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Ebix red herring and more +4

13:44 11-Mar-22

To close out the week, I want to make it clear that the note below was not meant to give the impression that the EbixCash IPO is a done deal.  Yesterday's election makes it even more likely, since the IPO is being done in India, but it may also degrade the overall appeal of the country's human rights profile.  Of course, Russia is far more likely to turn a blind eye to this than the west; so I see the chance of a widening gulf with America increasing.  Its global image with neighbors isn't exactly improving either.

Today Biden moved to revoke normal trade relations with Russia, along with the E.U. and G-7.  Canada did so last week.  This allows for radically higher tariffs on Russian imports, and unlike the oil ban, it is potentially significant because in 2021 America imported $12.78b of gasoline and other refined petroleum products from Russia.  That is more than from any other country, but only a low single digit percentage of total consumption by my reckoning.  It still won't help inflation; CPI resumed its acceleration with yesterday's report, and it wasn't just gas.  Metals, including platinum for catalytic converters, plus iron and steel, were the next biggest imports at $3.6b, followed by fertilizers for food production at $963M, according to the U.S. Trade Representative.  My real point here, though, is that Russia will be in a position to dangle cheaper hydrocarbons to India, just as Americans and probably Europeans begin to worry more about matters at home. 

Though Ebix finances are likely to improve, I'd rather take a chance on GGPI and the shift away from gasoline vehicles ahead of the Polestar SPAC completion as gasoline demand recovers from a pandemic inspired 25-year low in 2020.  Putin continues his extended atrocities against Ukraine, and I can't rule out the possibility that he (and probably Xi) are effectively gaming western policy and markets in the process.  I can try to predict the effects and invest accordingly, though.

EbixCash has finally filed its red herring document specifying a $787M IPO.  Of that, $350M is earmarked for Ebix debt reduction which should allow for further refinancing.  This has EBIX trading above $40, up over 60% from the pre-earnings lows that I cited as an opportunity.  With the debt bomb defused, my new fair value for the stock is $39 based on $2.30 per share in annual earnings and a P/E of 15.  As of the end of February, 16% of EBIX float was shorted.  So, I can understand the stock running above that for a while, but the macro concerns from yesterday's report are still there.  I'll probably give the company deprecated coverage while it continues trading at or above current levels.

Speaking of deprecated coverage, here is eMagin's earnings report for anyone who cares.  Similarly, the CEO of Vuzix executed an even smaller purchase of shares at an even lower price, and he was joined by a director, who holds far fewer shares but paid far more.  Just before the invasion of Ukraine, I noted that the market was getting healthier but not smarter.  The latter inevitably erodes the former, though, and the wave of stock splits is a sign of that.  I remain inclined to ignore all the volatility taking stocks above sound valuation levels and focus on where the opposite is occurring.

That currently includes KNTK, NFE, and VIRT, with Korea's incoming president signaling the spread of geopolitical tensions.  I'm still a natural gas bull, but not sure whether what could be oil's last gasp will last months or years.  Thus, I not am inclined to take chances on Schlumberger and its high-tech production aspirations.  Subscribers have been asking about Kinetik's dividend and I have clarified that they will be qualified dividends to the extent that they are paid from operating cash flows.  Beyond that they are return of capital, so still no complicated MLP forms, just taxed as capital gains in the U.S.  Given the 66.2M shares outstanding and guidance for $790+/-20M of EBITDA this year, I would expect they will quickly become fully qualified, but no immediate guarantees.  Regardless, the volatility in KNTK easily outstrips the quarterly payments.  NFE had 7% of float shorted, though that may have changed since the last settlement report.  The movement in EBIX shows that, given market and global conditions, we can expect NFE to see more big upward moves with continued execution and developments, regardless of how predictable they are.

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