detailed rebuttal of cleo 1234, page-6

The biggest reason for this is the perpetual nature of this particular hybrid. If it had a firm redemption date(rather than step up date) then worst case scenario is you receive $100 worth of script.

Thats when you get a death spiral. PPX fall in anticipation of heavy dilution. The falling sp compounds the issue and conversion ratio. In the end you wont get your $100 but you'll do well selling the shares.

The second negative is the lack of accumulated interest payments. PPX can continue to step up the interest with no intention of every paying the interest component.

But inspite of this, their is still value at current prices. A take over or restructure WILL make a positive ROI (from this level).

And even though they dont need to pay interest, they certainly will if they recover. Because until they pay PXU they cant pay PPX. If they dont eventually pay PPX then it will be years before the sp rises. Yes their are growth stocks that go up without ever paying dividends but PPX arent in that category.

I would think within 2years the cost cutting, sales, etc have turned things around OR they go belly up. So doubling your money within 2years (PXU) is a real possibility.

The only way to lose is a slow death. PPX continue to make a small loss and its a drawn out death. But really, surely they would recap and inject new funds to reduce interest costs/gearing before they bled to death?

Big loss = administration/ privitisation.
Small continued losses = recapitalisation.
Profit = turnaround.

I honestly think PPX can be saved. The economy isn't great. They have exposure to Europe. But they have huge turnovers. Maye they have low margins but its not difficult to cut costs and turn around such a small loss.

1. Redundancies: Take time but will reduce costs.
2. Asset sale: Reduce debt. Lower interst costs.
3. Raise funds: Paydown debt.

Their losses arent insurmountable. A little tinkering can turn this around. Look at Centro.

Obviously im not saying PPX is a bargain. Stopping the losse is just the first step for the sp to recover. Making a sustainable profit and justifying a decent PE multiple is a different issue.

Graham asked why own PPX. Another reason is volume. Try buying PXU in any kind of volume.

If you want exposure to a PPX turn around then PPX could be the better proposition. Firstly you can buy volume, secondly it may rise higher and faster in a turnaround.

Though PXU via conversion is basically an option on the PPX business. It too will go up significantly in a turnaround. But still no conversion/buyback or dividend. So its in limbo and might go up slower than the heads.

For example, a decent asset sale above book value. Reduce debt. Increased NTA. Increased certainty/ survival. increased sp?

I could see PPX doubling under those circumstances but it would hard impact the current standoff for PXU. Im not sure PXU would double to $40. But surely PPX 12-14c is possible?