Category: Articles

SmartStax Receives EPA’s Blessing

Post author By ToddSullivan
Post date July 21, 2009
13 Comments on SmartStax Receives EPA’s Blessing

Simply put, this will be ” the largest introduction of a corn biotech seed product in the history of agriculture.”

U.S. and Canadian farmers are one step closer to realizing the greater whole farm corn yield advantages of a new corn seed trait combination that will provide the most comprehensive insect and weed control and allow farmers to significantly reduce their refuge. These benefits will be realized through SmartStax™, which is the outcome of a cross licensing agreement and research and development collaboration signed in 2007 between Monsanto Company (NYSE: MON) and Dow AgroSciences LLC, a wholly owned subsidiary of The Dow Chemical Company (NYSE: DOW).

SmartStax, the agriculture industry’s most advanced, all-in-one corn trait platform, received registration from the U.S. Environmental Protection Agency (EPA) and regulatory authorization from the Canadian Food Inspection Agency (CFIA) and remains on track for a 2010 commercial launch. SmartStax combines each company’s industry-leading corn traits to provide farmers the absolute broadest spectrum of above- and below-ground protection available against insects and weeds versus any product in the market today.

Using multiple modes of action for insect control is the state-of-the-art proven means to reduce structured refuge and maintain long-term durability of corn trait technologies. SmartStax uniquely features a combination of insect control traits that significantly reduces the risk of resistance for both above- and below-ground pests. As a result, the decisions by the EPA and CFIA will allow reduction of the typical structured farm refuge from 20 percent to 5 percent for SmartStax in the U.S. Corn Belt and Canada, and from 50 percent to 20 percent in the U.S. Cotton Belt.

As part of today’s announcement, the companies noted that the new corn seed technology is expected to be offered to farmers on 3 million- to 4-million-plus acres in its first year of availability. The product’s launch would represent the largest introduction of a corn biotech seed product in the history of agriculture.

“Farmers are the real winners with SmartStax,” said Robb Fraley, Monsanto Chief Technology Officer and Executive Vice President. “The 5 percent refuge for SmartStax will give farmers a tremendous advantage to increase whole farm corn yield 5 to 10 percent. This is a key early step in our commitment to helping farmers sustainably double yields by 2030 to meet the increasing demands for grain for food, feed and fuel. This reduced refuge will be easier for farmers and will further reduce insecticide use while reducing grower risks and enhancing the long-term durability of the technology.”

If we haven’t talk enough here about the reasons for Dow NOT to sell Dow Ag, here is another. Let’s also not forget that Dow and Monsanto have a 10yr. agreement to develop more products by sharing each other seed lines. That means this is the first of more to come.

It is also true that the significance of this is being ignored/not understood by the media and investors. We live in a time in which we are being told “buy farmland” because the world population is on a relentless surge and folks need to eat, inflationary pressures should the develop favor physical things and biofuels are here to stay and corn is their principle feedstock. So, we now have an item that has shown to boost yields 5%-10% and there is not much being said about it? For those not sure, a 10% yield boost to a farmer is simply massive…

Again, after the year Dow has had, it is safe to say people are in a “prove it” frame of mind before taking the plunge. Who can blame them. It does mean that when it is proven, piling in will occur and we know that leads to rapid share appreciation. So
be patient and hold on when it happens.

SmartStax

Disclosure (“none” means no position):Long Dow ,None

Tags dow

Articles

SmartStax Receives EPA's Blessing

Post author By ToddSullivan
Post date July 21, 2009
13 Comments on SmartStax Receives EPA's Blessing

Simply put, this will be ” the largest introduction of a corn biotech seed product in the history of agriculture.”

From the release:

U.S. and Canadian farmers are one step closer to realizing the greater whole farm corn yield advantages of a new corn seed trait combination that will provide the most comprehensive insect and weed control and allow farmers to significantly reduce their refuge. These benefits will be realized through SmartStax™, which is the outcome of a cross licensing agreement and research and development collaboration signed in 2007 between Monsanto Company (NYSE: MON) and Dow AgroSciences LLC, a wholly owned subsidiary of The Dow Chemical Company (NYSE: DOW).

SmartStax, the agriculture industry’s most advanced, all-in-one corn trait platform, received registration from the U.S. Environmental Protection Agency (EPA) and regulatory authorization from the Canadian Food Inspection Agency (CFIA) and remains on track for a 2010 commercial launch. SmartStax combines each company’s industry-leading corn traits to provide farmers the absolute broadest spectrum of above- and below-ground protection available against insects and weeds versus any product in the market today.

Using multiple modes of action for insect control is the state-of-the-art proven means to reduce structured refuge and maintain long-term durability of corn trait technologies. SmartStax uniquely features a combination of insect control traits that significantly reduces the risk of resistance for both above- and below-ground pests. As a result, the decisions by the EPA and CFIA will allow reduction of the typical structured farm refuge from 20 percent to 5 percent for SmartStax in the U.S. Corn Belt and Canada, and from 50 percent to 20 percent in the U.S. Cotton Belt.

As part of today’s announcement, the companies noted that the new corn seed technology is expected to be offered to farmers on 3 million- to 4-million-plus acres in its first year of availability. The product’s launch would represent the largest introduction of a corn biotech seed product in the history of agriculture.

“Farmers are the real winners with SmartStax,” said Robb Fraley, Monsanto Chief Technology Officer and Executive Vice President. “The 5 percent refuge for SmartStax will give farmers a tremendous advantage to increase whole farm corn yield 5 to 10 percent. This is a key early step in our commitment to helping farmers sustainably double yields by 2030 to meet the increasing demands for grain for food, feed and fuel. This reduced refuge will be easier for farmers and will further reduce insecticide use while reducing grower risks and enhancing the long-term durability of the technology.”

SmartStax

Disclosure (“none” means no position):Long Dow ,None

Tags dow

Articles

CMBS Market May Get Buyers

Post author By ToddSullivan
Post date July 21, 2009

It would appear that some bottom fishing may be happening in commercial real estate finance..

Reuters Reports:

NEW YORK (Reuters) – Several large investment firms are creating new lending companies that plan to go public to raise billions of dollars to take advantage of the distress in the commercial real estate market, and more are on the horizon.

The planned IPOs, which include units of firms like Apollo Management APOLO.UL and Alliance Bernstein Holding LP, could be just the beginning of what some bankers expect to be a boom in Real Estate Investment Trusts (REITs) going public over the next few years.

The U.S. commercial real estate market has been reeling ever since a prime source of financing, the commercial mortgage-backed securities (CMBS) market, virtually closed and banks shut off their lending spigots in the past year.

“In the real estate world, the next few years will be defined by a lack of capital,” said Michael Knott, a senior analyst with Green Street Advisors.

According to a recent Deutsche Bank report, as much as $40 billion will be needed to salvage about $420 billion of CMBS mortgages maturing over the next 10 years.

More recently, the sector has grappled with falling rents and rising vacancies driven by the recession.

The dislocation in the real estate and CMBS markets has prompted several top investment firms to create REITS that will aim to buy up, manage and originate commercial real estate loans.

“As assets start to come on the market and distress in commercial real estate increases, REITs will be the buyer of choice, and they will get bigger and bigger,” said Brad Smith, managing director for equity capital markets at Bank of America Merrill Lynch.

With significant amounts of mortgages coming due in the next three years, there will be demand for loans that traditional players such as banks have been unable or unwilling to make.

In the past two months alone, eight REITs have filed for IPOs seeking to raise up to $3.9 billion, a larger pipeline than that of traditional IPOs, according to Thomson Reuters.

For instance, an affiliate of private equity firm Apollo Management last week filed for a $600 million IPO to take advantage of what it called a “void of several hundred-billion dollars” that must be filled by new mortgage lenders.

The newly formed companies were set up as REITs, a tax structure that exempts companies earning most of their revenue from either rent or mortgages from paying taxes on their taxable income if the company distributes 90 percent of that to shareholder

Now for REIT’s with large debt rollovers coming due, anything that begins to shake the market loose, now at a standstill will be very welcome. What remains to be seen is what investor appetite for these IPO’s ends up being.

It ends up making it feast or famine scenario. If the IPO’s get big interest, the simple sentiment boost would rally the market. Should they not, one can easily see despair setting in rather quickly.

Too soon to tell what the impact will be but one has to pay attention to it.

Disclosure (“none” means no position):

Tags CRE

Articles

Tuesday’s Links

Post author By ToddSullivan
Post date July 21, 2009

Data, Austrian, Sears, Bankruptcy

– I do not think it is purposely being manipulated, but I do think the calculations of them, especially CPI are flawed and that undermines confidence

– Much has been said/written about the “Austrian School” of economics. Here is a good explanation of it

– A good series of posts on Sears

– Bondholders can win big……really big

Disclosure (“none” means no position):

Articles

Tuesday's Links

Post author By ToddSullivan
Post date July 21, 2009

Data, Austrian, Sears, Bankruptcy

– I do not think it is purposely being manipulated, but I do think the calculations of them, especially CPI are flawed and that undermines confidence

– Much has been said/written about the “Austrian School” of economics. Here is a good explanation of it

– A good series of posts on Sears

– Bondholders can win big……really big

Disclosure (“none” means no position):

Articles

Bernanke: “It’s All Good…..”

Post author By ToddSullivan
Post date July 20, 2009
2 Comments on Bernanke: “It’s All Good…..”

So we know the Fed missed the housing bubble and then underestimated its severity. Remember Greenspan’s (in)famous remark that “housing bubbles were local phenomena and present no risk to the greater economy”? We also know they underestimated the severity of job losses and the economic decline.

I guess the only question left after reading this is…..how can Bernanke be so sure of anything he is saying, especially when their recent track record at predicting future events has been stunningly more wrong than right? Shouldn’t he have a “Plan B”?

WSJ Op-

Disclosure (“none” means no position):

Tags government

Articles

Bernanke: "It's All Good….."

Post author By ToddSullivan
Post date July 20, 2009
2 Comments on Bernanke: "It's All Good….."

WSJ Op-

Disclosure (“none” means no position):

Tags government

Articles

Buying Compass Diversified Holdings

Post author By ToddSullivan
Post date July 20, 2009
2 Comments on Buying Compass Diversified Holdings

. Today I bought some Compass Diversified Holdings @ $8.82 a share.

What is Compass Diversified Holdings (CODI) and what do they do?

Acquires controlling interests in profitable small to middle market businesses in attractive niche industries;
Works with the management of those companies to pursue growth opportunities, provide strategic support and increase cash flow in the intermediate to long term;
Provides investors an opportunity to participate in the ownership and growth of businesses that traditionally have been owned and managed by private equity firms, wealthy individuals or families or large corporations;
Enables our shareholders to participate in the operating cash flows of our companies through the receipt of regular distributions; and
Offers sellers of middle market businesses transaction financing certainty and an efficient and streamlined due diligence process.

Watch these following videos (apologize for video performance). The first from October 2008 then January 2009 with CEO Joseph Massoud:

What is interesting is the outlook and patience from Massoud. In October he saw companies “holding on” to assets and then in January, saw them coming onto the market. It is also important to note that through the crisis he did not jump in early rather preferring to wait until summer/fall. To me that says he is a very disciplined CEO who plan on making deals this year. Along this line, Compass recently raised $45 million in a stock offering to raise additional funds for investment opportunities.

Now $45 million may not sound like a lot of money, but when you consider they have over $300 million available through credit agreements AND the company has a current market cap of $277 million, the potential to make a deal that provides large and immediate earnings boosts is very real.

Perhaps this is why management has been consistently buying shares since late 2008 and into 2009.

Here is the most recent 10-Q. This is a good read as they break out each reporting segment:
Compass 10-Q

Disclosure (“none” means no position):Long CODI

Tags CODi

Articles

Buying Compass Diversified Holdings

Post author By ToddSullivan
Post date July 20, 2009
6 Comments on Buying Compass Diversified Holdings

Today I bought some Compass Diversified Holdings @ $8.82 a share.

What is Compass Diversified Holdings (CODI) and what do they do?

Acquires controlling interests in profitable small to middle market businesses in attractive niche industries;
Works with the management of those companies to pursue growth opportunities, provide strategic support and increase cash flow in the intermediate to long term;
Provides investors an opportunity to participate in the ownership and growth of businesses that traditionally have been owned and managed by private equity firms, wealthy individuals or families or large corporations;
Enables our shareholders to participate in the operating cash flows of our companies through the receipt of regular distributions; and
Offers sellers of middle market businesses transaction financing certainty and an efficient and streamlined due diligence process.

Watch these following videos (apologize for video performance). The first from October 2008 then January 2009 with CEO Joseph Massoud:

Perhaps this is why management has been consistently buying shares since late 2008 and into 2009.

Here is the most recent 10-Q. This is a good read as they break out each reporting segment:
Compass 10-Q

Disclosure (“none” means no position):Long CODI

Tags CODi

Articles

Goldman Pedicts S&P Rally to Top 1982

Post author By ToddSullivan
Post date July 20, 2009
1 Comment on Goldman Pedicts S&P Rally to Top 1982

For those of you who believe Goldman sachs (GS) is controlling the world, this is as close to “in the bag” as it gets then, no?

July 20 (Bloomberg) — Goldman Sachs Group Inc. boosted its forecast for the Standard & Poor 500 Index, saying improving earnings will spur the steepest second-half rally since 1982.

The benchmark index for U.S. stocks will advance 15 percent from its June 30 level to 1,060 on Dec. 31, an increase from David Kostin’s prior projection of 940. The chief U.S. investment strategist at New York-based Goldman Sachs also lifted his 2009 and 2010 earnings estimates for S&P 500 companies to $52 and $75 a share, which are 30 percent and 19 percent higher than prior estimates.

Profits that beat analysts’ forecasts at companies from New York-based JPMorgan Chase & Co. to Intel Corp. in Santa Clara, California, helped boost the S&P 500 by 7 percent last week, the biggest gain in four months. Since March 9, the gauge has rebounded 39 percent amid speculation the economy is recovering.

“Improvement in ex-financial earnings per share, stabilization in profit margins and higher forward EPS guidance all point to a rising market through 2009,” Kostin wrote in a report today.

Kostin is now tied with Frankfurt-based Deutsche Bank AG’s Binky Chadha for the second-highest S&P 500 forecast among 10 Wall Street strategists tracked by Bloomberg News. Only JPMorgan’s Thomas Lee, at 1,100, is more bullish. Barclays Plc’s Barry Knapp, who had been the most pessimistic U.S. strategist, boosted his projection a week ago following the 40 percent surge in the S&P 500 between March and June, the biggest gain since the 1930s.

Surprising Strength

Knapp raised his year-end target 23 percent to 930, saying he’d failed to foresee the size of the advance since the S&P 500 fell to a 12-year low of 676.53 on March 9. His increase left Kevin Gardiner of HSBC Holdings Plc and Jason Todd of Morgan Stanley tied for the lowest S&P 500 projection at 900

Disclosure (“none” means no position):None

Articles

Einhorn’s Q2 Letter

Post author By ToddSullivan
Post date July 20, 2009

Interesting move was going from $GLD for owning physical gold and storing it because “storage was cheaper than GLD fees”…. kind of gives a bit more credence to all the gold commercials we see on TV.

Also bought Dow Chemical (DOW) at $10 and sold at $12 “way too soon”.

It is a 5 page letter and worth the tie to read (click all images to enlarge). The quote at the end is simply the best…..read it to see it

Disclosure (“none” means no position):

Tags dow, einhorn

Articles

Einhorn's Q2 Letter

Post author By ToddSullivan
Post date July 20, 2009

Also bought Dow Chemical (DOW) at $10 and sold at $12 “way too soon”.

It is a 5 page letter and worth the tie to read (click all images to enlarge). The quote at the end is simply the best…..read it to see it

Disclosure (“none” means no position):

Tags dow, einhorn

Articles

A CRE Deal and Implications for General Growth

Post author By ToddSullivan
Post date July 20, 2009

Hat tip to reader Mark for finding this for me:

From the WSJ:

-Macquarie CountryWide Trust (MCW.AU) said Friday that it has agreed to sell its 75% stake in a portfolio of U.S. shopping malls for US$1.3 billion (A$1.61 billion) to help cut debt, sending its shares sharply higher.

The price for the portfolio of 86 properties, owned in partnership with shopping mall owner Regency Centers Corp. (REG), reflected a capitalization rate of 9.1% (emphasis mine), based on Sydney-based Macquarie CountryWide’s estimated net operating income for calendar year 2009.

It valued the whole portfolio at US$1.73 billion, the Australian property trust said in a statement.

Macquarie CountryWide has been selling assets to refinance maturing debt and enhance its liquidity as the trust – which specializes in retail properties – refocuses on its Australia and New Zealand portfolio.

How does this possibly effect General Growth Properties (GGWPQ)?

The question is “what kind of properties were these”? There are no details listed but their partner, Regency according to their website:

Regency Centers is a national developer, owner and operator of grocery-anchored and community shopping centers. We have spent more than 40 years, building a legacy of success evidenced by 440 centers, 21 regional offices and properties in nearly every major market. Our highly-focused commitment to quality and innovation has made Regency an industry leader and premier shopping center company.

I think it is pretty safe to assume that the properties sold were the strip mall shopping center type and they went for a 9.1% cap rate. Here is the list of Macquaries’ US properties.

Now most of GGP’s Mall’s are classified as “A” properties due to the type and diversity of tenants. A local shopping center will sell for a higher cap rate simply because if the one large tenant (grocery store) pulls out, the property is highly adversely affected.

In this vein I checked with reader Micheal working in the CRE field now who said:

Before 2002 and the run up of CMBS financing average cap rates on strip centers were around 9% vs. roughly 7% on class A malls. This is a very rough estimate as class A in suburbs of Cleveland will go for a higher cap rate than class A in the suburbs of New York. Also cap rates have historically moved with interest rates. Investors need a yield spread above their cost of debt in order for a deal to make economic sense.

The thing to note right now is that cap rates are basically unknown because the market is so illiquid. This is especially true for class A malls because there are only a few groups who operate in the space (Simon, Taubman, GGP, Macerich). These assets are simply too expensive to have a large pool of bidders. In the strip center space you have many more players therefore a relatively (though still not very liquid) more liquid market. Right now Publix anchored centers in Florida are trading at around a 9% cap rate in comparison to low 7’s or high 6’s two years ago. The bidders on these assets are local buyers who use local bank debt with recourse.

No, I am not alluding to GGP garnering a 7% cap rate now (same time next year when they plan to file a reorg plan is a possibility though). I do not think it is that out of the realm to say Boston’s Fanuel Hall and Baltimore’s Inner Harbor would garner cap rates much less that a grocery anchored strip mall in Alameda California.

Now lets look at come cap rates/dilution percentages for GGP:

Because of that the 9.4% cap rate in the example looks to be high in relation to a valuation of GGP (it was intended to be that way). Let’s use the 9% cap rate. Simply put if the common shareholders get diluted 95%, it gives them a per share value of $1.69 (remember, not all of GGP is in Chapter 11). If you believe they deserve a lower cap, that minimal value rises. For instance if we split the historical cap rate gap of 7% to 9% and take the middle, 8%, even if shareholders are diluted 95%, the equity is still worth over $2 a share (this being as close to “wiped out” without actually being so as it could get).

If you think the cap rate is about right but the dilution will run 50%, the value for current shareholders is double digits. Basically the lower you run on the cap rate and the dilution scale, the potential equity gains are exponential. I am in the “some dilution” but nowhere near 95% camp. I am of the opinion we get some sort of “cramdown” (discussed here and here) with some sort of debt maturity extensions/debt to equity conversion scenarios.

The key to it all is the markets as Micheal alluded to above. How they are/aren’t functioning and what are they providing for pricing guidance determines much of the value data. Deals like this one start to give us a picture of what could be happening…

Here is the whole presentation from Pershing Square:
GGP Ackman

Disclosure (“none” means no position):Long GGWPQ

Tags ackman, ggp

Articles

Monday’s Links

Post author By ToddSullivan
Post date July 20, 2009

Joe, Rand, Health Care, Smart Phones

– Makes Quail look eloquent

– Serious Rand devotees, here is the course for you

– We know Congress has not read the whole health bill (the have admitted it). So here is analysis from someone who has

– Apple/RIMM and then the rest

Disclosure (“none” means no position):

Articles

Monday's Links

Post author By ToddSullivan
Post date July 20, 2009

Joe, Rand, Health Care, Smart Phones

– Makes Quail look eloquent

– Serious Rand devotees, here is the course for you

– We know Congress has not read the whole health bill (the have admitted it). So here is analysis from someone who has

– Apple/RIMM and then the rest

Disclosure (“none” means no position):