Author Topic: PIF.TO - Polaris Infrastructure  (Read 9689 times)

SafetyinNumbers

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Re: PIF.TO - Polaris Infrastructure
« Reply #10 on: July 20, 2018, 12:56:43 PM »
Personally, I have always lost when investing in, what looks like good companies at good valuations but in bad countries. 

I have lost because the laws in those countries have not supported the wrongs that the governments and/or insiders have inflicted on the companies I invested in.  The governments expropriated or insiders 'expropriated' the businesses away from rightful shareholders and the shareholders had virtually no recourse.  I believe if something occurred in this country, as a shareholder, you would get a very small % of your investment returned to you, but most likely you would get $0.  The downside just isn't worth the potential upside and there are a lot of other good businesses at reasonable valuations to invest in that are in countries where the legal system and shareholders have reasonable rights.  What would your upside in your share price at Polaris have to be, to justify a total loss?  How do you justify allocating a reasonable % of your capital in a country where expropriation without reasonable compensation is a possibility?  Just my 2 cents.

Iím curious FFHWatcher, what were the businesses that were expropriated from you?
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writser

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Re: PIF.TO - Polaris Infrastructure
« Reply #11 on: July 20, 2018, 01:38:50 PM »
The situation in Nicaragua looks horrible but it wouldn't surprise me if the market is overreacting a bit. $100m disappeared into thin air in a few weeks. I'm being super simplistic but if you assume the price during the beginning of 2018 was 'fair' the market is implying that there's suddenly a 30% - 40% risk of the company getting nationalized? Did the political landscape really shift that quickly? Granted, less if you take into account the whole EV (but it was supposed to be undervalued to begin with).

Anyway, ignore my ramblings, just trying to make some sense of the numbers vs. the situation. Haven't spent too much time on this but looks like an interesting idea to follow.
« Last Edit: July 20, 2018, 01:45:01 PM by writser »
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NoCalledStrikes

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Re: PIF.TO - Polaris Infrastructure
« Reply #12 on: July 21, 2018, 04:46:36 PM »
Here is one way of looking at the expected value.

In the short term (1 year or so), I expect the stock price in the "good" outcome will need to be lower than fair value since investors being recently reminded of the risk of investing in a country run by a dictatorship will want a bigger margin of safety than they asked for earlier this year.   I owned it as RAMPF so I am partial to the USD figures.  At one time, I thought $20 was a reasonable value for a company worth $26-30 if located in the US. Now I think a larger margin of safety is warranted until the new peace is proven to last for a couple years at which time if the contracts are honored, $20 USD may be a realistic value again, but not the first year of the new government.

I will confess that living in Houston, my views are colored by the large Venezuelan expat community living out here who are dealing with their own worst case scenario and so I am probably dealing with some availability bias.

Scenario   Share (USD)    Likelihood(%)   Expected Value (USD)
Best Outcome - Peaceful resolution, new or old govt honors contracts, but investors will want a bigger margin of safety and higher yield going forward       $14   50%     $7
New Government -  less friendly than to business than Ortega, invents new taxes and fees   $10   25%     $2.5
New Government collapses & chaos resumes         $4   5%       $0.2
New Government - Nationalizes immediately         $1   5%       $0.05
Civil War - property destroyed or heavily damaged      $0   15%     $0
         
                                                                                                 $9.75

A better estimate would include the dividends.

SafetyinNumbers

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Re: PIF.TO - Polaris Infrastructure
« Reply #13 on: July 22, 2018, 06:30:16 AM »
Iím curious what examples of power assets that people have witnessed be expropriated?

Any links would be appreciated.
 
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FFHWatcher

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Re: PIF.TO - Polaris Infrastructure
« Reply #14 on: July 22, 2018, 06:46:53 AM »
Oil business in Venezuela. Coal company in China.  Do not expect property laws in other countries to work like the US, Canada, Europe, etc.  I have learned my lesson. 

SafetyinNumbers

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Re: PIF.TO - Polaris Infrastructure
« Reply #15 on: July 22, 2018, 06:49:33 AM »
Oil business in Venezuela. Coal company in China.  Do not expect property laws in other countries to work like the US, Canada, Europe, etc.  I have learned my lesson.

All I have seen so far are companies that sell resources outside of country for hard currency. I havenít found an example of a power company that sells in country yet but will keep looking and doesnít mean there canít be a first time.
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NoCalledStrikes

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Re: PIF.TO - Polaris Infrastructure
« Reply #16 on: July 22, 2018, 07:02:25 AM »
http://www.washingtonpost.com/wp-dyn/content/article/2007/02/08/AR2007020802261.html?noredirect=on

In Venezuela, Chavez bought out AES in 2007 for half the value AES paid ten years prior.  AES CEO called the price ďfairĒ.  Given the destruction to the Venezuelan economy Chavez had done in the prior 10 years, the  price was fair. Given the destruction to come, the CEO was a genius for getting bought out.

Big difference with Venezuela and Nicaragua was that in 2007, Venezuela was exporting high volumes of crude at over $100/bbl and could still afford to pay for assets it wanted to nationalize.

Iím more concerned about the return of stability than nationalization.  If you could buy a basket of 10 of these, globally dispersed, you would do just fine, but generally speaking I am not a basket type investor.

Pelagic

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Re: PIF.TO - Polaris Infrastructure
« Reply #17 on: July 22, 2018, 08:51:21 AM »
Iím more concerned about the return of stability than nationalization.  If you could buy a basket of 10 of these, globally dispersed, you would do just fine, but generally speaking I am not a basket type investor.

My thinking as well. I don't see Ortega nationalizing their assets, and I think the anti-government protesters are likely to be more pro-business than Ortega so I don't see much risk of nationalization should they assume power. However, I don't see things getting better in Nicaragua any time soon given the groups of pro-Marxist youth Ortega has armed to fight against anti-government protesters. The share price will likely continue to decline as the country becomes more unstable.

SafetyinNumbers

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Re: PIF.TO - Polaris Infrastructure
« Reply #18 on: July 22, 2018, 08:58:17 AM »
Iím more concerned about the return of stability than nationalization.  If you could buy a basket of 10 of these, globally dispersed, you would do just fine, but generally speaking I am not a basket type investor.

My thinking as well. I don't see Ortega nationalizing their assets, and I think the anti-government protesters are likely to be more pro-business than Ortega so I don't see much risk of nationalization should they assume power. However, I don't see things getting better in Nicaragua any time soon given the groups of pro-Marxist youth Ortega has armed to fight against anti-government protesters. The share price will likely continue to decline as the country becomes more unstable.

The company hinted at an NCIB or SIB at the AGM when they report in a few weeks if they donít close on an acquisition that uses of their excess cash. Perhaps that could have a positive impact on the share price.
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Spekulatius

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Re: PIF.TO - Polaris Infrastructure
« Reply #19 on: July 22, 2018, 02:23:02 PM »
So this goes for 6.5x EBITDA and a 5% dividend yield. I can buy a pretty decent utility company operating in the US and the UK with a 6% dividend yield and 9.5x EV/EBITDA (PPL). Seems to me that PPL may beat better bet. I can see the attraction her, but I think if you operate in an unstable country, a 50% discount isnít really unreasonable.
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