(a) Good job to appoint Moelis, who have a strong 'business-turnaround' track record:
However, Moelis won't come cheap and I want to know if BPAM will be reducing their fees to offset that of the Moelis fee. Knowing the scope of the Moelis appointment would be useful - is it to assist in operations that BPAM should handle, or a special assignment such as a corporate restructuring or sale?
As shareholders, we cannot perpetually be paying consultants - there needs to be accountability along the way.
(b) Huge disconnect between the recent SPP and Director Investments:
A lot of spin about the SPP and how the senior team and directors believe in the business and so forth, yet the directors' stumping forward capital for the SPP was out of line with that spin. Credibility of BFC diminishes each day.
(c) Sale of Farm is a completely flawed idea:
I read that there is debt maturity due at the end of May 2020. I further read the proposed asset sale will settle in May 2020.
Selling a somewhat significant agricultural property (~ $35 Mn) can take time and I fear that the proceeds of that sale will be directed to pay down debt - so there is now motivation to accelerate the sale process. Any purchaser will do their corporate due diligence and put 1 + 1 together, as I have above. If that's so, the sale might not be as accretive as spun - nor will the sale be as 'clean' (i.e. BFC is going to be a motivated seller if they have maturing debt. I suspect the debt markets are priced in a way that BFC will be in a tough spot to extend debt at this time).
Moreover, the idea of selling the farm to pay down debt, then to sign a 10-year ongoing financial liability (lease) is just flawed in many regards.
Granted, selling a capital item (i.e. farm) can be a good idea if those funds are directed to something with outperformance, a significant part seems to be going to pay corporate debt. A capital item shouldn't be sold to pay for operating debt - the operating funds should cover operating debt.
There are plenty of examples of organisations with large real estate holdings and those companies believe they can get outperformance through selling that real estate. Bunnings is a good example of that. In very broad and simple terms, Bunnings had a lot of Bunnings stores (real estate). On the open market, they can sell them, with a market-level lease in place, at around 5-7% capitalisation rate of year 1 income. Bunnings, believing they can sell those assets at 5-7% capitalisation rates, did so and utilised the capital from that sale back into their business where operating returns greatly surpassed 5-7% per year. In simple terms, Bunnings took $100 from the sale of a store and created an ongoing liability (lease obligation) at $5-$7 per year. But, with that $100, they put into the business and grew it at, say, 12% or $12 - so $12 less the $5-$7 in lease obligations, this became a cash-flow and profit-accretive operation.
Further, Bunnings created the BWP - a REIT of Bunnings assets.
At BFC, we are selling a capital item to pay off debt - the balance sheet won't improve much. They'll tell you the funds they direct to operations will be accretive overall, but history in the company shows the funds from operations are average at best, so the 'outperformance' I talk about in the Bunnings example largely doesn't hold true.
Finally - some firms who cannot demonstrate value from selling capital items, do return capital to shareholders. Again, this is not likely at BFC as they need to retain funds for operations.
Summary
Overall, I am perpetually disappointed by the excuses and ongoing poor performance at BFC while most sectors of the broader market continue to perform well.
I would love to hear peoples' views on the farm sale and Moelis appointment - both are very topical to how the business will perform in the next few months I believe.
BFC Price at posting:
7.3¢ Sentiment: Sell Disclosure: Held
(20min delay)