Wednesday, November 10, 2010

More Earnings


Got the earnings report from CEL this morning. As a reminder, Cellcom is one of the leading Israeli cell phone operators. I like them as they are relatively cheap and pay a great dividend. They have fallen on my overall list to #215, which illustrates they're not as cheap as they used to be. But they had an extremely satisfying quarter, with operating earnings rising year over year from 128m to 146m (Cellcom Israel Announces Third Quarter 2010 Results). And this increase in earnings translates into a higher dividend (note that their dividend varies quarter to quarter with earnings, unlike most US companies who try to keep dividends fixed). The dividend is 4.03 NIS which works out to about $1.12 per share.

Part of the increase is exchange rate driven. In the past year the sheqel has gained over 4% on the dollar, but the rest is just plain higher income, net income was up 14%. Annualized, a $1.12 dividend is fabulous, over a 13% yield.

However, before you rush out and buy CEL, there are risks in new Israeli laws regulating phone service. I don't fully understand it, but here is what they say:

As we previously announced, in September 2010 the MOC published its decision to reduce the interconnect tariffs payable to cellular operators[4] in Israel, with the first reduction expected to take place in January 2011. After having reviewed the decision, we intend to shortly file a petition with the Israeli Supreme Court of Justice, although we cannot predict the ultimate outcome of such a petition, if filed. Additionally, we have begun the required preparations to deal with the impact of the reduction in interconnect tariffs, in relation to both our operational efficiency as well as to identifying additional sources of revenue. "

I'll be interested to see how the stock reacts. The stock is already up 28% since I bought them.

China Marine Food

CMFO is #145 on my "list". They reported earnings last night that were pretty much as advertised (China Marine Reports Record Third Quarter Revenues of $22.7 million and Adjusted EPS of $0.16). Their income from operations (a key metric I always look at 1st) went up from 3.5m to 5.0m. The problem is that their diluted shares increased sharply, from 23.0m to 29.4m. They are growing book value, in 2010 the BV has gone from 59m to over 105m.

The guidance didn't seem all that hot to me. They only commented on revenues for their algae beverage (sounds appetizing!) and it seemed pretty much equal to this quarter (so growth is pausing?). As I mentioned last night, I think that today I will likely sell 1/2 my shares (like I did with CEU yesterday). The sale would put me at about 10% in cash. I am not sure what I will do. That is enough cash for probably three positions (either new or expanded).

Clearly if I expand, I need to have NEP and STRA near the top of my buy list. If I buy new, I'd have to place AZN near the top to give me a solid pharma with a nice dividend. If I want riskier, I am leaning towards SCEI, which has been on the list for quite a while. They are in essence a recycler in China that has been growing nicely. A bit like EESC and LIWA, I think recycling resonates well as it is environmentally friendly and cheaper.

Speaking of LIWA, they announced earnings this morning and it really illustrates my point. Selling recycled copper, they increased revenues year over year from $41m to $96m! Gross income was up from $9.7m to $15.1m. Of course the BIG problem with LIWA has been dilution with the number of shares o/s ramping from 17m to 30m... ouch! Looking back, SCEI has also had a huge increase (10m to 19m).

No comments: