| FutureHFGuy Sun Mar 12, 2006 11:17 pm |
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Activist Play: JRCC
This is my submission for the article contest starting in 45 minutes. This is a piece syndicated from my blog, http://marketmoney.blogspot.com. Enjoy!
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Activist Play: JRCC
James River Coal (JRCC) is the first stock I purchased in my public real money portfolio. I believe this stock is compelling for two main reasons: Pirate Capital and JRCC's future growth potential.
Pirate Capital
Pirate Capital is an extremely talented activist fund ran by Thomas Hudson Jr. Hudson founded Pirate in 2002. Formerly, he worked for Goldman Sachs where he managed a portfolio of distressed assets. Pirate’s returns speak for themselves, they returned 19% in 2002, 41% in 2003, 30% in 2004, 19% in 2005, and they are up 8.4% so far this year. They are 14.5% owners in James River Coal, and in a recent 13D filing with the SEC they said the following:
“We have become increasingly concerned that James River's valuation is being discounted relative to its peers - a discrepancy we attribute to management's failure to articulate to the investment community a cohesive operational and financial strategy, together with its demonstrated inability to meet earnings consensus…We attribute these missteps to CEO Peter Socha's lack of operating experience within the coal industry and to the Company's lack of a CFO…We are now convinced that the Company's senior management team is simply not up to the task of achieving such goals. As a result, we demand that (i) the Board immediately retain an investment banking firm to pursue strategic alternatives, including the potential sale of the Company and (ii) immediately redeem the shareholder rights plan effective no later than March 15, 2006.”
I believe Pirate is 100% correct on this one and management agreed. Days later, management announced they hired Morgan Stanley to “look at alternatives and potential bidders,” according to Reuters. I am pleased JRCC’s management listened to Pirate Capital and I believe if management continues to listen JRCC shares will appreciate.
Future Growth Potential
In studying this company I have found several very promising growth opportunities. These include production increases, pricing increases, and future cost cutting initiatives. In the most recently reported quarter they said their production in January 2006 from CAPP was 19% higher than comparable periods of last year. Furthermore, coal shipments rose over 50% and sales rose 55%. According to the company, productivity and safety-related downtime are improving so far in 2006. This is especially impressive when considering this time of the year is usually one of lower productivity.
The company is also seeing price increases. About 83% of the company’s shipments have been priced at $47 per ton, which is up from $43 per ton in Q4 of 2005 thus, they have been able to charge more in Q1 of 2006 than in Q4 of 2005. Right now, the company is focused on pricing expected production for 2007 and 2008.
Lastly, the company has numerous cost cutting initiatives related to their workforce coming into effect in coming quarters. Currently, the company is working on creating an efficient staff of long term employees. This is critical to a company's success and once there are effective teams in place, employee turnover quickly slows. Apparently, management's hiring plans have been effective thus far, as they recently finished the hiring for most of their surface mining management teams. Once they finish hiring and become fully-staffed, I expect the company to become cash flow- and earnings-positive.
Let's start moving JRCC!
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I hope you enjoyed, vote nicely :roll: |
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| blast_investor Sun Mar 12, 2006 11:54 pm |
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Hi FutureHFGuy,
Great information on JRCC, particularly on the background of Pirate Capital.
By the way, I found Mike Price's interview of me is in your blog as well.
:D |
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| FutureHFGuy Mon Mar 13, 2006 12:21 am |
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Yes. Mike and I syndicate some stuff together as we target a lot the same readership.
Found your interview very helpful! |
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| grapes Tue Mar 21, 2006 9:32 pm |
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Is Mike Price the famous one?
blast_investor wrote: Hi FutureHFGuy,
Great information on JRCC, particularly on the background of Pirate Capital.
By the way, I found Mike Price's interview of me is in your blog as well.
:D |
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| grapes Tue Mar 21, 2006 9:35 pm |
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FutureHFGuy
What is the the share holder's right plan about? Can you illustrate a little bit on this?
FutureHFGuy wrote: Yes. Mike and I syndicate some stuff together as we target a lot the same readership.
Found your interview very helpful! |
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| teenvestor Wed Mar 22, 2006 9:00 am |
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Mike Price (that's me) from http://mikesnewsletterinvesting.blogspot.com and www.rightPriceinvesting.com.
Not from Mutual Shares, I'm probably 50 years younger then that Mike Price :-)
-Mike |
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| grapes Wed Mar 22, 2006 2:05 pm |
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Thanks for clarifying. So your name happens to be Micheal Price too?
teenvestor wrote: Mike Price (that's me) from http://mikesnewsletterinvesting.blogspot.com and www.rightPriceinvesting.com.
Not from Mutual Shares, I'm probably 50 years younger then that Mike Price :-)
-Mike |
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