Suggestions for a speculative punt?

Durban

adindas said:

DiggerUK said:

Thrugelmir said:

Durban said:

Carnival ? 

Having secured their borrowing against their assets (cruise ships) doesn't instill confidence. 

I imagine all plane and cruise companies would secure loans against assets in such a way; are you saying that Carnival is in a worse position than others..._

Obviously. Cruise is not a necessity, Airline is (e.g for some people like business people, family reunion). People who travel on cruise are manly pensioners who could spend days weeks on the ocean to enjoy retirement. Many of them are well educated (hence could avoid luxury holidays) and know the risk and therefore are fully aware that they are the most vulnerable member of society to be affected by COVID-19. So, unless the vaccine has been invented and be proven to provide people immunity, it is highly unlikely these people are going to do cruise holiday.

Airlines is a necessity, as there is no substitute to airlines. People will continue to fly. The risk here is that they are burning million of money on daily basis. If the travel restriction has gone beyond where they could bear, some of them will go bankrupt. Many analysts advise against investing in airlines due to this reason.

A few who recommend are advising to choose the one with the strongest balance and therefore have a veru good chance survive.  Those who manage to survive will take the share of other airlines and therefore an easy route to recover reaching a pre COVID-19 price level for their stocks. The fact that many of them are still close close to March 23 market crash make them attractive for those who are willing to take risk.

It might have been the case years ago that pensioners were the main customer of cruises but that is not so much the case anymore.

I have taken a small punt on Carnival when it hit an extremely low price.  I have the confidence that the share price will increase greatly in the future. It is the largest cruise company in the world and is a blue chip company.

Anyway, it is a small punt and if I lose , I lose , I certainly haven't put my life savings on it.

kinger101

Thrugelmir said:

DiggerUK said:

Thrugelmir said:

Durban said:

Carnival ? 

Having secured their borrowing against their assets (cruise ships) doesn't instill confidence. 

I imagine all plane and cruise companies would secure loans against assets in such a way; are you saying that Carnival is in a worse position than others..._

Airlines tend to lease rather than purchase outright.  A different model to having an asset built to specification. Then subsequently using the asset to secure borrowings for other purposes, i.e. working capital. 

It's actually a fairly standard practice for companies with large bespoke capital assets to use them as leverage .  Debt has some advantages over equity.  Interest repayments are tax deductible whereas the returns expected by investors are not.  Debt on the books isn't a problem per se, but being thinly capitalized is.

Group debt is also a nice way of shifting profits to a low tax regime.  You can guarantee for a company in a high tax regime its working capital will be provided by as much debt as legally possible from a holding company in a more favorably domiciled country.  

coachman12

kinger101 said:

Thrugelmir said:

DiggerUK said:

Thrugelmir said:

Durban said:

Carnival ? 

Having secured their borrowing against their assets (cruise ships) doesn't instill confidence. 

I imagine all plane and cruise companies would secure loans against assets in such a way; are you saying that Carnival is in a worse position than others..._

Airlines tend to lease rather than purchase outright.  A different model to having an asset built to specification. Then subsequently using the asset to secure borrowings for other purposes, i.e. working capital. 

It's actually a fairly standard practice for companies with large bespoke capital assets to use them as leverage .  Debt has some advantages over equity.  Interest repayments are tax deductible whereas the returns expected by investors are not.  Debt on the books isn't a problem per se, but being thinly capitalized is.

Group debt is also a nice way of shifting profits to a low tax regime.  You can guarantee for a company in a high tax regime its working capital will be provided by as much debt as legally possible from a holding company in a more favorably domiciled country.  

Not the sort of scenario any sensible person would want to see in a company in which they have interests. And your comments do not address the difference between leasing and owning whether they are what you would call "bespoke" ( a bit of a misuse of the word) or not.

kinger101

coachman12 said:

kinger101 said:

Thrugelmir said:

DiggerUK said:

Thrugelmir said:

Durban said:

Carnival ? 

Having secured their borrowing against their assets (cruise ships) doesn't instill confidence. 

I imagine all plane and cruise companies would secure loans against assets in such a way; are you saying that Carnival is in a worse position than others..._

Airlines tend to lease rather than purchase outright.  A different model to having an asset built to specification. Then subsequently using the asset to secure borrowings for other purposes, i.e. working capital. 

It's actually a fairly standard practice for companies with large bespoke capital assets to use them as leverage .  Debt has some advantages over equity.  Interest repayments are tax deductible whereas the returns expected by investors are not.  Debt on the books isn't a problem per se, but being thinly capitalized is.

Group debt is also a nice way of shifting profits to a low tax regime.  You can guarantee for a company in a high tax regime its working capital will be provided by as much debt as legally possible from a holding company in a more favorably domiciled country.  

Not the sort of scenario any sensible person would want to see in a company in which they have interests. And your comments do not address the difference between leasing and owning whether they are what you would call "bespoke" ( a bit of a misuse of the word) or not.

(1) from the dictionary;  Bespoke, adjective.  Made for a particular customer or user.
(2) I did not address the leasing of assets, because the discussion was on Carnival's use of ships for as security for debt. Nobody was disputing the fact airlines usually lease their assets. 
(3) Practically everyone with a mixed asset is both a creditor and debtor.  They hold shares in companies which have debt, and are themselves creditors in the form of corporate bonds.  
(4) Any sensible person with interests in a company will expect working capital to be obtained at the lowest cost.  Existing share holders aren't usually keen on the idea of their holdings being diluted by the issue of new shares.

But thanks for sharing your knowledge.  The Dalai would be proud.

AnotherJoe

Username999 said:

keyboardworrier said:

Username999 said:

There must be millions of cars parked overnight that have no access to electricity, flats, apartments, terrace houses etc,.
What's the plan for these going forward?
Massive infrastructure needed.
Maybe a punt in a company doing that?
(I can't see under road charging happening any time soon!)   

Nio have solved this problem with battery swapping technology, I think this makes sense in China due to the popularity of high rise buildings. Tesla tried this once and it seems to have been scrapped in favour of a large supercharging network. It will be interesting to see how the issue gets solved, I suspect converted lamp posts will be the best way forward, but who knows

Well it may be a non-issue if Henrik Fisker is to be believed. He was paid $800,000 to design a Tesla car, then started his own EV company.
I just heard him say you can put a 500 mile charge into his battery in one minute!!!  
https://www.youtube.com/watch?v=Mq-qjBKjjXI
(6:40 into video)

Thats simply rubbish and I"m not going to go into details why because Brandolini's law applies.

AnotherJoe

kinger101 said:

AnotherJoe said:

kinger101 said:

Seems to be a lot of interest in EVs.  I think some people have overlooked the fact that the people who manufacture most cars now are also developing EVs.  Unlikely Toyota and VW will decide to call it a day just because they can't use an internal combustion engine.

Thatsa very old argument that maybe had some validity ten years ago. But time has shown to be untrue.

As can be seen right now, neither are capable of making EVs that match Tesla, and since they dont really believe yet (maybe VW are changing, time will tell) they dont have battery supplies lined up. This bottlenecks not just these companies but overall competition to tesla.

One significant problem VW and Toyota (sinec you mentioned them) is, if they make a really good EV, it will be better than their existing ICE cars.

So, then what happens? Its not  a competition between EVs, its among all cars. And if (say) VW's new ID.3 is superior to the Golf on all metrics including price,  why would anyone buy a Golf (or a Passat  because the ID.3 has same interior space as next model up )? And then the bottom falls out of their balance sheet because they cant make anywhere near the volume of ID.3's to match both of those (or even just Golfs) an custmers wait. Very tricky swapping horses in mid race.

As it is teh ID.3 isnt competitive except at the very bottom trim level to Model Y

Only cars competitive to Tesla at the moment are smaller/cheaper models or hatchbacks from Kia/Hyundai (I have one) and they cant make enough (didnt get enough battery supply lined up)

 

The existing car manufactures will make good EVs because one day they won't be able to sell cars with ICEs.  Just like Phillips don't sell tungsten filament lightbulbs and Canon don't sell film cameras. 

Or they'll go bust. Remember Minolta? Mercedes are laying off 30k workers. BMW in trouble. VW cant write software. Their new car cant even connect a mobile phone to their display unit.

kinger101 said:

AnotherJoe said:

kinger101 said:

Seems to be a lot of interest in EVs.  I think some people have overlooked the fact that the people who manufacture most cars now are also developing EVs.  Unlikely Toyota and VW will decide to call it a day just because they can't use an internal combustion engine.

Thatsa very old argument that maybe had some validity ten years ago. But time has shown to be untrue.

As can be seen right now, neither are capable of making EVs that match Tesla, and since they dont really believe yet (maybe VW are changing, time will tell) they dont have battery supplies lined up. This bottlenecks not just these companies but overall competition to tesla.

One significant problem VW and Toyota (sinec you mentioned them) is, if they make a really good EV, it will be better than their existing ICE cars.

So, then what happens? Its not  a competition between EVs, its among all cars. And if (say) VW's new ID.3 is superior to the Golf on all metrics including price,  why would anyone buy a Golf (or a Passat  because the ID.3 has same interior space as next model up )? And then the bottom falls out of their balance sheet because they cant make anywhere near the volume of ID.3's to match both of those (or even just Golfs) an custmers wait. Very tricky swapping horses in mid race.

As it is teh ID.3 isnt competitive except at the very bottom trim level to Model Y

Only cars competitive to Tesla at the moment are smaller/cheaper models or hatchbacks from Kia/Hyundai (I have one) and they cant make enough (didnt get enough battery supply lined up)

 

In the interim period for cars, the old manufacturers will make both ICEs and EVs.  The early adopters will buy the EVs, and people who think they need 400-mile capacity to run down to Tescos will buy the ICE until the very last day it is legal to do so. 

They probably wont. As the bottom falls out of the lease market due to falling s/h values and ICE and esp diesel becoming Persona Non Grata in cty centres, those PCP deals wont look so good any more.

kinger101 said:

AnotherJoe said:

kinger101 said:

Seems to be a lot of interest in EVs.  I think some people have overlooked the fact that the people who manufacture most cars now are also developing EVs.  Unlikely Toyota and VW will decide to call it a day just because they can't use an internal combustion engine.

Thatsa very old argument that maybe had some validity ten years ago. But time has shown to be untrue.

As can be seen right now, neither are capable of making EVs that match Tesla, and since they dont really believe yet (maybe VW are changing, time will tell) they dont have battery supplies lined up. This bottlenecks not just these companies but overall competition to tesla.

One significant problem VW and Toyota (sinec you mentioned them) is, if they make a really good EV, it will be better than their existing ICE cars.

So, then what happens? Its not  a competition between EVs, its among all cars. And if (say) VW's new ID.3 is superior to the Golf on all metrics including price,  why would anyone buy a Golf (or a Passat  because the ID.3 has same interior space as next model up )? And then the bottom falls out of their balance sheet because they cant make anywhere near the volume of ID.3's to match both of those (or even just Golfs) an custmers wait. Very tricky swapping horses in mid race.

As it is teh ID.3 isnt competitive except at the very bottom trim level to Model Y

Only cars competitive to Tesla at the moment are smaller/cheaper models or hatchbacks from Kia/Hyundai (I have one) and they cant make enough (didnt get enough battery supply lined up)

 

The traditional car makers are making deals with battery manufacturers (e.g., Toyota and Panasonic), which will go some way in reducing shortages.  But mineral shortages will impact all manufacturers until some materials scientists come up with a better battery.
The automotive industry in 20 years time won't look very different from today.  If you want to invest in EVs, I'd probably buy LG Chem or SK Innovation.  I wouldn't go for some Chinese company with pretty pictures of trucks that might not ever be made.

I did consider a battery vendor but ultimately they will be commodity companies with low margins. But fair enough maybe for the next 5 years. I tried it with BYD (they do both cars and batteries) and lost out there. BUt luckily switched that modney to Tesla.

If i wanted to invest in EVs I'd go for Tesla and Nio and at a push, VW. I have bought into the first two but Nio is my speculative punt, i wont be holding it.

I dont think many appreciate that every new EV on the market in the £40k and up range will act  as an advert for Tesla because anyone who perhaps hasn't considered Tesla but goes into their favourite vendors showroom and gets sold on their EV, if they then decide to have a look at Tesla before buying, they will find it tough not to buy a Tesla. And also second time round, once familiar with say a eTron or iPace and the poor charging networks, again Tesla will be a serious contender.

I had trouble deciding and I was buying a £35k car,  and if the Model Y was available i might well have bought it despite it being £10k more, especially since it will almost certainly hold its value better.

coachman12

kinger101 said:

coachman12 said:

kinger101 said:

Thrugelmir said:

DiggerUK said:

Thrugelmir said:

Durban said:

Carnival ? 

Having secured their borrowing against their assets (cruise ships) doesn't instill confidence. 

I imagine all plane and cruise companies would secure loans against assets in such a way; are you saying that Carnival is in a worse position than others..._

Airlines tend to lease rather than purchase outright.  A different model to having an asset built to specification. Then subsequently using the asset to secure borrowings for other purposes, i.e. working capital. 

It's actually a fairly standard practice for companies with large bespoke capital assets to use them as leverage .  Debt has some advantages over equity.  Interest repayments are tax deductible whereas the returns expected by investors are not.  Debt on the books isn't a problem per se, but being thinly capitalized is.

Group debt is also a nice way of shifting profits to a low tax regime.  You can guarantee for a company in a high tax regime its working capital will be provided by as much debt as legally possible from a holding company in a more favorably domiciled country.  

Not the sort of scenario any sensible person would want to see in a company in which they have interests. And your comments do not address the difference between leasing and owning whether they are what you would call "bespoke" ( a bit of a misuse of the word) or not.

(1) from the dictionary;  Bespoke, adjective.  Made for a particular customer or user.
(2) I did not address the leasing of assets, because the discussion was on Carnival's use of ships for as security for debt. Nobody was disputing the fact airlines usually lease their assets. 
(3) Practically everyone with a mixed asset is both a creditor and debtor.  They hold shares in companies which have debt, and are themselves creditors in the form of corporate bonds.  
(4) Any sensible person with interests in a company will expect working capital to be obtained at the lowest cost.  Existing share holders aren't usually keen on the idea of their holdings being diluted by the issue of new shares.

But thanks for sharing your knowledge.  The Dalai would be proud.

Not very helpful. In the sense used, as in leasing planes, they are not "bespoke"----they are a choice from "off the peg" merchandise( to use another quaint phrase). And, of course, when you have nothing constructive to say you are reduced to a snide remark at the end about HH The Dalai Lama. Sad.....

AnotherJoe

keyboardworrier said:

Username999 said:

There must be millions of cars parked overnight that have no access to electricity, flats, apartments, terrace houses etc,.
What's the plan for these going forward?
Massive infrastructure needed.
Maybe a punt in a company doing that?
(I can't see under road charging happening any time soon!)   

Nio have solved this problem with battery swapping technology, I think this makes sense in China due to the popularity of high rise buildings. Tesla tried this once and it seems to have been scrapped in favour of a large supercharging network. It will be interesting to see how the issue gets solved, I suspect converted lamp posts will be the best way forward, but who knows

More likely a combination of multiple things. fast chargers at supermarkets, slow chargers at work, on street charging, multi storey car parks with multiple slow chargers, laws that mandate apartments with parking to provide charging, and parking areas to provide a certain % of chargers, and so on. There is no silver bullet but its doable, but i dont see battery swapping being the answer especially when the fastest chargers are now on a par with battery swap time.

Also, you dont fuel an EV like a ICE car, you charge whilst you are doing something else, and you only need to charge enough to replace the daily driving, people tend to think "oh all those flat owners will need to be charging for 12 hours every night" but they wont, on average they will need to charge overnight once every ten days or one hour every night. And not at all if they can charge at work, supermarket, etc etc. So that immediately massively drops how many chargers you need.

But it is an issue that needs to be addressed for about 30% of car owners and will no doubt be addressed last minute by ourinept politicians.

bowlhead99

coachman12 said:

kinger101 said:

Thrugelmir said:

DiggerUK said:

Thrugelmir said:

Durban said:

Carnival ? 

Having secured their borrowing against their assets (cruise ships) doesn't instill confidence. 

I imagine all plane and cruise companies would secure loans against assets in such a way; are you saying that Carnival is in a worse position than others..._

Airlines tend to lease rather than purchase outright.  A different model to having an asset built to specification. Then subsequently using the asset to secure borrowings for other purposes, i.e. working capital. 

It's actually a fairly standard practice for companies with large bespoke capital assets to use them as leverage .  Debt has some advantages over equity.  Interest repayments are tax deductible whereas the returns expected by investors are not.  Debt on the books isn't a problem per se, but being thinly capitalized is.

Group debt is also a nice way of shifting profits to a low tax regime.  You can guarantee for a company in a high tax regime its working capital will be provided by as much debt as legally possible from a holding company in a more favorably domiciled country.  

And your comments do not address the difference between leasing and owning whether they are what you would call "bespoke" ( a bit of a misuse of the word) or not.

If you are leasing your assets from other people you have a known outflow of money and need to make enough revenues to cover it, so you are 'operationally geared' - if you can improve your revenues without increasing what you are paying for the long term lease, the profits will increase faster than the revenues. If the revenues fall your profits will fall faster than the revenues util they are heavily negative unless you can terminate your lease contract earlier.

If you decide to instead borrow money and buy the hard asset for yourself, with the assets on your balance sheet supported by borrowings, you are 'financially geared' - if the company makes profits they will accrue to the shareholder with only a fixed return for the lender - extra profits made will line the shareholder's pocket though losses will not prevent you from giving the lender his fixed return, so your overall returns are geared to the actual profits that can be made.  In this scenario, you have bought yourself a productive asset, which will depreciate over time, and the cost of the interest on the borrowing together with the reduction in value of the asset may be similar overall to the cost of having someone buy it and you lease it off them, though less cash outflow from day to day because it's 'your' asset (although you still owe the purchase cost on it, until you pay that off).  It's akin to having a mortgage secured on a property you let out. 

As an alternative to getting the money to support your balance sheet from a secured loan, you could get it by having your investors inject extra capital into the business and use that to buy the asset instead. Then there is no ongoing obligation to service a loan or pay a lease. However, it does require the equity investors to put up more money at risk. And they will demand a return for that, whether by annual dividend or just by the ongoing profits of the company being enhanced as a result of it having more capital available. 

The problem with funding everything through equity is that paying a dividend or creating value for the investors to extract through sale or capital redemption is that it is not very tax efficient:
-  If a company whose £50m ship can provide £5 million of profits a year wants to give £2 million a year to its financiers to thank them for supplying the finance to buy the ship, and it does it by paying £2m interest every year, the profits before tax get reduced from £5m to £3m and the (e.g.) 20% corporation tax bill ends up being only £0.6m instead of £1m. So profit after tax (which is what is available to the shareholders of the company to retain in the business or pay out to themselves) will be £2.4 m (5 less 2m interest less 0.6m tax). 

- If however the company raised the £50m through equity, and needed to pay an extra £2m annual dividend to the people who subscribed for the new shares, the previous owners of the business would see their £5m annual profits before tax dwindle to only £2m retained in the business or available for payout, because the company is still paying £1m of tax cost to HMRC and £2m of dividends to its new shareholders. There was no 'tax shield', as paying more dividends doesn't get you out of paying tax to HMRC, whereas if you had incurred a £2m interest bill you would have saved £0.4m on the tax bill causing the net cost of borrowing to be only £1.6m.

'bespoke' refers to the assets being heavily customised or tailored for purpose rather than being an off-the-shelf commodity. Like our suits from off-Saville Row. For example the bespoke fitting out of a ship with cabins and engines and freight space etc.  If you want a highly bespoke and massive asset, you may find it difficult to lease one exactly like it on a temporary basis, and if you have bought it you may find there isn't anyone else you could easily sell it on to in a pinch at the amount of future profits you hope that you could generate from it within your own business model.

However, it could be relatively easy to raise finance against it - as long as you are not trying to get a lender to lend you as much as the whole thing is worth to you, only what they consider a reasonable LTV against the value it could be sold for after un-customising it.

As you have explained, planes are often less 'bespoke' and more 'off the peg', and a 300 passenger aircraft is more of a commodity than a 3000 passenger floating hotel.  So leasing may be more prevalent in aircraft, while buying and customising more likely for cruise liners, which means that cruise liners (needing to finance such assets) may be seen to do a lot of borrowing against such assets.

Not the sort of scenario any sensible person would want to see in a company in which they have interests. 

I'm not sure whether here you mean that a sensible person with interests in a company would be unwilling to see leverage in a company in preference to leases or equity raises. If you don't like the idea of companies using debt to partially finance a business, you would perhaps not have have added Fisher and Sons last week, a business with a market cap of just under £600m which at its April AGM noted its committed debt facilities of £280m at end of March together with £64m of uncommitted facilities.

Or was your scenario that a sensible person wouldn't want, kinger's suggested group operating model of a company in a high tax jurisdiction saving tax by making interest payments to a fellow group company in a lower tax jurisdiction, to shift profits around the business to the extent the tax law accommodates it? That doesn't seem unusual (although countries are generally attempting to clamp down more on such practices, these days).

kinger101

coachman12 said:

kinger101 said:

coachman12 said:

kinger101 said:

Thrugelmir said:

DiggerUK said:

Thrugelmir said:

Durban said:

Carnival ? 

Having secured their borrowing against their assets (cruise ships) doesn't instill confidence. 

I imagine all plane and cruise companies would secure loans against assets in such a way; are you saying that Carnival is in a worse position than others..._

Airlines tend to lease rather than purchase outright.  A different model to having an asset built to specification. Then subsequently using the asset to secure borrowings for other purposes, i.e. working capital. 

It's actually a fairly standard practice for companies with large bespoke capital assets to use them as leverage .  Debt has some advantages over equity.  Interest repayments are tax deductible whereas the returns expected by investors are not.  Debt on the books isn't a problem per se, but being thinly capitalized is.

Group debt is also a nice way of shifting profits to a low tax regime.  You can guarantee for a company in a high tax regime its working capital will be provided by as much debt as legally possible from a holding company in a more favorably domiciled country.  

Not the sort of scenario any sensible person would want to see in a company in which they have interests. And your comments do not address the difference between leasing and owning whether they are what you would call "bespoke" ( a bit of a misuse of the word) or not.

(1) from the dictionary;  Bespoke, adjective.  Made for a particular customer or user.
(2) I did not address the leasing of assets, because the discussion was on Carnival's use of ships for as security for debt. Nobody was disputing the fact airlines usually lease their assets. 
(3) Practically everyone with a mixed asset is both a creditor and debtor.  They hold shares in companies which have debt, and are themselves creditors in the form of corporate bonds.  
(4) Any sensible person with interests in a company will expect working capital to be obtained at the lowest cost.  Existing share holders aren't usually keen on the idea of their holdings being diluted by the issue of new shares.

But thanks for sharing your knowledge.  The Dalai would be proud.

Not very helpful. In the sense used, as in leasing planes, they are not "bespoke"----they are a choice from "off the peg" merchandise( to use another quaint phrase). And, of course, when you have nothing constructive to say you are reduced to a snide remark at the end about HH The Dalai Lama. Sad.....

We we not discussing leasing planes. The discussion was about Carnival using assets a leverage for debt.  Bespoke isn't a quaint phase.  It's a word in the dictionary that has a specific meaning.  And I used it correctly.

I was responding to a post in which you implied I was an idiot who didn't know what a word meant, or what investors wanted balance sheets to look like.  One which you posted out of malice because you have some sort of axe to grind.  Like several others you've posted in response to comments I've made.  I find it somewhat ironic that you're now accusing me of lacking having anything constructive to say.