I'm real confused by all the goings on with NFI, and all the conflicting views, and do not understand this world of high finance at all.
I think a private firm just bought 38 million shares at $10.10, giving NFI cash to draw on to pay down debt - and that private firm might actually have been a large creditor, so perhaps it gets paid back with some of its own money ...?
Be that as it may though, I expect it put up that kind of money believing it will profit handsomely, and I wonder how it would plan to do that. Will it hold the shares until they've appreciated significantly and then sell them, or would it have something more sophisticated in mind?
National Bank presently rates NFI as an outperformer with a $15.00 target, and Morningstar pegs its fair value at $21.15 and describes its financial health as "moderate". CFRA meanwhile dubs it a "strong sell" with negative valuation, quality, growth, street sentiment and neutral momentum.
I can't make hide nor hair out of all this contradictory information, but I do get the sense that a buy in now might be more than just raw speculation - is it possible that NFI right now represents a compelling value story, or is that just wishful thinking?
I believe your opinion has recently been very negative and you've dropped coverage, but do any of these recent events serve to change your view, or would you still recommend staying very far away from this one.
Thanks 5i,
Peter
We have been negative because of the extreme financial risk of the company. The recent financing and bond extension certainly help improve this, though. But we do note that creditors once again had to waive financial covenants for the company. It is still on thin financial ice, but with its large backlog things can improve. Coliseum Capital becomes the largest shareholder at 26% of the company. Essentially, it needs the company to survive in order to grow (seems obvious, of course!). Its backlog represents a substantial growth opportunity. However, without this financing potential customers may have 'walked' due to financial risk. This 'could' change now, and under the right conditions (lower rates, new orders) the stock could do well and Coliseum could make lots of money. Generally, a company that comes close to death and then recovers can result in a pretty good stock move. Ultimately, we might expect Coliseum to seek a sale of the company, if and when it stabilizes things (we're talking 3 to 5 years, here) and if things go as planned. We would say risks remain quite high here, but overall potential has improved, simply because the company is far more likely to survive now.