Capital raising, company creditworthiness and business viability during these highly unsure and volatile economic times is very important for investors with NZX listed companies in their portfolios and that is why I am following the stoush between Bruce Sheppard and Mark Weldon at the NZX with much interest.
In a post I made this morning I pointed out that I thought Bruce was being irresponsible in blanket accusations over NZX companies defaulting on bank credit terms and the NZX wanted him to explain himself and name names.
I thought he should too.
He has in a general way this morning with a letter addressed to Mark Weldon, NZX CEO:
I have thought about this long and hard, read all my blogs. They explain the background to the issue, and they explain the simple matrixes that I have applied and they have explained how I have analyzed the financial statements with this in mind. Either analysts are blind stupid or inefficient, the simple numbers that you need to check reasonable compliance are these and they don't require a detailed breakout of financial statements:
They are these:
1) How much interest are they paying, a bit hard to find sometimes but not hours of work.
2) Continuing EBITDA (earnings before interest, tax, depreciation and amortisation), not hard to find either but you do have to make some assumptions about what is recurring and what is not, this is explained in my blog.
3) Interest bearing debt, and where it is parked, parent subsidiary, its composition between capital notes, and those notes' terms, bank debt and so on. Currency risk is an exposure, and hedging polices come into play. I have not analyzed hedging as disclosure on this is such a tangled web of crap that it is almost impossible to work out how they have hedged their interest and debt exposures and the issues that go with that. Many have foreign currency debts with no natural hedge.
4) Book Equity... that is easy.
5) Net tangible assets is a bit harder but not to hard.
Bruce gives his reasons and goes into some detail as to why he made his sweeping accusation without further elucidation and it seems generally correct, to the point, accurate and honest and we need to know that detail.
Having said that, I still maintain all the research and detail that he says is coming on particular companies should have been released coinciding with his general release.
Us investors need to know but need to know in full before he slanders the good NZX listed companies among the obvious bad.
Stirring the Pot - Brucie's Blog
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c Share Investor 2009