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Ezion Holdings
14-08-2017, 06:29 PM,
Post: #111
RE: Ezion Holdings
Ezion is like an investor who has used his margin account to long shares during the last market high. Now that market is down, how can they bear to sell off their losing positions? They are not reducing CAPEX because they are hoping for an upturn.

Their statement suggests that they are looking forward to the market recovery as well. Hope springs eternal for the long investor. Wink

Can we still invest in Ezion? I write down their assets to market rates (10% to 15%?), and if their net assets is still positive after accounting for all liabilities, discount the net assets by 50%. That is the price at which I will buy Ezion!

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15-08-2017, 11:33 PM,
Post: #112
RE: Ezion Holdings
Hi karl, thats a a tough valuations metric. Even penguim holdings which has a conservative balance sheet will not match up to it.

Imo such industries require leverage to a certain extent like reits. The question is hw far are your bankers willing to back you

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16-08-2017, 08:23 PM,
Post: #113
RE: Ezion Holdings
It is. You are right.

Penguin's net assets: $142m
Penguin's PPE: $95m
My impairment of Penguin's PPE: let's say $65m
My assessment of Penguin's net assets: $142m - $65m = $77m
Buying dollar bills for 50 cents: 50% x $77m = $38.5m
Penguin's current market cap: $60m
My conclusion: move on to other companies

Many opportunities will be lost if such a stringent criteria is applied. And you will find next to nothing to buy. Especially now that the market valuations are generally higher compared to 3 years ago. Very rarely do I get to buy the things I want at the price I want. Maybe another bear market will come along. Who know? But after losing money on pursuits without any margin of safety, I have disciplined myself to stay on the straight and narrow path.

I believe the key to an accurate assessment of business valuation is in knowing the industry well enough to have a better understanding of the PPE's (or whatever assets) market value. Then a realistic discount, or even premium, can be applied. I believe most of Penguin's $95m PPE is its shipyard. I'm not from this industry and I haven't a clue if it is indeed worth as much as it says. Is my $65m impairment of Penguin's PPE fair? I'm not sure. But it is a prudent/conservative move to make, considering the possibility of a long downturn. What if oil stays this low for the next few years? The recovery may be longer than most hope. Don't mind me, I just prefer to plan for more pessimistic scenarios.

If the OSV industry does turn out to be worse than expected, then you will have protected yourself somewhat if you have bought at a further 50% discount to your assessed valuation. Will I get to buy Penguin at my preferred price of $38.5m ($0.18~ per share)? Wait long long. If the market does offer such a price, will I really bite? Probably, but not much. Since I do not have intimate knowledge of the industry after all.

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