Comment by phil

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phil
August 9th, 2017 at 4:46 pm

Cashing/Tangled – As you may know from previous cash-outs, we take winners off the table (like AAXN) and let losers play out (as long as we still have faith).  The LTP has $1.2M out of $1.6M cash already, there''s no sense in taking a loss if we think we can work a position – that's why we have a $1.1M profit in the first place – sticking to the system over the LONG-TERM.  

FU CBI!  Wow, people really get killed for missing these days.  Won't be pretty if it spreads.  Now we're back to test the lows:



 And Burr is right, if we do hold the June lows, now would be a great time to establish a more aggressive bull call spread.  Not hurrying into it though, I don't actually like the sound of the noises management is making.  As I said earlier, if those Q1 issues are not "one time" (and they aren't) – we need to take a much closer look at these guys before committing more cash.  Also, it's forgotten that we closed profitable calls on CBI when they ran up last fall – this 2019 position is what's left.

"Although our second quarter results are disappointing, we are taking decisive actions to improve our operating performance and strengthen the company's financial position," said Patrick K. Mullen, President and Chief Executive Officer of CB&I. "We have initiated a comprehensive cost reduction program and suspended our dividend. We are injecting additional rigor and discipline into our execution and risk management processes, further strengthening the integration between our E&C and Fabrication Services operating groups, and accelerating the implementation of innovative practices and technologies. We remain committed to our integrated self-perform model, which we believe will enable us to generate attractive earnings and cash flows over time.

"Additionally, we announced today that we are pursuing a sale of our Technology business, which we believe will unlock significant value for stakeholders. We plan to use the proceeds from the sale to significantly enhance CB&I's financial strength and flexibility by eliminating the majority of our debt and reinvesting in our E&C and Fabrication Services businesses. We envision a bright future for CB&I as a highly focused company with tightly integrated EPC and fabrication capabilities serving the LNG, petrochemical, refining and gas power generation markets." 

Technology Operating Group 
Technology operating group revenue was $72.8 million, an increase of 13 percent from the year-ago quarter due to increased petrochemical licensing. The Technology group reported operating income of $21.5 million compared to $23.1 million in second quarter of 2016. Operating income margin was 29.5 percent, down from 35.7 percent in the year-ago quarter, due largely to mix. The Technology group's new awards in the second quarter were $148.5 million, up 38 percent from the year-ago quarter. Backlog as of June 30, 2017, was $1.2 billion.

So a non-issue to revenues if they let Tech Group go but how much would they get for it with just $300M in annual revenues and $80M in profit.  I guess if it were TSLA, the answer would be $4Bn but, sadly, it's not so they'll be lucky to get $1Bn.

CBI/Learner – I'll want to go over this one very carefully as these numbers are much uglier than we thought.  Remember, this was not totally unexpected:

http://www.philstockworld.com/2017/06/18/philstockworld-may-portfolio-review-members-only/

• CBI – Is $15 finally the floor or are they teasing?  Let's roll the 2019 $27.50 calls ($1.50) to the $15 calls ($4.45) for $3(ish) and buy back the short $37.50s (0.70) and see what happens.

 

Submitted on 2017/06/21 at 4:19 pm

CBI/DC – If they are right then CBI will be an $8 stock in short order and it will take several years to work off the debt.  We started with CBI on 9/22/16 by selling $25 puts for $5 so net $20, call that our entry on 1,500 shares and add the $4,500 loss on the spread so net $23 is our entry on 1,500 shares ($34,500).  

At the moment, CBI is $13.15 and we can sell 15 of the 2019 $12.50 puts for $3.60 so that's our DD and we can sell 15 of the $17.50 calls for $2.60 and now our net drops to $16.80/17.15 and it's 3,000 shares if assigned at $51,450.

So assuming CBI goes to $8, we DD again by selling $8 puts for $2 (guessing) and $12.50 calls for $2.50 and then our net would be $12.65/12.58 on 6,000 shares (if assigned) for $75,480.  With the stock at $8 we'd have a $25,000 loss, which is one allocation block and by now it's 2023 and we'd want to sell 60 2025 $12.50 calls again (no puts) and, even if we only get $1.50, that's still $9,000 back on our $75,000 (12%), which is a pretty good dividend while we wait for the stock to rebound.  

So, unless CBI actually goes BK (even $4 is recoverable), as long as they are around until 2035 we have an excellent chance of recovering all of our cash and whatever our 6,000 shares of stock are worth at the time would be a bonus.

And that's on a stock that dropped 66% on us!  That's the key to long-term value investing – if you start at a good price with stocks that will ultimately stay in business (and the ones making actual money tend to do that), then you'll eventually get your money back – even on the dogs.  

Submitted on 2017/08/04 at 2:45 pm

CBI/Batman – I agree but they may want to kitchen sink this quarter while they can blame it on the old CEO.  It's always a good time to take the write-downs.

So good example of a play that's in progress during a down quarter.  We have a plan to roll with it but FIRST we verify whether or not our original investing premise is still intact.  That will not be until next week, when we see what else happens to them.