Rhg - Rams

[winner69]

This recent float was perfectly timed eh

A $885M listing 3 weeks ago and already half it gone ... but good luck to this dude Kinghorn who reaped $650M from his sale of 73% of RAMS - what timing .... no doubt he saw the credit cruch coming and acted ... a guru in my eyes

And all this because they have to pay more for the money they borrow to invest ... they reckon they are not exposed to the subprime market and all their loans are insured


Seeing so much has been written of the value of RAMS the last few days worth investigating further .... some say that even one of the big 4 might be interested in picking up a loan book on the cheap

[Yossarian]

and down another 40% today!! holy cr*p!

[winner69]

Amazing eh ... open 129 and all way down to 55 and now back to 93

[winner69]

This in the aussie papers "Ramming home a shrewd move" calls Kinghorn the luckiest man in the market

Got his $650M a few weeks ago and still has 20% of RAMS

Must keep an eye on what this guy does ... he surely is lucky

http://www.theage.com.au/news/business/ramming-home-a-shrewd-move/2007/08/18/1186857835945.html

[steve fleming]

Yeah good on Kinghorn. But you create you own luck, and thats what Kinghorn has done. I think this is his 3rd of 4th start up from memory he also founded Allco Finance, i think??

The re-financing risks and the reliance on the US debt markets were ALL FULLY DISCLOSED in the RHQ prospectus.

If punters got into the RHQ IPO without an understanding of all the associated risks then they get no sympathy from me.

[winner69]

Tough world when the money runs out and nobody wants to finance your activities

Westpac pick up all the good bits on the cheap and offer enough refinancing to have an orderly wind down

..... and the share price drops to 67 cents after a hectic days trading ..... nobody wanted to be the last to leave the sinking ship it seems

[shane_m]

they are apparently having short term funding problems.....nevertheless I do have a loan approved from Rams for 420 k....haven't taken it up yet. Perhaps this loan is sub prime.

[winner69]

Still in turmoil ..... now 51 cents

But some day traders playin?..... +/- 20% in a half an hour

[soulman]

Shane, are you saying you can't really afford to pay the loan or you have bad credit history and they still approve you? I am intrigue by this fall on very large volume (2 days in a row). Might just have a dip on a specs play but with small amount.

[stephens.pc]

Take out the Westpac offer at 140m, and the market is valuing Rams existing 14.5 billion loan book at just 30 million going on yesterdays close. Obviously not a lot of confidence that Rams will be able to refinance their US commercial paper funding. How low can this go? All the way to 39 cents? (Westpacs offer).

[shane_m]

I found dealing with rams agent very easy, and they were happy to lend me more than 90%. Banks were saying I can only burrow 310k, rams pre approved me 410k with the same conditions. I don’t have a bad credit history. Most weeks I make more $ in the market than my day job so I don’t think I wont have problems repaying. With what’s going on with rams currently I am not sure if I should take up the rams loan.

[winner69]

This guy reckons shareholders have been shafted ..... but does point out RHG could be a a bit of a punt at these prices

Only 40 million shares traded today

Rams shareholders sold out by management

Glenn Dyer writes:

Shareholders in Rams Home Loans group who have been gutsy enough to hang onto their shares are entitled to feel a bit miffed about the way they have been stiffed by gutless management and founder John Kinghorn, who not only sold them an overpriced, over-hyped business back in July, but has now turned around and sold them down the drain to Westpac in a cheap, opportunistic deal.

Kinghorn got over $600 million from the float and hangs onto it, the shareholders have lost heavily, and Westpac has screwed a great deal out of the floundering carcass of Rams


But if you look at the sharemarket reaction, another view can be mounted: that Rams is dying and it’s a case of everyone for themselves, with 206 million of the 353 million shares traded since the Westpac deal was announced on Tuesday.


The shares fell heavily on both days to end at 48c yesterday, which valued Rams at just over $169 million: seeing Westpac is paying $140 million for the name and outlets (or 40c a share), that puts a value of 8c on the income streams and value of the $14.5 billion in existing mortgages remaining with Rams. They were off another cent this morning at 47c just after the opening.


Merrill Lynch values that mortgage pool at 55c a share (and the whole company around 69c a share), so according to the market the mortgages have a value of 7c a share or so, based on the Merrill's figures.


But someone or some people must see value in Rams: after all there have been buyers for those 206 million shares sold and they could be getting the rump of Rams for next to nothing. If the shares sink to around 40c today then the mortgages have no value whatsoever, which is rubbish.


Kinghorn and UBS sold Rams in late at $2.50 a share and they were pummeled in August when it couldn't refinance $6.17 billion of short term commercial paper here or in the US or European markets because of the credit freeze.

It's a damaged brand and if the company was in administration, there would be bidders looking for the mortgages, rather than the brand name of the outlets, which would have very little value. So Westpac has gone Vulturing (screwing a hard nosed deal out of a company that couldn't really resist).

To support his actions, Kinghorn does a patsy interview with the Australian Financial Review (and no one else) where he claimed Rams was a case of 'sell or shut the door'. He says it's not a great outcome for shareholders and they have at least got something.

That might be the case, but did he and the company sell to the first bank that wandered buy, or was there an auction and this was the best they could get? There has been no mention of any attempt to drum up an auction or maximise the price.

Therefore the shareholders should be asking if the board flogged the brand name and franchises too cheaply and would be entitled to ask at the special meeting of shareholders, if there were other bids for the company.

The deal allowed RAMS to yesterday finally price a $300 million mortgage-backed bond issue: that was originally set down at $250 million. $291 million were sold at a margin of 0.53% over the one month bank bill swap rate.

Westpac controls the company's fortunes by offering to finance between $1.5 billion and $2 billion of existing debt between now and the shareholder meeting next month.

Merrill Lynch said yesterday that: "While the deal with WBC does increase the probability that RAMS is able to refinance its XCP, the price WBC is paying for the franchise is largely reflected in the current share price and we therefore maintain our Neutral call.

"Prior to today’s announcement we had attributed 65¢ of value to RAMS’ franchise going forward. Therefore, while RAMS is subject to “no-shop” and “no-talk” provisions in its agreement with WBC, we would not rule out another counter bid for the RAMS franchise, '' Merrill Lynch said.

And what about UBS, the investment bank that sold Rams into the market in the last glorious deal before the great credit freeze struck?

Well it told clients yesterday that: "We believe this is an important step for mending WBC’s underinvested retail bank WBC expect the deal to be EPS dilutive in year 1 (<1%) & accretive in yr 2. The transaction values each RAMS store at $1.5m, c15x NPAT of an immature bank branch (100k NPAT); however we see significant upside to this post successful integration. We note that WBC has proven to be a good buyer of assets in the past (BT 2002)."

Not a mention of the value of the deal to Rams shareholders.

UBS worldwide is not in good odour at the moment: billions of dollars of losses, billions of dollars of still dodgy loans on its books, the head of investment banking and the group chief financial officer (Australian, Clive Standish) have been 'retired'. And of course there's the ill will the monstering of fund manager Paul Fiani suffered before leaving over his opposition to the opportunistic bid for Qantas: which would have generated fat fees for UBS.

No wonder they don't want to draw any more attention here to embarrassments like Rams.

[_Michael]

This must be an arbitrage plat at these levels;

Westpac offer on the table for retail franchise of 140 cash
Current market cap 110 including retail franchise and loan book.

I am in today at 30.5 cents.

M

[thereslifeafter87]

Yeah but RFG retain the liabilities in relation to the loan book. If they can't refinance it as debt becomes due, they will go bankrupt.

[Fodder7]

Yeah but RFG retain the liabilities in relation to the loan book. If they can't refinance it as debt becomes due, they will go bankrupt.

I don't think this is quite true. I think that if they can't refinance the short term debt then they will have to sell the assets securng this debt. However, the creditors (of that debt) will not have any rights to the assets securing their other debt categories (such as their profitable loan book).

Anyone confirm?

[_Michael]

Hi Fodder

Yes I believe that to be the case as documented in recent research from The Intelligent Investor. Also, given that Westpac is stumping up with $2 billion for refinance and is right this moment trying to put together a syndicate to pick up the debt - given their size, status and clout in the market my personal view is that they will put something together. Having a RAMS bankruptcy run through the media would hardly be in their interests when they just spent $140 million on buying the brand good will and front office operations. All that said I agree with life after 87 - its still a risky play, but with quick upside upon any refinance announcement. Also keep in mind John Kinghorn is still in the thick of it and despite the seemingly untimely float has proven a highly intelligent and credible operater over the decades...

M

[spruik]

Hi Fodder

Yes I believe that to be the case as documented in recent research from The Intelligent Investor. Also, given that Westpac is stumping up with $2 billion for refinance and is right this moment trying to put together a syndicate to pick up the debt - given their size, status and clout in the market my personal view is that they will put something together. Having a RAMS bankruptcy run through the media would hardly be in their interests when they just spent $140 million on buying the brand good will and front office operations. All that said I agree with life after 87 - its still a risky play, but with quick upside upon any refinance announcement. Also keep in mind John Kinghorn is still in the thick of it and despite the seemingly untimely float has proven a highly intelligent and credible operater over the decades...

M

RHG 22 cents today.

Wow... what a recommendation!!! They were also promoting TEN at over $3.60 and again at $3.00. And other amazing ones (like forecasting CIY to collapse last year)!

17 October 2007


View this email online
http://email.intelligentinvestor.com.au/LiveAssets/images/499/IIEmailBanner.gif

Dear Mr Anthony


RAMS share price is down 86&#37; since its $2.50 float just a few months ago. Most people wouldn’t touch it with a barge pole. It’s too risky, right?

Wrong. This stock was risky at $2.50, but at thirty-something cents we think there’s far less risk. Are we mad calling RAMS a buy when everyone is running scared?

Frankly, we’ve seen it all before. Back in 2002, dot.bomb stock SecureNet had seen its share price fall from $20 to 80 cents. Everyone thought it was going broke, right at the time we started recommending it. But the company was sitting on $1.30 a share in cash and had no debt (it’s hard to go bust on a mountain of cash). As value investors, opportunities like this, and RAMS, are what we live for.



$99 for our RAMS research and a three-month



subscription to The Intelligent Investor


RAMS doesn’t have the same pile of cash but it does have an asset that’s pretty certain to generate substantial income. And for $99 we’ll tell you all about it in a pdf that contains all our RAMS research. Subscribe to our $99 offer (http://email.intelligentinvestor.com.au/rp//499/process.clsp?t=658p8FqXF6mSCN) now and we’ll email it to you immediately.

[_Michael]

hmmm - yeah i must concede its not looking like such a good idea anymore

i took yesterdays announcement as big negative. :o

[soulman]

You are right Spruik. You should only take II advice with more research of your own. They were wrong on many occasion with their buy or sell recommendation. I subscribe for their free trial 3 years ago. They called Flight Centre, Leighton Holding and Cochlear correctly but they had sell on CBA at $31, sell on CSM at $1.20 and sell on Portman at $1.40.

Basically, they had sell on many stocks that went up big time but that was 3 years ago.

[kura]

The one and only recommendation of Intelligent Investor that I followed was CRS (Croesus) they went broke a few months after they were recommended.

[spruik]

I had several trial subscriptions from The Intelligent Invester. Maybe not so intelligent really.

A few years ago I did subscribe to The Rivkin Report and when TEN skyrocketed to over $4.40 they were recommending a strong buy. No apologies when it dropped like a brick but were patting themselves on their back when it rallied back to $3.80. No suggestion of selling... Later they quietly (very quietly) sold the stock themselves but not telling any subscribers. Hush hush all the way.

Down the track they removed TEN from their list of historic recommendations on their website. I say these people are CROOKS and I don't mind telling the world.

After recommending to buy RIO at around $38.00 they recommended to sell at around $41.00.

These are just two of many. I bought and sold TEN and RIO, the very worst trades in my entire life. I claimed my subscription back.

Which tipsheets recommended ADY at any time?

The message is that we should never take such people at face value. They do not have any more foresight then us. And as Soulman says, we need to do our own research so we can take responsibility for our own decisions. Technical traders (chartists) also get it wrong to the point that IMO they are not worth subscribing to either.

Forums such as this are much better value, from time to time certain stocks are drawn to our attention and from there we do our own research before deciding anything. Best examples (for me) are CIY and ADY.

[kura]

As far as tipsheets go, I'm a believer in "Stock Analysis" (Peter Strachan) and have made some good money following his punts in the "Speccy" area of the market. Though you need to be aware that he only covers a small part of the market.

I originally subscribed to "Intelligent Investor" about 3...4 years ago, as I wanted to put my "Speccy" type profits into nice safe conservative investments, (that was my reasoning behind subscribing in the first place) little did I think my supposed safe conservative investment would end up costing me more in losses, than any "Speccy" punt ever did.

PS: Used to hold ADY back when it was about 12 cents, took profits at 20 cents, thinking I could buy back in cheaper a little later, unfortunately I'm still waiting (sniffle sniffle)

Probably getting a touch off the topic of RHG here (sorry)

[_Michael]

Agree - i have signed up for three month paid trial a couple of weeks ago but just recently tracked most of their recommendations almost all of which appear to be duds - infact its probably worth subscribing just to make decision based on opposite of what they say as they do seem to have a penchant for calling buy on stocks right before they nose-dive, all the while banging on about value investing as if they were worthy of being associated with the legendary Ben Graham.

In addition their analysis has no financial substance or presentation of financials and I disagree with much of their logic is it appears more rant than robust thinking, - for example "we don't like ANZ becuase they are expanding in the rapidly growing Asian economies - albiet with a highly experienced exHSBC Asia CEO" rather they prefer those operating in mature local markets with little room for longterm growth.... off topic but cannot help but agree with comments from others about II which appears to be a total hoax - I would advise people to avoid.

As far as useful research to look at in conjunction with ones own research and thinking i've found Goldman Sachs, Morningstar and Market Analysis (James Cornell) all good quality and quite consistent over a decent period of time..

[mark100]

Anyone follow RHG these days? Potentially a value play on a 6-12 month time frame.

RHG’s loan book is in run-off and they expect by next year it will have got to the stage where income earned from the loan book will not make a material return to the company. When this stage is reached the plan is to sell off the loan book. Not a hard task in the current environment where banks are looking for loan growth. The cash and franking credits left will then be either returned to shareholders or used to make an acquisition. Obviously everyone is hoping for the cash to be returned.

RHG is trading at 70c. However RHG currently has NTA of 97c and franking credits (for Aust shareholders) of 20c. At the end of FY11, based on my conservative estimate of the loan run-off rate (down to $3.25b) and interest margin (1.6%), I expect RHG could have NTA of around 107c and franking credits of 25c.

If the cash and franking credits are returned, RHG offers a nice little tax effective arbitrage over the next 6-12 months. Even if an acquisition is made, it would be hard to see it immediately trade at a discount to book value so there should be gains to be made here as well.

I’ve recently bought a modest amount of RHG just to sit on and see what happens

[mark100]

Well didn't take long for that value play to work out. Cash and franking credits to be repaid early next year. And I even managed to get more at 80c when they resumed trade

[mark100]

Thanks KW. It is nice when things work out the way you plan. Don't worry about missing out on RHG, I missed VOC. I planned to buy but was too tight and my order never got filled.

[ShareFodder]

Hi All,

So, RHG has come out of a trading hold and according to the market release is ex dividend of 88cents (ex date of the 24th Nov). So, why is it still trading at 89.5cents. Can holders sell now and still get the dividend?

Sorry, if this is a dumb question?

[macduffy]

Hi All,

So, RHG has come out of a trading hold and according to the market release is ex dividend of 88cents (ex date of the 24th Nov). So, why is it still trading at 89.5cents. Can holders sell now and still get the dividend?

Sorry, if this is a dumb question?

"Ex" means "sold without the dividend ", ie buyers don't get the divvy.

Presumably, the market thinks its worth without the dividend is around 89.5c. Coincidental that the two numbers are so similar.

[ShareFodder]

"Ex" means "sold without the dividend ", ie buyers don't get the divvy.

Presumably, the market thinks its worth without the dividend is around 89.5c. Coincidental that the two numbers are so similar.

Yes, and that's the ridiculous part, since RHG is worth about $0 after this dividend which is effectively the company trying to liquidate itself while taking advantage of franking credits and giving holders an attractive tax loss.

It strikes me that the only risk in selling now and taking both the $0.89 and the 88c dividend + 30 odd cents in franking is if shareholder don't approve the buyback (unlikely)... Also, I know the book close date is not until the 30th but surely the ex date is what matter!

[macduffy]

ShareFodder, are you sure that RHG is trading "ex div"? The only announcement that I've seen is with regard to the stock going "ex entitlement" to an "equal access buyback" which is still subject to shareholder approval.

[ShareFodder]

ShareFodder, are you sure that RHG is trading "ex div"? The only announcement that I've seen is with regard to the stock going "ex entitlement" to an "equal access buyback" which is still subject to shareholder approval.

From today's announcement:

The Company advised in the announcement that:
1. the Buy Back will be made only in respect of shares acquired on or prior to Tuesday, 23 November 2010;
2.
the Buy Back ex-entitlement date will be Wednesday, 24 November 2010, and that the Company’s securities will commence trading on an ex-entitlement basis from this date. Shares acquired on ASX after this date will not confer an entitlement to participate in the Buy Back; and3.
that books will close on Tuesday, 30 November 2010 to determine the shareholders eligible to participate in the Buy back.

Yes, it's subject to Shareholder approval, but I can't see that being a problem.

[ShareFodder]

Ok, I think I understand my mistake. It's a buyback and dividend combined, so the company can't buyback the shares and give you the dividend if you've sold them on market.

But the question remains, why are people buying at 90c if they are not elligible for the buyback?

[mark100]

Ok, I think I understand my mistake. It's a buyback and dividend combined, so the company can't buyback the shares and give you the dividend if you've sold them on market.

But the question remains, why are people buying at 90c if they are not elligible for the buyback?


Because after the buy-back the remaining shares will still have a NTA of $1 plus, maybe even more depending on how the sale of the remainder of their loan book goes. RHG is in wind-up mode. So it's only a matter of time before the remaining shares get bought-back/cancelled etc and the remaining cash gets returned

[ShareFodder]

Because after the buy-back the remaining shares will still have a NTA of $1 plus, maybe even more depending on how the sale of the remainder of their loan book goes. RHG is in wind-up mode. So it's only a matter of time before the remaining shares get bought-back/cancelled etc and the remaining cash gets returned

Yeah, it's a strange situation. The shares were trading around 70c before the buyback was announced, so it would seem strange that suddenly the shares are worth 90c for holders not eligible for the buyback. Furthermore, these buyers face the risk that the buyback may be set higher than 88 cents, further reducing the value of the remaining shares post buyback. It doesn't seem like a good time to buy or sell.

[mark100]

The shares were trading at 70c pre the buy back annoucement because no one knew for certain if the money would be returned to shareholders or wasted on a stupid acquisition.

The shares rose on annoucement of the buy-back for 2 reasons. 1) The buy-back obviously; and 2) The confirmation of a wind-up and that cash would now be returned to shareholders and not used for an acquisition

I will not sell the shares I own now because the buy back will be very tax effective. Grossed up its the equivalent of 118c

I am interested in buying more but not until there is more certainty around the final cash backing and when it may be returned. There is a chance the remaining shares will be worth much more than $1, but it will depend on how much money is obtained from the final sell-down of the loan books and the profit earned on the loan book in the interim.

[mark100]

The guys at Intelligent Investor (sometimes Intelligent) reckon the value of RHG per share after the buy-back will swing a fair bit, depending on the buy-back uptake. If 50% of shareholders take up the buy-back the value per share of the remaining share may be around $1.37. But if the take-up is 80%, the value per share of the remaining shares could be as high as $1.60 plus.

However the unknown is what would happen with the remaining value, will it also get returned and over what timeframe....