Down but not out

Some thoughts on NEC - down but definitely not out, in my opinion. The business model is widely known to be gradually coming apart. There's a lot of intangible stuff on the balance sheet that will potentially require further write-downs, but these would be non-cash in nature. For now, the market appears to have punished the stock too hard and too quickly, given a favorable dividend outlook, high short levels and a debt-free balance sheet. I'd accumulate at current levels, probably offload at 1.40 or thereabouts. Specifically:

# Dividend outlook very positive, even assuming some downward adjustment to prospective DPS
- Not long until the next Ex-Div date, with consensus (Reuters) indicating DPS of 3.5 cents for FY6/16 second half.
- Prospective DPS of 13 cents for FY6/17 equates to a grossed-up yield in the realm of 18%. (Caution: 13 cents looks pretty optimistic, and will almost certainly come down...the question is how far.)

# Debt free (at Dec-2015) due to asset sales

# One of the most shorted stocks on the ASX
- Seven percent of outstanding stock shorted (as of 16 Aug) according to ASIC data and some private websites, thus the 18th most short sold stock on the ASX if these sources are accurate.

What could go wrong? The biggest is risk probably the upcoming full-yr. results announcement. If the numbers are really bad and the final dividend and longer-term dividend outlook are drastically reduced or cut, expect further downside.