Magic Sixes: Follow up Iren SpA
In November, I had a quick look at Iren SpA, an Italian company which would have qualified as a “Magic Sixes” company.
My summary was the following:
For me, the combination of a large debt pile, negative free cashflows and a significant portion of non-tangible book value makes Iren SpA more or less uninvestible. Based on the pure financials without any further analysis there doens’t seem to exist any Margin of Safety despite qualifying as “Magic Sixes” stock. For the time being, Iren will not be analyzed further as there seem to be more attractive “targets”.
Yesterday, Iren SpA announced that due to “one off effects”, they will actually show a loss for 2011 and the dividend is cut down to 1 cent per share.
The stock now is down almost 50% from when I wrote the post:
Interestingly, by just looking at “momentum” one would have come to the same conclusion. Both in absolute terms and relative terms, the stock started underperforming from October.
Or maybe “momentum” for low P/B Stocks (and magic sixes) maybe is a shortcut to detect weak balance sheets ? I don’t know but something to keep in mind.
Nevertheless, I will keep Iren SpA on my radar screen in order to learn more about the Italian market. In theory Iren would be a prime take over target.