Eros
I didn't take part in the Eros issue last year and shared the concerns about the opaque structures. It has fallen below par now and has an attractive yield to maturity (approx. 7.4%). Looking at the share price in New York, it has been performing well recently. It has also signed some agreements to develop new markets in China. Generally, I think the risk / reward is attractive now and so decided to buy in today. Anybody share my views or is this still too risky?
Comments
The stock was under some pressure a couple of weeks back as a result of an indictment of a Bollywood actor who was working on a movie/s produced by Eros. Has recovered since. It is up YTD 20% in local currency; down 7% YTD in USD, a 27% delta. This seems strange given USD-INR YTD movement is barely a little over 1%.
How does one explain this? Are US investors sceptical because of EM FX impact owing to impending Fed rate rise?
Per Bloomberg, of the 9 local analysts covering this name, 8 have rated it a "Buy" and one a "Hold".
Full disclosure - I invested in the bond at around 95-96.
Glad to see the bond is picking up. I have been there from the start, and have been waiting patiently. I wonder if the overhang of stock which someone big appeared to have been landed with at the time of issue has finally been sold on.
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Eros International: Expect Further Upside In Current Financial Year
Tempted to buy them back if I can see the reason for them falling out of bed.
Dramatic drop in share price : Low margins - Netflix- short selling- p/e coming back to earth- capital raising- against a backdrop of corporate bullishness, are out there on various threads. Or, something nasty in the woodshed.
Anyone able to explain why the bond should be so effected ?
The ordinary shares have now dropped over half of their value relative to summer highs. One can understand the difficulty in valuing the ordinary, given low visibility on future earnings levels.
Beyond sheer panic on the back of such a dramatic move on the share price, it is difficult to justify a 20% drop in the bond price, with no specific news. Shares are back trading around levels of not many months ago. At around 80p, the bonds have never been so cheap.
So, a buying opportunity, surely? Or the inevitable questions in such a scenario......is there news out there of which I am not aware, or am I missing something?
Wait until the "fallen knife" has hit the floor!, could be that bad news is still to come.
http://www.bloomberg.com/news/articles/2015-10-23/eros-tanks-as-wells-fargo-analyst-questions-company-s-financials?cmpid=yhoo.headline
This research does not mince words and to say it is damning would be an understatement. If you can get hold of it and are interested in Eros, I suggest you read it. I tried to hedge my comments, although they were hardly positive, largely because I have not done any analysis of the figures (nor am I a professional analyst). Alpha Plus does not hedge their comments. He backs up his argument with facts and figures. However, we do point to the same issues; family control (he says they have been enriching themselves at the expense of shareholders), lack of free cash flow and wrong valuation of their film library. He also adds comment on their business model and says with the arrival of Netflix in India they have missed the boat on streaming films in India.
His conclusion; "...we believe the stock is essentially worthless".
A caveat; I don't know Alpha Plus and it may be their style is to write pieces in a very much over the top style - whether one way or another. However, it is important that you are aware of what has been written.
Maybe I should not have been so circumspect!
https://alphaexposure.wordpress.com/2015/10/30/unlike-the-name-investors-should-not-love-eros/
I don't believe there is a paywall.
Trust is like "snaw on a dyke" and is disappearing fast!
As well as the above piece from seekingalpha there is a share chat thread tracking developments at advfn Eros.
After reading the Seeking Alpha article I dumped everything.
http://seekingalpha.com/article/3621886-unlike-the-name-investors-should-not-love-eros
The Seeking Alpha article makes ENRON, by comparison, a glowing example of accounting responsibility compared with EROS. Just reading around various bulletin boards confirmed what I suspected at the IPO. I should have trusted my gut feeling but the other retail bond issues gave the EROS issue an air of respectability.
It is serious when the lawyers get involved
http://www.cbs8.com/story/30395395/shareholder-alert-bronstein-gewirtz-grossman-llc-announces-investigation-of-eros-international-plc
There is a rebuttal of AlphaExposure on:
https://financialfactfinder.wordpress.com/2015/11/01/eros-a-vicious-takedown-by-a-professional-scam-artist-or-the-new-enron/
This blog, seems to have a long bias. The truth is probably somewhere in between these opposing views.
As bond holders, we can live with a lower share price as long as the company does not default.
There has been huge damage to EROS over the past couple of weeks and the probability of default is now much higher, I guess the current bond price is putting it 50%+.
A key question is if the bond defaults, what would the estimated recovery rate ? If the cause of default was Fraud then , I guess the recovery would be very low if not zero.
I have no experience of holding a defaulted bond, maybe someone who has experience of these matters could share their experience/views.
http://www.tankrich.com/analysing-eros-fiasco/
"My conclusion
In past sticking to firms which have had superior earnings quality has served me well. So I will give opportunity a pass (i.e. no further digging)
Disclosure – No position in Eros. This post is not recommendation to buy or sell.
Last minute note
While publishing this post I got to read today a stinging report by a short seller (AlphaExpsoure), obviously his objective is to create panic and make bountiful on his shorts but some of claims sound genuine."
Paddy may be correct that AlphaExposure is deliberately driving the price lower, but I could wait until the bond price had been driven to zero.
I think the ERO1 is taking a more pessimistic view of the probability of default than the equity listed on NYSE. All eyes on the NYSE open.
http://www.google.co.uk/finance?cid=4018941
AlphaExposure and others have bet short, the Founders only really know the truth.
It is possible this Bond does not default, also it is possible it does default.
Since the Founders are under intense scrutiny right now one would think the situation will be resolved sooner rather than later.
If ERO1 pays the next Coupon in 6 months, it's worth 3.25 !
https://www.nyse.com/quote/XNYS:EROS/news
This company definitely has "tangible assets" - one needs to appreciate the Indian movie-scene/culture to really understand the USP of this company. I'd disregard ErosNow as rounding number, as it is immaterial to the valuation of this company. It is pure equity-upside - maybe some of the froth coming off of the equity (based on presumed ErosNow valuation) is justified. However, for Seeking Alpha to claim this stock is worthless is ludicrous (based on the assumption there is no fraud involved, of course).
I would think the company should use their cash to buyback these bonds - return on such investment would be well and truly in excess of their RoE.
Full disclosure - I'm long the bonds as of this AM.
Looks like there is some 'Short Covering' on the equity, up 10%.
Defies logic...