Thursday, June 19, 2014

New Credit Agreement Requirements Makes Titan Highly Speculative



New Credit Agreement Requirements Makes Titan Highly Speculative
Investors with high risk tolerance looking to make multiples on their investment seek out highly speculative stocks. There are thousands of these stocks available on the over the counter bulletin board and pink sheet market, trading at pennies per share.  Investors are looking at these micro cap stocks that mostly trade below a $10 million market capitalizations and hope the underlying businesses can grow to $100 million valuation one day over the long term.  The common denominator among these stocks is the inability for these businesses to generate enough internal operational cash flow to grow.  These companies are all out seeking financing from Wall Street firms, on both the debt and equity side. Will Titan do another Underwriting soon?

Titan Machinery was a little private reseller of agriculture and construction equipment located in the mid west prior to it successfully going public in December 2007.  
By Titan being a publicly traded company it was able through the years to raise equity and debt to compensate for their inability to generate operational cash flow.  Since February 1,2009 Titan has generated over $517 million in Negative Operational Cash flow.
 

  • FY2010 Negative $47 million Operational Cash Flow
  •  FY2011 Negative $35 million Operational Cash Flow 
  •  (FY2012 Q2) Equity Underwriting 4.2 million shares @ $28.75
  •  FY2012 Negative $182 million Operational Cash Flow 
  • (FY2013 Q2) Debt Underwriting $150 million Convertible Note 
  •  FY2013 Negative  $115 million Operational Cash Flow 
  •  FY2014 Negative $82 million Operational Cash Flow
  •  FY2015 Q1 Negative $54 million Operational Cash Flow 



Since Wells Fargo has recently made two amendments to the $150 million Credit agreement, Titan’s risk of violating these new covenants has increased substantially. Unlike most high risk micro cap securities that have low market capitalization with high upsides, Titan Machinery trading near $16  per share has an even higher risk with an $330 million downside if it was to default on its note.

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