Why hold Lynas?..., page-5

Toly I say this as an old friend.   I agree with most of what you say.   You are doing what you have done before.  An excellent job of finding the positives.   This is what you did when I told you to sell at US1.40 $14.00 post split.   And several times after that Like at $11.00.   You have to look at both sides of the coin and evaluate what the chance of each happening is and the results  that will occur.   

First the NUF license  extension expires in February.   If it is not renewed the stock goes well below  your average price .   I use to think the chance of this happening was Zero.  Still think chance is small but not Zero any more.    Next possibility it is renewed till the General operating license is up for renewal.   With no further Quali-fications.   I would put the chances of this as small.  If it happens  the stock has a nice positive pop and will hold most of it till at least Q3 report.    Next is the license is renewed till Sept.   With at least one new requirement.    This, I think,   is most likely,  the stock will pop but I doubt it will be much higher than $2.00 LYC.AX  Un-less Q 2 and H1 reports are much better than I think,    It will go back below $1.70 todays price.   https://www.lynascorp.com/Shared%20Documents/Investors%20and%20media/Announce-ments%20and%20media/2018/181031%20Malaysian%20Regulatory%20Update%201864248.pdf   

Next potential Negative,   After announcing JARE Payments in advance several times not a word this Q.   My guess for this is that if they did,  it would not take much for people to figure out what this Q looked like and therefore Lynas could not pre an-nounce,   If this was different from general expectations.  They had about 65.8 M in cash at end of Q1 so this would allow a 25M  to be paid to JARE.    If they even paid as little as   40 M then this would indicate Q2 was worse than Q1.   This is just a guess,  others that have different  ideas I would love to hear them.        Of course 70 M would have been a big surprise as well.  

Next is PE.   This company has only had profits For one year and even those did not wipe out loses for the year  before that. 2017 loss AUD  84M,   2016  loss 116M.   If  I take 2 X H2 earnings it is 8 M  and that is a PE that is so crazy I will not even mention it.   I think Profits will be small (Possibly but Unlikely negative this year )    Lets take some numbers that are above even my optimistic range.   Before you evaluate these numbers lets look at a chart of NdPr prices from Lynas’s Q reports.    Prices have been stable,   I think the Change from Q1 to  Q2 will be about 0.50 or less.  

 

To summarize Average  NdPr price H1 18 was  USD 50 KG,   H2 44,   H1 ’19,  CJ’s estimate USD 41.      

This chart helps to bring into perspective Lynas chances of robust  Profits H1 and H2.   But let’s really go crazy let’s assume that profits H1 are 3X H2, AUD 12M.    2 times 12 is 24M  Divide by 660M shares  is $ 0.036 a share.   Which is a PE 46.7, with $1.70 for a stock price.    In a period of declining markets,  does this sound rea-sonable?   A PE of 50 would still only be a price of  $1.80!!!   The truth is if they had made 4 M H1 last year 8 M H2 ’18 and 12M H1 ‘19 the stock prices would be allot higher than 12 M H1 ’19,  after 50M H1 and 4 M H2 last year.   

Now let’s assume that in spite of declining prices for NdPr, Lynas   profits increase 33% H2 over H1, to 16M   for a total of 28M for FY ’19  Profit/ sh  $0.042,  PE 40.      To put this in perspective the ASX 200 PE is about 15 and falling.    As is the PE of most exchanges in the world.  

With a partner Like JARE Cash is allot less important than other companies of Lynas size.   However at less than 10% of revenue, after paying JARE,  it is low.  If it gets too low there will be either more debt or further dilution.   Since this is probably a year away,  or will never happen,  I will leave it alone for now.  

Even though the price is much lower than when I sold this summer I still think there  is an excellent Sell and Buy opportunity.

Simple reasons.

If things go bad in Malaysia Lynas loses allot of it’s stock value,  Low probability but possible.  If they shut down for 3 months  the price could go to the old lows of LYC of 2016 of 0.05

If things go OK the stock price does not likely Change much (because of very high PE) allowing lots of time to buy.   To buy back in at a minor profit or loss.

The chance of everything going well is very small.  

When  REO market improves there are several things that we can watch for an early indication.

 Stock prices always go up before a recovery.

General commodity prices going flat to small up tick  

Market like US car sales going flat to small up tick.  

The crazy person in US White House goes away.     This is not a joke.  

Having these early indicators make it probable we will buy before any major run up.  

There is always a possibility that Lynas’s SP goes up and selling and rebuying will lose money.   My money is that Sell and Rebuy is much more likely to help your portfolio.    Good investing looks at probability and magnitude  of results from both sides.   Sometimes you will lose but overall you will do better.    You have a very nice gain think hard about protecting at least some of it.    If you have any FMO (fear of miss-ing out)  Get rid of it. It is the biggest thing that trips up investors.     

FEAR OF MISSING OUT: AN INVESTOR’S WORST ENEMY    

  HTTP://NETWORTHADVICE.COM/FEAR-OF-MISSING-OUT-AN-INVESTORS-WORST-ENEMY/    Google “fear of missing out , stock investing” there are 1000 of articles about this.    The above is the first article from my search.   not the best but I did not want to pick.  There are several companies with FMO as their acronyme spell it out.