Author Topic: INP.CVE - Input Capital  (Read 29843 times)

Schwab711

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Re: INP.CVE - Input Capital
« Reply #80 on: June 01, 2016, 09:52:04 AM »
Again, AAOI's detailed write up went into a number of differences with how agriculture in the US has gone vs Canada. There is no significant consolidation in Canadian agriculture; it is highly fragmented. Only private ownership of agricultural land is allowed, so big business is blocked out.

http://www.theglobeandmail.com/news/national/family-farms-are-fewer-and-larger-statscan-says/article4106102/
http://www.statcan.gc.ca/ca-ra2006/articles/snapshot-portrait-eng.htm
http://www.statcan.gc.ca/pub/95-640-x/2011001/p1/p1-01-eng.htm

There is quite clearly a consolidation of Canadian farms throughout the country, which is especially pronounced in Saskatchewan. Larger farms have easier access to traditional bank loans so I don't we'll see a reverse of this trend anytime soon. I've lived next to small farms for most of my life and I've heard the same sentiments nearly everywhere. I imagine the board has numerous folks from the communities Input targets that could provide a better perspective.

The government tends to frown upon predatory lending to needy farmers. There is a very long history of government intervention (in both Canada and the US) when this occurs. Input might not be predatory but if it isn't, it's darn close to the line. For Input to record 15%-20% returns, obviously that interest must be paid by the farmers. That is astronomical given farmland margins and going rates at banks. I think Input could actually run into regulatory issues if they did manage to grow to $250m to $500m in capital invested (or at least see regulations that incentivize easier loan access). Canada seems even more protective then the US. There is also the CALA program in Canada that has focused on helping young farmers in the last 5-10 years. Input is competing with big pockets offering cheap loans.

I'm also not sure that Saskatchewan farmland is fully restricted from large corporations. It sounds like any private, Canadian-owned company can acquire unlimited farmland, at the moment. I think the province is leaning towards opening up investment as opposed to further restrictions, though it's hard to predict these things.
https://www.saskatchewan.ca/~/media/files/government/have%20your%20say/farmland/farmlandownership.pdf

Quote
For most of modern history, farming, and farmland was seen, at best, as an uncertain investment.


Otsog

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Re: INP.CVE - Input Capital
« Reply #81 on: June 01, 2016, 10:35:39 AM »
If I have seen further it is by standing on the shoulders of giants.

AAOI

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Re: INP.CVE - Input Capital
« Reply #82 on: June 01, 2016, 11:00:03 AM »
Just laughed out loud Otsog. Gotta hand it to you, that's pretty funny. A gross mischaracterization with no relation to reality but funny nonetheless.

Tim Eriksen

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Re: INP.CVE - Input Capital
« Reply #83 on: June 01, 2016, 12:47:07 PM »
Just laughed out loud Otsog. Gotta hand it to you, that's pretty funny. A gross mischaracterization with no relation to reality but funny nonetheless.

It is not like the company emphasizes this in any way.  if they were pushing this kind of thinking in any form it would be one of the top bullet points in their earnings releases.   :)

elc13

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Re: INP.CVE - Input Capital
« Reply #84 on: April 12, 2017, 06:18:39 PM »
I spent about a week looking at this company, so I'm hoping someone on here understands the company better than I do and can point to places where my analysis goes wrong.

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Hurdle

At the current market cap of $160m CAD, the market has priced Input Capital so that it will generate 20% returns if has annual cash earnings of 32m. Alternatively, since Input is growing, we can consider what the business must look like in five years to yield 20% annual returns; given its current price, it would need to reach a 400m market cap to meet this return benchmark.

Under what circumstances will Input be worth 400m? If Input were to generate 80m in cash earnings – or indeed anywhere near that – it would certainly be worth this much, as it would generate 20% annually for its owners.

How much, exactly, would Input have to grow to generate 80m in annual FCF? Conveniently, Input only really has one kind of contract, so if we understand what those contracts look like individually, we can understand what the business will look like in a steady-state scenario.

Unit Economics

Input’s contracts, broadly speaking, break down into two parts: upfront payment and delivery. When Input enters into a canola streaming contract, it pays the farmer a certain amount. This seems to be a part of the attractiveness of the contracts for farmers; they can put this cash to use immediately to make their operations more productive. Then, the farmer sends a certain amount of canola to input each year, Input pays some below-market price for it, and sells it on the open market.

The key variables are: (1) sale price/ton, (2) upfront payment/ton as % of sale price, and (3) delivery payment/ton as % of sale price. With these numbers set, the only question left is how many tons of canola Input is buying and selling each year, and you have a good idea of their pre-opex income.

Let’s make some rough assumptions, which we can revise later on. Suppose Input sells canola for $500/MT, and pays 44% ($220) upfront and 20% ($100) upon delivery. These numbers roughly match their reported figures in the latest quarterly report. They would have to sell 450K MT of canola each year to reach $81m in FCF. 

In the past 12 months, Input’s streaming volume was about 54k MT of canola. At anywhere near the ballpark assumptions I made, the company would have to grow very rapidly to generate 20% returns.

Predictions

It seems unlikely (20%) to me that Input will be able to match somewhere close to this rate of growth without triggering a significant competitive or regulatory response that compresses its margins. For that reason, I think it is unlikely (30%) that Input will clear the $400m CAD market-cap hurdle at any point over the next five years.

winjitsu

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Re: INP.CVE - Input Capital
« Reply #85 on: April 12, 2017, 08:04:43 PM »
Grizzlyrock sold out and put a note on Sumzero saying that he liked the management team but the TAM simply wasn't there. After holding this for a tiny position for a while now, I tend to agree...

Lending $50M a year seems reasonable the data from the recent quarter, but $100M+ seems implausible, so I don't think this is a "grand slam" investment

Recent earnings was optimistic and the company outlines some upside if they can continue to lend out $50M/year, but I don't think they account for loan losses, as real financial firms should. There's also a real danger to having over-priced farmland as collateral. See slide 22 on http://s1.q4cdn.com/784243260/files/doc_presentations/2017/jan/updtd/170118-Corporate-Presentation-Jan-2017-After-Ops-Update-vF.pdf

I think 5x cash flow, $80M for a $400M market cap is way too draconian.

Also as I noted before,  LTM OCF or MT isn't representative of the company at steady-state since the company is still penalized for smaller early year investments. If you modeled anything, it should be a company lending at a steady 30/40/50M a year for the full 6 year duration. 

Otsog

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Re: INP.CVE - Input Capital
« Reply #86 on: August 03, 2018, 03:55:03 PM »
I haven't thought about this company in years.  Had to google for a few minutes to even remember the name. 

It turns out the shady management team who misled investors was also shady and misleading to their clients.  Who woulda thunk?

http://www.cbc.ca/news/canada/saskatchewan/judge-ruling-input-capital-saskatchewan-farmer-1.4669680

http://www.cbc.ca/news/canada/saskatchewan/sask-farmers-accuse-regina-canola-trader-of-predatory-lending-in-class-action-lawsuit-1.4644105

https://www.producer.com/2018/05/judge-calls-input-capital-contracts-unconscionable/

https://www.canlii.org/en/sk/skpc/doc/2018/2018skpc31/2018skpc31.pdf

Hopefully everyone is fully divested from these parasites.

If I have seen further it is by standing on the shoulders of giants.

bargainhunter

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Re: INP.CVE - Input Capital
« Reply #87 on: August 06, 2018, 10:39:18 AM »
I haven't thought about this company in years.  Had to google for a few minutes to even remember the name. 

It turns out the shady management team who misled investors was also shady and misleading to their clients.  Who woulda thunk?

http://www.cbc.ca/news/canada/saskatchewan/judge-ruling-input-capital-saskatchewan-farmer-1.4669680

http://www.cbc.ca/news/canada/saskatchewan/sask-farmers-accuse-regina-canola-trader-of-predatory-lending-in-class-action-lawsuit-1.4644105

https://www.producer.com/2018/05/judge-calls-input-capital-contracts-unconscionable/

https://www.canlii.org/en/sk/skpc/doc/2018/2018skpc31/2018skpc31.pdf

Hopefully everyone is fully divested from these parasites.

This is old news. Management has been pretty candid about mistakes made in the early years. They have tightened their underwriting. And I don't have the numbers in front of me but the size of the average streaming contract has significantly fallen. That of course has created worries that the TAM here is much smaller than some of us thought. Hence where the share price is today.

The new mortgage streaming product could change this. Management estimates a TAM 3x the size of the working capital needs that their legacy streaming product addresses. There are other benefits too. Interest payments will be accrued monthly, smoothing out their earnings (rather than just a big annual lump sum which moves around depending on the harvest). Only the interest payments will be delivered in canola (principal repayments in cash) so Input's balance sheet will over time become much less volatile. Early pace of capital deployment is promising. 

I've followed these guys for a long time. Only a small position currently but I would not write off this management team.