EASTMAN KODAK CO KODK S
January 10, 2018 - 8:11am EST by
Azalea
2018 2019
Price: 11.90 EPS 0 0
Shares Out. (in M): 43 P/E 0 0
Market Cap (in $M): 507 P/FCF 0 0
Net Debt (in $M): 68 EBIT 0 0
TEV ($): 575 TEV/EBIT 0 0
Borrow Cost: Hard to Impossible 50%+ cost

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Description

I recommend using the blockchain induced rally in Kodak shares (up ~300% in past two days based on recent pre-market trading of ~$12 a share) to short shares of Kodak.

Given the timeliness of the idea, this write-up is intentionally being kept brief.

 

- Kodak’s transformation from a consumer oriented film business to a business focused on commercial printing/imaging has been slow to materialize. Kodak recently reduced

its outlook for cash generation in 2017 to a use of $60-70 million in cash from its prior outlook calling for $0-$10 million of cash generation.

 

- The Company’s largest and most profitable business (print systems) is facing meaningful headwinds and contributed to a significant portion of the reduced outlook.

 

- The Company’s outsized NOL’s, which are believed to be one of Kodak’s more valuable  “hidden assets”,  have been diluted as a result of recent tax reform.

 

- Kodak is facing liquidity issues, which are unlikely to be solved by its recently announced move into a digital currency initiative.

 

- The Company has a secured leverage ratio (Secured Debt net of U.S.Cash/consolidated EBITDA) not to exceed 2.75x and its cushion under this agreement was just $13 million

as of 3Q 2017. The following illustrates the declining cushion under the credit agreement:

 

KODAK EBITDA Cushion

       

4Q 2016

1Q 2017

2Q 2017

3Q 2017

$81

$31

$26

$13

 

 

- While the Company has a large cash balance ($342 million), ~$100 million of this amount is in China and therefore accessing this cash under duress could prove difficult




Risks:

- Blockchain euphoria continues unabated

- Amazon selects Rochester, NY as the location for its second corporate campus

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Liquidity issues materialize

Inability to unlock value of various promising businesses or hidden assets in a timely matter

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    Description

    I recommend using the blockchain induced rally in Kodak shares (up ~300% in past two days based on recent pre-market trading of ~$12 a share) to short shares of Kodak.

    Given the timeliness of the idea, this write-up is intentionally being kept brief.

     

    - Kodak’s transformation from a consumer oriented film business to a business focused on commercial printing/imaging has been slow to materialize. Kodak recently reduced

    its outlook for cash generation in 2017 to a use of $60-70 million in cash from its prior outlook calling for $0-$10 million of cash generation.

     

    - The Company’s largest and most profitable business (print systems) is facing meaningful headwinds and contributed to a significant portion of the reduced outlook.

     

    - The Company’s outsized NOL’s, which are believed to be one of Kodak’s more valuable  “hidden assets”,  have been diluted as a result of recent tax reform.

     

    - Kodak is facing liquidity issues, which are unlikely to be solved by its recently announced move into a digital currency initiative.

     

    - The Company has a secured leverage ratio (Secured Debt net of U.S.Cash/consolidated EBITDA) not to exceed 2.75x and its cushion under this agreement was just $13 million

    as of 3Q 2017. The following illustrates the declining cushion under the credit agreement:

     

    KODAK EBITDA Cushion

           

    4Q 2016

    1Q 2017

    2Q 2017

    3Q 2017

    $81

    $31

    $26

    $13

     

     

    - While the Company has a large cash balance ($342 million), ~$100 million of this amount is in China and therefore accessing this cash under duress could prove difficult




    Risks:

    - Blockchain euphoria continues unabated

    - Amazon selects Rochester, NY as the location for its second corporate campus

     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise do not hold a material investment in the issuer's securities.

    Catalyst

    Liquidity issues materialize

    Inability to unlock value of various promising businesses or hidden assets in a timely matter

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