Description
I recommend using the blockchain induced rally in Kodak shares (up ~300% in past two days based on recent pre-market trading of ~$12 a share) to short shares of Kodak.
Given the timeliness of the idea, this write-up is intentionally being kept brief.
- Kodak’s transformation from a consumer oriented film business to a business focused on commercial printing/imaging has been slow to materialize. Kodak recently reduced
its outlook for cash generation in 2017 to a use of $60-70 million in cash from its prior outlook calling for $0-$10 million of cash generation.
- The Company’s largest and most profitable business (print systems) is facing meaningful headwinds and contributed to a significant portion of the reduced outlook.
- The Company’s outsized NOL’s, which are believed to be one of Kodak’s more valuable “hidden assets”, have been diluted as a result of recent tax reform.
- Kodak is facing liquidity issues, which are unlikely to be solved by its recently announced move into a digital currency initiative.
- The Company has a secured leverage ratio (Secured Debt net of U.S.Cash/consolidated EBITDA) not to exceed 2.75x and its cushion under this agreement was just $13 million
as of 3Q 2017. The following illustrates the declining cushion under the credit agreement:
|
KODAK EBITDA Cushion
|
| |
|
|
|
|
4Q 2016
|
1Q 2017
|
2Q 2017
|
3Q 2017
|
|
$81
|
$31
|
$26
|
$13
|
- While the Company has a large cash balance ($342 million), ~$100 million of this amount is in China and therefore accessing this cash under duress could prove difficult
Risks:
- Blockchain euphoria continues unabated
- Amazon selects Rochester, NY as the location for its second corporate campus
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
Liquidity issues materialize
Inability to unlock value of various promising businesses or hidden assets in a timely matter