Monday, January 26, 2015

Big Precious Metals Miners - Long Term Supports Are Working

In the beginning of November last year I placed a chart showing the technical situation of big precious metals miners (link). After nearly three months those miners' prices are still above their strong long-term supports. Please, have a look at the chart below:

Although the shares are above their supports, they are not in a bull market yet. But, similarly to gold, the risk of investing in the whole PM sector is today at the lowest levels in history.

Friday, January 23, 2015

Today Oil Is Extremely Undervalued Against Gold - Expect A Violent Oil Price Appreciation

Please, look at the chart below:

Looking at the chart "Oil against gold" we could easily spot that these days the oil is extremely undervalued against gold. Due to the assumption that gold, as the ultimate currency, expresses the real value of everything, I could put a thesis that the price of oil is at its cheapest levles since 1983.
If the pattern repeats itself, expect the price of oil to start going higher.

Tuesday, January 20, 2015

Every Time Oil Goes Down So Does The U.S. Dollar

I think it should not be a surprise that every time oil prices fall, some time after that the U.S. dollar follows oil. In my opinion this is just a simple play between supply and demand.

Why? Well, oil is a world commodity. If you want to buy it you have to have the U.S. dollars. When the price of oil drops you need less dollars then before. Let me do some basic math: since June 2014 the oil prices had dropped around $60 per barrel. The world demand is around 90 million barrels a day so it means that today the world daily needs are $5.4 billion  lower than just six months ago. On a yearly basis it is around $2 trillions. As you see, the demand for the U.S. dollars should be much lower due to lower oil prices. In effect, the dollar should go down some time after oil prices had fallen.

Let us check it on the chart:

Yellow ranges show the time span between the beginnings of the major oil prices corrections and the beginnings of the dollar downturns.

As you see, generally it had been taking 7 to 20 months since the beginning of the oil prices correction to the start of the dollar downturn. I think that due to the fact that more and more countries try to buy oil using other currencies than dollars, the U.S. currency should correct faster than before. Today we are in the seventh month of the oil bear market so expect the falling dollar any time soon.

Saturday, January 17, 2015

Gold Has Probably Printed Its Bottom

Most recently we have been observing some positive signs in the gold market. Please, look at the first chart:

I do not have the slightest idea where gold is going to but it seems, looking at the second chart, that gold has printed its bottom in the beginning of November 2014. The break-out below the support at around $1,200 was probably a false movement with many shorts caught in a bear trap.

What is more, GLD, the biggest world's ETF investing in gold bullion, recorded the weekly inflow of 742 thousand ounces of gold - it has been the biggest weekly inflow since November 2011 when gold was topping.

                                                            source: Simple Digressions and SPDR Gold Shares

And one more thing. Generally, gold falls when USD goes up and vice versa. But since the beginning of December 2014 both gold and usd have been appreciating. This occurrence confirms the power of the last up-leg in gold.

The US dollar index is approaching its resistance at around 66. Commercials, big market makers, currently have the highest net short position at greenback - this is a sign of a late bull market in that currency.

                          source: U.S. Commodity Futures Trading Commision and Simple Digressions

Summary - in my opinion, the gold market has printed its cyclical bottom. Now, the problem is whether gold is starting a new bull leg or not. As you know, I am rather not trying to predict what the market is going to do - I leave this subject for showmen. But looking at the charts above, I guess the risk of investing in gold has fallen substantially.

Friday, January 16, 2015

Short Recapitulation Of the World Equity Markets

It is good to look at the world markets regularly. For someone investing in the U.S. it may be obvious that we are in the long bull market in equities. But it is not the case when looking at other markets.
Please, look at the chart below:

The first chart (upper window) evidences the price action of emerging markets. Well, these markets have done practically nothing since 2010.

S&P 500 and the majority of other U.S. indices are in their up trends (with some exceptions as Russell 2000 and NYSE, which are currently in trading ranges).

The old, good Europe has been in a trading range since 2014.

And the world (without the U.S. market)  - it seems that now the world is in a correction mode or maybe it is starting something more serious (going south).

Summarizing - apart from the U.S., most world equities are not in their up trends. What is more - it is not anything new.

Thursday, January 15, 2015

It Seems That The Swiss Central Bank Uses A Technical Analysis

Well, it is quite funny but it really looks like Swiss central bankers look at the charts and take their decisions when charts say so....

Look at the chart below:

Each time the Swiss Frank was approaching the green trend line the Swiss Bank strengthened the Swiss currency. The today's big move is just a repetition of previous patterns.

Wednesday, January 14, 2015

Navios Maritime Acquisition - Economic Results Are Quite Different From Accounting Ones

The company

Navios Maritime Acquisition (ticker: NYSE: NNA) is an owner and operator of tanker vessels. The company transports petroleum products, bulk liquid chemicals and crude oil. At the end of the third quarter 2014 it owned eight LR1 vessels, seventeen MR2 tankers, four chemical / product tankers and seven VLCC tankers.  For those looking for more info about NNA, please, refer to my article on the Seeking Alpha website.

In this post I would like to focus on a few economic aspects of NNA's operations.

Financial measures

The table below shows three basic measures, distinctive of shipping industry:
  • time charter equivalent per day
  • costs per vessel per day
  • netback
Simply put, time charter equivalent per day is the amount of money the vessel earns daily - generally, it is a market measure, which means that a shipping company is not able to impose its own time charter rates.

Costs per vessel comprise all expenses the shipping company bears daily per each vessel it owns (operating, financial and other expenses).

Netback is the difference between the above described measures - it shows whether the company earns money on its vessels or it does not.

After many years of negative netbacks, finally in the third quarter 2014 NNA recorded the positive netback. Of course we cannot be sure that Navios would be a profitable company from now on but...well,  at least we notice something positive after many years of troubles.

Another thing. Since 2010 (the year when NNA started its operations) the company has been incurring losses. The main reasons for that were:

- low spot (and charter) rates recorded in the industry (table below)

- high management fees paid by NNA to its fleet manager - these fees are fixed and when there are low rates in the industry, the company is being hard hit by management fees (but when charter rates are high we observe the positive effects of the operating leverage with management fees weighing less and less)

- development expenses - NNA is relatively a new company so building its fleet took some time. Today, having 36 vessels in the water and 5 newbuildings contracted, NNA is operating on a much larger scale.
Economic income (noplat)

To prove that the company is developing properly, please, look at the table below:

The table shows the economic income and net income (loss). Due to reasons described above, NNA has been accumulating net losses since the start of its operations. But the business of the company has been developing quite aggressively - since 2011 the company has accumulated nearly $200 million of noplat (economic income).

Cash flow from operations

What is more, the company has been consistently increasing its cash flow from operations  - the table below pictures it:

During three quarters of 2014, NNA's cash flow has been higher than that generated in 2012 and 2013.

Share prices action

The company is prized by the market - since October 2014 NNA shares have been appreciating quite aggressively - please, look at the chart below:


Finally, after many years of building its fleet during unfavorable market conditions, Navios Maritime Acquisition seems to be going out of troubles. Despite accounting losses, the company has been accumulating quite a high economic income (noplat). This, together with a bigger fleet of new and modern vessels, should, in my opinion, favor this company against its peers.


Friday, January 9, 2015

Polna - Another Polish Company Creating Long Term Value For Its Shareholders

Polna is a small Polish company (with a market capitalization of around $10 million) manufacturing a number of industrial products as: automatic control engineering products, casts, heat engineering products, central lubrication equipment etc. The market, where Polna sells its products, is very competitive, with big world players being Polna's competitors. In spite of this, the company is increasing its sales and improving its financial results.

Financial measures

The table below evidences the basic Polna economic measures calculated for the years 2009 - 2013 (apart from share prices which are calculated for the period 2009 - 2014):
As you see, sales were growing at the rate of 8.2% a year. But net profit on sales and noplat were increasing at the rate of 13.2 - 15.00%, i.e. much faster than sales. It is an evidence in favor of the good management work. What is more, Polna share prices were appreciating at the rate of 14.7% a year, which is similar to to the appreciation rate of Noplat. In my opinion, it supports the idea that there is no bubble in Polna's share prices action.

Now, let us look at the company's free cash flow (in thousands of PLN (Polish Zloties) (1USD = 3PLN)

Since 2010 the company has brought more free cash flow than noplat. In such a case, a good management should give back the excess cash to the company's shareholders. The Polna management have just done it - since 2009 Polna:
  • spent PLN 15.0 million on share buy-backs
  • paid PLN 2.8 million in dividends

Return on invested capital

Let me be a little bit more precise on that subject. The main reason for providing shareholders with an excess cash was quite a low return on invested capital:

As you see, the return on invested capital has never been higher than 7%. It is quite a low ROIC - probably the management has some problems with finding interesting investment ideas so....the cash has being going back to the company's shareholders. This is not a common behavior in the financial world but it is a behavior recommended by Warren Buffett. By the way, the main Polna's shareholder, Zbigniew Jakubas, is a fan of Mr. Buffett.
Going further, the pro-investor attitude of the company is best seen when looking at the company's cash flow. Between the beginning of 2009 and the third quarter 2014 Polna:
  • had PLN 28.7 million in cash from operations 
  • of that cash, PLN 4.7 million was invested by the company
  • PLN 3.7 million was spent on purchasing currency options
  • PLN 15.0 million was spent on share buy-backs
  • PLN 2.8 million was paid as dividend in 2014
As you see, the biggest part of cash from operations was paid back to the company's shareholders - PLN 17.8 million of PLN 28.7 million.


Another thing - share buy backs are the most efficient when the company market value is low. Let me look at that metric. The chart below shows the history of Polna's valuation. As a metric, I have chosen the relation between Polna's market enterprise value and its EBITDA.
As the chart evidences, since 2008 the company was valued by the market at relatively low ratios. Putting it simply,  currently Polna is valued at around 4 its ebitda - it means that the investor investing and controlling this company would be paid off in just four years. In my opinion, this company is very cheap at the moment.

Some additional notes.

1. Polna is slowly becoming an exporting company. The table below shows the geographical breakdown of sales in 2007 and 2013:

An increasing share of exports makes Polna more and more vulnerable to currency fluctuations, with a main impact coming from EUR / PLN. In the fourth quarter 2014 the Polish currency weakened against Euro - we should see the positive effects of that in the fourth quarter 2014 report. But, please, remember that this vulnerability works in the opposite direction when PLN strengthens against Euro.

2. It is rather difficult to buy many Polna's shares at the Warsaw Stock Exchange (ticker: PLA). In most cases, only around 1,000 shares are changing hands daily.

3. The main Polna's shareholder, holding a stake of 43.85% in the company's share capital, is Zbigniew Jakubas, the respected businessman and investor. This is a big plus for those investing in Polna's shares.

Share prices action
The chart below shows share prices action since 2007 (prices in PLN):

Tuesday, January 6, 2015

Gold Denominated In Some Currencies Goes Up

Last year was a bad time for gold investors - some people say. But well, for quite many investors the price of gold had done something different in fact.
Let us look at the charts below:

As you see, for investors from most of the European countries (Euro zone plus Sweden) and Japanese investors the price of gold is currently printing new year-to-year highs. For them the investment in gold looks not so badly...

Friday, January 2, 2015

Wawel - a Polish Company Creating the Long-term Value For Its Shareholders

This article starts the series of articles on companies creating or destroying value for their shareholders.
The series will comprise much more fundamentals than technical analysis. Due to the fact that, in my opinion, tough times are going for those investing in equities, I will try to find some companies, which preserve the shareholders value. I will also try to find the companies, which are doing the opposite - in these tough times such companies are the most vulnerable for big, negative surprises.

The company

Today, let me start with a decent, value creating Polish company, Wawel. Wawel is one of the biggest chocolate producers in Poland. The company builds its strategy on the steadily growing chocolate demand in Poland; according to KPMG, in the years 2008 - 2013 sales of chocolate in Poland were growing at the rate of 2% a year. Wawel, between 2008 and 2013 was increasing its sales at the rate of 13.9% a year - as you see, the company was growing much faster than the broad market. The main reason for that is, in my opinion, the well-recognized brand of the company. Apart from Wedel, Jutrzenka, San, Goplana and a few other brands, Wawel is one of the strongest chocolate brands in Poland. What is more, the chocolate market is quite resistant to economic cycles. Even during tough times, people want to eat chocolate (maybe then they eat even more chocolate).

Financial measures

The table below evidences the basic Wawel's economic measures calculated for the years 2006 - 2013:

As you see, the company was increasing its sales at the rate of 13.92% a year. But what is more convincing, the company was increasing the net profit on sales at the rate much higher than its sales, i.e. 21.87%.
Now, something about Noplat. Noplat is quite an artificial measure, which you will not find in financial statements. Simply put, Noplat pictures the economic profit the company makes. This profit was also growing at an impressive rate of 25.72% a year.
Another important factor - Wawel's share prices have not overshut the company's economic performance - they were growing at the similar rate to the Noplat (24.83%). So there is no bubble in the Wawel's stocks performance.
Now, let us look at the company's free cash flow (in thousands of PLN (Polish Zloties) (1USD = 3PLN)

As you see, apart from increasing its Noplat, the company in the years 2006 - 2013 generated the positive free cash flow - the cash from the company's operations was larger than cash invested in the company's development.

Note: the free cash flow is calculated in the following way:
  • for each year the capital invested is calculated - all values for property, intangibles, inventories, receivables etc. are compiled at their costs; all impairments are added
  • free cash flow for a year is calculated as a difference between the Noplat generated in that year and the difference between the capital invested in that year and the year before.
The free cash flow is also an artificial measure (not to be found in financial statements) but it discloses the company's economics in a very clear and reliable way, much better than the standard financial statements.
Anyway, this artificial measure is backed by the cash flow from operations recorded in the company's book entries.

cash flow in thousands of PLN:

The table above shows the cash flow from operations after clearing it from working capital changes - it simply shows how much cash the company has been generating from its core business. This cash flow was growing between 2006 and 2013 at a very high rate of 29% a year.

Return on capital invested

Finally, the most important measure - the table below shows the return on capital invested:

As you see, the company has been creating value for its investors since 2006. In 2013 the return on invested capital (roic) was standing at 20.2%, much more than its cost of capital. This is the best indicator confirming that Wawel is absolutely one of the best companies in the Polish Stock Exchange.

Share prices action

Below you will find the share prices action for Wawel (the Warsaw Stock Exchange ticker: WWL):

prices in PLN
The company is quite richly valued at the moment. As a valuation measure I am using the ratio enterprise value / adjusted ebitda. Ebitda is adjusted to exclude one-offs from the ebitda calculated in a classic way.

As you see in the table above, currently Wawel is valued at 14 of its ebitda.


Since 2008 Wawel has been paying regular dividends. What is more, these dividends have been growing at the rate of 14.87% a year. Therefore the company can be regarded as a dividend company. Unfortunately, due to the current rich valuation the dividend yield stands at only 1.9%.