Two Plus Two Publishing LLC Two Plus Two Publishing LLC
 

Go Back   Two Plus Two Poker Forums > >

Notices

Business, Finance, and Investing Making money, investing in markets, and running businesses

Reply
 
Thread Tools Display Modes
Old 08-11-2015, 06:41 PM   #1301
ahnuld
Carpal \'Tunnel
 
ahnuld's Avatar
 
Join Date: May 2005
Location: buy side
Posts: 17,278
Re: Value Investing and Longer Term Investing

You catch the lawsuit going on in prsc Q-10? Seems like someone else was pissed about the terms coliseum got on that pref issue. I like the guys and think they drive good results and are shareholder friendly but they arent perfect.
ahnuld is offline   Reply With Quote
Old 08-11-2015, 07:00 PM   #1302
BCI23
grinder
 
Join Date: Jun 2008
Location: MN
Posts: 508
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by ahnuld View Post
You catch the lawsuit going on in prsc Q-10? Seems like someone else was pissed about the terms coliseum got on that pref issue. I like the guys and think they drive good results and are shareholder friendly but they arent perfect.
Yeah i saw that. I just wished they would have offered an oversubscription right so that ALL shareholders were treated equally. At the end of the day though, they are doing all of the heavy lifting in creating value here and we are getting to come along for the ride so I can't really complain too much. That convertible pref rights offering i think could be a great case study for a special situations book.
BCI23 is offline   Reply With Quote
Old 08-12-2015, 07:31 AM   #1303
ahnuld
Carpal \'Tunnel
 
ahnuld's Avatar
 
Join Date: May 2005
Location: buy side
Posts: 17,278
Re: Value Investing and Longer Term Investing

exactly. its fine to get a fee for backstopping but normally all shareholders get to say how much they would oversubscribe for (ie 3x, 5x). I would have taken my entire position in the prefs.
ahnuld is offline   Reply With Quote
Old 08-13-2015, 02:37 PM   #1304
Irishman07
adept
 
Irishman07's Avatar
 
Join Date: Jan 2007
Posts: 999
Re: Value Investing and Longer Term Investing

Like a lot of posters recently, I’ve been looking for options for life after poker. Value investing is something I’m very interested in, and I’d like to get better at it. I’ve read the desertcat thread and ahnuld’s recent thread, along with all of Buffet’s shareholder letters, The Intelligent Investor, and most of Security Analysis. I think I’ve got a good grasp on the mindset needed to succeed, but I think my technical knowledge is still quite limited. I’m still quite unsure how best to go about screening for companies that may be undervalued, and once I have a list how to really go about getting an estimate for a company’s intrinsic value.

So with that being said, I thought it would be helpful for me and hopefully others if I could post my thoughts on a specific company and get some feedback/criticism/advice on my very amateurish analysis. I chose OUTR mostly because it is a stock ahnuld recommended about a year ago, and it seems pretty simple to understand its business segments, of which it has 3:

Redbox: DVD/BluRay/video game rental kiosks
Coinstar: kiosk that returns cash for loose coins
ecoATM: kiosks that gives cash for old phones/tablets

The main bull thesis is that the market is expecting the Redbox segment to decline faster than it actually will, and that once strong movies like Avengers/Jurassic World/etc hit the market sales should pick back up again. Conversely, the bear thesis is that physical movie rentals is a dying industry and that with the proliferation of streaming options Redbox will continue to lose sales. Redbox made up over 80% of OUTR revenues in 2014, so while Coinstar and ecoATM are still important, the main driving force behind the valuation is going to be Redbox.

What I’ve gathered from reading is that FCF is the most important factor in determining a valuation, which makes sense to me because it’s the cash that is available to the investors in the form of dividends or expanding the business. In a perfect world we’d be able to come up with decent estimates of FCF for 5-10 years into the future and have a very good idea of what a company would be worth. In practice this type of forecasting is impossible, so we look at current FCF and the immediate future and try to determine a multiple of FCF to value the company. A company with high growth potential will obviously deserve a higher multiple than one in a declining business. Risk factors play a role as well – a highly levered company that is at risk of bankruptcy if it has a dip in revenue would be valued at a lower multiple than one that has a very strong balance sheet.

I’m still quite unsure of how much significance to place on different factors or where to even begin with a base FCF multiple… I think ~10ish might be a decent starting point?

I’d like to post the financial statements from year end 2014 and discuss what a valuation might look like at that time. Then if there is enough discussion/interest I’d like to talk about how updated information and quarterly statements this year would affect one’s valuation.

Balance Sheet:



I understand everything on the balance sheet, but am really unsure of what to take away from it. Current assets are slightly greater than current liabilities, yet a big portion of the current assets are Redbox’s content library, i.e. the physical copies of the rentals. I believe they are supposed to be on the balance sheet at market price, but if they really needed to liquidate those I tend to doubt they’d get anything close to that, plus without a content library Redbox has no means of producing income so it’s not really something that can be liquidated in the first place if the business wants to continue.

Property and equipment is mostly gonna be the physical kiosks themselves I think, so in the event of a liquidation I don’t think those are going to be worth anything close to what they are carried at on the balance sheet. Goodwill is a relatively large % of assets as well. In a vacuum it doesn’t seem to me that we can determine if this is too high or too low, since it depends on the underlying businesses that were acquired and how valuable they are. (Having new knowledge in 2015 it seems this number is too high, since OUTR was forced to write off some goodwill from the acquisition of ecoATM, which to date has been underperforming)

It seems the debt/equity ratio is quite high at over 15, but certainly that is affected by management’s aggressive stock repurchases. I would think we’d have to check out the income statement to see if this level of debt would be an issue. OUTR does have a consistent stream of revenue so I would think they would be able to sustain a higher debt level than a company that depends on one big product to hit the market for sales (like a pharma company developing one drug or a video game company producing one big hit)

So my takeaway from the balance sheet is that this definitely isn’t a company one could buy just on the basis of its parts to be liquidated, and it may have a problem with too much debt, though we would need more info on that.

Income Statement:



Cons: Revenue flat in 2014 vs 2013, while operating expenses and marketing expenses increased slightly. Had a loss from equity method investments, which I believe is companies invested in but not owned by OUTR. They were in a joint venture with Verizon called Redbox Instant, but withdrew due to a low subscriber base. I think this is what the loss is based upon. The gain in 2013 was mostly attributable to the goodwill obtained when ecoATM was acquired. This may be accurate if ecoATM turns out to be a good business, but to date in 2014 it has lost money (and as mentioned earlier, we know in 2015 its goodwill was written down which I think would have made the 2013 investment a loss as well. 3 straight years of losses in investments doesn’t signal a great management capable of finding good investments)

Pros: General and admin expenses decreased by 30 million, possibly indicating some cost cutting or streamlining being done. It’s been about a week since I read through the annual statement, but I believe it stated that the Redbox market is pretty well saturated so I don’t think a ton of new Redboxes will be going out. IIRC they are depreciated on a 5 year basis, so if the machines can last longer than that depreciation expense may go down. In my uninformed opinion it seems that as long as the software is kept up to date the physical machines likely would last longer than that. This wouldn’t really affect cash flow, but certainly a higher net income is perceived as valuable. (On the con side, the fact that Redboxes have saturated the market does indicate that for revenue growth they need same store sales to increase, which seems like a tricky proposition given the declining nature of the business)

Interest expense has increased, but still seems pretty manageable to me, so I don’t think it is an immediate concern. I’m not sure what the best metric to use is, but operating income/interest expense = 5.2 so that seems like sufficient coverage, assuming management stops losing money on its equity investments.

Management seems committed to buying back shares, which is great if you run with the thesis that the stock is undervalued.

Cash Flow:
To determine Free Cash Flow, I used the Statement of Cash Flows:



I’m a bit unsure of the right numbers to use. I believe the formula is Cash Flow from Operations – Capital Expenditures. If that’s the case, the easy answer is 338,351 – 97,924 = $240,427,000
With 20,699,000 weighted average diluted shares, that gives a free cash flow of $11.62 per share.
There are several things in the cash flow statement that I am unsure about though:
1) Should we include “(Income) loss from equity method investments, net”? In 2014 OUTR lost 28,734 due to its failed venture RedBox Instant. In 2013 it gained 19,928 due to the goodwill obtained when it acquired a full stake in ecoATM which it previously had a partial stake in. I would argue that these equity investments, although not full business segments, are certainly related to operating activities so probably should be factored in? Certainly ecoATM is now a full operating segment so it would appear that OUTR views its equity investments as possible future operating segments. If that’s the case and we don’t add back the 28,374 from 2014, it gives us an adjusted FCF of $10.23
2) I understand that adjustments are made from net income to account for changes in operating assets and liabilities. I see that these changes don’t exactly match up with changes on the balance sheet. I’m guessing that this is because some items on the balance sheet are designated for activites that aren’t operating activities? For example, accounts payable might include both money due to movie studios (operating) as well as money due to a secretary’s salary (non-operating)?
3) Should we include the 1,977 from “Proceeds from sale of property and equipment”? Like should we be using CapEx or Net CapEx?
4) Finally, and probably most importantly, since what we are really focused on is future FCF, how do we make projections for different items? For example, “Purchases of property and equipment” decreased from 209,910 in 2012 to 161,412 in 2013 to 97,924 in 2014. I realize that this is probably due to Redbox being more and more saturated and not having as many locations to expand to. However, given that knowledge how would we begin to project a number for 2015?

Segment Analysis:




Redbox’s Revenue declined by 4.1%, Coinstar’s grew by 5.1%, and New Ventures grew a bunch, but that basically is the result of ecoATM being acquired in 2013. New Ventures is also bleeding money so that will need to be stopped ASAP. The other questions are whether Redbox’s sales are in a permanent decline, or if some of that is cyclical due to the nature of the movie business and whether there are great movies out to rent. Coinstar’s operating margin is fantastic relative to Redbox, so the question of whether or not it is possible for that segment to expand is key as well. At year end 2014 Coinstar had 21,340 kiosks vs 43,680 for Redbox.

The really big question remains whether 2014 was just a down year overall for the box office or whether DVD rentals are going to continue to decline. I pulled up some box office numbers that hopefully can shed some light on that:









Looking at the charts it does seem that 2014 was a weak year overall for the box office, which could at least partly explain a dip in revenues.

Here's the Redbox segment's Quarterly earnings for the last several years:



It's important to keep in mind that the time between theatrical release and DVD release is going to be about 4 months, so things like Jurassic World which are crushing at the box office now probably won't show up in Redbox's revenue til Q4 or Q1 2016. But if we look at 2015 so far vs 2014 it certainly looks promising. 2014's Q2 movies didn't have any grossing over $300 mil, with the highest being Captain America: the Winter Solider at ~$260 mil. 2015 had 4 - Jurassic World ($636), Avengers 2 ($457), Furious 7 ($351), and Inside Out ($336). JW and Inside Out are still in theaters and will increase those numbers. Those are pretty huge numbers and those are the type of titles that are gonna drive people to rent.

It's still a bit early to compare the Q3 box office of 2015 vs 2014, but it's basically Minions, Ant-Man and new Mission impossible vs 2014's Guardian of the Galaxy, Dawn of the Planet of the Apes, and TMNT. I think the edge will ultimately go to 2015 as well.

Q4 is gonna have Spectre, new Hunger Games, and new Star Wars. I feel like the first two will do well but won't be huge improvements over 2014's American Sniper, Hunger Games, Hobbit, and Big Hero 6. Star Wars on the other hand is gonna be MASSIVE. I wouldn't be surprised if it breaks all sorts of records. That won't hit Redbox's revenues til 2016 but it's still gonna be very nice for them imo.

Then 2016 Box Office includes:
Q1:

new Fifty Shades
Kung Fu Panda 3
Deadpool
Zoolander 3
Batman vs Superman

Q2:
Captain America
X-men
TMNT
Warcraft
Finding Dory
Independence Day

Q3:
Star Trek
Bourne
Ghostbusters
King Arthur
Ice Age
Suicide Squad

Q4:
Star Wars rogue 1
Assassins Creed

I'm probably missing a few, but definitely seems like another big slate with Batman vs Superman, Finding Dory, and new Stars Wars pretty much guaranteed to be huge and several other will be very big as well especially if they turn out to be decent flicks.

Anyway, long story short I do think that even though DVD rentals are going to decline, I do agree with ahnuld's thesis that a weaker slate in 2014 probably helped contribute to the perception that it is happening faster than it really is. The big box office numbers for 2015 and 2016 should help revenue which hopefully should be a catalyst to increase stock price. One small factor that I haven't discussed yet is Redbox's BluRay rentals which make up 15% of rentals and 17.6% of revenue. I don't think that technology is going to catch on, but I do think it may decline a bit slower than DVD rentals, because it has the advantage of being better video and audio quality than DVDs or streaming, which appeals to some people (myself included) who have large TV's and good speaker systems and really want to experience as close to the theater experience as possible from home.


Intangibles:

Management seems committed to returning money to shareholders… I believe they stated a goal of returning 75-100% of FCF to shareholders. They have shown a commitment to doing this by buying back shares and initiating a dividend. On the other hand, there is certainly a question of how effective management is at finding new business ideas. They exited RedBox Instant at a loss, ecoATM hasn’t shown much promise yet, and they had several other ventures that were discontinued, including Rubi, Crisp Market, Star Studio, and Orango. (Plus we later learn in 2015 that Redbox pulls out of the Canadian market, so that's another failed venture)

They currently have a new venture called SampleIt, which is in the beauty and consumer goods industry : http://sampleit.com/

They also made mention of being an equity investor of SoloHealth, INC, which I believe is now called Pursuant Health: http://pursuanthealth.com/

I haven't found anything on how successful these two are yet however, but a kiosk that can provide individual health care screening could certainly become a big revenue producer if successful. However, I didn't find anything on just how big an equity stake OUTR has so I'm unsure of the upside.

So there definitely is room for growth besides Redbox, it just remains to be seen If management is capable of utilizing capital effectively.
I haven’t researched management compensation/stock options to see if they are aligned with shareholder interests, but that is certainly important as well.


As far as moats go, I don’t think they are particularly strong. Redbox has great market penetration but I don’t think customers are necessarily particularly loyal – it’s more of the fact that with DVD rentals declining potential competitors aren’t looking to get into that industry. The upfront costs to roll out the software and kiosks just isn’t going to be enticing to anyone I don’t think, but if for some reason DVD/BluRay rentals did make a huge comeback I think a big company could certainly threaten Redbox, because their leases with retailers and the movie studios are generally not long term.
CoinStar doesn’t have much of a moat either. It doesn’t have nearly the market penetration that Redbox does, and there are a few competitors, as well as banks who could decide to provide this service if they really wanted to.
ecoATM doesn’t have a moat either imo. Currently mobile providers are offering good deals to turn in old phones which is cutting into ecoATM’s business a lot. There also are online companies that offer pretty much the same service – for example http://glyde.com/. To me it also seems online companies can operate with much smaller overhead which is going to make it much harder for ecoATM to compete.
In general, I do think OUTR’s kiosks are very vulnerable to forces outside their control. For example, Redbox is dependent on reaching deals with retailers like Walmart, Walgreens etc, as well as movie studios for rights to distribute their media. Certainly Redbox offers value to retailers since it doesn’t take up a lot of space and is usually in an area where merchandise isn’t sold anyway (like right outside a store), and movie studios like having an option for people to physically rent their movies, so with the death of most movie rental stores Redbox is the next best option. However, Redbox does rely very much on the lower cost of its rentals vs. streaming, and the fact that they often receive titles before they are available for streaming. Either of these two things could certainly change in the not too distant future.

Final valuation:
So after I look at the financial statements, calculate FCF, look at intangibles and management – any tips on putting it all together? This is certainly where I’m most overwhelmed. I feel I can do a decent job individually with looking at certain aspects, but have no idea how to then take that info and come up with a range for a valuation that isn’t just super wide. If we take the FCF adjusted for the loss in OUTR's equity investment of $10.23, it is trading at ~6.2x FCF. That seems like a pretty good deal if OUTR is able to slow down it's revenue decline in Redbox and begin to grow other segments to compensate. Am I right in thinking of FCF in terms of yield, so at 6.2x it's yielding about 16.1%?

Thanks so much for any help/critiques you can give!!!
Irishman07 is offline   Reply With Quote
Old 08-13-2015, 04:02 PM   #1305
parttimepro
adept
 
parttimepro's Avatar
 
Join Date: Dec 2004
Posts: 915
Re: Value Investing and Longer Term Investing

This is a solid writeup. I don't have time for a full critique, but a couple points:
1. Different companies get valued on different metrics. You're correct that book value is almost meaningless for OUTR. They're not going to liquidate, and if they did it would be because their business had completely collapsed. Book value is much more important for other sectors like BDCs or mREITs, or companies that are already on the verge of liquidation. FCF or PE or PEG are usually the first go-to.

2. In your last paragraph, you've discovered the hard part of value investing. You can calculate the FCF ratio, but what should it be? For OUTR one could make a case for anywhere between 5 and 20. There's no hard rule. You could compare it to other similar companies, but there aren't really any companies like OUTR. You could compare it to companies with similar growth prospects, but there's a lot of uncertainty about that, too.

3. What's the solution? Have a huge margin of error when you make your investments. There are literally thousands of stocks to choose from. If you study one stock and decide that it's marginally +EV, don't buy it. Keep looking until you find something that looks unbelievably cheap even if you make the most pessimistic assumptions you can.
parttimepro is offline   Reply With Quote
Old 08-13-2015, 05:34 PM   #1306
dfgg
journeyman
 
Join Date: Jun 2014
Posts: 313
Re: Value Investing and Longer Term Investing

Irish as a rule of thumb, if cash flows decline 15-20% then 4-5x is a good multiple. If they decline 5-10% a 7-8x multiple is fair value. You have to take operating leverage and debt into consideration though. With operating leverage a 5% decline can easily result in a 2x fair value earnings multiple.

A better way to look at this is to look at capex vs depreciation. Since machines last longer then their useful life according to accounting (sometimes twice as long) depreciation going forward is much lower then capex. The difference is about 80-90m$. You can email the company about this (i did).

Second thing to look at is operating leverage. Revenues of redbox can decline by more then 50% before they start losing money. And coinstar does a steady 70-80m$ a year in FCF. So the only real risk is debt.

Then another thing to consider is the effect of buybacks vs dividends on a undervalued stock. If you do the math, then you will find out buybacks can really put your return on steroids vs dividends (even if reinvested at the same price).

I would say that with their losing ventures they do like 300m$. But without they can do close to 400m$. So hopefully they will dump their ecoatm soon. That thing is a disaster in every way so far.

What is also helpful is to read some quarterly call transcripts on seeking alpha. You can get some good info there as well.

I like to play this one with options if stock is trading below 70$. Since price is so volatile and short interest is very high.
dfgg is offline   Reply With Quote
Old 08-14-2015, 12:06 PM   #1307
jchristo
veteran
 
jchristo's Avatar
 
Join Date: Feb 2008
Posts: 2,503
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by BCI23 View Post
Lots of chane going on with BIOS, which is 18% owned by Coliseum Capital and Shackleton recently joined the board, probably worth looking closer at here.
Any word on why this one's dropped in half in the last few days?
jchristo is offline   Reply With Quote
Old 08-15-2015, 10:02 AM   #1308
ahnuld
Carpal \'Tunnel
 
ahnuld's Avatar
 
Join Date: May 2005
Location: buy side
Posts: 17,278
Re: Value Investing and Longer Term Investing

Irish, I think your analysis with the points brought up by parttime and dfgg pretty much sum up my thinking on outr. A couple of thoughts:

finance theory isnt that useful but it is for coming up with basic fcf analysis. Correct value is theortically fcf/(r-g) where r is required rate of return and g is growth. so if we require 8% equity return and fcf drops 12% a year in perpetuity then 5x fcf is correctly valued. If we think fcf declines something like 6% which is closer to what I believe then 7x fcf is correct. that would mean stock should be about $105, hence why I think its a buy.

At 65 market is valuing it at about than 4x cash flow. that implies a decline rate of about 18% a year which is nuts considering even with the price increase same kiosk rentals only dropped 13%. 13% is big and scary, but it was exacerbated by price increase and like I mentioned above, I think 6% is the long term run rate ex price increases.

all this ignores ecoatm being a net negative, but they can exit tomorrow with little costs so I just call it a zero. its similar to the bks thesis at $13.50 that BC first highlited.
ahnuld is offline   Reply With Quote
Old 08-16-2015, 03:03 AM   #1309
smmcoy
journeyman
 
Join Date: Jul 2015
Posts: 367
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by dfgg View Post
Then another thing to consider is the effect of buybacks vs dividends on a undervalued stock. If you do the math, then you will find out buybacks can really put your return on steroids vs dividends (even if reinvested at the same price).
Yeah but I'm opposed companies that have shrinking or static revenue using borrowed money to buy back stock. Looking here that seems to be the case: http://finance.yahoo.com/q/cf?s=OUTR+Cash+Flow&annual

The fact that the buy backs took place when the stock price was lower is clearly a good sign.

Right now their debt is not a huge issue but I think the risks are properly described here: https://www.moodys.com/research/Mood...red--PR_300819

Rating Outlook

The stable outlook reflects our expectation that the company will continue to grow its physical DVD rental business, though at a moderating pace, as studios are expected to maintain current content distribution models in the intermediate term. It also reflects our expectation that the company will sustain moderate adjusted leverage of under 2.5x and gross debt-to-EBITDA will decline to the 2.2x range as a result of modest EBITDA growth and mandatory debt pay downs over the next 12-18 months.

What Could Change the Rating - Up

Ratings could be upgraded if the company sustains low leverage, and if its partnership with Verizon experiences strong growth (provided it has a path to material ownership of the partnership in the long term) as well as its new products gain traction such that its dependence on the physical DVD rental business is greatly reduced.

What Could Change the Rating - Down

Ratings could be downgraded if there is an acceleration of content viewing on streaming platforms such that the company experiences sustained declines in DVD rentals, if margins are significantly pressured by increasing content costs or if adjusted leverage is sustained over 2.75x.
smmcoy is offline   Reply With Quote
Old 08-16-2015, 12:57 PM   #1310
ahnuld
Carpal \'Tunnel
 
ahnuld's Avatar
 
Join Date: May 2005
Location: buy side
Posts: 17,278
Re: Value Investing and Longer Term Investing

I shorted amaya a few weeks back. its slightly below where I shorted but I still think its a good position to put on.
ahnuld is offline   Reply With Quote
Old 08-16-2015, 11:11 PM   #1311
Irishman07
adept
 
Irishman07's Avatar
 
Join Date: Jan 2007
Posts: 999
Re: Value Investing and Longer Term Investing

Thanks guys for responding, really appreciate it.

Quote:
Originally Posted by dfgg View Post

A better way to look at this is to look at capex vs depreciation. Since machines last longer then their useful life according to accounting (sometimes twice as long) depreciation going forward is much lower then capex. The difference is about 80-90m$. You can email the company about this (i did).
Very interesting... didn't know that as an individual investor I'd be able to ask for information like this. Do you just email investor relations?

So I understand the accounting difference if depreciation is lower than capex, but I'm not sure how that affects our valuation. Are you talking about just having a better estimation of the capex going forward so that we may make a more informed estimate of free cash flow? Or is there something specifically about depreciation being much lower than capex that is important?

Quote:
Originally Posted by dfgg View Post
Second thing to look at is operating leverage. Revenues of redbox can decline by more then 50% before they start losing money. And coinstar does a steady 70-80m$ a year in FCF. So the only real risk is debt.
I understand the concept of operating leverage, but not sure how you figured out the 50% number. Is there a method to figure out or estimate fixed vs variable costs?

Quote:
Originally Posted by dfgg View Post
I like to play this one with options if stock is trading below 70$. Since price is so volatile and short interest is very high.
This makes a lot of sense to me, but being so new I'm not sure yet I'd wanna mess around with options. Would you just go with the Jan 20 '17 options? seems like giving ourselves the longest time frame available would be the safest bet in a spot like this to give the company a bit of time to show it's cash flow decline is slower than the market thinks it will be.

Quote:
Originally Posted by ahnuld View Post

finance theory isnt that useful but it is for coming up with basic fcf analysis. Correct value is theortically fcf/(r-g) where r is required rate of return and g is growth. so if we require 8% equity return and fcf drops 12% a year in perpetuity then 5x fcf is correctly valued. If we think fcf declines something like 6% which is closer to what I believe then 7x fcf is correct. that would mean stock should be about $105, hence why I think its a buy.

Thanks, this was super helpful. Is the 8% required return an arbitrary number based on the long term return of the overall market?

Also, I agree that the implied -18% seems quite high, but am unsure how to come up with a better number. I guess start with 13% decline in same kiosk rentals and just adjust downward due to price increase and weak box office? Not sure how scientific we need to get since even at 10% we have a $80 stock.

I know theoretically we can probably ignore losses in ecoATM and the past few years of losses in equity investments since management should just be able to drop those segments/activities with little loss if they aren't profitable, but are you at all concerned that management seemed fairly committed to the ecoATM segment in their latest call? Seems like the more time,effort, and money they end up putting in the harder it will be to discontinue? Not sure if the recent CEO hire with a mobile/software background will try too hard to get that segment revived since it's sorta where his knowledge base lies.

Quote:
Originally Posted by smmcoy View Post
Yeah but I'm opposed companies that have shrinking or static revenue using borrowed money to buy back stock. Looking here that seems to be the case: http://finance.yahoo.com/q/cf?s=OUTR+Cash+Flow&annual
I'm clearly not an expert, but not sure I agree with a blanket statement like this. Even if a company's revenues are expected to decline, if there is enough of a margin of safety where payment of debt shouldn't be an issue it seems that it can be a fantastic way to increase shareholder value. Debt when used wisely just seems like a far superior option than using no debt at all.
Irishman07 is offline   Reply With Quote
Old 08-17-2015, 12:22 AM   #1312
Irishman07
adept
 
Irishman07's Avatar
 
Join Date: Jan 2007
Posts: 999
Re: Value Investing and Longer Term Investing

Anyone looked into VNCE?

It's trading at 5.9x 2014 FCF. Its retail segment is rapidly growing, but its wholesale division's revenues will decline this year by ~10% mainly due to its major partners (Neiman Marcus/Nordstrom/Saks) cutting back on orders. This doesn't seem to be a specific decrease only for Vince, but cut backs are seemingly across the board as department stores are trying to cut back on unsold inventory and are putting more of their efforts into their low cost segments (their outlet stores like Saks Off 5th, Nordstrom Rack). However, wholesale does make up ~70% of VNCE overall revenue so this is a big deal if it were to continue.

The stock has been hammered pretty badly due to several straight quarters of missing estimates. In its latest quarterly call management revised its projected 2015 revenues downward to $340-350 mil compared to $340 mil in 2014. So no growth but as of now no decline either. The retail segment has a lot of room to grow as well, with 42 stand alone stores currently operating in the US, with an estimate that the market can sustain 100. Plus lot of room for international growth, where they have some stores but have said domestic growth has been main focus to date.

Net income 2015 should be approximately in the $32-34 million range. I'm a bit unsure how to back out of that to FCF using the information available, but depreciation should be higher than 2014 due to more stores being open, capex is projected to be about the same, and I think change in inventory may go up as well if Vince wasn't completely prepared for the drop off in wholesale department store orders. The net difference for those factors shouldn't be materially different from 2014 I would guess. I think even with a conservative estimate it's safe to assume that 2015 cash flow will be $1/share at least, and could come close to matching last years, which puts the FCF multiple at somewhere between 5.9-8.5x.

And I think this is a spot where wholesale revenues aren't going to decline at close to double digits for long. I mean, they just can't if the brand continues to do well, and by all accounts it is. This isn't a situation like Michael Kors or Coach, which delved way too far into the off price segment and devalued their brand. Vince still is considered a luxury brand, and actually had maintained a policy which limited their full price-off price ratio to 80/20, where Coach I believe used to be 70/30 but actually flipped around and now IIRC is now at 40/60.

Basically my concern (and it's a big one) is what is going on within the company. They reported Q1 results June 4th. On June 26th the CFO resigned. On July 13th the CEO resigned as well, as did the President/Chief Creative Officer. VNCE is 55% owned by Sun Capital, a private equity firm who took them public a couple years ago. So perhaps this shakeup is just a result of Sun Capital forcing out some management they believed were under performing or that had different visions for the future of the company. However, the cynic in me is worried that maybe something bigger is wrong.

To me it seems like a very very pessimistic view would have this stock valued at around $8, a realistic range between $11-18, and a very optimistic view could be valued at $25. Seems like a spot where there is somewhat limited downside and pretty large upside.
Irishman07 is offline   Reply With Quote
Old 08-17-2015, 03:48 AM   #1313
fightingcoward
veteran
 
Join Date: Jan 2007
Location: toronto
Posts: 2,116
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by ahnuld View Post
I shorted amaya a few weeks back. its slightly below where I shorted but I still think its a good position to put on.
Why short Amaya? Seems with their entry into sports betting and casino games they will have strong revenue and eps growth with USA a free long term call option.
fightingcoward is offline   Reply With Quote
Old 08-17-2015, 07:07 AM   #1314
ahnuld
Carpal \'Tunnel
 
ahnuld's Avatar
 
Join Date: May 2005
Location: buy side
Posts: 17,278
Re: Value Investing and Longer Term Investing

poker volumes are declining and all that you mentioned is accounted for in their 15.5x ebitda multiple.
ahnuld is offline   Reply With Quote
Old 08-17-2015, 01:41 PM   #1315
trade2win
grinder
 
Join Date: Sep 2014
Posts: 569
Re: Value Investing and Longer Term Investing

BIOS deserves a look . Management is guiding for 50-60m EBITDA next year. It's trading at 2x that number. Their core business is actually holding up and growing. The price drop was due to a 238m goodwill impairment charge and another mark down in their aging. Also there are concerns they're facing a liquidity crunch but that's really overblown if you look at their avaliable credit line and cash they'll recieve from the business sale which will net them 22-23m. They also announced further cost cutting initiatives. I haven't had a chance to really research management but the CFO comes from LHC Group where Colesuim is a major share holder and that's turned out to be a home run for them.
trade2win is offline   Reply With Quote
Old 08-17-2015, 02:13 PM   #1316
dfgg
journeyman
 
Join Date: Jun 2014
Posts: 313
Re: Value Investing and Longer Term Investing

Seems like you would have to get to know the industry a bit, and know BIOS value proposition in the industry? And look at comps that do better, and see what margins they are getting. Anyway it looks interesting. Allthough the debt is ugly.

edit: it seems industry is total ****? like 3% profit margins. So even if they massively cut costs, that thing still would need 10 years to pay of its debt. And coliseum doesnt hold the common anyway.

Last edited by dfgg; 08-17-2015 at 02:31 PM.
dfgg is offline   Reply With Quote
Old 08-17-2015, 06:44 PM   #1317
trade2win
grinder
 
Join Date: Sep 2014
Posts: 569
Re: Value Investing and Longer Term Investing

Where are you getting the 3% number? They're guiding for 7.4% EBITDA margins. The sector itself is very fragmented but could be poised for growth as more Americans get health insurance + an aging population adds more customers.
trade2win is offline   Reply With Quote
Old 08-17-2015, 08:39 PM   #1318
BCI23
grinder
 
Join Date: Jun 2008
Location: MN
Posts: 508
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by trade2win View Post
BIOS deserves a look . Management is guiding for 50-60m EBITDA next year. It's trading at 2x that number. Their core business is actually holding up and growing. The price drop was due to a 238m goodwill impairment charge and another mark down in their aging. Also there are concerns they're facing a liquidity crunch but that's really overblown if you look at their avaliable credit line and cash they'll recieve from the business sale which will net them 22-23m. They also announced further cost cutting initiatives. I haven't had a chance to really research management but the CFO comes from LHC Group where Colesuim is a major share holder and that's turned out to be a home run for them.
They have a ton of debt so their market cap is 100m but enterprise value is somewhere around $500m so they are trading at 9-10x EBITDA. I haven't had a chance to look close yet either but with lots of change going on and shackelton on the board, you can be sure the most shareholder friendly actions are being pursued, its just a matter of figuring out if the market has digested it correctly or not.
BCI23 is offline   Reply With Quote
Old 08-17-2015, 09:19 PM   #1319
BCI23
grinder
 
Join Date: Jun 2008
Location: MN
Posts: 508
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by CBorders View Post
Was just reading the 10k for this company and Swenson seems like the ideal manager, right down to quoting Singleton in the letter. How much upside were you estimating when you posted this?
His 2015 shareholder letter is out. Another great read. It's going to be fun to see what this organization turns into over time.

http://www.airt.net/annual-reports.html
BCI23 is offline   Reply With Quote
Old 08-18-2015, 01:18 PM   #1320
ahnuld
Carpal \'Tunnel
 
ahnuld's Avatar
 
Join Date: May 2005
Location: buy side
Posts: 17,278
Re: Value Investing and Longer Term Investing

Someone want to give me the quick rundown on AIRT? A quick look through the annuals and I dont see it.
ahnuld is offline   Reply With Quote
Old 08-18-2015, 07:47 PM   #1321
BCI23
grinder
 
Join Date: Jun 2008
Location: MN
Posts: 508
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by ahnuld View Post
Someone want to give me the quick rundown on AIRT? A quick look through the annuals and I dont see it.
here is my short version:

mk cap: 55.2m

Less: cash: 9.9m
Less: ISIG investment: 4.37m (def an argument that ISIG is very undervalued, cost savings story, i think they can get to 18% EBITDA rates on current revenue)
Less: Inventory build to support one-time American Airlines contract to be completed Nov 2015 and will be converted to cash: 3.8m
Less: Expected After Tax Profits from One-time American airlines contract to be completed Nov 2015: 4.29m (20% contribution margin * $33m rev)
add: Debt: 4.9m

Enterprise Value: $37.74m

4 Operating Segments:

FedEx: recently reworked contract that will "return them to historical profitability levels": 3.3m ebitda (some potential upside to this as some routes have been identified as losing money and reworked)

Ground Equipment Segment 2015 EBITDA: 5.64m

Ground Services: making infrastructure investments in 2015 but historically has done 9% ebitda rates: $1.85m ebitda on $20.5m rev

CEO references big growth opportunities for Ground Services going forward, so definitely upside to that number here.

Corporate: (2m) - (2.4m) cost

Total EBITDA going forward: 8.39m - 8.79m

EV/EBITDA: 4.5x - 4.29x (if you think ISIG is worth 10x doing 18% ebitda rates then we are at 3.75x)

Not insanely cheap but still cheap and potentially lots of upside in Ground Services, the CEO is a savvy capital allocator so there is always upside optionality for future deals he makes with the company's cash, he is perfectly aligned with shareholders ($50k salary, $12m stock ownership)

Good businesses run by great leadership whos sole focus is maximizing the value of the company don't often sell for 4 - 4.5x EV/EBITDA.
BCI23 is offline   Reply With Quote
Old 08-20-2015, 08:05 PM   #1322
Irishman07
adept
 
Irishman07's Avatar
 
Join Date: Jan 2007
Posts: 999
Re: Value Investing and Longer Term Investing

Anyone have book recommendations for valuing companies? Looking for something advanced and don't mind if its a bit technical. Looking at maybe one of these two:

http://www.amazon.com/Valuation-Meas...dp_ob_title_bk

http://www.amazon.com/Damodaran-Valu...n+on+valuation
Irishman07 is offline   Reply With Quote
Old 08-20-2015, 11:45 PM   #1323
steelhouse
banned
 
steelhouse's Avatar
 
Join Date: Feb 2007
Location: Los Angeles California
Posts: 6,114
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by Irishman07 View Post
Anyone have book recommendations for valuing companies? Looking for something advanced and don't mind if its a bit technical. Looking at maybe one of these two:

http://www.amazon.com/Valuation-Meas...dp_ob_title_bk

http://www.amazon.com/Damodaran-Valu...n+on+valuation
The small investor only has the income statement, balance sheet, cash flow statement, quarterlies and annual reports. You probably can devise your own way to value companies without those books.

Go to you tube an search cash flow statement.
https://www.youtube.com/watch?v=38WcNba0Ic0

also on seekingalpha many come up with their own way to value companies. I like 10x ebitda/share or 13x earnings per share or 10x operating cash flow per share or gross profit per share. Maybe add in book value.
steelhouse is offline   Reply With Quote
Old 08-21-2015, 11:43 AM   #1324
homeboy604
veteran
 
homeboy604's Avatar
 
Join Date: Jul 2006
Location: @ Powder Chair/Big White
Posts: 3,360
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by Irishman07 View Post
Anyone have book recommendations for valuing companies? Looking for something advanced and don't mind if its a bit technical. Looking at maybe one of these two:

http://www.amazon.com/Valuation-Meas...dp_ob_title_bk

http://www.amazon.com/Damodaran-Valu...n+on+valuation
http://www.amazon.com/Deep-Value-Inv...rds=deep+value
homeboy604 is offline   Reply With Quote
Old 08-24-2015, 11:37 PM   #1325
BCI23
grinder
 
Join Date: Jun 2008
Location: MN
Posts: 508
Re: Value Investing and Longer Term Investing

Quote:
Originally Posted by jchristo View Post
Any word on why this one's dropped in half in the last few days?
Well Coliseum just bought 600k of BIOS common stock on the open market last few days. This is their first purchase of common stock, their only position prior was a convertible debt investment. If you need a reason to look closer, seems like a huge bullish event for them to be buying after this huge fall in the stock and all the changes they have going on.
BCI23 is offline   Reply With Quote

Reply
      

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


Forum Jump


All times are GMT -4. The time now is 06:00 AM.


Powered by vBulletin®
Copyright ©2000 - 2017, Jelsoft Enterprises Ltd.
Copyright © 2008-2010, Two Plus Two Interactive
 
 
Poker Players - Streaming Live Online