Lessons about leases and liquidation value: a bebe stores, inc case study

I got a comment in the BEBE analysis post related to their $186M in operating lease obligation and what my view was as the company announced that they are closing down all their remaining stores. As I started to write an answer in the commentary section I came to realize that this might be a good time to put my view about operating leases into print. Also, as the BEBE situation is currently playing out in real-time it makes it a good live case study for how to view operating leases when it comes to investing in net-nets and companies selling below liquidation value. At least I hope it makes the post about operating leases a bit more interesting.

Off-balance-sheet financing & operating leases

Before diving into the more interesting stuff, lets first remind ourself what we are talking about. First off, what is off-balance sheet financing? Well, in broad terms it refer to assets or liabilities that we can’t find on a company’s balance sheet but nonetheless are forms of assets or liabilities of the company. The reason why I say “forms of” is because there exist some nuances, but for the most part they fit the assets and liabilities definitions. Lets remind ourself of the definitions for asset and liabiliy:

Asset: Resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow the entity.

Liability: Present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefit.

The most common reason for not capitalizing an asset or a liability on to the balance sheet is that it misses on the first part of the above definitions. Resources controlled as it concerns assets and present obligation as it concern liabilities. In other words, the company is not the recognized legal owner of an asset or does not have direct legal responsibility of the liability.

Operating leases is probably the most common type of off-balance sheet financing and it’s also the oldest form of off-balance-sheet financing. In 2014 listed companies using IFRS or US GAAP disclosed almost US$3 trillion of off-balance sheet lease commitments. Yes, that’s trillion with a T. An operating lease is a contract between two companies where one company is allowed to use the asset (lessee), but where the rights of ownership of the asset stays with the other company (lessor).  So an operating lease represents an off-balance sheet financing of an asset, where the leased asset (future benefits) and associated liabilities of future rent payments (outflow of cash) are not capitalized on the balance sheet of the company using the asset. In other words, provided both parties are behaving rationally, the economic substance of this arrangement is that the lessor has made a loan to the lessee that is equal to the capital value of the leased asset. The lease payments will be equivalent to the loan repayments on that loan plus the interest that would have been charged.

So whats the problem?

A distorted view

Since operating leases are found off the balance sheet they distort the view that you would get of a company’s financial position and performance if you were looking through a screener. The same would apply if you were only looking at the financial statements presented in an annual report or 10-K. Primarily, a company with a big operating lease obligation will look a lot slimmer than it actually is. As you can imagine, a number of important key ratios, such as equity ratio and return on total assets, would therefore be quite different if the company decides to put it on or off the balance sheet. However, with a quick search for “operating leases” in the annual report or 10-K you would find the following note:

lease bebe.png

With this note you could be guide in your division for what is to be regarded as current assets and liabilities (< 1 year) and non-current assets and liabilities (>1 year). Therefor it could be argued that it is not rocket science in order to get a more fair view, just add-on the numbers back on the balance sheet. However, both IASB and FASB would argue against me and as I will later demonstrate with the case of BEBE this is not even the whole truth…

New lease standards from IASB (IFRS) & FASB (US GAAP)

About a year ago both IASB and FASB announced that they had issued new lease standards. It was stated that the new standard from IASB will come into play as of 1 January 2019 and the standard from FASB as of 15 december 2018. There are minor differences between the two standards but the main change and effect of the new standard is the same. That is, all leases, except short-term leases (< 1 year), must be capitalised, i.e. put on the balance sheet. As a result, the expense for operating leases will be moved from operating costs and divided into one part depreciation and one part interest, similar to a regular assets and liabilities.

ifrs 16

ifrs 16 incom.png

One should also note following regarding the effect on cash flow stated by the IASB:

Changes in accounting requirements do not change amount of cash transferred between the parties to a lease.

Consequently, IFRS 16 will not have any effect on the total amount of cash flows reported. However, IFRS 16 is expected to have an effect on the presentation of cash flows related to former off balance sheet leases.

IFRS 16 is expected to reduce operating cash outflows, with a corresponding increase in financing cash out flows, compared to the amounts reported applying IAS 17. This is because, applying IAS 17, companies presented cash out flows on former off balance sheet leases as operating activities. In contrast, applying IFRS 16, principal repayments on all lease liabilities are included within financing activities. Interest payments can also be included within financing activities applying IFRS.

The net-net formula and operating leases

If you are still reading at this point give yourself a pat on the back. Now let’s get into the more interesting stuff for how the above relates to investing in companies that are selling below liquidation value.

If you had asked for my opinion about operating leases, as it relates to net-nets, just a few months ago I would have given you a completely different answer than what I will give you today. Back then I would have said something like “all backtesting that I have ever come across doesn’t take operating leases into account and the returns are still awesome”. While this is true I would now argue that I don’t think this is a healthy approach to investing. Also it’s not what Benjamin Graham thought of when he initially stated the approach for how to invest in companies selling below liquidation value:

A good part of our own operations on Wall Street had been concentrated on the purchase of bargain issues easily identified as such by the fact that they were selling at less than their share in the net current assets (working capital) alone, not counting the plant account and other assets, and after deducting all liabilities ahead of the stock. It is clear that these issues were selling at a price well below the value of the enterprise as a private business. No proprietor or majority holder would think of selling what he owned at so ridiculously low a figure. – Benjamin Graham (The intelligent Investor)

Specifically note the bold text related to liabilities and ask yourself: would Graham include off-balance sheet financing in a net-net calculation if he lived today? I’m sure he would. So while the quantitive approach to net-net investing from a balance sheet approach has proven to be a solid strategy for generating alpha it also deviates from the wise words once written by Graham in the Intelligent Investor. On this note one should remember what Graham stressed above all everything else: margin of safety. So what I have come to realize is that you shouldn’t let a backtests sway you away from the true meaning behind the concept of margin of safety as it relates to the liquidation value approach of investing. In other words, just because something doesn’t show up on a screen it doesn’t mean it does not exist and should not be accounted for as a future inflow or outflow of cash, i.e. asset/liability. This epiphany has become even more relevant as of the new lease standards that will soon come into play for both US GAAP and IFRS.

So now you might think that the correct way to calculate the liquidation value for BEBE is just to add the $186M of operating leases into the net-net calculation. Well, unfortunately it’s not that easy if you aim for a fair estimate of a liquidation value. With the help of the current situation in BEBE I will try to demonstrate this. But before I do that I would like to set the stage by presenting two important quotes from two of my favorite investors, Marty Whitman & Seth Klarman.

We do net nets based more on common sense. As, for example, you have an asset, a Class A office building, financed with recourse finance, fully tenanted by credit-worthy tenants, that, for accounting purposes, is classified as a fixed asset, but, given such a building, you pick up the telephone and sell it, and really it’s more current than K-Mart’s inventories, for example, which is classified as a current asset. – Marty Whitman

As long as working capital is not overstated and operations are not rapidly consuming cash, a company could liquidate its assets, extinguish all liabilities, and still distribute proceeds in excess of the market price to investors. Ongoing business losses can, however, quickly erode net-net working capital. Investors must therefore always consider the state of a company’s current operations before buying. Investors should also consider any off-balance sheet or contingent liabilities that might be incurred in the course of an actual liquidation, such as plant closing and environmental laws. – Seth Klarman

Lessons about leases and liquidation value

With the situation in BEBE I will try to demonstrate three lessons that I have acquired via my previous quantitative approach to investing in net-nets. All three could be summarised under the lesson that the quantitative net-net calculation is a strict theoretical valuation method not based on common sense. In recent time I have therefore decided to leave my previous quantitive approach behind me and apply a more semi-rule based approach for investing in companies selling below liquidation value. I will write an additional blog post about this new approach and the implications for other factors than just the valuation aspect some time in the future.

Lesson 1: Operating leases ≠ 100 % future outflow of cash

Remember the $186M in operating leases obligation that BEBE had stated in its note from the latest 10-K? In other words, the same $186M that the new lease standards wants us to put directly on the company’s balance sheet:

lease bebe

Well, it turns out that it’s not a $186M obligation. The actual liability (future outflow of cash) as it relates to the company’s operating leases (leased stores) is more in the ballpark of $60-65M.

The Company has hired a real estate consultant to negotiate with its landlords to terminate existing leases and the Company will have to make payments in order to close all of its retail stores. While the Company does not know the exact amount of such termination payments it believes the payments will be in the range of approximately $60 to $65 million. – Q3 2017

In the table attached above it is important to highlight the word noncancellable leases. Reason being is that this gives us the answer for the difference between the total minimum leases payments that is “noncancellable” (the obligation that the new standards will require the company’s in the future to put on the balance sheet) and the actual liability (actual outflow of cash) as a result of the termination of the company’s leased store contracts. I want you to read with full attention now: It is named noncancellable but it be cancelable. But only when:

A lease which is cancelable (i) only upon the occurrence of some remote contingency, (ii) only with the permission of the lessor, (iii) only if the lessee enters into a new lease with the same less, or *iv) only upon payment by the lessee of a penalty in an amount such that continuation of the lease appears, at inception, reasonably assured.

If significant enough, a penalty for cancellation may result in a conclusion that continuation of the lease appears, at lease commencement, to be reasonably certain. If so, it should be considered noncancelable for any periods in which the penalty exists.

The lesson here is that the actual liability (outflow of cash) as it concerns operating leases is likely to be lower than what is stated in the note and what in the future will be stated in the liability section of the balance sheet. Remember that the company does not have direct legal responsibility (liability) of the leased asset. This will not change even when the new standard comes into play.

While the information about $60-65M was quite recently announced (2017-05-16) I will demonstrate how one could obtain this information already in March 2017. If we take a look at this  8-K the following could be noted:

On March 28, 2017, bebe stores, inc. (the “Company”) committed to close 21 bebe store locations. As a result, the Company will incur an impairment charge related to the closed stores of approximately $2.0 million and will make a termination payment to the landlord of approximately $7.4 million. The Company is continuing to explore options with respect to its remaining stores.

If we use these figures above and apply it to the 151 stores that BEBE had not closed at that point in time we get the following total termination payment:

$7,4M / 21 stores = $352,000 x 151 stores = $53M –> $53M + $7,4M = $60,4M.

This fits perfectly into the ballpark of the $60-65M stated above.

 Lesson 2: Operating leases ≠ asset

The next lesson is a direct outcome of the situation in BEBE. While the new lease standards requires operating leases to be capitalised both on the liability side and the asset side of the balance sheet this is in my opinion not a fair view. Remember why operating leases did not fit the real asset definition? Yes that’s right, the company is not the recognized legal owner (asset). From this we can draw the following conclusion, the liquidation value of operating leased asset is zero. Or really its negative considering the termination payments that the company will incur in a situation similar to BEBE’s. So when calculating a liquidation value you should in my opinion attach no value to the “asset” leased. Reason being that the company will not be able to sell the asset and therefore there is now future inflow of cash. This is especially important to take into consideration when screening for companies in the future since operating leased assets then will be part of the company’s total current asset position.

Lesson 3: The importance of readily ascertainable net asset value (raNAV)

The third lesson relates to the a concept of liquidation value that Marty Whitman has coined. It is explained in the book The Aggressive Conservative Investor but also in the quote I presented earlier in this post. I will try to demonstrate the importance of using raNAV instead of NCAV by presenting the valuations of BEBE from both perspectives as of Q3 2017. BEBE is also a perfect example for the fun side of the equation when it comes to off-balance sheet items. That is, off-balance sheet assets.

If we take a look at the Q3 2017 report from BEBE that has just been published the following net-net calculation would be made from a strict quantitative approach:

‘000 $
Cash  26 755
Recieviables  7 862
Inventory  28 413
Assets held for sale  25 796
Prepaid and other  8 491
Current assets  97 317
Total liabilities -46 482
NCAV  50 835
NCAV per share  6,3

In relation to the share price of $4,82 that would give us a P/NCAV = 0,76x which is pretty good. However, if we dig into the Q3 report and other announcements made there are some interesting facts that should be taken into consideration when trying to get a fair view of BEBE’s liquidation value. So let’s try to get the whole picture sorted out regarding the situation in BEBE. In connection I will also state what conclusions I draw from the facts as these will be built into the valuation for the raNAV calculation that I present below.

1. BEBE has announced that its closing all stores. The cash outflow because of this economic event is by the company stated to be $60-65M. As I have displayed by my earlier calculation of lease termination payments I believe that the final amount will be at the lower end of the stated spectrum ~$60M. This amount has been used in my raNAV calculation below.

The Company has hired a real estate consultant to negotiate with its landlords to terminate existing leases and the Company will have to make payments in order to close all of its retail stores. While the Company does not know the exact amount of such termination payments it believes the payments will be in the range of approximately $60 to $65 million. – Q3 2017

2. As a result of the termination of stores the company has also announced that it will terminate the employment of all store personnel and will therefore incur a termination payment of $7-10M. As I have no further insight into this so I will use the ~$10M as my estimate for employee termination payments in the raNAV calculation.

the Company expects that it will then cease to have any retail operations and will instead manage its investment in the Joint Venture. As a result, the Company expects to terminate the employment of all or substantially all of its employees over the coming months as its operations wind-down and to pay severance, accrued vacation and stay-on bonuses in the range of approximately $7 to $10 million to such employees expected to be paid over the next two fiscal quarters. – Q3 2017

3. BEBE has previously provided information about the value of a joint venture with a company called Bluestar. Also, in the Q3 report the company state what the company intends to do going forward. I regard to the remaining 50 % ownership in the joint venture to have a value of ~$35M since Bluestar paid this amount quite recently, June 2016, but also since BEBE still holds licence for two important markets, USA and Canada.

Strategic partnership. During the fourth quarter of fiscal 2016, we entered into a strategic joint venture arrangement with Bluestar Alliance LLC (Bluestar). Under this partnership, bebe contributed all of its trademarks, trademark license arrangements (described in the next paragraph) and related intellectual property, including certain domain names, to a newly formed joint venture (the Joint Venture) and received just over 50% ownership interest in the joint venture. Bluestar contributed $35 million to the newly formed joint venture that was then paid to bebe and received just under 50% ownership interest in the joint venture. – Q3 2017

In connection with this initiative, bebe retained a royalty-free perpetual license to utilize the bebe brand and trademarks within the United States, including its territories and possessions, and Canada which enables us to continue our existing business. – Q3 2017

The Company also intends to transfer the http://www.bebe.com domain name, its social media accounts and its international wholesale agreements to the Joint Venture. The Joint Venture in turn intends to license them to one or more third parties.  – Q3 2017

4. BEBE has previously announced that a liquidator had been appointed to sell all of the company’s inventory and FF&E. As a result I have applied a 50 % discount on the company’s inventory value in my calculation for raNAV value. I have not done the same for FF&E (included in PP&E on the balance sheet) since the value as of today (Q3 2017) has already been impaired by a large amount taken this into consideration. Therefore I will use the $9,935 stated on the balance sheet as it relates to other assets that the company is going to sell.

On April 18, 2017, bebe stores, inc. (the “Company”) entered into a Consulting Agreement (the “Agreement”) with Great American Group, LLC, an affiliate of B. Riley & Co., the Company’s financial advisor, and Tiger Capital Group, LLC (collectively, “Consultant”), to, among other things, sell (i) all merchandise and inventory owned by the Company and certain of its subsidiaries located in its existing retail stores (the “Stores”) and (ii) certain furnishings, trade fixtures, equipment and improvements to real property with respect to the Stores. We may incur a loss in connection with this sale of our merchandise and inventory, but we cannot estimate such loss at this time. Consultant will be paid $550,000 in consideration for its services, plus reimbursement for certain expenses, and will receive an additional fee of 15% of the gross proceeds generated from the sale of the furnishings, trade fixtures, equipment and improvements to real property.

5. BEBE has also stated that it intends to sell its owned real estate:

The Company intends to sell its real estate holdings consisting of a distribution center in Benicia CA, a design studio and production facility in Los Angeles CA and two condominium units in Los Angeles CA. The Company has decided that it no longer needs these properties because it is shutting down its operations. The Company will use the proceeds from sale of the buildings to fund the costs of wind down including lease termination costs, severance and other costs. The Company does not expect to incur a loss on the sale of its real estate holdings.

The real estate is currently found under the FSLI “held for sale” for current assets at a value of $25,796. One should note the following regarding the valuation method as it concerns held for sale assets: measured at the lower of carrying amount and fair value less costs to sell

From previous 10-K’s and the note “Property and Equipment” I have gathered the following information about these real estate properties:

In December 2008, we acquired two condominium units in Los Angeles, California for use as short-term executive accommodations with approximately 3,400 total square footage.

The purchase price for the two condominium units was $1,705.

We also purchased our 144,000 square foot distribution center in Benicia, California in May 2012.

The purchase price for the distribution center was $18,000.

In fiscal 2004, we acquired a 50,000 square foot design studio and production facility in Los Angeles, California that houses our design, merchandising and production activities.

The purchase price for the design studio and production facility was $10,942.

The total price paid for the owned real estate adds up to $30,647. Naturally this is higher than the held for sale number value because of depreciation (see valuation definition above for held for sale assets). Although there might be some hidden value in the real estate (fair value) I have only assumed that BEBE at least will get the similar amount of money back as they once have paid. Therefor I have used $30,647 in my raNAV calculation.

6. The company has a large amount of net operating losses (NOL’s), $298,600 or $36,9 per share. NOL’s are found off the balance sheet but could be regarded as an asset. Especially by a company that would potentially acquire BEBE. This is because the acquiring company can use the NOL’s to lower their taxes paid. However, the valuation of NOL’s is truly rocket science. It all depends on the potential value of the NOL’s that an acquiring company can use. In other words, since the NOL’s expire over a period of time a more profitable company would assign higher value to the NOL’s than a less profitable company. Therefor I have made four assumptions as it concerns the value of BEBE’s NOL’s. [EDIT: 2017-05-26, see comments regarding NOL’s]

As of July 2, 2016, the Company has federal, state and foreign gross net operating loss carryovers of approximately $169.2 million, $122.1 million and $5.9 million, respectively. If not used, these carry forwards will expire at various dates from fiscal year 2016 to fiscal year 2036. The Company also has foreign tax credit and state tax credit carry forwards of approximately $1.6 million and $0.2 million, respectively, which will be available to offset future taxable income. If not used, the foreign tax credit carry forwards will expire at various dates from 2017 to 2026 and the state tax credit will expire from 2020 to 2022.

  NOL’s Discount
  298600 0%
per share 36,9  
  149300 50%
per share 18,4  
  89580 30%
per share 11,1  
  29860 10%
per share 3,7  

7. Before providing you with my calculation of raNAV based on what I have presented above I should also present my view about the company’s future (you might want to compare this with what the company has stated, see point 3 above).

I don’t think that BEBE will continue as a company under the joint venture. I think the company is going to be sold as there is still value in the brand of BEBE (see point 3 above) but also considering the amount of NOL’s that the company has. This is also based on the fact that the company’s has rushed into the termination of all lease contracts and personal and appointed a liquidator of inventory and FF&E and that have decided to sell all their real estate. Moreover, the CEO Manny Mashouf announced in June 2015 that he intended to sell of his then 59 % position in the company. However, as of today he still holds about 57 % of the shares outstanding. I would argue that he has decided to look for a deal where the whole company gets acquired rather than to sell his position gradually on the market. One final note, a very important one, is that Lloyd Miller III seems to be invest on a similar story. Since this story has evolved he has repeatedly and more aggressively increased his stake in BEBE. He now owns 10 % of the company. But enough speculation, here is the raNAV calculation of BEBE as of Q3 2017:

‘000 $ Comments
Cash  26 755
Receivables  7 862
Inventory  14 207 See point 4.
Assets held for sale  30 647 See point 5.
Prepaid and other  8 491
Adjusted current assets  87 962
Total liabilities -46 482
Adjusted NCAV  41 480
Adjusted NCAV per share  5,1
Lease termination payment -60 400 See point 1
Employee termination payment -10 000 See point 2
PP&E  9 935 See point 4.
50 % JV ownership  35 000 See point 3.
raNAV  16 015
raNAV per share  2,0

On top of the $2 USD per share of raNAV that I have calculated is the value of NOL’s that one must also take into consideration. I find it hard to believe that an acquirer will pay $1 for every $1 of BEBE’s NOL’s. I also think is it is fair to assume that they will likely pay more than 10 cent for every $1 of NOL’s. My guess is that it is likely going to be in the ballpark of 10-30 cent for every dollar of NOL. But my honest answer is I don’t know. However assuming a 10-30 cent for every dollar of NOL on top of the other $2 per share would give us a raNAV value of $5,7 – 13,1 USD per share. Based on the current price of $4,82 that would give us the following multiples of P/raNAV = 0,85x – 0,37x. [EDIT: 2017-05-26, see comments regarding NOL’s]

As of today I have not increased my position in BEBE but will most likely do so if the stock tumbles back below $4. [EDIT: 2017-05-26, as a result of my misstake regarding NOL’s, see comments]

Disclosure: The author is long NASDAQ:BEBE when this analysis is published. Also note that NASDAQ:BEBE is a nano-cap stock (40 M$ in market capitalization). The trading is illiquid.

Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger

There is no better way to set the stage for this book than by providing you with one of my all time favorite quotes:

History doesn’t repeat itself, but it does rhyme.

– Mark Twain

crashesOne book that gives detailed proof of this statement is the classic Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger. As explained by the subheading, the book is a collection and review of all financial crises that this world has experienced. Moreover, the book provides a very good overview of the stages and the common threads of these crises but also the lessons that can been drawn from them.

Although I’m not a top-down investor, staying away from macroeconomic analysis and forecasting, I still consider Manias, Panics, and Crashes one of the most important books to read as an investor. This is especially true if you have little or no real life experience of being an investor during a crises. As many times before, my thoughts about this subject has been influenced by one of my favourite investors, Howard Marks. Therefore, in connection to reading this book I urge you to read his memo ‘You Can’t Predict. You Can Prepare.‘ and especially note the following two paragraphs:

In my opinion, the key to dealing with the future lies in knowing where you are, even if you can’t know precisely where you’re going. Knowing where you are in a cycle and what that implies for the future is very different from predicting the timing, extent and shape of the next cyclical move. And so we’d better understand all we can about cycles and their behavior.

So forecasts are unlikely to help us foresee the movements of the economic cycle. Nevertheless, we must be aware that it exists and repeats. The greatest mistakes with regard to the economic cycle result from a willingness to believe that it will not recur. But it always does – and those gullible enough to believe it won’t tend to lose money.

– Howard Marks

Please comment if you have read the book and what you thought of it. Also, if you have found a worldly wisdom in the book that you think I should have included please comment on that as well. I’m very interested in what caught your eye while reading and why.

Worldly wisdom’s from the book


“The thesis of this book is that the cycle of manias and panics results from the pro-cyclical changes in the supply of credit; the credit supply increases relatively rapidly in good times, and then when economic growth slackens, the rate of growth of credit has often declined sharply. A mania involves increases in the prices of real estate or stocks or a currency or a commodity in the present and near-future that are not consistent with the prices of the same real estate or stocks in the distant future. The forecasts that the price of oil would increase to $80 a barrel after the earlier increase from $2.50 a barrel at the beginning of the 1970s to $36 at the end of that decade was manic. During the economic expansions investors become increasingly optimistic and more eager to pursue profit opportunities that will pay off in the distant future while the lenders become less risk-averse. Rational exuberance morphs into irrational exuberance, economic euphoria develops and investment spending and consumption spending increase. There is a pervasive sense that it is ‘time to get on the train before it leaves the station’ and the exceptionally profitable opportunities disappear. Asset prices increase further. An increasingly large share of the purchases of these assets is undertaken in anticipation of short-term capital gains and an exceptionally large share of these purchases is financed with credit.”

(p. 12)


“ Financial arrangements need a lender of last resort to prevent the escalation of the panics that are associated with crashes in asset prices. But the commitment that a lender is needed should be distinguished from the view that individual borrowers will be ‘bailed out’ if they become over-extended. For example, uncertainty about whether New York City would be helped, and by whom, may have proved just right in the long run, so long as help was finally provided, and so long as there was doubt right to the end as to whether it would be. This is a neat trick: always come to the rescue, in order to prevent needless deflation, but always leave it uncertain whether rescue will arrive in time or at all, so as to instill caution in other speculators, banks, cities, or countries. In Voltaire’s Candide, the head of a general was cut off ‘to encourage the others.’ A sleight of hand may be necessary to ‘encourage’ the others (without, of course, cutting off actual heads) to participate in the lender of last resort activities because the alternative is likely to have very expensive consequences for the economic system.”

(p. 23)


“A follow-the-leader process develops as firms and households see that others are profiting from speculative purchases. ‘There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich.’ Unless it is to see a nonfriend get rich. Similarly banks may increase their loans to various groups of borrowers because they are reluctant to lose market share to other lenders which are increasing their loans at a more rapid rate. More and more firms and households that previously had been aloof from these speculative ventures begin to participate in the scramble for high rates of return. Making money never seemed easier. Speculation for capital gains leads away from normal, rational behavior to what has been described as a ‘mania’ or a ‘bubble.’”

(p. 29)


“Yet euphoric speculation with insiders and outsiders may also lead to manias and panics when the behavior of every participant seems rational in itself. Consider the fallacy of composition when the whole differs from the sum of its parts. The action of each individual is rational—or would be if many other individuals did not behave in the same way. If an investor is quick enough to get in and out ahead of the others, he may do well, as insiders generally do. Carswell quotes a rational participant on the South Sea Bubble:

“The additional rise above the true capital will only be imaginary; one added to one, by any stretch of vulgar arithmetic will never make three and a half, consequently all fictitious value must be a loss to some person or other first or last. The only way to prevent it to oneself must be to sell out betimes, and so let the Devil take the hindmost.”

‘Devil take the hindmost,’ ‘sauve qui pent,’ ‘die Letzen beissen die Runde,’ (‘dogs bite the laggards’), and the like are recipes for a panic. The analogy is someone yelling fire in a crowded theater. The chain letter is another analogy; because the chain cannot expand infinitely, only a few investors can sell before the prices start declining. It is rational for an individual to participate in the early stages of the chain and to believe that all others will think they are rational too.”

(p. 47-48)


“Speculative manias gather speed through expansion of money and credit. Most expansions of money and credit do not lead to a mania; there are many more economic expansions than there are manias. But every mania has been associated with the expansion of credit.”

(p. 64)

Follow-up: 11 88 0 Solutions AG (telegate AG)

Q4 2016 – 0,48 € – ETR:TGT

After my thirteen months follow-up I have decided to sell my position in TGT. After brokerage fees and currency effects the return amounted to -51,7 %.

1kr50öre11 88 0 Solutions AG, formerly Telegate AG, is a Germany-based provider of directory assistance and call center services. The Company operates through two segments: Directory Assistance and Digital. The Directory Assistance segment provides services related to inquires made at by phone for information regarding to phone numbers, pre-dial numbers and addresses. The Digital segment receives revenue from advertisements on the Company’s platforms and Websites. The Company also offers online marketing services related to Google AdWords, Google My Business, social media Websites and company profiles on platforms, as well as tools and market analyses, and software for data, address and network management. – Google Finance.

1. The company is currently a net-net with an adequate margin of safety: 

  • P/NCAV < 1x
    • 0,75x ✓ 
      • MoS = 25 %
    • 1,7x (incl. operating leases).

Assessment of margin of safety:

Although the company is still a net-net and makes it through the rest of my checklist I regard the current margin of safety as inadequate. This is based on an assessment of the NCAV-brun rate that is negative for both YoY = -41 % and QoQ = -20 %. In other words, there is a high probability that the NCAV will continue to erode in a quick pace and that the 25 % margin of safety is gone by next follow-up. Also, taking operating leases into consideration the company is no longer to be regarded as a net-net as it is selling at a premium, 1,7x. This is relevant since TGT uses IFRS and the changes to be effective as of 1 January 2019 with IFRS 16 (operating leases are to be capitalized). Based on these notations and that I haven’t found any other value creation catalyst I have decided to sell my position in TGT.

2. The risk of permanent loss is low:

2.1 The risk of bankruptcy is low (criterion a) or b) must be met):


  • Debt/Equity < 25 %
    • 0 % 


  • Z-score ≥ 3
    • 0,2 X

2.2 The company’s business model has historically been profitable (criterion a) or b) must be met):


  • Positive retained earnings:
    • -28M € X


  • Positive aggregate operating income for the last ten years:
    •   118M € 

3. The company does not have a shareholder unfriendly capital allocation:

  • Shareholder yield TTM ≥ -2 %
    • Dividend yield TTM = 0 %
    • Net buyback yield TTM = 0 %
      • =  0 % 


Disclosure: The author doesn’t own any shares of ETR:TGT when this analysis is published.

The transformation from a hipster-contrarian to a stoic-contrarian.

A while ago I wrote a post here on the blog called Alla är vi värdeinvesterare, men vad är din edge? (that’s Swedish for: We are all value investors, but what is your edge?). My main point of argument was that everyone can be considered a value investor since we all expect a positive return on our investment, i.e. we would never buy something for more than we thought it was worth. What sets investors apart is their definition of value and in what ponds they fish for these values, i.e. where do they find their edge? In today’s post I thought I would continue to put my thoughts about investing philosophy into words but from a slightly different angle. What I thought I would write about today is the concept and importance of applying a ‘contrarian mindset’ in your investing philosophy but also how to apply it in an intelligent and financially sound manner.

The importance of being intentionally different

Wikipedia defines a contrarian as:

A contrarian is a person that takes up a contrary position, especially a position that is opposed to that of the majority, regardless of how unpopular it may be.

While I don’t think this is the complete definition you would want to apply to your contrarian investing mindset, more on that later, it is a good starting point for this blog post. This has to do with the fact that if you have chosen not to index you are, whether you like it or not, a contrarian. This notion splits the active investing population into two camps, the intentional contrarian camp and the unintentional contrarian camp. What sets the camps apart is whether the market consensus is an important factor in their investing philosophy.

Why is this important? No one has given a better explanation than Howard Marks on this point so why not use his explanation:

The price of a security at a given time reflects the consensus value. The big gains arise when the consensus turns out to have underestimated reality, or to have mis-estimated reality. To be able to take advantage of such situations, you must be able to think in a way that’s away from the consensus. You must think different and you must think better. It’s clear that if you think the same as everybody else, you’ll act the same as everybody else, and have the same results as everybody else. – Howard Marks

Note that Howard is not saying ‘different and right’, he is saying different and better‘. 

Superior performance does not come from being right, but from being more right than the consensus. You can be right about something and perform just average if everyone is right too. Or you can be wrong and outperform if everyone else is more wrong. – Howard Marks

The lesson from Howard is that we should try to invest in companies and situations where the consensus has developed disproportional payoffs between downside vs upside, i.e asymmetric bets. From this we also learn and understand that a good company does not in itself equal a good investment and that a bad company is not in itself equal a bad investment. Before we move on I would like to share a tweet that sums it up perfect:


Being different (a hipster-contrarian) is not enough

The word and concept of ‘contrarian‘ is nowadays almost as diluted as the notion of being a ‘value investor‘. I’m part responsible for this dilution myself since I have up until recently used the contrarian title to describe my investing style here on the blog and on twitter. The reason why I removed the title is not because I think less of the concept but rather that I have changed my opinion of how to apply it to my investing philosophy. I have to admit that my modus operandi when investing early on in deep value and special situations was that; the market must be wrong in these cases. I now consider this mindset not only stupid but I also relate it to the same mindset that a hipsters applies to his or her everyday life, i.e taking a standpoint that is different from the mainstream for the sake of it being different. Questions regarding why, efficiency and effectiveness is not in focus for a hipster and he or she will most likely leave her knitting (shortsightedness) as soon as it becomes mainstream.

A hipster-contrarian mindset therefore might cause you to end up with a portfolio that although different from the consensus/mainstream is still from an alpha seeking point of view completely wrong. In other words, being different is not enough. We also have to think better as Howard Marks puts it if we are to beat Mr Market. So how do we become a better contrarian then? The short answer is to develop a stoic-contrarian mindset.

How to become a stoic-contrarian

The first step of becoming a better contrarian and developing a stoic-contrarian mindset is to always question yourself; why I’m I right and everyone else wrong, might it not be the other way around? In order to successfully answer this questions the hipster-contrarian mindset has to evolve from applying a first-level thinking framework into a second-level thinking framework. A first-level thinking framework focuses on efficiency (doing things right) before establishing that what we are doing is effective (doing the right things). In his book The most important thing Howard Marks develops the concept of ‘second-level thinking‘. I think most of you have read the book so I’m not going to bore you with the original description (you can find that on Google) but instead show a short clip from one of my favorite comedy series where second-level thinking is brilliantly demonstrated and how we should apply it in order to developing a stoic-contrarian mindset:

The point I would like to make with the clip is that in order to be a stoic-contrarian we have to develop a second-level thinking framework like Phil Dunphy. That is, taking a step back and focusing on that we are doing the right things before we focus on doing things right. This is absolutely necessary in order to answer the why question earlier mentioned and establish that we are not fooling ourselves, i.e. thinking that we are taking a contrarian standpoint but we are actually not.

The first principle is that you must not fool yourself, and you are the easiest person to fool – Richard Feynman

The second step of becoming a better contrarian and developing a stoic-contrarian mindset has to do with improving your self-control and patience. Again, no one has a better explanation of why this is important than Howard Marks:

The more you try to be a superior investor, the more idiosyncratic positions you have to take. Invariably they will be unsuccessful for a while, and you will look worse, and the greater will be the pressures to succumb. – Howard Marks

You have heard it before and I’m going to say it again. There are no free lunches in investing. What you have to pay up for when trying to be a superior investor with idiosyncratic positions is a big portion of emotional and social distress. Buying things that everyone hates or never heard of is not easy, trust me. However, the good side of the equation is that the attractiveness of a stocks is dependent on the how much optimism is in the price. When people are optimistic prices are high in relation to value and when they are pessimistic they are low in relation to value. This is why taking a standpoint that according to the crowd makes you look wrong/stupid in the start will in the end be the only way to be right/smart.

In order to succeed in your self-control of emotional and social distress you have to have an investing philosophy that you believe in, a process that develops a courage in your conviction but maybe even more important; a big portion of patience. Patience does not only relate to investment cases that you have in your portfolio but also being comfortable with the bat steady on shoulder and seeing pitch after pitch go by. One of the hardest things to do is to sit still and even more difficult is to sitt still when other people are making big money. That is, taking yet another contrarian standpoint by not joining the crowd.

Practical hacks for developing a stoic-contrarian mindset

I realize that this approach to investing is not easy, at least I don’t find it easy. But as a very wise man once have said:

Investing is not supposed to be easy, and anybody who finds it easy is stupid. – Charlie Munger

However, there are daily life hacks that in my opinion helps tremendously in improving on the two steps of developing a stoic-contrarian mindset that I have talked about in this post:

  1. Look at share prices and your portfolio as infrequently as possible.
  2. Have a fixed number of investment decisions that you are allowed to do per month/year.
  3. Mediate on a daily basis.
  4. Read and seek worldly wisdom from all fields of science.

I hope you have liked this post and that it was to some form of use. If not I would still like to wish you all a happy Easter!

P & F Industries, Inc. – Q4 2016

Q4 2016 – 6,95 $– NASDAQ:PFIN

1kr50öreP&F Industries, Inc. conducts business through its subsidiaries. The Company operates through two segments: tools and other products (Tools), and hardware and accessories (Hardware). It conducts Tools business through a subsidiary, Continental Tool Group, Inc. (Continental), which in turn operates through its subsidiaries, Florida Pneumatic Manufacturing Corporation (Florida Pneumatic) and Hy-Tech Machine, Inc. (Hy-Tech). Florida Pneumatic imports and sells pneumatic hand tools, most of which are of its own design, primarily to the retail, industrial and automotive markets. It conducts the Hardware business through its subsidiary, Countrywide Hardware, Inc. (Countrywide). Countrywide conducts its business operations through its subsidiary, Nationwide Industries, Inc. (Nationwide). Nationwide develops, imports and manufactures fencing hardware, patio products, and door and window accessories, such as rollers, hinges, window operators, sash locks, custom zinc castings and door closers. – Google Finance.

1. The company is currently a net-net with an adequate margin of safety: 

  • P/NCAV < 1x
    • 0,89x ✓ 
      • MoS = 11 %
    • 0,91x (incl. operating leases).

Assessment of margin of safety:

P & F Industries is an American nano-cap company that was incorporated in 1963 and that up until recently had two business segments, tools and hardware. In 2016 it was announced that the company’s Hardware subsidiary Nationwide Industries had been sold for 22,2M $ as well as its real estate property for 3,8M $. The proceeds from the sale was used to pay down almost all of the company’s debt, initiate a quarterly dividend policy of 0,05 $ per share and to pay a one-time special dividend of 0,50 $ per share. Finally, this Thursday it was announced that the company had acquired Jiffy Air Tool, Inc. for 7M $ (another 1M $ is entitled to the seller if certain profitability thresholds are met). Note that I initiated my position before this acquisition was announced and that the figures I present below are not adjusted for this transaction.

Besides the fact that P & F Industries makes it through my checklist there are four other factors that in my opinion makes the company at the current share price a good addition to a diversified portfolio of net-nets:

1. I would argue that even though the absolute level of NCAV margin of safety is only 11 % it is good enough considering that the burn rate is positive for both QoQ and YoY, i.e. the NCAV margin of safety has been growing.

2. Regarding historical profitability. In the picture below I have tried to demonstrate the company’s historical profitability as if Tool was P & F Industries sole business segment. Note that the ‘Adjustment Hardware general corporate expenses‘ is only correct for the 2015 numbers since I haven’t managed to find earlier years figures. However, I have used the same figure for earlier years to get some sense of the historical profitability. As can be observed in the picture the company has on a Tool business level alone been profitable for most years during the las ten year period. Based on the consistency and the fact that the company today is selling below liquidation value this must be a true oxymoron. Or is it?
operating income pfinIf we put the current enterprise value in relation to the average operating income for the last five and ten years that gives us multiples of 15x (5y) and 22x (10y). In other words, the company is not on a Tool’s operating income level what I usually consider cheap. Also, in P & F Industries Q4 conference call it was announced that they have chosen not to renew their Sears agreement which will result in a loss of 1M $ EBITDA going forward. However, in this context it should be noted that the recent announced acquisition of Jiffy Air Tool will probably help the situation a bit. To what degree I don’t know but I note the following positive sentence from the acquisition announcement: “We anticipate that this acquisition will be immediately accretive to earnings.

3. Regarding ownership structure. Insiders definitely have skin in the game when it comes to P & F Industries as they together own 39,7 % of the company. The CEO, Richard. A Horowitz, alone owns 36,1 %. Also, in relation to his total compensation (1,5M $) it seems that the CEO eats his own cooking as his stake in the company is currently worth ~6,x that amount (9,5M $). However, a total compensation of 1,5M $ annually for a CEO of a 25M $ company can also be questioned. One large shareholder (12,9 %) that has addressed the problem with compensation and that also keeps pushing for more shareholder friendly actions such as buyback programs is the activist Lawndale Capital Management (Andrew Shapiro)For those of you that have read my earlier analyses will know that I like having an activist investor involved in the company’s that I invest in.

4. Regarding hidden real estate value. In their latest 13D Lawndale also make an interesting note: “Lawndale believes the public market value of PFIN is undervalued by not adequately reflecting the value of P&F’s business segments and other assets, including certain long-held real estate.” On this note I conclude that the company owns’ a 72,000 square foot plant facility located in Jupiter, Florida and a 51,000 square foot plant facility located in Cranberry Township, Pennsylvania that together is valued at 5M $ on the company’s balance sheet. Also, the company has 1,6M $ worth of land on its books. This is interesting since their 56,250 square foot plant facility located in Tampa was just sold for 3,8M $. Therefore, I finally would argue that the P/TB multiple for P & F Industries of 0,67x shows a better picture of the current margin of safety in the company then what can be observed from a strict net-net point of view.

2. The risk of permanent loss is low:

2.1 The risk of bankruptcy is low (criterion a) or b) must be met):


  • Debt/Equity < 25 %
    • 0,2 % 


  • Z-score ≥ 3
    • 4,9 

2.2 The company’s business model has historically been profitable (criterion a) or b) must be met):


  • Positive retained earnings:
    • 36M $ 


  • Positive aggregate operating income for the last ten years:
    •   9,9M $ 

3. The company does not have a shareholder unfriendly capital allocation:

  • Shareholder yield TTM ≥ -2 %
    • Dividend yield TTM = 9 %
    • Net buyback yield TTM = 1 %
      • =  10 % 


Disclosure: The author is long NASDAQ:PFIN when this analysis is published. Also note that NASDAQ:PFIN is a nano-cap stock (25M $ in market capitalization). The trading is illiquid.

Clarius Group Limited – H1 2017

H1 2017 – 0,095 A$– ASX:CND

1kr50öreClarius Group Limited is engaged in the provision of permanent, contract and temporary employment services. The Company operates in two segments: Recruitment Services, which is engaged in the provision of recruitment services (permanent and contract placements), and Information Technology Services, which is engaged in the outsourcing and technical support services. It works with a cross section of employers in Asia Pacific, placing job seekers in contract, temporary and permanent roles at all levels. It helps government and private sector organizations source permanent, temporary and contract workers, placing all levels of seniority in various specialty areas, such as accounting, administration, customer service, engineering, information management, information technology (IT), and sales and marketing. It works with organizations throughout Australia, providing talent for short-term engagements and augmenting user’s in-house programs to execute IT projects. – Google Finance.

1. The company is currently a net-net with an adequate margin of safety: 

  • P/NCAV < 1x
    • 0,49x 
      • MoS = 51 %

Assessment of margin of safety:

Clarius Group is a small Australian net-net that is focused on employment and recruitment services in Australia and China. If you are interested in a good overview of the company and its business operations I recommend looking at the 2016 AGM presentation as I won’t go into any details here. Although I like the typical Graham net-nets, Coventry Group for example, I’m also a big fan of what famous net-net investor Jeroen Bos calls “cyclical service shares” in his book Deep Value Investing. If you want a explanation why these are interesting types of net-nets to look at here is an interview with him on the topic. Besides the fact that I like ‘service net-nets’ and that Clarius Group makes it through my checklist there are three other points that in my opinion makes the company at the current share price a good addition to a diversified portfolio of net-nets:

1. Regarding NCAV margin of safety in relation to NCAV-burn rate. I would argue that there is a good enough spread between Clarius Group NCAV margin of safety of 51 % and the NCAV burn rate for QoQ (-6 %) and YoY (-16%). As a general rule of thumb I like to see that NCAV-margin of safety / NCAV-brun rate > 3x. Clarius Group have the following NCAV MoS/Burn-rate multiples, QoQ = 8,5x and YoY = 3,2x.

2. Regarding historical profitability. Clarius Group have posted negative figures on an operating income level for the three most recent years. However, looking further back in time the company posted positive figures during the period 2013-2007. If we take the average operating income over the last ten years in relation to the current enterprise value that gives us a multiple of 1,4x. In other words, if Clarius Group can get back to some form of historical average operating income profitability level the company is at the current share price a real steal. Also, note that Clarius Group net income (and retained earnings) has been hit hard in recent years as a result of recurring impairments of goodwill. In other words, taking a free cash flow perspective we get a similar picture of Clarius Group profitability as we got with the operating income measurement. The average free cash flow over the last ten years in relation to the current enterprise value gives us a multiple of 2,9x.

3. Regarding ownership structure. One similarity with my most recent addition to the net-net portfolio, Coventry Group, other then the fact that both are Australian companies can be found via their shareholder lists. Both companies are in fact owned by the Australian activist fund Sandon Capital. While it may first seem that Clarius Group is a much smaller position for Sandon (1,5 %) that is not a fair presentation of their entire ownership in the company. According to a statement of ownership Sandon Capital have in fact control of 11,33 % of Clarius Group via different companies. In addition, Sandon Capital is not the only interesting shareholder on the Clarius Group shareholder list. Just recently another value focused fund, Collins St Value Fund, increased their position from 7,25 % to 8,56 %. Also, the largest shareholder of Clarius Group with an 25,3 % ownership through the company Ego PTY Limited is a private investor know as Victor John Plummer. Although he has not made an fantastic investment so far on his position I recommend reading this article from 2012 about him and the big position he has acquired in Clarius Group. Finally, although management doesn’t have any real skin in the game (< 1 % ownership) two directors have recently bought reasonable amounts of shares (Gabrielle Trainor and Garry Sladden) in the company. To summarize and conclude, the current ownership structure of Clarius Group will probably protect minority shareholders interest better than in most companies. On this point it should be noted that the company has recently appointed a new CEO and CFO and there has also been some changes on the board of directors. If this is an effect of activist shareholder pressure I can only speculate.

2. The risk of permanent loss is low:

2.1 The risk of bankruptcy is low (criterion a) or b) must be met):


  • Debt/Equity < 25 %
    • 0,6 % 


  • Z-score ≥ 3
    • 2,8 X

2.2 The company’s business model has historically been profitable (criterion a) or b) must be met):


  • Positive retained earnings:
    • -63,5M A$ X


  • Positive aggregate operating income for the last ten years:
    •   49,9M A$ 

3. The company does not have a shareholder unfriendly capital allocation:

  • Shareholder yield TTM ≥ -2 %
    • Dividend yield TTM = 0 %
    • Net buyback yield TTM = 0 %
      • =  0 % 


Disclosure: The author is long ASX:CND when this analysis is published. Also note that ASX:CND is a nano-cap stock (6,5M $ in market capitalization). The trading is illiquid.

Coventry Group Ltd – H1 2017

H1 2017 – 0,66 A$– ASX:CYG

1kr50öreCoventry Group Ltd is engaged in trade distribution, including distribution and marketing of industrial fasteners, stainless steel fasteners and hardware, construction fasteners, specialized fastener products and systems, and associated industrial tools and consumables, and importation, distribution and marketing of hardware, components and finished products to the commercial cabinet making, joinery and shop fitting industries; gasket manufacturing, and fluids business, which includes installation of fire suppression systems, and rock hammer service and repairs. The Company’s segments include Trade Distribution, which includes the importation, distribution and marketing of industrial fasteners and associated products, and cabinet making hardware; Fluids, which includes the design, manufacture, distribution, installation and maintenance of lubrication and hydraulic fluid systems and hoses, and Gaskets, which includes manufacturing and distribution of automotive and industrial gaskets. – Google Finance.

1. The company is currently a net-net with an adequate margin of safety: 

  • P/NCAV < 1x
    • 0,48x 
      • MoS = 52 %

Assessment of margin of safety:

Coventry Group is one of those classic Graham net-nets that you come across once in a while, its simple and boring. Distributing fasteners and other small parts to the construction and mining industry in Australia is no rocket science business model to say the least. The company consists of three segments, Trade (61 % revenue), Fluids (30 % revenue) and Gaskets (9 % revenue) where the two smaller segments are profitable. The third and largest segment Trade is struggling and the reason why the company’s overall profitability is currently negative. Besides the fact Coventry Group makes it through my checklist there are four other points that in my opinion makes the company at the current share price a good addition to a diversified portfolio of net-nets:

1. Regarding margin of safety in relation to NCAV burn rate. Coventry Group is today selling at a large margin of safety to NCAV, 52%. The relationship between the margin of safety and the NCAV burn rate for QoQ (-12 %) and YoY (-18%) is good enough for me to conclude that there is enough gas in the tank to keep the ship going for a while at current speed.

2. Regarding historical profitability. Except for the three most recent years Coventry Group has historically posted good figures on an operating income level. The average operating income over the last ten years in relation to the current enterprise value gives us a multiple of 6x. While this is not extremely appetizing it should be noted that the company is currently focusing on cutting cost and restructuring the Trade operating segment. In combination with hopefully some form of mean reversion for the mining industry I think there is a good chance that Coventry Group again will be a profitable company on a consolidated basis. On this note it should also be taken into consideration that Coventry Group has a couple of solid and profitable businesses that could be sold at reasonable multiples if the company was broken up. In other words, from a sum-of-part perspective I would also argue that there is good margin of safety in Coventry Group.

3. Regarding capital allocation. Coventry Group has over the last ten years continuously paid a good dividend to shareholders and for most of the years simultaneously bought back shares.

4. Regarding ownership structure. Although insiders don’t have any real skin in the game (owner of 1 %) there are two activist shareholders, Sandon Capital (owner of 6,1 %) and Dorsett Investment (owner of 3,6 %), that have been successfull over the last couple of years putting pressure on the management team and encouraging the return of excess cash (link 1, link 2). Because they are still owners of Coventry Group I would argue that they will continue to push for shareholder friendly outcomes.

2. The risk of permanent loss is low:

2.1 The risk of bankruptcy is low (criterion a) or b) must be met):


  • Debt/Equity < 25 %
    • 13,5 % 


  • Z-score ≥ 3
    • 1,9 X

2.2 The company’s business model has historically been profitable (criterion a) or b) must be met):


  • Positive retained earnings:
    • -33,9M A$ X


  • Positive aggregate operating income for the last ten years:
    •   48,4M A$ 

3. The company does not have a shareholder unfriendly capital allocation:

  • Shareholder yield TTM ≥ -2 %
    • Dividend yield TTM = 3,8 %
    • Net buyback yield TTM = 0 %
      • =  3,8 % 


Disclosure: The author is long ASX:CYG when this analysis is published. Also note that ASX:CYG is a micro-cap stock (20M $ in market capitalization). The trading is illiquid.