Taking Of Hume Industries 1,2,3!

The other day I made the following posting Comments On Hume Industries Privatisation.

In it I had highlighted the fact that Southern Steel contributes a lot of its earnings to Hume Industries. In short, in my flawed opinion, Hume Industries, could indeed be THE HIDDEN GEM but what's the use for Hong Leong wants to take this hidden gem private.

Same thing they did to OYL Industries and same thing they did to Hume Cemboard.

And I found it rather disappointing that folks like Vincent Lim from OSK made the following remark.

• “I’m not really sure of the reason for the discount except that it may be because Hume is not a market leader in the businesses it is in,” he said, adding that the company had incurred a loss of RM100.77mil for the quarter ended Dec 31, 2008 and another loss of RM20.76mil for the quarter ended Mar 31, 2009.

Perhaps I should have given him the benefit of a doubt since he already said he's not really sure but then he's a paid analyst, yes? And for him to be a paid analyst working for one of our so-called top research house, how could he making remarks like those.

As shown in the earnings screen shot here those were the only 2 quarters earnings in which Hume Industries had recorded losses and if he would just taken the time to look inside the earnings notes, the losses were contributed by Southern Steel's losses. And to make matters worse, Southern Steel was highly regarded by OSK and recently was given a massive fair value target price increase too!

Anyway, let's look back at the losses again. Hume reported that 100 mil losses ( see Hume's earnings notes here ) on 25 Feb 2009. Here is Southern Steel's earnings reported in the same month. Quarterly rpt on consolidated results for the financial period ended 31/12/2008.

Southern Steel lost some 259 million and if we use Hume's segmentals last year ( see screen shot here ), Hume reported some 80.496 million from its steel business (ie Southern Steel contributed some 80.496 million in losses to Hume's earnings, which works to some 31% or so.

Let's have a look at Southern Steel's earnings last night.

Southern Steel made some 59.7 million and using the very same 31% or so, in my flawed calculations, I reckon that Southern Steel could be contributing some 18.5 million to Hume Industries.

Last quarter, Hume Industries said it made some 23.9 million ( Quarterly rpt on consolidated results for the financial period ended 30/9/2009 ). SSteel contributed some 14.3 million to Hume's profits.

How?

Let me take a wild guess. I reckon Hume's earnings could be around some 30 million. Or some 50 million for 2 quarters.

Could we be looking at some 100 million in earnings this year (if the current steel fortunes could sustain)?

Let me take a much lower estimate and use an earnings estimate of only 80 million.

Hume Industries have some 191 million shares and this works out to an eps of around 42 sen.

How much does Hong Leong wants to take it private? 4.3o!!!

And this works out to a miserable PE multiple of around 10.2x!!!!!!!!!!!!!!!!

So based on simple earnings per share, do you think it's even fair?

Or do you think Hume Industries are being greatly shortchanged in this privatisation offer?

Of course some might say perhaps I am flawed as usual in my estimates of 80 million in earnings for Hume Industries. Of course, I am usually flawed. :D

But take a look at Hume Industries 2008 Q4 earnings. Quarterly rpt on consolidated results for the financial period ended 30/6/2008 (Yes I understand past earnings is simply past earnings and there's a chance it might not be repeated).

Anyway from that link, could you see that Hume Industries earned some 213 million for its fiscal year 2008!!!!!!!!!!!!!!!!

And Hume Industries earned some 136 million for its fiscal year 2007!!!!!!!!!!!!!

So do you think my estimate of a mere 80 million to be overly optimistic?

And if the global economy does recover, would it be too far fetched to see Hume Industries making some 150 million per year in the next couple of years?

Yeah, we could be looking at a company who has the potential to easily make some 80 sen per share in earnings.

But no, Hong Leong group wants to take it private at 4.30!!!!!!!!!!

And what about the cash per share yardstick?

Quote from Comments On Hume Industries Privatisation

• Yup, Hume Industries have some 349 million in cash balances and its bank borrowings is a mere 15.3 million. (Hume has some 191 million shares. What is the cash per share ratio?) Hume is being offered to be taken private at 4.30!!!!!!!!!

Cash balances of 349 million. Borrowings only 15.3 million.

This works out to net cash of 333.7 million or a cash per share of around 1.76!!!!!!!!!!!!

And yeah Hong Leong wants to take it private at 4.30!!!!!!!!!

How?

First OYL, then Hume Cemboard and now Hume Industries!

How?

Sad isn't it? If there was no privatisation offer, in my flawed opinion, I truly reckon that Hume Industries would have been one of the great investing gem of this new decade.

But too bad, too sad because Hong Leong group wants us, the investors, out of this company!

Sigh!!