bullish or bearish?

Firstly, disclosure: I own TPI shares (bought recently).

I've read a couple of comments in the papers and some broker reports on TPI. I can tell you the report that has received the most air time so far has been Goldman Sachs's report with a price target of $0.77. I believe this is the report that one of the forum members pointed out.

Well, I had a look at the report. Low and behold, the Goldman Sachs's analyst expected the EBITDA number for FY'10 to be approx. $400 mil. This is down from their FY'09 EBITDA of approx. $450 mil. Well, that corresponds to the comment about a free fall in earnings from one of our fellow posters. The Goldman report was the most bearish view and that analyst is actually out there on his own. Most other reports from other brokers have price targets of $1.50 and above.

Anyway, let's get back to the fundamentals of TPI's business:

1) It has a main business in Waste (both solid and liquid). In my opinion, this will be leveraged to general economic conditions. NZ is slowly emerging from a 2 year slump and companies like BSL etc. are restarting furnances and business activity is starting to pick up. The low of the low for the Waste business was back in 2H'09. That was due to inevitable production cutbacks and shutdowns. If you believe the Aust & NZ economies can recover from here, then TPI will be a buy.

2) Warburg Pincus has been granted consent/ consultation rights over certain key corporate decisions. Additionally, do you think WP is buying a stake in TPI @ $1.80 if they think they cannot get hold of the company and wrestle control from existing management?

3) Hello, where are all the instos. that thought Brambles was a strong buy in FY'08 on a prospective P/E of > 25x? Where are all the instos. who thought Brambles was a standout buy @ $12, $13 and $14? I know Cleanaway was not the main Brambles business, but there were rave reviews written about the waste business back then. Time to step up to the plate?

4) The NPAT numbers and earnings will not paint the true picture for TPI in the next 12 months. You need to look at their EV/EBITDA multiples, their underlying EBITDA as well as their cashflows from continuing operations. Additionally, let WP wave their magic Private Equity wand and see how much cost can be reduced from the company. I believe these are the main drivers for TPI in the near future.

5) If you believe EBITDA for FY'10 is going to be $400 million, then maybe you should stand aside. If you believe EBITDA can be closer to the $480 million to $500 million mark, then it will be worth buying at current levels. It is really just down to that. The NPAT numbers don't count for TPI in the near future. EV/EBITDA is the ratio investors should be focusing on.

6) Debt is good when used in a reasonable manner. Debt is also good in an inflationary environment.

7) They own a monopolistic foothold in their main business.

As always, the sentiment surrounding this stock is so negative such that investors will be frightened to venture into this company. I will make no excuses. This is a company that can trade in a volatile fashion due to the amount of stock coming on board. It also needs 2-3 months of trading before we can see some form of stabilisation.

Look at my earlier post. I mentioned this stock should open higher, then re-test the $1.20 level. (Please disregard the first 30 mins of trading as the market was only given approx. 10mins to place their bids in the system. What went wrong there? 10mins for a stock suspended for 5 months?) It will then stabilise and slowly inch up from there. I expect the stock to be at least $1.40 by December 2009. Not for the faint hearted.

Remember, not one broker had a price target of $1.00 for OZL when they re-listed. Neither did any broker have a price target of $2.50 for TSE when they did the massive placement at $1.25. I know TPI is in a different situation to those companies as they still have debt. However, I tell you, analysts have been more reactionary than visionary.

Not for the faint hearted!

Happy Investing.