Poke the bear- A short-ish opinion

To begin with, I know have done adequate research on half of NEC , which was the fairfax and domain. I am a event-player so their spinoff was part of my portfolio. The problem with NEC was they have overpaid for Fairfax at the expense of share dilution. I would not go out and pretend this is the next big-short. Because it is not. I am just here to share my views and some details which got missed by the main stream media or your yahoo finance page. I would be brief:

1. NEC Share Dilution problem/Dividend sustainability: Nine has taken over Fairfax for doubling their own share base. I found their EPS numbers are all over the place and I PERSONALLY it was not a 100% accurate report. Why this matter? Because the dividend per share is the same as last year, but they did not actually drastically increase their earnings. In fact, their earnings (NPAT) is basically flat and they had to double their dividend to make the dividend per share APPEARED as the same as the past. How sustainable is this?


2. EBITDA/NPAT problem: I found it very weird NEC that historically NEC 1H earnings will be as much as 90% of their whole year earning when there are still incoming EBITDA. There is nothing wrong about this tbh. This pattern could simply due to their business model. However, the problem is compounded by DOMAIN business equity model. Half of NPAT is entitled to non-Domain entities. As a result, Domain ALSO has a very low real NPAT to EBITDA ratio. When you look at NEC presentation, they are very EXCITED to tell you the growth of their EBITDA. But they didnt tell you that the business model inherently hinder the growth of their NPAT.

3.The Last Nail: Roughly about 30-35% of the major share holders hedged their own holding at the price of 2.25. It means a counter party will pay the differences if NEC stays below 2.25 a share at an undisclosed due date. Even the insiders dont think quite trust their merger deal in terms of the share price.


As organic as your carrots, NEC is a company moving through time. It could make improvements and new strategy to change the narrative around. Especially, when the interest rate is so low atm. Like some people said, 0.1 dividend per share isnt all that bad in this environment. Again just to let you know that, this isnt a growth stock like you guys think.