Scandic - good hotel, what about the investment?

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22

A one-eyed view that one often hears repeated. If one were to broaden the perspective even slightly, one would notice that, for example, a company’s solvency matters, especially during times of crisis. That is, so that those future cash flows don’t dry up at the first difficulties in the form of bankruptcy. The bigger the storm, the better condition the capital structure should be in. From an investor’s perspective, it would also mean that items convertible into cash in accounting should be separate from goodwill and other volatile fluff.

Juurikki did not comment yesterday on Scandi’s debts, not even on the fact that their readiness to take on debt had improved manifold compared to this share issue. The plan was to spend an hour today researching and referring to the balance sheet, but that will now be skipped.

Juurikki’s message in the Nokia thread was flagged. It brought back too strongly memories from 15 years ago. At that time, Kauppalehti’s trolls annoyed Juurikki so much that he stopped commenting altogether. This discussion forum has seemed more professional, but the flagging is annoying enough that Juurikki will remain silent for now.

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Terminal cash flow only exists under the assumption that the company does not go bankrupt. Cash flow models that project far into the future have forecasting problems, and the analysis may be based on incorrect assumptions about the company’s existence. For a long-term holder, a company is still interesting from an investment perspective primarily because the investment can yield returns through its business operations.

However, the point was mainly that goodwill impairment or other losses due to changes in the value of assets are theoretical. Such a loss does not, therefore, lead to bankruptcy (except for some residential real estate investment company that had written-down assets as loan collateral), nor does the share price decrease by the amount of negative EPS. I am a serious person and cannot read between the lines, whether that -8 SEK was intended as humor or said in earnest. :smiley:

And, the second point was that the current share price has, with a reasonably high probability, correctly priced in the additional cost resulting from the rights issue to prevent dilution.

If Juurikki remains silent, then that would, of course, be unfortunate. However, I do not intend to comment on flagging in some other thread that I do not follow.

24

It’s another windy day today. The stop-loss was triggered right at the start of the day, and now we’ve already climbed nicely above it. An amateur shouldn’t use stop-losses; they only lead to losses. :lying_face:

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Hey, it’s definitely not worth staying silent; this is good contemplation and insight. Becoming a Marin addict only gives you deep frown lines.

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The terms of the share issue were guessed pretty well. They sent an email from old memory, even though I no longer own the company. The 7-for-6 condition is such that it could not have been deduced from anywhere. This apparently set the subscription price at a round 20 SEK, not 17 SEK.

“Scandic’s Board of Directors today announces the final terms of the Rights Issue. The maximum number of new shares that can be issued is 88,272,918. Shareholders in Scandic have a preferential right to subscribe for six (6) new shares for every seven (7) existing shares. The subscription price is 20 SEK per share.”

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"Scandic’s stock has been just like Scandic’s stock usually is today. From the morning, it was a steady decline until around 2 PM, when, as if at the push of a button, the curve shot towards the sky. It’s as if this has happened before :joy:

By the way, today’s headline in Iltalehti:

Gloomier forecast from Etla: Finland’s GDP will shrink by 8 percent this year – the cruelest blow to the hotel and restaurant industry

Which, of course, came as no surprise to anyone."

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Interesting read. I bought this at the deepest point of the corona slump, so the return is already good, currently 100%. I’m a bit on the fence about whether there’s more to be gained.

29

Today, after a small morning dip, we’re already up 13%. Here’s a good stock, even for day trading? Apparently, the annual general meeting is on Thursday, where they will also decide on the additional share issue discussed in the thread. I’m eagerly waiting to see if it has any impact on the share price, as it’s already fluctuating so much during the day that it’s hard to figure out the “market price.”

30

Congratulations on the good timing, I guess that’s what it was, at least in part, so, congratulations.
I myself waited, I don’t know for what, but I didn’t buy.
Let’s see how high this still goes, but I certainly won’t jump in at these prices amidst all this uncertainty. I personally see more threats than opportunities here. Maybe someone else sees it differently?

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Here we go again, a bit scary. Current price + future dilution = stock is at last summer’s prices?

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Well, I have to admit that I missed the Scandic train and was left sadly waving goodbye at the station.
Let’s see what tomorrow’s annual general meeting brings, but I’m not going to think about this at around 60 kronor anymore, except maybe someday when the world has returned to “normal,” but by then the price will probably have returned to “normal” too, so that’s that.
I’m sure there’s still something interesting to be found on the stock markets at a reduced price.

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Sometimes it’s more sensible to stay on the sidelines.

The day’s share price, rounded to the nearest full crown, is 55 kr. There is a known payment of 17 kr to maintain the former stake in the company (20 kr x 6/7 subscription ratio).

This is best visualized with a layer cake. Before, it was 100%, and when new shares are created, you’re actually slicing the same cake into new pieces. There isn’t a second cake, no.

72 kr is quite a steep price for a share that was selling somewhere around plus or minus 80 kr last summer when everything was still going well. A lot has happened since then, after all. There’s no need for a fundamental analysis.

In Sweden, it might not be realized that the dividend issue is only a small part of the measures to avoid bankruptcy. A Swedish analyst says (see previous posts) that in a last resort, the state will help. That might not even be necessary, as a multiple of the financing compared to the share issue has already been negotiated in the form of a loan.

Fortunately, Q2 is coming already on 17.7.2020, and then you’ll be able to buy a heavily indebted company cheaply again, Juurikki thinks.

For Juurikki, Scandic is just a regular hotel and, from an investment perspective, shadowboxing with no hope of deepening the relationship. Scandic’s track record isn’t enough for the actual investment portfolio even in good times, and as an emotional choice, Scandic has already been ridiculed once.

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Scandic has never been a good investment. At its best, it was mediocre at around SEK 80. If you bought it in 2016, you could have made decent money in the short term, but this was due to the stock becoming overvalued.

Now, it’s important to remember that from an outsider’s perspective, if you don’t participate in the rights issue, the stock will be fully diluted in proportion to the creation of new shares. When the dilution for old shareholders was SEK 17 on top of the share price, the share on the market after the issue is only worth a little over half of the old share.

After the issue, you can get the same share of the company by multiplying the share price by 1.85. Of course, the share will immediately correct downwards after the issue, but the quickest ones might get some arbitrage out of it. It’s unlikely that the price at that time * 1.85 = current price + SEK 17.

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Probably a bad investment, but right now it’s pretty nice to trade. Another +10 since the morning, even though dilution has been factored into the morning price. At least I think so, I don’t fully understand its price behavior. The stock dropped 29% (dilution) and immediately bounced up 10% from there.

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Can someone tell me what this means, because I don’t understand.

Kauppalehti shows +11.73%
Google’s Scandic stock -20.81%

At least the same value for both, 42 and some change in SEK.

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I’m no expert, but does it have something to do with how these parties calculate the price?
The share value decreased due to dilution, after which it was revalued 11.73% higher. However, compared to yesterday’s price, the absolute price is 20.81% lower.
I’m not sure if I was able to write my thoughts clearly enough. :grin:

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In some places, it looks like a stock split has been performed for the stock and today’s change has been calculated from that. Of course, this is not a split but a dilution.

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Juurikki doesn’t quite get the calculation method at the end of the message. As someone more knowledgeable, tell me, couldn’t this situation be understood simply as dividing a pie?

So, before Coruna and still now, the pie is divided into 103 million slices, and the price of one slice was, for example, even closer to 120 kr a year ago, and now, after dropping to just over 20 kronor, it has been hovering between 40-50 kr or something. We probably agree on this.

So the facts are:

  1. Now, between Friday and Monday, Scandic’s share price on the Stockholm Stock Exchange is about 42 kr.
  2. The value of the share now corresponds to one/103 millionth of the company.
  3. In the share issue, 20 kr/new share must be paid, and new shares can be subscribed for 6 shares for every 7 old ones. With a ratio of 6/7, it can be calculated that maintaining the former ownership requires just over 17 kr per share.
  4. The share issue does not expand the cake; rather, the same cake is being examined, and the share issue covers losses already incurred or likely to occur soon to prevent bankruptcy.

Shall we draw the following conclusions?

Rounded to a whole kronor, the stock market value of the share is x + 17 kr = 42 kr. The current share price is actually about 25 kr + 17 kr from the future obligation.

It would be strange to calculate the other way around, i.e., when you now own 1/103,000,000 of the company with a share worth 42 kr, do you get something extra with that 17 kr/share addition? No, you don’t; the ownership stake remains the same.

Juurikki must have calculated something wrong again, because this outcome wasn’t supposed to happen this time either.

Scandic’s current stock market value is 42 kr, but the real value is 25 kr. What about the fundamentals? Nordnet says that the company’s P/B is 2.17 even at this price! And that apparently Q1 EPS was -27.06 kr. So it can’t be, because that would push the company’s value into the negative.

In Q1, the coronavirus only ate about one month, or one-third, of Scandic’s revenues. What will Q2 look like, with three months in it?

Scandic’s debt ratio in 2019 was 74.24%, compared to 31.27% a year earlier. Not a good starting point for the coronavirus crisis in a problem sector, which the hotel business should probably be considered. Fortunately, Scandic at least has a good buffer of pre-agreed debts, many times the revenue from the dividend issue. And then, of course, the state will save it if everything goes completely to hell.

From the owners’ perspective, however, this is little comfort, as the Swedish state has saved its companies before, but always demanded shares in return. It dilutes, it dilutes… it’s good to remember the fate of Norwegian’s owners.

Now Juurikki doesn’t understand at all. Has the share issue already been implemented, or are the Swedes concluding something completely wrong here, when the price is still over 40 kr?

Disclaimer: All rights reserved and all rights reserved. Juurikki does not own Scandic, even though he is a satisfied regular customer.

40

True! And some really sensible text from you again, @Juurikki.
I’m such an amateur in the stock market that I haven’t really understood much about Scandic’s recent events, but what I do know is that it’s not worth even considering it now, at least not for a while, at least not at these 40 SEK prices. Q2 will (also) be ugly reading, and I can’t possibly believe that hotel occupancy rates will be very high even in the summer; people’s self-preservation instincts have surely awakened enough that they won’t take themselves/their family to any probable virus hotbed.

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The price to pay to keep the share the same was the current price + 17.

After the offering, the stock is diluted, meaning you have to buy 1.85 times the amount to achieve the same ownership percentage.

If the stock is assumed to be correctly priced now, then in order for it to be correctly priced after the offering, you can derive from that formula how much the stock “should” cost. That is, so that the same size slice would cost the same before and after the offering.

But that’s unlikely to happen.