RE:RE:No reason for this drop todayDear retiredcf,
Thank you for sharing. I always look up to what you write.
Do you continue to trust the NFI management team?
I have been buying NFI every January in my TFSA for several years now but I think this will be the last year I did so and probably also the last year I will be their shareholder.
I have lost confidence in their ability to deploy capital accretively. The CEO and board's decisions appear to be diverging from the long term best interests of the company and its owners.
They were buying back shares in 2019 between 30.86 -37.36 and in 2018 between 36.93-57.49. And yet in 2021, they decide to do MASSIVE dilution at 29.60, destroying years of equity, greasing up their banking sponsors, an putting a ceiling on fhe share price for the foreseeable future.
Despite of dangerously high leverage, they decide to use a big chunk of the money to keep dividend and in 2020 even continued borrowing money to keep paying out the reduced dividend. I have asked the company multiple times since the ADL acquisition about the rationale for their capital allocation and justification of the dividend... and they have never provided a reasonable answer other than that the dividend is part of their story and was historically always an important feature.
Moreover, their current multi-year projections are even in 2025 still below their historical pro-forma for the ADL+NFI acquisition - suggesting very poor execution, even while ignoring the pandemic and NFI forward restructuring. Their 2019 proforma was 54.23 revenue and 6.03 adjusted EBITDA per share while their current 2025 projection are 56.35 and 5.99 [before any additional share-based compensation/dilution, inflation, and additional capex].
With excessive leverage and big payout ratio, the company will take many years just to get back into normal balance sheet, precluding any ability for additional investments in new technology or new acquisitions.
Once I break even in low 30s, I thin I will get out of my 8.5% position.
What am I not understanding about NFI? Do their capital allocation decisions make sense to you? How much value do you think the management has been and might feasible generate in the coming years?