Tag Archives: etf

Myopia And Market Function

Benartzi defines myopic loss aversion as making “investment decisions based on short-term losses in their portfolio, ignoring their long-term investment plan.” Myopic loss aversion can arise when investors check their account balances or the prices of their holdings which thanks to technology has become increasingly more convenient to do. We know that there will be future bear markets and probably another crisis or two in most of our lifetimes. By Roger Nusbaum AdvisorShares ETF Strategist The Wall Street Journal posted an article written by Shlomo Benartzi who is a professor at UCLA specializing in behavioral finance. The article primarily focuses on the behavioral problems, like myopic loss aversion, that can arise when investors check their account balances or the prices of their holdings which thanks to technology has become increasingly more convenient to do. Benartzi defines myopic loss aversion as making “investment decisions based on short-term losses in their portfolio, ignoring their long-term investment plan.” Benartzi cites that the stock market has a down day 47% of the time, a down month happens 41% of the time, a down year 30% of the time and a down decade 15% of the time. We’ve talked about this before, going back before the crisis albeit with some different wording. Before and during the last major decline, as well as many times since then, I’ve said that when the market does take a serious hit that it will then recover to make a new high with the variable being how long it takes. While this seems obvious now, it is one of many things frequently forgotten in the heat of a large decline. Additionally, we know that there will be future bear markets and probably another crisis or two in most of our lifetimes. And those future bear markets/crises will take stocks down a lot which will then be followed by a new high after some period of time. This is not a predictive comment, this is simply how markets work with Japan being a possible stubborn exception that proves the rule. It took the S&P 500 five and half years to make a new nominal high after the “worst crisis since the great depression.” If you are one to use some sort of defensive strategy, it is hopefully one that you laid out when the market and your emotions were calm and your strategy probably doesn’t involve selling after a large decline. My preference is to start reducing exposure slowly as the market starts to show signs of rolling over. Very importantly though is that if you somehow miss the opportunity to reduce exposure, time will bail you out….probably. I say probably based on when a bear market starts in relation to when retirement is started. If a year after retiring, a 60% weighting to equities that cuts in half combined with a life event at the same time that requires a relatively large withdrawal (this is not uncommon) it will pose some serious obstacles. I think the best way to mitigate this is, as mentioned, a clearly laid out defensive strategy but not everyone will want to take on that level of engagement. In that case it may make sense for someone very close to retirement and having reached their number (or at least gotten close) to reduce their equity exposure. Not eliminate, but reduce. Back to the idea of myopic loss aversion and how to at least partially mitigate it. Knowing how markets work and then being able to remember how they work will hopefully provide an opportunity to prevent emotion from creeping in to process and giving in exactly as Benartzi describes.

Nigeria Offers Investors A Unique Opportunity For Strong Growth

Summary NGE is weighted heavily towards the consumer defensive and financial services sectors, which are poised to benefit from Nigeria’s impressive GDP and population growth (population expected to double by 2045). NGE is down 50% since July of last year due to the oil price crash and the Boko Haram attacks from earlier this year, creating an attractive, unique entry point. The weakness of the Nigerian Naira in 2014 has put downward pressure on NGE, and the central bank is again deciding whether or not to devalue the Naira. Nigeria is currently offering investors a unique long-term growth opportunity at a great value through the Global X MSCI Nigeria ETF (NYSEARCA: NGE ). NGE has been beaten down recently due to the strong U.S. Dollar, the oil price crash, and Boko Haram. Fundamentally, the Nigerian economy has not significantly changed in a way that warrants the ~50% decline in NGE’s price since July of 2014. This has created a great entry point for investors looking for strong growth potential over the long term with a nearly 4% dividend as an added bonus. NGE’s Sector Weights & Nigeria’s Demographics As you can see from the chart below, NGE is heavily weighted towards the financial services and consumer defensive sectors. So when considering an investment in NGE, we need to look at how these sectors are performing individually and their prospects for long-term growth rather than solely looking at how the Nigerian economy as a whole is doing right now. This is because the recent drop in oil prices has had a larger impact on the Nigerian economy than it does the holdings of NGE in particular, which I’ll discuss later in this article. Demographically, Nigeria’s population is expected to double over the next few decades, a gain of over 200 million people, with the majority of this growth expected to be in urban areas . This will drive a huge, ongoing demand for companies currently operating in the consumer defensive and financial services sectors. Together, these two sectors make up over 75% of NGE’s total holdings, making it an excellent long-term investment in my opinion. (click to enlarge) (Source: TD Ameritrade & Global X’s Semi-Annual Prospectus ) Dylan Waller made some excellent observations in a prior article that I want to reference as well. He noted that the Nigerian banking sector holdings of NGE, as of last summer, are experiencing over 50% annual growth as of late with a very low average P/E ratio of 5.8. The basic materials sector is in a similar situation as well. So this is very bullish news considering how heavily NGE has bought into these sectors. Also important to note though that the consumer defensive industry has a rather high P/E ratio and some say it is currently in a bubble. For example, Nigerian Breweries PLC has a P/E ratio of 27 and Nestle Nigeria PLC has a P/E ratio of 28. These companies make up 17.68% and 7.3% of NGE’s total holdings respectively, together comprising the majority of the consumer defensive holdings of NGE. So while it may be beneficial to wait for this bubble to pop, you won’t want to miss this great opportunity waiting for something that may not happen. The Effect of Oil Prices With NGE’s current energy holdings at 7.65% of assets, ~30% lower than energy’s contribution to Nigeria’s GDP, it has been less exposed to oil than the Nigerian economy as a whole. This is good because the Nigerian economy, Africa’s largest oil producer, is in dire need of diversification away from oil. Oil currently comprises about 9.8% of GDP (which due to the oil price collapse, is much lower than it has been historically). If you look at the numbers more closely, non-oil GDP growth averaged at a lower, but still respectable 4.5% in the first 2 quarters of 2015 while the oil GDP averaged -7.47% over the same time period. In the first 2 quarters of 2014, non-oil GDP growth averaged at 7.46%. Some of this loss year over year can be accounted for by the effect oil GDP has on the rest of the economy, but also one must consider the temporary effect of increased Boko Haram activity in 2015, which I’ll discuss later in this article. Oil currently accounts for the vast majority of the Nigerian government’s revenue, so for the government to successfully neutralize Boko Haram and develop infrastructure, oil cannot go below the $40 range for an extended period of time. The longer these low oil prices persist, the more negative the effect they’ll have on the country’s government. Taking all of this into account, if you think that oil will stay above $40 for the foreseeable future, this is somewhat bullish for NGE. I believe that there is not much more downside for the oil related portion of the economy with substantial upside potential for the financial and consumer defensive sectors in the long term. (click to enlarge) (Source: Nigerian National Bureau of Statistics ) The Naira and the Central Bank of Nigeria As you can see in the chart below, in 2014, the Central Bank of Nigeria devalued the Naira significantly. This pushed down the relative price of NGE because the shares are purchased in Naira, but NGE itself is priced in U.S. Dollars. Currently, there are strict currency controls in place, which have temporarily stabilized the value of the currency. President Buhari has been a strong advocate of these currency controls in order to slow the rampant inflation (~9% currently). As of 11/11/2015 president Buhari chose Kemi Adeosun , a strong advocate of not devaluing the Naira, as his Finance Minister. (click to enlarge) (Source: xe.com/currencycharts ) Many critics say that not devaluing the Naira and keeping the currency controls in place decreases foreign investment, making doing international business in Nigeria more difficult. Some banks are estimating the Central Bank of Nigeria will have to devalue the Naira from about 200 per dollar now to 220-230 per dollar sometime between Q4 2015 and Q1 2016, but what the Central Bank of Nigeria will do over the next few months is still uncertain. It’s not totally clear the effect the higher inflation will have relative to the increased international investment that would occur as a result of a devaluation of the Naira, so I will leave this up to the readers to review. Boko Haram and Nigeria Boko Haram attacks have also had a definite effect on the Nigerian economy. GDP will fall as people will move from economically productive areas threatened by Boko Haram into safer areas where they can work. This insurgency also diverts more government spending to the military, at a time where government revenue has fallen significantly due to low oil prices. This means less money can be spent on badly needed infrastructure projects like President Buhari has publicly stated he has a desire to build. President Buhari made national security one of his primary promises on the campaign trail, and has made great strides in the fight against Boko Haram. They are considered to be severely weakened compared to the last few years, and recently have shown decreased interest in conducting attacks within Nigeria. While still very much active, Boko Haram has been pushed into the less economically productive, northeastern corner of Nigeria and now have significantly less influence than they did previously. Below is a chart showing the relationship between NGE’s stock price and mentions of Boko Haram on Twitter as well as on publicly accessible news websites. It can be assumed that when Boko Haram is actively operating, there will be a large amount of mentions on Twitter and in the media. (click to enlarge) (Source: TickerTags.com) For example, you can see the stock price of NGE goes down and mentions go up around early January when the devastating attack on Baga took place, and again in mid July when a series of Mosque bombings took place. Of course, there are many factors that affect the stock price of NGE, but Boko Haram is one that has a definite impact whenever they stage a major attack. Conclusion Nigeria’s extremely fast growing urban population bodes well for the consumer product, construction, and banking industries within Nigeria, all of which are major holdings in NGE. The success the government has had in fighting Boko Haram should be applauded as well, which will go a long way to creating a much more stable country that will bring increased interest from foreign investors. All of this combined with low oil prices and a devalued Naira have created a unique buying opportunity for long-term investors. An investment in NGE is not without its risks though, as the low oil prices, potential Boko Haram resurgence and the short-term impact of a potential Naira devaluation are serious issues that are not to be ignored. In conclusion, there are many factors that point to a bright long-term future for Nigeria, though it is not without risk. I believe the current pricing provides a great entry point, as a series of temporary and unfortunate events have pushed NGE down far too low in my opinion. I see a strong potential for growth here for investors who are patient, with a nearly 4% dividend yield as an added bonus.

Spark Energy’s (SPKE) CEO Nathan Kroeker on Q3 2015 Results – Earnings Call Transcript

Spark Energy (NASDAQ: SPKE ) Q3 2015 Earnings Conference Call November 12, 2015 11:00 AM ET Executives Andy Davis – Head of Investor Relations Nathan Kroeker – President and Chief Executive Officer Georganne Hodges – Chief Financial Officer Analysts Michael Gyure – Janney Montgomery Scott LLC Operator Good morning, ladies and gentlemen. Welcome to the Spark Energy, Inc. Third Quarter 2015 Earnings Conference Call. My name is Shannon, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes and this call will be posted on Spark Energy, Inc’s website. I would now like to turn the conference over to Mr. Andy Davis, Head of Investor Relations for Spark Energy, Inc. Please go ahead. Andy Davis Good morning, and welcome to Spark Energy, Inc’s third quarter 2015 earnings call. This morning’s call is being broadcast live over the phone and via webcast, which can be located under Events and Presentations in the Investor Relations section of our website at www.sparkenergy.com. With us today from management is our President and CEO, Nathan Kroeker; and our CFO, Georganne Hodges. Please note that today’s discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Management may make forward-looking statements concerning future expectations, projections of our operations, economic performance and financial condition. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we give no assurance that such expectations will be realized. We urge everyone to review the Safe Harbor statement provided in yesterday’s earnings release, as well as the risk factors contained in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise except as required by law. During this morning’s call, we will refer to both GAAP and non-GAAP financial measures of the company’s operating and financial results. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to yesterday’s earnings release. With that, I’ll turn the call over to Nathan Kroeker, our President and Chief Executive Officer. Nathan Kroeker Thank you, Andy. I’d like to welcome our shareholders and analysts to Spark’s third quarter 2015 conference call. I will make a few opening remarks about our operating results and then our Chief Financial Officer, Georganne Hodges, will provide some detail on the financial results. We will then conclude with questions from our analysts. Georganne will give you the financial details of our third quarter results shortly, but I will tell you that we are very pleased with our results. We saw enhanced margins in both our Retail Natural Gas and Retail Electricity segments during the quarter, as wholesale prices continue to decline. We also saw increased volumes in our Retail Electricity segment, primarily as a result of our CenStar Energy and Oasis Energy acquisitions. I will talk a little more about those acquisitions, which we closed in July in a moment. With the help of our two acquisitions, we saw our customer count increased 17% in the third quarter, ending the quarter with 357,000 customers or 401,000 RCEs. Our two acquisitions added 53,000 customers, or 105,000 RCEs. The performance of both our CenStar and Oasis acquisitions have exceeded our initial profitability expectations on a combined basis. We have already taken advantage of the access we now have to 20 new markets in additional brands in several ways. We’ve expanded our existing broker relationships, adding commercial customers in new markets and in our new brands. We’re seeing success with our alternative brand wingback strategies, and we’re leveraging our channel management expertise and vendor relationships thus far to launch campaigns in several of the CenStar and Oasis markets. From an integration perspective, everything is on track. Our accounting, treasury, risk management, load forecasting, and supply functions are fully integrated at this time. While it’s still early, we are very encouraged by what we are seeing from these two transactions. We continue to see improvements in customer attrition in the third quarter, as we focused on sales, quality, and call center improvements, achieving a 23% decrease in customer attrition quarter-over-quarter. During the third quarter, we renegotiated our mass-market vendor commission structure to more accurately correlate commission payments with lifetime customer value and improve overall sales quality. What we expect to see higher lifetime value customers as a result of this change, this realignment has resulted in a slowing of organic customer additions, at least, in the short-term. We expect this trend to continue into the fourth quarter. On September 14, we paid a quarterly cash dividend for the second quarter of $0.3625 per share. More recently on October 22, we announced that our third quarter dividend of $0.3625 per share will be paid on December 14. We expect to pay this quarterly dividend on a go-forward basis, and we expect 2015 adjusted EBITDA to exceed our planned 2015 dividends and all required distributions and tax payments. And I want to reiterate that we do not anticipate any changes to the dividend policy. Thanks for your attention. And with that, I will now turn the call over to Georganne Hodges, our Chief Financial Officer for her financial review Georganne? Georganne Hodges Thanks, Nathan. Strong unit margins particularly in our electricity business, contributions from our acquisitions and lower organic customer acquisition spending resulted in adjusted EBITDA of $5.6 million for the third quarter. This represents a $10 million increase over our loss of $4.4 million for the third quarter of 2014. Retail gross margin was $26.7 million compared to $14.6 million in 2014. This $12 million increase is primarily attributable to expanded electricity unit margins and increased electricity volume. The continued low commodity prices led to favorable supply costs. These favorable supply costs coupled with our ability to optimize margins were key drivers to our elevated unit margins in the quarter. Additionally, our adjusted EBITDA and retail gross margins benefited from expanded spot margins from our acquisitions. G&A expenses for the quarter were $15.5 million, compared to $10.6 million in 2014. This increase is primarily due to increased billing and other variable cost associated with our customer portfolio, as well as increased cost associated with our acquisitions. Bad debt expense for the quarter remained flat at $1.9 million. Customer acquisition spending for the quarter was $5.8 million compared to $8.7 million spent in the third quarter of 2014. This decrease was primarily due to our decreased organic sales in the quarter, as well as recent changes to our residential vendor commission payment structure, which Nathan spoke about. Approximately 113,000 new customers came up less than a [ph] quarter, which includes 53,000 from our acquisitions. Our net income for the third quarter was $5.9 million compared to 400,000 in 2014. Our basic and diluted earnings per share for the quarter were $0.42 and $0.31 respectively, I’ll point out that our diluted earnings per share was impacted by the convertible subordinated debt with an affiliate of our founder. As of today, the balance of our working capital line is $26 million and the balance of our acquisition line is $21.2 million. As you look at our balance sheet, you will notice a few new line items this quarter, which are results of the acquisitions of CenStar Energy and Oasis Energy. Acquired customer intangibles with current and non-current, trademark, and goodwill are the result of business combination accounting. Please refer to the acquisitions footnote in our 10-Q for an extended commentary on the valuation of these assets. That concludes my prepared remarks. I’ll now turn the call over to Nathan. Nathan Kroeker Thanks, Georganne. In summary, I would just like to say that we are very pleased with the strong and adjusted EBITDA and retail gross margin we realized in the third quarter, which historically is a down quarter for us due to the seasonality of our business. As we move through the fourth quarter, we continue to see strong margins underpinned by lower commodity prices. We will now open the line up for questions from our analysts. Operator? Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question is from Mike Gyure with Janney. Your may begin. Michael Gyure Hi, thanks for taking my question. How should we think about your customer acquisition costs spending for, let’s say, the remainder of the fourth quarter? And then maybe directionally, as you move into 2016, whether that would be above or below, what’s your plan on spending for 2015? Nathan Kroeker I think what you’ll see in the fourth quarter, first of all, Mike, it’s good to hear your voice. This is Nathan. I think, what you’ll see in the fourth quarter is the slowdown that we experienced in the third quarter will continue through the fourth quarter. Some of the changes that I alluded to earlier in terms of improving sales quality have a natural effect of slowing sales down a little bit. But what you’re going to see is, you’re going to see us add better quality, higher volume customers that that are going to be more valuable to us in the long-term. My expectation is that those sales will pick up again in the first-half of 2016. It takes about three to six months for a change like this to kind of work its way through the system. In terms of our overall organic customer spend next year it’s probably slightly below what we spent in 2015. But I think we’re going to see as great as much value with the spend, as we did in 2015. And, obviously, all of that is predicated on what type of M&A opportunities are out there. If we decide that we find some excellent M&A opportunities, book purchases, or tuck-ins, we may divert some of those dollars to M&A throughout the year, as we optimize the growth strategy. Michael Gyure Great. And maybe a follow-up on that, as far as the customer acquisition spending, would you envision that being in pretty much the same geographies and locations that you’re in today as opposed to, I would say, new markets? Nathan Kroeker We’ve got 20 new markets between CenStar and Oasis, and we’re certainly incorporating that into the growth strategy. But, I think, we’re in about 66 markets today. We do not have to add new markets in order to realize organic growth. I think the vast majority of what we’re going to do next year will be within those 66 markets, yes. Michael Gyure Great. Thanks. Operator Thank you. [Operator Instructions] We have no further questions at this time. I’d like to turn the call back over to Nathan Kroeker for closing remarks. Nathan Kroeker All right. I’d just like to thank everybody again for participating in today’s call, and we look forward to seeing some of you in the near future. Have a great day. Operator Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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