starting to buy again, page-2

ok got my desired fill, 30,000 shares acquired, so can talk about it more (didn't want to discuss my logic whilst acquiring)

For the value investors out there, look at several factors.

As terrible as conditions are out there, look not just at profit but also cash flow.

From cash flow:
2013 Yr End: cash flow from operations: $25million
2013 Half Yr: cash flow from operations: $6.2 million.

So cash flow from operations in NOT declining even under the terrible conditions. There could be a seasonal factor hear (1st half could traditionally be weaker than 2nd half, I haven't bothered to check this).

But my point is there is lots of cash flow being generated by this baby.

Next look at the 10 year financials, we see that over the 10 years the company has always generated good cash flow (with very good cash flow over the boom yrs of 2008-12).

However it has also spent lots of cash flow on expanding its operations, hence high cap ex expenditure.

With the mining boom tailing off, this cap expenditure is going to rapidly taper off.

So basically now the company has to tighten costs and just weather the storm. Even though cash flow is still good it wont be going into future expansion since demand wont be increasing.

Next go back to the latest annual report. Look at overheads, the company is tightening its overheads. This is good management are on the ball.

Next look at cash flow relative to current market cap.
Cash flow of $25 million, market cap of around $160.
So market cap is only 6 times cash flow.
This gives plenty of scope for a further decline of cash flow as conditions continue to tighten.

In other words at current prices I have a significant margin of safety.

Next look at the major shareholders, we have directors with reasonable skin in the game. Its not just my money, they have significant sums of their own money involved. Nothing motivates like having your own capital at stake.
Look at the difference between say Forge (where all the previous directors quickly bailed out) and Fleetwood (where the directors are still here and so is their money).


Next look at NTA. Book Value is around $3.40 but NTA is around $2.40 So the company is now trading close to its NTA.
Fleetwood has historically (10yrs) traded on a ROE of around 15-25% (and achieved with low debt, no financial manipulation here). Yet now at current share prices, the market is not paying for that book value even though it generates a good ROE. This years and probably next ROE is going to be low, but this is as a result of the transition. (Cutting costs, maybe righting off some intangibles etc)

Once things get back to a normal market, ROE will increase to but on current share prices that ROE CAN BE ON A LOWER BOOK VALUE since book value is now approaching NTA.


Is Fleetwood risky?
Yes the future is uncertain, but so is investing generally. As Warren Buffett says you pay a high premium for clear sky's. The trouble is that when those sky's turn out to not be so blue, the market quickly whacks the price down.

At least at current share prices, the market is expecting stormy skys, hurricane like in fact.
If Fleetwood weathers the storm, it will come out with a share price that is significantly higher than now.

In addition over time the dividend will be reinstated. And at current share prices that future yield will be very attractive.

Just my thoughts