• Kashyap Sriram

Weekly rollup | April 18-24 2022

Stocks Mentioned: Victoria Gold (VGCX.TO), West Fraser Timber (WFG), Knight-Swift Transportation (KNX), Newmont (NEM)


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April 18 2022


A sign that a big bank is potentially in trouble.


Sell Victoria Gold (VGCX.TO)


On 3/25, VGCX had an ugly move down. The company released 2021 results, highlighting gold production of 164,222 ounces at an AISC of $1193/oz for the year and full year EPS of $1.41. Decent results, in line with expectations. But the company decided to sandbag investors by guiding 2022 gold production of 165-190k ounces at an AISC of between $1,225 and $1,425 per oz.


Higher production at slightly higher costs. How is this sandbagging? Because the original plan called for production of 296,100 gold ounces in 2022. The company should have at least started the ramp up process by achieving 200k+ gold oz in 2022, if not meet the actual mine plan estimates (photo below). Their Q1 2022 production of 24,358 gold oz was 9% below the same period last year, so perhaps the company isn't sandbagging but is actually set to underperform significantly.


I have no confidence in management, no fundamental or valuation based reason to hold on. It appears other investors feel the same way. The pigs are flying in the current gold rally but not VGCX. It's time to hit the bid.


Based on entry on 1/4 open at C$14.27, at current price of C$14.55 we are just about breakeven on this trade.


VGCX original life of mine plan


April 19 2022


BW LPG management estimates NAV at US$10.15/share. That's about 90 NOK, representing upside of 45% from current levels.


"On December 8, 2021, BW LPG initiated a share buy-back program, under which BW LPG will purchase up to 10 million common shares for a maximum of US$50 million. The program is expected to continue until the end of Q2 2022. As of 28 February, we purchased 2,870,827 shares at an average price of NOK 48.10 per share, amounting to NOK 138 million."


The company had working capital of US$232.9 million at the end of 2021. That, plus Q1 cash flow, should be sufficient to continue buybacks. BWLPG.OL and LPG are both great buys, based on both valuation and the fact that nat gas/LNG is in a structural bull market.


EIA: Number Of DUCs Falls To Lowest On Record


Milk futures chart courtesy chigrl. Step aside, bulls and bears. The cows are coming home.


April 20 2022


This is the most important dynamic to understand in the market today. I don't know how the Yen will move, but however it moves it will have an outsized impact on every asset class. Think of the move as analogous to a new Fed chair being appointed. Only, we don't know if the new Chair is a Paul Volcker or a Gideon Gono (former Zimbabwe Central Bank head). When the market gets a handle on the BoJ's next move with regard to YCC vs inflation, overall volatility will ramp up with gusto.


No change in positioning for now, since I think the inflation trade is going to continue to be a winner.


Buy West Fraser Timber (WFG). The tender offer for $1.25 billion represents 14.5% of current market cap. The company is serious about addressing a [perceived?] valuation disconnect between the share price and NAV/share. Share price is US$83.17 pre-open. Worst case scenario, the auction happens at $80 and we can tender in our shares for a minimal loss. The upside? The company is willing to buy up to $95/share. I'm bullish on wood and paper, it's part of the inflation trade.


From $PKG Q4 2021 earnings call: "Finally, I'll mention that last week we notified customers of an $80 per ton price increase effective with shipments beginning February 14th for all office papers, printing papers, and converting papers... Average paper prices and mix were 9% above fourth quarter for 2020 and over 3% higher than the third quarter of 2021... Customers continue to tell us they have higher demand and could ship more if not for these or similar issues. There's no doubt we view demand as strong and we expect this to continue even with the numerous obstacles most companies are facing."


Granted, I know very little about the paper and containerboard industry, and could be wrong. But my research tells me demand for WFG's products is strong and the tender offer reinforces that view. On Dec 14, 2021 nat gas producer $EQT announced a $1 billion share buyback program and the stock has done wonderfully since. Management realized the upcoming strength in nat gas before the market did. Perhaps it's the same way with $WFG for its end products. I'm willing to take that risk, since the setup makes sense.


WEST FRASER ANNOUNCES US$1.25 BILLION SUBSTANTIAL ISSUER BID


April 21 2022


Ackman gives up on Netflix, taking $400 million loss as shares tumble

Bill Ackman finally learnt not to double down on losing trades. Always healthier to cut losses and re-assess than trying to throw enormous resources at a futile attempt to get back to breakeven. If you're unfamiliar with his history, search for Bill Ackman Valeant.


Tata Steel has announced that they are now ready to halt all their business with Russian companies for the time being and they are already diversifying their raw material needs to other supplying countries.


Implications:

  1. the sanctions will continue at the private level regardless of how governments lean towards Russia

  2. more ton mile demand for dry bulk commodities. Portfolio company $GRIN and the $BDRY are going to benefit as this trend picks up


April 22 2022


Knight-Swift Transportation (KNX) had a blow out first quarter, reporting free cash flow of $352.4 million, net income of $224.9 million and EPS of $1.35 on revenue of $1.8 billion. Year on year revenue grew 49.4% while operating & net income grew 83.7% and 61.3% respectively. Freight recession? Not by these metrics.


KNX CEO comments: "We continue to grow and diversify our business while improving our results and achieved revenue growth and margin expansion in every segment... We continue to see improvement in contract rates within our Truckload segment, leading to less exposure to the spot market. Logistics continues to grow load count, both through our power-only service offering and our traditional brokerage services, resulting in a Logistics gross margin of 20.2% for the current quarter. Margins within our Intermodal segment remain strong, and we anticipate year-over-year load count growth in the second half of 2022 as we build our customer base following our recent transition to the Union Pacific."


Newmont (NEM) reported Q1 2022 net income of $432 million and operating cash flow of $689 million, down 20% and 18% respectively from Q1 2021. The decrease is in spite of higher revenue of 5% and higher realized gold price of 8%. Free cash flow decreased a whopping 43%, coming in at $252 million. The company will pay out a 55 cent quarterly dividend. NEM has been a trend follower's favourite stock in the gold mining space, and the selling should be immense as the trend traders get out. Who's buying? Not the value guys, not with the stock grossly overvalued at over 58 times earnings amidst deteriorating fundamentals (for ex. increasing Peru exposure after Peru elected a leftist President who promised to shred the Constitution which enshrines mining rights for foreign companies). The stock is going to be bought by the gold bugs who love buying on the way down and crying manipulation when they lose money. The short interest isn't even a day's worth of volume so not much support there.


I think there's a high probability of a colossal selloff today. I intend to wait it out. There will be better exit points in the weeks ahead, once this selling pressure is exhausted and gold resumes its upward march. I'd be a buyer if the price gets below $67. The company still has $475 million remaining under its 2022 share buyback program - cash which I suspect will be put to good use next week, once the blackout period is over.

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