Thanks a lot, Maaiz! I just use the reports from Interactive Brokers to get to the main contributors, and then update the share prices in Excel to get to the current %'s and a checksum to make sure everything is correct.
I had a look at General Finance and noticed the following potential red flags, I wanted to ask your opinion about them:
1) CEO controls around 41% of the shares, but has 59% of the voting rights. Are shares with multiple voting rights common practice in small caps or is it something we should pay attention to?
2) A big part of the CEO's shares, owned by his holding company, have been pledged to secure bank loans. Is there a risk of forced selling in case the parent holding gets into financial troubles?
3) There seems to be an open trial from a customer (Leali Steel S.p.A) and a judge ruled General Finance to pay them a compensation of 9.3M plus 4.7M of interests and expenses, although apparently the sentence was suspended in the appeal trial. Do you think this could be a significant risk in case they finally lose in court?
1) Yes, this is quite common, not a concern for me. I think it's positive for the founder to control the company. His father founded the company but he has formed it.
2) No risk imho
3) I think this possibly/likely will close against them, having to re-pay 14 mEUR such that it can be shared among creditors of the bankrupt Leali Steel. If we discount their earnings by 5-8 mEUR for meeting such issues recurringly (discounting the 9m for the possibility that it doesn't materialize, and for taxes), then they currently still have a ~22-25m earnings run rate, which is very high for a company with 300m market cap and growing ~50% yoy, about to reach 2026 revenue at ~3x of 2022 revenue. The risk to watch being that they have consistently been too aggressive and that more large cases like this occur.
For 3), losing the case could be treated as precedent, which is the main issue. That combined with their business model, the company feels extremely exposed to economy turning worse which have to happen at some point.
Hi Anssi, good day! I see this a bit differently. Credit impairment is standard in this industry, and the legal case is routine enough that it won't set a precedent in Italian courts. To your point, it could be a cockroach in the kitchen type sign though, that their underwriting has been poor. I don't think it is but it's something I watch out for.
Financially, they actually perform better in weaker economies (as seen in 2022) due to higher returns. Unless we face a catastrophic 2008-style crash, they are well-positioned.
Good process and overall perspective ;-) By the way, I tried to have a look at Helio, but they stopped uploading their financial reports on their website, where do you get them?
Thanks! From the look of their most recent filings, there's some legal battle going on about distributing a dividend. Since you're probably familiar with the details to some extent, any take on this?
Congrats on the great year! Do you use any software to track your portfolio for better reporting btw?
Thanks a lot, Maaiz! I just use the reports from Interactive Brokers to get to the main contributors, and then update the share prices in Excel to get to the current %'s and a checksum to make sure everything is correct.
Hi Floebertus, many thanks for this update!
I had a look at General Finance and noticed the following potential red flags, I wanted to ask your opinion about them:
1) CEO controls around 41% of the shares, but has 59% of the voting rights. Are shares with multiple voting rights common practice in small caps or is it something we should pay attention to?
2) A big part of the CEO's shares, owned by his holding company, have been pledged to secure bank loans. Is there a risk of forced selling in case the parent holding gets into financial troubles?
3) There seems to be an open trial from a customer (Leali Steel S.p.A) and a judge ruled General Finance to pay them a compensation of 9.3M plus 4.7M of interests and expenses, although apparently the sentence was suspended in the appeal trial. Do you think this could be a significant risk in case they finally lose in court?
Hi Rec, thanks for the thoughtful questions
1) Yes, this is quite common, not a concern for me. I think it's positive for the founder to control the company. His father founded the company but he has formed it.
2) No risk imho
3) I think this possibly/likely will close against them, having to re-pay 14 mEUR such that it can be shared among creditors of the bankrupt Leali Steel. If we discount their earnings by 5-8 mEUR for meeting such issues recurringly (discounting the 9m for the possibility that it doesn't materialize, and for taxes), then they currently still have a ~22-25m earnings run rate, which is very high for a company with 300m market cap and growing ~50% yoy, about to reach 2026 revenue at ~3x of 2022 revenue. The risk to watch being that they have consistently been too aggressive and that more large cases like this occur.
For 3), losing the case could be treated as precedent, which is the main issue. That combined with their business model, the company feels extremely exposed to economy turning worse which have to happen at some point.
Hi Anssi, good day! I see this a bit differently. Credit impairment is standard in this industry, and the legal case is routine enough that it won't set a precedent in Italian courts. To your point, it could be a cockroach in the kitchen type sign though, that their underwriting has been poor. I don't think it is but it's something I watch out for.
Financially, they actually perform better in weaker economies (as seen in 2022) due to higher returns. Unless we face a catastrophic 2008-style crash, they are well-positioned.
Many thanks for the thorough reply!
Good process and overall perspective ;-) By the way, I tried to have a look at Helio, but they stopped uploading their financial reports on their website, where do you get them?
Thanks a lot, Jay.
Check here (espi and eib)
https://www.gpw.pl/company-factsheet?isin=PLHELIO00014
Thanks! From the look of their most recent filings, there's some legal battle going on about distributing a dividend. Since you're probably familiar with the details to some extent, any take on this?
They regularly have an invitation to sell them shares, making dividends less important imho
If they think shares are getting fully priced, they might stop buybacks or shift to dividends but that's unlikely
Congrats 👍