Agility has only one choice: settle the fraud case with the US government and move on. Take a one-time hit and standup and walk the line. As per Al-Qabas Kuwaiti newspaper (April 5th), the US government is asking for a $750 million settlement, while Agility is offering a $300-$500 million settlement. Latest reports conveyed through Al-Jarida Kuwaiti newspaper (April 8th) suggest that a preliminary agreement has been reached and $600 million would be paid over three years. We still have nothing official yet.
Not reaching a settlement will result in an infected company being dragged from court to court for years fighting a neverending and costly legal battle. More inflicting, this would result in more uncertainty for shareholders and a dead-stock. However, a settelement creates a clear visibility. There is no doubt that Agility is undervalued at the current 600 fils level. The company is trading at an EV/EBITDA 2010 of 4.5x relative to peers trading at an average EV/EBITDA 2010 of 7.5x. This is partially a warranted discount for the reasons above and the following questions: How much will the settlement be? How big is the reputational damage and how fast can it recover? Announced staff cuts of 500-600 are cost improvements or reflect expectations of a plummeting Defense and General Services business? Will Agility deliver margin expansion and growth after the settlement? Most crucially, will it be restricted from bidding for new contacts or not?
There is unanimous agreement that there is no visibility as it pertains to Agility. In fact, an analyst at NBK Capital wrote a note stating the following: “We maintain our status on Agility as “Under Review” as there are several variables in play for which we have no means of predicting an outcome.” What do you think of this recommendation? Not good. The analyst should’ve stated the different scenarios and projected the expected effect of each.
I believe uncertainty creates opportunities. It may be unrelated, but the substantial write-downs taken by banks all over the world last year are history and financial stocks led the way towards recovery. Further, if Agility settles and is allowed to bid on new contracts, I beleive it would be a screaming buy. The problem is you wouldn’t be able to buy because it would be trading limit-up everyday. I guess it also depends how much they settle for. An analyst from Nomura has a price target of 740 fils if Agility settles for $750 million. If it settles for $300 million, the price target would be 860 fils. If the $600 million figure turns-out to be the right one, then I calculated the target price to be 780 fils. Maybe NBK could learn a thing or two from Nomura.
I would be a buyer of Agility at the current levels.
1. Agility Desperate to Settle with US Government
2. Agility’s “Long & Complex Case” Unsettled Yet Again
3. Agility Postpones Hearings as it Seeks Settlement
4. Agility Indicted with $8.5B Fraud by US Government
5. Agility Fraud Case Implications
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Loading ...Tags: Agility, Agility Fraud, agility kuwait, Agility Lawsuit, Agility Logistics, agility settlement, Fraud, Kuwait, public warehousing company, PWC Logitics, US Government
[...] AGILITY: To Settle or To Settle « Alpha Dinar- talking GCC finance [...]
are the businesses making money? that is the key question. Personally, I think all this expansion Agility made with the cash it earned (or partially stole) from the army contract was wasted on loss making or at best very low margin highly uncompetitive businesses.
its not really important if they it is allowed to bid for more contracts or not (there aren’t anything as big as the one they have right now, and there won’t be unless the U.S attacks Iran or something stupid like that…unlikely though under Obama)
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Keynesian Reply:
April 11th, 2010 at 3:00 pm
Bo6air: I deleted the last sentence in your first paragraph because it is discriminatory. Please refrain from using such generalization again. Thanks.
As for your comment, yes the business do make money and profits, hence, the low EV/EBITDA. The run seen in KGL and its sister companies illustrates that there are still contacts to be earned.
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If I hadn’t worked with them, I would have agreed, but I did. nevertheless, its really your blog after all……
anyways, the ebitda still has the current big contract in it, you need to find out whats the other business is doing. and my guess is nothing since it has been (profits) in negative growth since they started their acquisitions’ spree.
the only one contract worthwhile is the “Pull Out” contract (my name for it) where the yanks move their troops out of iraq. i guess speculators are speculating that KGL (another miserably run Kuwaiti company) will win it…..either that or insider buying on that info……not unlikely
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Sal Reply:
April 12th, 2010 at 8:58 am
The yanks aren’t going home anytime soon, they are relocating to Qatar and from there to Afghanistan. Going ahead, there are abundant growth opportunities for Agility. None of the small logistics companies in Kuwait, nor KGL, can replace Agility and everyone knows it. With those contracts, everyone bribes, and Agility was not lucky.
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Bo6air Reply:
April 12th, 2010 at 1:46 pm
true. but who has the transportation assets to do that, and do it profitabilly. KGL has good business w/ the U.S army. they have trucks and they can get more directly from the market, or even subcontracting to PWC!…..
the thing w/ PWC is that they over charged (otherwise, really stole) money from the americans.. they did it directly through their relationship w/ Sultan Center and through the suppliers in america…….at best the americans will leverage that and squeeze them hard….thats what I would do at least if someone did the same to me…….and then they bribed!!!…but thats mainly a Kuwaiti problem, or lets say a common business practice
Its not that complicated of business after all, KGL and others (Hamada or City Group (Boodai)) can team up…….unlike getting food into Iraq, thats more complicated…….and even that could be blocked from agility and given to another firm……its not a special knowldge really, especially with the security improving… but in that case it will come to the warehousing capability, which I think PWC has an advantage over the others…size wise at least
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http://zawya.com/Story.cfm/sidZAWYA20100411134003/Agility%20Financial%20Results%20for%20Year%202009
highlights:
layoffs (almost all of the improvement in the operating profits), slow revenue growth, something really gotten better at the non-operating expenses (am guessing thats from the lower interest payments as result of major decline in net debt)
so its not as bleak as I think…….hmm… but no provision?!!!!!!
however, the lower overhead and less leverage are all nice things to have, but if anything they are one time improvements…….you won’t see these EPS growth figures again, my guess
and I think the CEO needs to re-orgnazie the list of problems facing agility in the right order….case, pull out, then economic activity
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Bo6air it isn’t my blog. Instead, it is our blog. We even encourage you to even post articles.
We want to keep it as objective and utilize constructive criticism while steering away from personal attacks and stereotypical comments. I appreciate your cooperation in this manner and look to your intriguing comments
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@Kenysian -> thats what I meant (your in plural form)….& its a great blog. would love to write something but am not so disciplined or patient
anyways, keep up the good work
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Interesting things. Thanks.
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nice info,tq man
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