Instead of examining CLD today we instead initiated a position in Unisys Corporation. Our entire thesis revolves around the inflated price of the call options, nothing to do with the underlying stock in particular. While they have an earnings call in early August we intend to have closed our position more than a week before that – we noticed today while running a screener that their call option bids had climbed out of line with the real volatility of the underlying asset. It seems likely that some entity was attempting to hedge a large position, but that is simply speculation.
Regardless of the reason for the variation, our position ended today up more than 4%, and we expect that figure to remain fairly steady until expiration in mid July.
The new accounting system has been completed and rolled out ahead of schedule, and we’ve turned our attention to screener results. We’re beginning to think it might be time to look back into Cloud Peak (CLD), as their price has fallen far below even liquidation value for their assets and property. Our last position in that stock suffered losses due to trade timing – we backed out too early. We’re creating a model for profitability based on a range of future commodity prices, but preliminary examination leads us to believe that there might be a rebound coming sometime this year. In either case, technical factors are continuing to drive the price down so we have some time to reach a conclusion.
Today we’ve seen FTRPR finally fall in line with our assessment of PV for the preferred shares. Until now it’s been trading at a premium considering that it has gone ex-dividend on the upcoming distribution. The main reason behind this could simply be the extremely low volume of this issue – most of the people holding it now intend to hold to expiration and have little interest in divesting now. With that assumption in place it makes sense that it would continue to trade at a premium to real value.
On Friday after the distribution we’re expecting a marked drop in price, and we’ll be monitoring that drop to see if it’s worth acquiring new shares. Based on increasing uncertainty in the future price of the underlying shares our margin of safety as increased somewhat since the last time we acquired shares, but the model has been updated and we are monitoring the situation.
Our new accounting system is nearly in place, and we expect the updated reports to circulated from the beginning of next week.
Today we’ve strayed away from market events, other than to observe that none of our positions are in jeopardy and that FTRPR has yet to fall into line with our projections for PV (it is still trading at a premium).
We’re focusing today on transferring our reporting to a new unified accounting system that will serve as both daily report, and accounting system. This is nearing completion, we’re just backfilling historical cash flow information into the structure.
During this process we’ve encountered a frustrating issue with Yahoo! Finance. While Y!F is never meant to be a primary source, it is a nice light source for historical close information when it’s API is used with excel. However, while we were backfilling data we noticed that several of our past assets, most noticeably CLM and CRF have several consecutive weeks of close data missing. This obviously creates a problem for us, but it should not take more than a few days to fully correct. Our Matlab data connection also seems to exhibit the missing data for these assets, though it is not reflected in the web version of the site.
Today we acquired a new position in Golar LNG (GLNG), an LNG transportation, regasification, and liquefaction company. GLNG charters, and is developing a floating LNG platform ship (FLNGs) of the type used to ship dense LNG across the ocean, then convert it back to a gas at the destination. Shipping gaseous NG is economically impossible – it’s value to volume ratio is far too low to justify shipment.
This is an industry with extreme barriers to entry – there is only one ship of this type in the world (the Prelude, operated by Shell). GLNG’s attempt to convert an existing LNG ship into an FLNG is the first of its kind, and if successful it would cut literal years off of the production cycle of the other FLNGs proposed or in production (none are in production yet to our knowledge, though four others have been proposed).
Successful completion of their project ship (named the Hilli) would make them the second player in a hugely underserved field. Production is still on schedule (barely), and is scheduled to enter service as soon as September of 2017.
The remaining risk factor is GLNG’s recent moves to buy out most of the partners in this venture for upwards of $470mm, causing them to post a $0.70/share loss last quarter. That move cut their share prices from around $28 to the current $22, though logically the prices should recover. They did not lose the money, it was simply a reacquisition. We, alongside most other analysts, anticipate a recovery to at least $28 by they end of the year. Analyst sentiment projects values as high as $40 by the end of this year, with EPS growth through at least 2020.
Also – Seeking Alpha is holding a series of conferences today on Maritime Industrials:
Today we saw a portfolio setback as FTRPR begins to price itself for the new future cashflows (June 30 will see the first $2.78/share distribution since we began holding this asset). Fortunately the price change seems to be going fairly smoothly.
In other portfolio news, markets all fell nearly a percent today with the energy sector leading the plunge. RDSA, GPP, and SLB and all down more than a percent today and we had only five assets move up today. Expect some recovery tomorrow – and look for completed asset reconciliations by the end of the week.
Today we faced a reporting setback – a core formula we had been using in almost every report was depreciated without warning. We’re working on coding a replacement ourselves, but aren’t anticipating that being complete for some time. Until that solution is complete, reports will be delayed by one day and can be expected before market open the following day.
We’re still facing steady headwinds in our portfolio, Oasis petroleum dropped a devastating 10% in trading today. That puts that position into real loss, but we’re still somewhat insulated from the loss we would have faced in the pure stock position. We remain confident that we’ll see a rally in the 67 days remaining to expiration.