d) Technology Integration services
e) Applications Integration services


Technical



SIFY has been trading mainly in a range from $1.40 to $1.80 since October. Last week, price surged to $2.54 on very high volume. The volume of the week was 4.1 million shares, 2.7 times its average trading volume. This is despite the week being a shorter trading week.

Fundamentals


Including the current quarter, SIFY recorded 2 consecutive quarters of year-on-year EPS growth. The trailing twelve months EPS growth has been fairly stable in the past quarters ranging between 3-5 cents. However, the trailing twelve months EPS for the last quarter is 6.6 cents, indicating a strong breakout in earnings.

Successful Transformation to "Sify 3.0"

In 2012, SIFY reorganised their business to enable scale, flexibility and the ability to cross pollinate our business across multiple verticals. The focus of the business shifted to Solutions and Services from a hitherto infrastructure focus.

Post transformation, a significant part of their revenue is derived from services to enterprise customers, comprising Telecom services, Data Center services, Cloud and Managed services, Applications Integration services and Technology Integration services. SIFY also provides services that cater to the burgeoning demands of the small and medium business (SMB) community, much of it on its Cloud services platform.

Technology Integration Services (TIS) has been a main driver of growth in recent years. TIS combines Sify’s IT capabilities with its core telecom and Data Center products to provide a converged turn-key ICT solution to the customer.

Indian Government Initiatives

Government initiatives like Digital India and the Smart Cities Mission are likely to bring in significant business opportunities. SIFY is heavily involved in Digital India initiatives and the various digital transformation projects continues to be a key growth driver. Nearly 20% of SIFY business comes from government. Successful delivery of the large government projects will help build equity with Enterprise customers for their projects.

Matrices
- Large float of 193 million shares with a average weekly trading volume of 1.5 million shares. The float is thus almost 130 times its average trading volume, limiting its potential for big moves.
- SIFY is trading at 35 times its trailing twelve months EPS.


Risk Factors/ Things I do not like:

  • High Valuation: With SIFY trading at 35 times its TTM EPS, there is a good chance that it is already fairly valued and upside might be limited.
  • Recovering capital spend: The pace of change in the telecom industry is fast and erratic and the technology churn happens every 2-3 years. There is high room of error as a wrong investment may lead to a loss if recovering that capital spend in short timeframe is not possible. Alternatively, not investing correctly may also put the company behind as innovation is important in the industry. 

Once again we have no potential superstock this week, and there is a good chance that we will not have any potential superstock till 2018 wi...

Weekly Superstock Scan 18 Dec - 22 Dec 2017: Nil

Once again we have no potential superstock this week, and there is a good chance that we will not have any potential superstock till 2018 with the Christmas and New Year holiday coming up the next two weeks.



We do have a couple of stocks that passed the technical screens. They are MVO and MFIN. MVO did have quarter on quarter EPS growth due to increase in oil price. However, as the stock price of MVO is dependent on oil price, if I were to invest in this stock I will effectively be speculating on oil price which is not in line with my investment strategy.

MFIN does not have growing EPS, on top of that it is in a banking sector which is not a superstock sector.

That is it for this week. Have a blessed Christmas!
Powered by Blogger.

Disclaimer

All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.