Avarga (formerly: UPP Holdings)

Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
#81
(17-11-2023, 11:19 AM)ksir Wrote: Imo, High prices always better, if you have similar margin, high prices always better. Simple arithmatic should prove that easily.

Just to add higher prices also implied higher working capital and lower ROIC. That's what happened to commodities player during the commodities boom in 2007-09
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#82
(17-11-2023, 01:47 PM)specuvestor Wrote:
(17-11-2023, 11:19 AM)ksir Wrote: Imo, High prices always better, if you have similar margin, high prices always better. Simple arithmatic should prove that easily.

Just to add higher prices also implied higher working capital and lower ROIC. That's what happened to commodities player during the commodities boom in 2007-09

Yep concur with that, Taiga would not have consistent high ROE if not because of the high leverage for their working capital. Now that they opted for Net Cash (fund their own working capital due to higher interest), don't think they can sustain high ROE unless they give out more dividend. 

A remarkable attribute of their business model is they can generate high revenue turnover, it's about 3-4 times a year. It seems to me, their model of matching demand & supply do work pretty well.

Also just to highlight why I think it's a logistic model instead of wholesale is mainly bcos logistic in Canada is challenging, the long haul requires good mix & match utilizing the capacity per trip, unlike in Sg whereby distance is short and logistic is a rather commodity business.
So generally big items + long distances make the logistic rather tough and hence need scale + experience to do well in long run.
For that, I believe Taiga has done well.
My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".
Reply
#83
hi ksir,

I have to admit that I have not dwell much into the specifics of Taiga's business and rightly got called out by you. My earlier study on Avarga was mainly focused on it as a holding company.

I have studied a couple of distributors and many of them are stuck in the middle (not able to raise prices on their end customer while their suppliers pass on the costs to them). I remember that the Tongs have said that Taiga value add with its distribution ability (peculiar to Canada's large land mass relative to its infrastructure/building density) and so they probably take a "pretty fixed" percentage of the invoice amount charged to their customer. In this case, you are right to say that higher prices = more revenue (Tong may have said something like this too but I can't recall).

That said, my earlier comment "As a distributor, stable prices are more important than high (but unstable) prices" refers more to the instability than the "high" itself.

Finally, if one is optimistic on Taiga, wouldn't it be better to buy Taiga? Any payment upwards to Avarga as a Taiga shareholder will guarantee that the latter get paid cash, but not for the Avarga shareholder. Example, Astra International had a coal windfall and paid an "enhanced" dividend to its parent Jardine Cycle and Carriage in 2023. JCC then used the dividend to pay down its debt. The Astra shareholder got the full cash dividend but the JCC shareholder didn't. Of course, this doesn't mean that the JCC shareholder didn't benefit.

There will probably always be some Taiga-Avarga discount because there is the additional holding company resulting in "loss of control". Based on what Tong Junior has done in the last 2 years, is the discount been undervalued?
Reply
#84
(17-11-2023, 02:28 PM)weijian Wrote: hi ksir,

I have to admit that I have not dwell much into the specifics of Taiga's business and rightly got called out by you. My earlier study on Avarga was mainly focused on it as a holding company.

I have studied a couple of distributors and many of them are stuck in the middle (not able to raise prices on their end customer while their suppliers pass on the costs to them). I remember that the Tongs have said that Taiga value add with its distribution ability (peculiar to Canada's large land mass relative to its infrastructure/building density) and so they probably take a "pretty fixed" percentage of the invoice amount charged to their customer. In this case, you are right to say that higher prices = more revenue (Tong may have said something like this too but I can't recall).

That said, my earlier comment "As a distributor, stable prices are more important than high (but unstable) prices" refers more to the instability than the "high" itself.

Finally, if one is optimistic on Taiga, wouldn't it be better to buy Taiga? Any payment upwards to Avarga as a Taiga shareholder will guarantee that the latter get paid cash, but not for the Avarga shareholder. Example, Astra International had a coal windfall and paid an "enhanced" dividend to its parent Jardine Cycle and Carriage in 2023. JCC then used the dividend to pay down its debt. The Astra shareholder got the full cash dividend but the JCC shareholder didn't. Of course, this doesn't mean that the JCC shareholder didn't benefit.

There will probably always be some Taiga-Avarga discount because there is the additional holding company resulting in "loss of control". Based on what Tong Junior has done in the last 2 years, is the discount been undervalued?

Hi Weijian,

Actually I made the same assumptions previously as well and "looked-down" on Taiga "commodity" biz until I dive deep into Sr Tong super-frank description of Taiga business model then I started to understand more of the nature of Taiga biz model. More deep dive into their competitors (which are not as well managed, but good earning as well) and the lumber industry from some lumber specialist got a better understanding into how US & Canada lumber industry are. 

Extreme instability is definitely bad, but instability of going high is still far more preferred than going low, because of their high inventory turnover, in 1-2 years time the margin got balanced out. High price, higher revenue, higher gross profit, similar staff, distribution, admin cost.. so we got better bottom line.

I did switch from Avarga to Taiga back then when Avarga hovering at S$0.26-0.33 as UPP & Myanmar PP done well and Taiga price was C$0.8-1
Reason why I picked Avarga now is mainly because Avarga is just cheap. 
It's a cheaper proxy than  if I'd to buy Taiga now.
Because people are valuing Avarga UPP & Myanmar business as minus which I don't think so. 
But even yes, they have 0 value, I still pay less (Avarga) to get more (Taiga).
My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".
Reply


Forum Jump:


Users browsing this thread: 1 Guest(s)