Ryanair Stock Analysis – Not a Buy Yet, But a Stock to Watch

I’ve been marginally following Ryanair for a few years now. When a CEO states:

“If someone wanted to pay £5 to go to the toilet, I’d carry them myself. I would wipe their bums for a fiver.”

ryanair ceo

It means that he is dedicated to the business. Nevertheless, I always look at risk versus reward and Ryanair was always a bit too expensive for me in the past. Over the past months however, the stock is down significantly and it is time to do a deep research into the business, to see whether it is undervalued and a good investment, or the business model is not strong enough to mark it a long-term investment opportunity. We know airlines are not renowned for being the best businesses in the world but you never know, Buffett bought 4 of them a few years ago.

1 Ryanair stock price

To value Ryanair, we have to look at:

  • The current situation full of issues
  • How those issues affect the short- and long-term outlook
  • Whether Ryanair has a moat, a competitive advantage
  • Where we are in the business cycle for airlines in Europe
  • Ryanair’s stock price compared to a long-term earnings model
  • General and specific risks

The recent news on Ryanair has been mostly negative

The news has been bad over the last two years for Ryanair:

  • Unionization and strikes that led to huge staff cost increases – 28%.
  • Higher oil prices have influenced their hedging, they are 90% hedged for FY 2020 but still forecast an increase of 400 million in costs.
  • The competition has been constantly increasing and has created overcapacity in Europe, despite the bankruptcies. Germany has large overcapacity as Lufthansa is initiating a price war by selling tickets below cost with its Eurowings subsidiary.
  • Air Traffic Control is also an issue with new regulations coming up and probably higher costs due to understaffing and more traffic.
  • The recently acquired Lauda Motion subsidiary suffered losses of 140 million in the first year where the situation is still chaotic, according to the CEO.
  • The Boeing Max aircraft issue has delayed delivery of 5 aircrafts ordered.
  • There will be more airline failures this winter, thus book your trips only with good companies. On the other hand, for Ryanair, this indicates there will be a stable supply of pilots and staff.
  • Guidance is flat for profits, between 750 million and 950 million on lower prices, 8% passenger growth and strong ancillaries. If there is no Brexit. Long-term guidance says investors should expect a few down years.

All of the above shows how the airline industry is tough, something we’ll discuss in a moment.

The same issues forced Ryanair to lower prices as the average ticket sold fell from EUR 39 to 37 and consequently net income fell to 1 billion. However, the sky isn’t that dark.

Ryanair’s short term and long-term outlook

Ryanair’s CEO clearly states that the fare environment will be weak going ahead. But things are not all bad. There have been some bankruptcies in Europe over the last years which allows Ryanair to grow and get more slots. It is expected that there will be more divestments and perhaps other opportunities for Ryanair to scale as it recently did by acquiring Lauda for 50 million EUR and further investments. Now that the company is unionized and both a Boing and Airbus operator, it can participate in consolidations.

Another positive will be the delivery of newer Boing 737Max planes with 4% more seats and 16% better fuel efficiency. Over the coming years, Ryanair plans to sell its older aircrafts, 10 of the oldest will be sold for 170 million as soon as they get the new aircrafts.

From listening to the conference call, I must say the management is very opportunistic. Something you don’t hear much when listening to calls. They recently took 750 million of unsecured debt at very low rates and they prefer to lease 7 to 9-year-old planes for less than $200k per month rather than to acquire new planes. On new aircraft prices, the CEO says how the pricing is high and order books are full and how they’d rather wait for the pricing cycle to weaken. This is a very important thing to hear for Boeing or Airbus investors.

It is interesting how Ryanair switched from dividends to buybacks, perhaps again opportunistically, and how they have a new 700 million share buyback plan. That is important and we can see how the number of shares outstanding has significantly declined over the past years. Pabrai would call this an uber cannibal stock.

15 buybacks and dividends ryanari

Source: Ryanair investor relations

They know the price environment is weak, but they think share prices are low and their cost advantage is the key for the long-term. Thus, long-term, a good investment in a currently bad environment.

My question is: can somebody compete with Ryanair? For that we have to analyze the competition, their fare prices, profitability etc.

Ryanair’s competitive advantage

In whatever business you are, if you are the lowest cost operator, you will probably survive all downturns, grow market share and be a good investment.

8 ryanair cost advantage

Source: Ryanair IR

Ryanair has to be compared to EasyJet as Wizz is not really a long-term competitor as it will hardly survive as an independent airline. Therefore, Ryanair’s advantage is large when it comes to cost.

Ryanair’s business model is different as it is the only company that has significant scale to operate as it does by using remote, small, ex-military airports across Europe.

9 ryanair costs competition

Source: Ryanair IR

Ryanair’s scale is incredible and they are further planning to expand in Ukraine, Israel, Bosnia & Herzegovina etc. Plus, they might take advantage of bankruptcies in the future but they are not interested in expanding in Scandinavia due to high government taxes.

10 ryanair airport coverage

Source: Ryanair IR

Given Ryanair’s business model, it actually doesn’t have much competition among customers that look for low prices.

11 market share

Source: Ryanair IR

Good market share, in a growing market as more and more people fly. Further, Ryanair’s share is even higher with cost aware customers. All smaller airports want to get Ryanair into their hub and the others are not that of an interest as unstable.

When it comes to business analysis, the best thing to do is to go to Peter Barklin from Niche Masters Fund. He has been kind to share his Global airline industry presentation with me and I’ll use some slides to better explain what Ryanair could be. If we take a look at the demand curve for the industry, Ryanair covers a huge part of the market and given its low cost, it might really have a moat.

14 ryanair cost curve

Source: Niche Masters Fund

As Ryanair has a kind of advantage due to low costs, let’s see what is going on within the European market.

What does it mean low-cost? These guys print their logo and put it on an old laptop. As long as it is functional. Got to love such managers. Source: 2019 FY Ryanair conference call.


The European market

Consolidation will continue as many will fail. Ryanair actually hopes oil prices stay high so that they have lower competition in the future due to bankruptcies.

On fares, according to the CEO, fares in Europe are 25% when compared to North America and therefore have to rise at some point in time given that those are artificially low now.

If there is a price war, Ryanair will win due to the lowest cost. Profits might suffer for a year or two, and that is what shareholders should expect according to the CEO, but Ryanair should win.

The story is that there will be 4 to 5 big carriers in Europe and that is it, like in the US. Ryanair as the lowest cost, Lufthansa, BA AIG, Air France- KLM, with a question mark whether EasyJet will survive as an independent carrier – probably they will.

What did Buffett do when the industry consolidated and stocks were cheap? He bought them all, all four of them.

Ryanair stock price analysis, valuation and investment thesis

The market cap is currently at 11 billion EUR. Profits over the last 5 years, that have been good, were around 1 billion on average.

15 ryanari financials

Source: Morningstar Ryanair

Management has guide for profits between 700 and 900 million, let’s take 700 million over the next two years. After two years, we can assume profits to grow back to 1 billion and above, as the market consolidates. Or, we could see profits go to zero, especially if we have a recession.

However, what is a given, is that Ryanair will reach 200 million passengers per year by 2024.

16 growth

This implies growth of 25% in revenues from traffic and probably higher growth from ancillary businesses. If fares  in Europe increase by then, I would assume a 50% increase in revenues, add an acquisition and we are beyond 12 billion in revenues, perhaps even 15, depending on what is acquired. On 15 billion in revenue, with an average historic gross margin of 25%, net income could be 2 billion. If they continue with buybacks, earnings per share could be at 3 EUR and the stock price at 30, at some point in the next 5 to 7 years. That is a 16% return over the next 7 years. If it happens over 10 years, it is an 11.6% return.

If I look at earnings, it is impossible to make a model as airline earnings will always be volatile. However, I can estimate 2 years at 500 million, 2 years at 2 billion, 2 years at 1 billion and I would even add a year at zero and one at 3 billion. Thus, Ryanair will make a billion per year over the next 10 years, probably 1.5 billion. Thus, a fair price for a 15% return should be 10 EUR.

IMPORTANT STOCK PRICE NOTICE: If profits suffer for another year or two, the market will see only that. If there is a slowdown in Europe, this could get ugly. It is time to look at the sector and then be ready to strike when the situation looks like it was in the US a few years ago, when Buffett bought everything. However, there are always risks.

Ryanair investing risks

A plane crash – that would be a huge blow. Then the EU commission might get involved due to too much power the company might have. There is the Brexit, a probable EU recession over the next few years, EURO risks as the currency and the continent are fragile, from an economic, demographic and political side. So, plenty of risks there and the company doesn’t really have a margin of safety. Therefore, I would look at this only at business returns above 20%. At 1 billion, the stock price should be around 5 and around 7.5 EUR for 1.5 billion in earnings.

To keep on the watch list, it will also be a good indication for the European economy.

Receive a weekly overview of published articles, videos and research reports straight to your inbox for boring long-term investing knowledge!


Tesla Stock Crash – My Message To Tesla Investors 

I’ve been a Tesla stock bear over the last years and I would always receive a lot of hate when I would do a video on Tesla and also lose hundreds of subscribers. However, now that the risks are materializing and the stock is down, I think I can actually add value to Tesla investors because I know a thing or two about buying or holding a stock that is crashing.

I want to discuss 3 things that should help:

  • Forget about market noise
  • Growth stocks strategy
  • Buy or sell solution


Source: CNN Money

The reason for the above decline is simply psychological, I don’t think the risk reward ratio when it comes to Tesla has changed much over the last 5 months. Tesla has always been a risky play but now the sentiment has turned negative and it is all doom and gloom.


So, in just 5 months, the stock went from being a market darling with $3,000 price targets to being the most hated with $10 price targets.


In such a crazy environment you have to focus on 3 things:

  1. The reason you bought the stock in the first place – forget about the noise

If you know why you bought in the first place and nothing spectacular has happened with the business, short term stock market fluctuations don’t matter at all. The key is that you understand the risk and rewards well, the likelihood of the positive and negative scenarios unravelling. Focus on that and forget about the news and the market’s noise.

If we take a look at what institutional investors think, we see that such jumps in yields are normal and related to the market’s sentiment.


Source: Borse Berlin

  1. Tesla is a risky growth stock – have a strategy

I assume many of the Tesla investors have always had a strategy and I hope it was always part of a plan. Tesla is a growth stock, which means there will always be fluctuations in the stock price.


Such fluctuations have to be accepted as given. The key is what are you going to do about them. Having a set portfolio allocation helps, having a set portfolio allocation to growth stocks helps even more.

Portfolio – 100%

Value Investing – 40% (5 stocks)

Growth/Tech Investing – 40% (10 stocks)

Cash balance – 20%

The above is just an indication and is something I wish every investor should have in relation to one’s preferences. The key message is that growth investing should be part of a strategy, a long term strategy where I would go to Peter Lynch as the best guide.

Lynch’s strategy was to hold many growth stocks for a very long time, this would allow him to find the 10 baggers. If you own 10 such stocks and only 2 don’t go bust and actually become 10 baggers, you will double your money.

Plus, you might buy such stocks when those are cheap, because it is part of your strategy. Interesting enough, Tesla is still a 10 bagger for the early growth investors. 


If growth is part of your strategy, the likelihood of finding growth stocks early increases significantly. Don’t chase market darlings.

  1. Buy more or sell

This is the hardest question to answer but if you can leave emotions aside, it is possible to answer it. If you are looking at your Tesla stock and you feel bad, it means that you are under the influence of emotions. Being under the influence of emotions is not good when investing in stocks. 

Try to rationally estimate what can happen. You probably know more about Tesla than I do, therefore also understand the value of it better. So, try to create scenarios, from the worst case one, to the best case one, attach probabilities to those and see how would such scenarios affect your portfolio, personal finances etc. Understanding the risk and reward in relation to your personal situation and portfolio will give you the answer to whether buy more, hold or sell.

If you need help with a worst case scenario for Tesla, you can always watch one of my old videos.

So, to conclude, I am not happy to see what is going on with Tesla because it is people’s hard earned money there and it is never nice, plus it can be painful. I keep having the picture of my former students that have been playing with Tesla’s stock. My message is pretty simple: Have a strategy so that whatever happens you are ok. Be objective in assessing the situation. Try to really see how this fits your portfolio and forget about the noise.

Further, if this doesn’t work well, don’t be pushed away from investing, just keep in mind the risk and reward next time and allocate your money adequately.

Tomorrow I’ll discuss my general stock market crash strategy so you might want to consider subscribing as I think it will be very valuable. 

Receive a weekly overview of published articles, videos and research reports straight to your inbox for boring long-term investing knowledge!

Thor Industries Stock Analysis

Over the past months I have received more than 10 emails from various investors about how Thor Industries is a great, cheap, value investment.

1 stock price tho

Source: CNN Money – THO

The first emails started coming in when the stock price fell from above $150 to around $120. Since then, the stock fell another 50% to the current $60. Ouch.

In this article I want to talk about this because it is an excellent example of how many value investors get trapped.

How value investors get trapped?

We have:

  • An extremely cyclical industry that makes the fundamentals look amazing at cycle peak

You would look and see amazing growth selling for a PE ratio of just 15 or lower as it was the case during 2018 when the earnings were $8.14 and the stock price was between $150 and $100.

2 thor fundamentals

Source: Morningstar

However, then reality struck. Earnings halved, revenues declined and the company took a lot of debt to buy an European RV produces at cycle peak.

They did make $1.6 billion in operating cash flows in the last 10 years, but they also spent $927 billion on acquisitions not including the last acquisition.

cash flows

The acquisition and positive RV environment in the US allowed for nice growth. Investors usually look at the past and think the same story will continue, but it doesn’t have to be so. In a highly cyclical industry things change fast. The company’s last quarter shows a loss and if there are more troubles or costs from the recent acquisition, the decline in sales continues, we could see negative earnings for 2019 which would not make this look like a bargain anymore.

3 second quarter

I think the same story happened with TATA Motors, when many saw it as cheap with a PE ratio of 7 and a high dividend yield.

4 tata motorst stock

The long term chart of TATA is similar to Thor’s. The only difference is that the exuberance with THO was much shorter.

5 thor stock price

On the chart, many just look at the drop from $150 to $60 and invest on the hope it will go back there. If you look at a chart when you invest, please also look that the stock was trading around $50 from 2014 to 2016 which doesn’t make it look like a bargain. I get probably 10 emails per week about how this stock is cheap because it fell 50%, nobody sees that it went up 200% prior to that. Another trap unexperienced value investors fall into.

Is Thor a good investment now?

I recently listened to an interview with Howard Marks and he put is very simply. When investing you have to look at where we are in the cycle now. Nobody can predict the future but you can see where we are now.

The first thing is to look at inventories, and those are high with dealers.

6 inventory correction

Let’s take a look at the industry.

8 industry

Even if there is no sign of a recession, just the small increase in interest rates will lower sales by 20%. If there is an economic slowdown or if interest rates increase further, I would expect sales to drop another 20% per year for a few years. Interest rates increased from 4% to 5% and already sales dropped.

7 interest rates

Source: FRED

Plus, an RV is really a luxury purchase, one that can be postponed easily and when the market contracts there is also a lot of inventory to be dealt with. RV dealers go bust, fire sales can make the environment very tough. From 2006 to 2009 sales dropped 60% for the industry. I think we are now in 2007 for the RV cycle, the peak has passed and the growth turned into a decline. Those who wanted an RV, probably bought one in the last 5 years as the conditions were perfect, long lasting economic growth, low interest rates on investments, high stock levels, a lot of money etc. It is really a discretionary purchase.

Then, they made a big acquisition in Europe at cycle peak too. The environment isn’t growing, there is a lot of competition from glamping or from mobile homes crated by the camping sites and I don’t see a positive for RV in Europe in the long term.

9 europe

For example, German tourists used to buy an RV and go to Croatia for the summer. However, now, RV space is replaced with small homes already there. It is more convenient, similar experience and you don’t have to do a thing.

10 camps

On the bigger picture you can see how more than half of the camping site has been closed with these kind of homes.

11 camsp

So, we are in a place where the trends in the industry in the US are negative but probably still above cycle average. The average in the US will be around 300k units sold, still 40% down from where we are now.

In Europe the average will be 160k and declining but we are now at 200k. Forget about growth in Europe.

In the US, the management discusses 77 million households camping and how they should all buy an RV.

12 promise

But they forget that 500k units per year sold quickly brings you to 5 million that saturates the market soon as not all campers want to own an RV.

Plus, consumer confidence is usually at its peak in the late part of the cycle. When it declines, RV sales erode.

13 consumer confidence

When RV sales erode you need to have strong financials and no debt. THO didn’t have any up till the Hymer acquisition.

14 debt

Now the company has about $3 billion in debt which should cost them $150 million in interest per year. If I take 2015 as the average cycle year, the cash flows have been $200 million which makes it just $50 million now.

15 average cycle


I don’t see growth in Europe as the market is changing fast. Trust me, Europe is not the place to go around with large RVs and travel.

The debt is a certainty, there is high risk of firing back and then things get ugly as those are getting now.

What would be an average cycle price value? Let’s say $3 to $5 per share in free cash flows leading to a valuation between $30 and $50 from a value perspective. Want to buy it with a margin of safety? Then we are looking at a price below $20. Am I crazy? It was trading there in 2011, 2009 and 2003.

The conclusion – look at the long term average in the cycle for the company, this will give you a good indication o the value and the investment potential with a margin of safety. Remember, where are we in the cycle now?

Receive a weekly overview of published articles, videos and research reports straight to your inbox for boring long-term investing knowledge!

Michael Burry’s Stock – CorePoint Lodging REIT Stock Analysis


CorePoint Lodging – Business analysis

Cash flow calculations

Selling properties to unlock value

Stock catalysts already there

The risks

Investment strategy


The CorePoint Lodging REIT (CPLG) is a company that got the eye of the public when dr. Michael Burry, famous for being one of the big shorts in the movie The Big Short disclosed CPLG as his largest position.

1 michael burry

CPLG is a real estate investment trust owning hotels that belong to the La Quinta brand. It is a spin-off from the La Quinta company and the stock hasn’t been doing well since then.

2 cplg stock price

Source: CNN Money CPLG

I have been reading a bit about the company because I find it interesting to dig into the reasons of why a person like Michael Burry would invest in a company like this. Since his exposure got disclosed the stock went up from the low teens to the mid teens but after the last earnings report it tumbled again.

3 cplg 6 months chart

Let’s see whether there is value and a good investing opportunity or at least why would Michael own it.

CorePoint Lodging – Business analysis

The hospitality industry is a complex one where it all goes around room values, revenue per available room (REVpar), occupancy etc. But at the end, for investors, it all boils down to cash flows, like with everything else.

CPLG has 40,115 rooms, a market capitalization of $665 million and debt of $1 billion. When we add everything up and divide by the number of rooms the value per room is $41,505 including the debt and market capitalization. ADR is $90 and REVpar is $59 due to the occupancy of 66%.

4 revpar

Source: CPLG

On the other hand, Chatham Lodging Trust (NYSE: CLDT) has a market cap of $900 million with $585 million in debt. RevPar $134, so double CPLG’s but it has only 6000 rooms.

5 chaltam

So, the value per room is $250k for Chatham.

Apple Hospitality REIT (APLE) has a market cap of $3.65 billion, debt of $1.4 billion and 30,000 rooms. The value of a room is $166k and RevPar is $105.

6 aple

Source: APLE

However, it all boils down to times funds from operations, Apple’s is $400 million, Chatham $130 million with a bit more of debt, so the $900 million market cap.

$165 million for CPLG where the market cap is $665 million. So, it is cheap from this perspective.

The point is that it will not go bust as interest costs are $50 million, it will hardly go lower but the upside is high, plus you are buying a hotel room for $40k.

In private hands, with RevPar of $59, should give $21k in revenue per room per year. $40k for Apple and $50 for Chatham. This means CPLG has room for improvement and higher margins or the margins are much lower.

7 portfolio segmentation

The core part of their business brings 94% of the EBITDA while 24% of the hotels bring in the rest. By disposing or changing the non-core hotels, CPLG can improve its ratios and make itself look better. Plus get some money to do buybacks or to pay down debt.

Cash flow calculations

This is the guidance for 2019:

9 ebitdare 2019

– 8% to 9% of revenue goes for capital expenditures,

– 2.5% + Libor = 5.5% interest rate = $60 million in interest payments.

$180 million in EBITDA minus $77 million in capex for 2019, minus $60 million in interest rates should give me cash flows of $43 million that on a market cap of $700 million is a return of 6.1% which is in line with the dividend yield, or just below it. The buybacks of another $50 million make this look attractive but this is not a business yielding 15% as the company without asset sales will not have an extra $50 million to do buybacks. However, value can be unlocked by selling the properties.

Selling properties to unlock value

The asset value is supposed to be $2.4 billion according to HVS. This is also what is on the books. Given the current market capitalization, there you have already a 50% discount. You are practically buying hotels across America with a 50% discount. Book value of assets $2.4 billion, debt $1 billion, value = $1.4 billion. Market cap is $700 million.

10 asset value

Source: CPLG – prospectus

I went to look at the list of what they could sell and found the following.

11 hotels

Source: CPLG

On top of the discount of 50% there might be more hidden value. For example, their hotel in Sheboygan is valued at $828k and was build in 1975, refurbished in 2004. However, with 73 rooms with a starting price of $75 I find it hard to believe the value of it is only $800k. That would be $11k per room. So, there might be a few tens of millions in hidden assets lying around in these properties, probably just the land will be worth as much.

12 sheboygan

Source: Google

Or, if I go to Salt Lake City, they own 3 hotels where the book value goes from $2.5 million to $8.4 million on a similar room number (100 to 122) and the price of the rooms is also close.

6 la quinta

One of the hotels was built in 1997 while the other two are 20 years older, therefore the higher value. We must also not forget that many hotels were refurbished in the last two years that should also increase the book value.

The point is that if the management manages to unlock value, transform the potentially good properties and get rid of the bad for a good price, one could expect nice things to come from CPLG. If someone pays $2.4 billion for all the portfolio, that is a market cap of $1.4 billion or double the current level.

However, without going into a detailed value analysis of all the hotels, there are some potential catalysts lying in plain sight.

Stock catalysts already there

Since the La Quinta merger with Wyndham, the customer loyalty base will expand fourfold which could increase revenue and occupancy.

13 improvements

So, if CPLG improves revenues or EBITDA by just $20 million, those $20 million would improve cash flows from $43 million to $63 million, allow for a higher dividend or buybacks and therefore for a much higher stock price. Given the book value, there is a margin of safety with high upside situation here. That is in my opinion what dr. Burry has been buying.

15 customer base

Plus, it is a spin-off and if not performing immediately well, most previous owners ditch it. Only one analyst has been at the last conference call, so nobody is following what is going on which might make it go under the radar. If and when cash flows improve, it will get recognized.

The risks

The main risk for CPLG is an economic slowdown. Less travel, less business would lead to lower revenue and lower cash flows. However, higher margins offer some kind of resilience in case of a recession.

14 margins

But, CPLG should get rid of the low margin hotels as those would produce losses in case of a slowdown.

I managed to find LaQuinta’s annual report and in their risk description they tell how revenues declined 17% in 2009 and EBITDA 30%.

16 la quinta

As CPLG is a different business, a decline of 17% in revenue should hit it hard as the EBITDA would be gone practically.

Something that the investing community might have missed is the government shutdown that will certainly impact hotel revenue when those disclose them in Q1 2019.

However, as long as the situation with the economy remains as is, we can expect stability and slow managerial improvements for CPLG. The question is what will come first, recession or value unlocking?

The debt is always a risk but you never know how will the current leveraged situation unfold over the long term. The FED has paused with interest rate hikes, we might see cuts which makes it impossible to predict. It is unlikely the government will let half of America go bust. Too big to fail all over again…

Investment strategy

I am not going to invest in CPLG now as I look for a 15% return and CPLG offers a 7% return from the cash flows. When they improve their business, the cash flow yield might go to 10%, which would probably double the stock price, but stock price moves, especially short-term ones are not what I invest in.

From a dr. Burry perspective, this will probably not go bust, in case of a recession it will survive where the dividend will probably be cut and that is it. The value is there and over the next decade it will be unlocked given the management’s focus and freedom to do whatever after the spinoff. It is a value investment where over the long term you will hardly lose money, you are exposed to the American economy and if the value unlocking happens fast, you might also see higher stock prices in the next 12 months giving you great returns. If not, you still get the 6 or 7% yield.

To conclude, CPLG is a good investment offering value and a margin of safety with potential upside. It is a dull business so a perfect fit for value investors. See how it fits your portfolio, I am going to put it on my watch list to see where it goes and compare to other investments out there. If it goes to $20 during this year, well good for dr. Burry.

Receive a weekly overview of published articles, videos and research reports straight to your inbox for boring long-term investing knowledge!

Alacer Gold Stock Analysis – Why I bought and why I sold


  • I sold Alacer because it is not a value play anymore, it is more of an exploration play now.
  • What the market didn’t see last year was positive growth, what the market is missing now, might be a negative in the form of lower future ore grades.
  • However, there are still 3 catalysts that could push the stock price higher; a dividend, more exploration success at Aldrich and, as always, higher gold prices.

In 2018 I did a comprehensive analysis of gold miners, I spent more than a month on them and deeply researched about 40. I wasn’t pleased with what I found but Alacer Gold (ALIAF) (ALACF) looked good. We can say it was my favorite gold miner in 2018 as it was not just a bet on gold, but a value play with a nice business proposition thanks to the Copler sulfide project.

Since then things have changed, most significantly the stock price increased as the market noticed what ALIAF has been doing.

As the exploration results led to a new resource that will feed the old oxide plant, the management increased guidance and said ALIAF could become a 300k to 400k ounces producer.

alacer management

Source: SA Transcript

However, the path towards such high production levels is long and the ore grades of the sulfide ore aren’t really indicative of higher, sustainable future production. But this doesn’t mean there are no catalysts for ALIAF or that it now is a bad investment. The catalysts that could push it higher in 2019 are a dividend or buybacks, new successful exploration results and higher gold prices.

For me, when the stock price increases and reaches my intrinsic value, the risks are higher and the rewards lower so I prefer to find other, less risky value investments with a margin of safety.

You can hear more about why I sold in my video discussion.

0:43 My Alacer Ownership

1:57 Why did I buy Alacer

3:35 Sum of parts value

4:28 What changed recently for ASR

5:28 Stockpile and ore grade difference

6:33 Ardich expansion and exploration

7:30 Cash flow model

7:58 3 future catalysts

Receive a weekly overview of published articles, videos and research reports straight to your inbox for boring long-term investing knowledge!

ADM – A dividend stock to own for the long term


ADM company overview

Investment strategy

A few notes from the last conference call

My personal opinion

I analysed Bunge, as it seems like the cheaper stock between the two, but ADM looks like a better business.

ADM company overview


Source: ADM investor presentation

Unlike Bunge, they grow by acquiring smaller players and including them into their business model and possibly scaling the smaller acquisition.


Source: ADM investor presentation

Operating profits are stable.


Source: ADM investor presentation

And earnings per share too.


Source: ADM investor presentation

The return on capital is 300 basis points (3%) higher than Bunge’s and 200 basis points above their cost of capital.


Source: ADM investor presentation

They plan to increase the dividend pay-out ratio by 30% in the medium-term range.