Saturday, December 30, 2006
Kaiser Dividend Update
According to the OTCBB, KGHI's ex-div date was actually the 28th of December, which explains why it is trading down. Instead of reducing the spread between liquidation value and market value, Mr. Market has so far increased it. You could buy KGHI at $25 on friday. I couldn't (as I'm fully loaded), but you could. I'm hoping the spread stays wide as I decided to take some tax losses on my position and sold a small amount of shares. I'd like to get back in thirty one days from now (to avoid wash sales), and I'm going to be hating it if something magical happens.
Sunday, December 24, 2006
Interesting Doings At Kaiser Group
Kaiser Group (KGHI) is a longer term holding of mine, and not for any good reason. Essentially it has been a value trap that I got into at much too high a price, and much of the potential value melted away this summer when they lost an arbitration hearing. I've been stuck holding it waiting for management to undertake some course of value realization (either acquisition or liquidation), but something very interesting and unexpected just happened, and I felt that makes it worthy of a few thoughts.
There are some very detailed writeups on KGHI on ValueInvestorsClub.com from 2003 and 2005, though a little dated, I can recommend because they explain the old story well and have recent comments that are useful. To summarize quickly, Kaiser's old business was being half owner of Kaiser-Hill (KH), which was in the process of cleaning up Rocky Flat nuclear waste dump. That's done and Kaiser Group is facing the decision to either liquidate and return approximately $40-$42 per share in net cash (with tax refunds) per share to shareholders or to use a big cash pile to buy a new business.
I've had good confidence that mgmt would do the right thing here, especially since Kaiser Group is effectively controlled by Michael Tennenbaum and his sons. I expect them to be pretty savvy and rational about building shareholder value, and honestly hoped for an acquisition that would create significant value in excess of book.
But on Friday, the company did something curious. It announced an ordinary dividend of $6, payable January 16th for shareholders owning it as of January 2nd. This is curious because it's an action that doesn't support either of the two end goals I had hoped for. Since it's an ordinary dividend, it's taxable, whereas a liquidating distribution would be a return of basis, and not taxable. So if this is the start of liquidation, it's a very tax inefficient way to start. And if the company is intending to buy a new business, why dividend out cash until you know how much you'll need for the acquisition? I had a brief conversation with the CFO on Friday that explained nothing..
So where does this leave us? Besides confused, it appears this action may provide an interesting minor "arbitrage" opportunity. Currently my liquidation range estimates are $40-$42 (note that these estimates include assumed tax refunds that won't be available until 2008). So the stock, at $30.50, is trading at about a 25% discount to liquidation. Post dividend, the liquidation average est would be $35, but the basis of a purchaser at $30.50 would now be $25.50 (roughly after dividend tax). That increases the discount to over 27% (even more if KGHI changes the dividend to a liquidating distribution). So the dividend directly makes KGHI even cheaper than before. And if Mr. Market trades the post dividend KGHI at the pre dividend discount, KGHI would be around $26.25, providing a 3% gain in three weeks. Of course if Mr. Market likes what the dividend says about management intentions, we might even see a bigger gain.
It's also possible KGHI may trade "due bills" during early January, meaning it may still be bought after Jan. 2nd, but before Jan. 16th, to still get the dividend. Due Bills rules are always confusing, esp. for a pink sheet stock, so we need to wait and see if that's true in this case.
Note: Long term the value here is dependant upon the performance of management There is also the possibility of potential liabilities from an audit of Kaiser-Hill reducing NAV. As always, do your own math and your own research. And let me know what you think,
good luck,
Randy
There are some very detailed writeups on KGHI on ValueInvestorsClub.com from 2003 and 2005, though a little dated, I can recommend because they explain the old story well and have recent comments that are useful. To summarize quickly, Kaiser's old business was being half owner of Kaiser-Hill (KH), which was in the process of cleaning up Rocky Flat nuclear waste dump. That's done and Kaiser Group is facing the decision to either liquidate and return approximately $40-$42 per share in net cash (with tax refunds) per share to shareholders or to use a big cash pile to buy a new business.
I've had good confidence that mgmt would do the right thing here, especially since Kaiser Group is effectively controlled by Michael Tennenbaum and his sons. I expect them to be pretty savvy and rational about building shareholder value, and honestly hoped for an acquisition that would create significant value in excess of book.
But on Friday, the company did something curious. It announced an ordinary dividend of $6, payable January 16th for shareholders owning it as of January 2nd. This is curious because it's an action that doesn't support either of the two end goals I had hoped for. Since it's an ordinary dividend, it's taxable, whereas a liquidating distribution would be a return of basis, and not taxable. So if this is the start of liquidation, it's a very tax inefficient way to start. And if the company is intending to buy a new business, why dividend out cash until you know how much you'll need for the acquisition? I had a brief conversation with the CFO on Friday that explained nothing..
So where does this leave us? Besides confused, it appears this action may provide an interesting minor "arbitrage" opportunity. Currently my liquidation range estimates are $40-$42 (note that these estimates include assumed tax refunds that won't be available until 2008). So the stock, at $30.50, is trading at about a 25% discount to liquidation. Post dividend, the liquidation average est would be $35, but the basis of a purchaser at $30.50 would now be $25.50 (roughly after dividend tax). That increases the discount to over 27% (even more if KGHI changes the dividend to a liquidating distribution). So the dividend directly makes KGHI even cheaper than before. And if Mr. Market trades the post dividend KGHI at the pre dividend discount, KGHI would be around $26.25, providing a 3% gain in three weeks. Of course if Mr. Market likes what the dividend says about management intentions, we might even see a bigger gain.
It's also possible KGHI may trade "due bills" during early January, meaning it may still be bought after Jan. 2nd, but before Jan. 16th, to still get the dividend. Due Bills rules are always confusing, esp. for a pink sheet stock, so we need to wait and see if that's true in this case.
Note: Long term the value here is dependant upon the performance of management There is also the possibility of potential liabilities from an audit of Kaiser-Hill reducing NAV. As always, do your own math and your own research. And let me know what you think,
good luck,
Randy
Saturday, December 23, 2006
The best way to track investment ideas, ever?
I'm fortunate enough to be able to work full time managing investments both for myself as well as friends and family members. The only drawback is that I have more and more information to manage every day, and lately I tend to feel buried at times.
Specifically, I am always looking at new stocks. When I do find interesting companies, they are rarely at a price that I find attractive enough. So I try to keep an eye on them, hoping they'll soon get cheap enough to buy. But over time my list of ideas to watch grows longer and longer and more difficult to track. Inevitably some will get forgotten, and every so often I will have a "doh" moment when I notice one that has doubled or tripled, after hitting lows that would have enabled me to buy it.
I try to organise. I have file cabinets full of research, automated excel spreadsheets, a stock alert system at my broker, online portfolios at Yahoo, and even a personal database to help me manage and track all these ideas. But sometimes it feels like it's more work to managed this disparate group of systems than they save me in time, and I'm still missing out on opportunities.
Finally I've decided to help build a solution. Some very smart friends and I are now building an integrated software system to manage investment research. It will track every stock you've ever looked at and automatically alert you when any are trading at attractive prices. It will store all of your research electronically, with complete security, and make it accessible from anywhere in the world. It will be simple to use, won't require any work to manage, and will even make it easier to share ideas with others. I can't say much more about it right now, other than it will start testing in early 2007.
Does this sound like it would be useful to you? We are looking to get some feedback from real world investors on how well it works for them. If you are serious about investing, whether doing it part-time or full time, you can help.
We are asking a small group of users to try out the service when it's launched, for free, and with no strings attached other than a promise to provide feedback. If this interests you, please send your e-mail address and name to stocknotesinfo@gmail.com. We promise your e-mail address won't be used for any purpose other than to notify you when the software is ready. Note that the evaluation will be limited to a small number of people, so please contact us soon if you think you might be interested.
And if you don't have time to provide us with an evaluation, but would like to hear more about the service when it's officially launched, you can also drop a line at the same address and we'll put you on the launch notification list. I'm really excited about this service. I'm hoping it will save me, and hopefully you, a great deal of time and in the process improve our investment results. As we get closer to launch I'll post updates on our progress and more detail about the service.
Specifically, I am always looking at new stocks. When I do find interesting companies, they are rarely at a price that I find attractive enough. So I try to keep an eye on them, hoping they'll soon get cheap enough to buy. But over time my list of ideas to watch grows longer and longer and more difficult to track. Inevitably some will get forgotten, and every so often I will have a "doh" moment when I notice one that has doubled or tripled, after hitting lows that would have enabled me to buy it.
I try to organise. I have file cabinets full of research, automated excel spreadsheets, a stock alert system at my broker, online portfolios at Yahoo, and even a personal database to help me manage and track all these ideas. But sometimes it feels like it's more work to managed this disparate group of systems than they save me in time, and I'm still missing out on opportunities.
Finally I've decided to help build a solution. Some very smart friends and I are now building an integrated software system to manage investment research. It will track every stock you've ever looked at and automatically alert you when any are trading at attractive prices. It will store all of your research electronically, with complete security, and make it accessible from anywhere in the world. It will be simple to use, won't require any work to manage, and will even make it easier to share ideas with others. I can't say much more about it right now, other than it will start testing in early 2007.
Does this sound like it would be useful to you? We are looking to get some feedback from real world investors on how well it works for them. If you are serious about investing, whether doing it part-time or full time, you can help.
We are asking a small group of users to try out the service when it's launched, for free, and with no strings attached other than a promise to provide feedback. If this interests you, please send your e-mail address and name to stocknotesinfo@gmail.com. We promise your e-mail address won't be used for any purpose other than to notify you when the software is ready. Note that the evaluation will be limited to a small number of people, so please contact us soon if you think you might be interested.
And if you don't have time to provide us with an evaluation, but would like to hear more about the service when it's officially launched, you can also drop a line at the same address and we'll put you on the launch notification list. I'm really excited about this service. I'm hoping it will save me, and hopefully you, a great deal of time and in the process improve our investment results. As we get closer to launch I'll post updates on our progress and more detail about the service.
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