Reviewed Humana (HUM). Seems pretty decent, dirt cheap DCF, very predictable. But relatively pricey compared to other bigger insurers on an adjusted BV basis (~2x Adj BV). Coupled with this my admittedly poor understanding of health insurance has caused me to say no thanks for now. This doesn't hit me in the face as a cheap deal. Its popped a bit in the past few days +7% and frankly the margin of safety just doesn't seem to make up for my lack of knowledge.
I don't have too many company specific items. At the moment I feel a bit tapped out as far as searching for companies. Nice AH pop from TRLG. Sitting on a 30+% gain thus far. I'll evaluate and probably sell soon thereafter. It was simply too cheap to pass up and they did have good alignment despite jeans being a simple fashion/fad depending. VFC still carries a pretty premium compared and JOEZ...well JOEZ sucks. No shareholder alignment there.
LEE down another 6.8%, chilling at 1.49. Options seem like a good way to moderate the risk while participating in the hopeful upside. Patience.
Speaking of which, Gurufocus had an interesting article stating that after Buffett purchased some major company he waited 3 years before buying another stock. The validity and exactness may leave a bit to be desired but its a fascinating tidbit if it is true.
Thursday, April 28, 2011
Wednesday, April 27, 2011
Lee Enterprises (LEE)
Basics:Newspaper and advertising medium provider for all sorts of places around the country. Focuses on small towns and therefore small publications. Rode a great bull market and decided "we know everything, lets take on insurmountable debt to finance a newspaper acquistion." Blame the credit crisis if you must but that was plain stupid. Regardless this is a rock star of a cash cow and continues to plummet. I'm not sure if I want or ever will enter into a position. If I can wrap my head around the debt covenants I think from a pure valuation standpoint this company could make money on a turnaround.
Stats: P/S: 0.11, P/B:0.9 P/E:2.2 P/FCF 0.85 63million MC. EV/EBITDA: 6.95 Current ratio 0.8.
Whys it cheap: TON's of debt. A ripe 1.351 billion in liabilities. Even if the MC went to 1 million the EV/EBITDA ratio would be an astonishing 6.5, not quite the typical response. Vultures are going insane over it and understandably so.
Its in a dying industry as well, I think in 2005, or whenever the huge Pulitzer acqusition took place, shareholders should have crapped their pants and said "I'll keep my pants but sell the stock." Alas hindsight is always 20/20. Lets move onto the foggy and often stoichastic future and figure out a path.
Debt Breakdown: All figures as of December 26, 2010...from their 10Q.
1.052 billion in debt
-969 million in long term debt
-620,515,000 in an A Term Loan with a 4.125% interest rate: 26million/year in interest.
-279,425,000 revolving credit facility 4.125% : 11.52 million/yr interest
-152,000,000 Pulitzer Notes: 9.55% 14.5 million/yr interest
Total Interest Payments per year of: 52million/year. Ouch. EBITDA of 173 million TTM. Required (2009 amendment) principle payments of ~80million/year 37 million available to the common.
There are numerous covenants in their 2009 Amendment (can't find anywhere easy) that require payment of debt both prepayment and certain leverage ratios. Basically this locks them into an all or nothing. Pay off the debt or eat shit and die. Simple, pure and to the point.
Rambling thoughts: I actually like the debt covenants. Its in a dying industry and clearly management, needs restraint. Is this simply the greatest point of pessimism? Relative valuations lead to mixed results. GCI in some ways is priced more favorably but I hesitate to go to a slaughterhouse and write a thesis on Darwinism, so screw relative valuations.
Quick model: 5%EBITDA decay per year for five years: 133 million. 400 million in debt will be paid off.
Yearly Interest payments of 4.125% and 5.5%, 7.5%: 35.1million, 42million and 52 million respectively.
133-42-80 leave ~11million avail to common. 0.7 (error/tax factor) X 11=7.7...8x valuation gives 61 million MC...in line with current MC with significantly less debt. Very crude calculations. Pretty conservative assumptions especially based on 10year trailing financials.
The downside is protected by, ironically, the leverage. They can't do anything and fundamentally, although dying, local small newspapers are strong. People love 'em and with all that is sweeping the nation (tea party lunacy) a sense of community really seems to warm peoples hearts(nostalgic dopamine rush I guess).
This is tough though, one bad year could very well wipe out shareholders. I think the bull market is going to run for a touch longer and with everyone yield hungry I believe this will get refinanced and likely at a reasonable (read below 5%) rate. I know I would never sleep making this a full position, but being so cheap and being locked into a model that works with no wiggle room the lines are clearly defined.
Under 1.40 this looks like a buy, I suspect I'll pay a 10-20% premium for refinancing clarity. Might be worth a tracking position, 1-2% portfolio, see where the refinancing rates fall and if under 5% double the position and sell at a double. Hmmmmmmmmmmmmmm
Edit 5/4/2011: Even with the stock dropping I have held off. It seems issues with refinancing have occurred. I now wait to see if a permanent loss will happen or I will wait for refinancing to occur and take a hit on the upside.
Edit 5/5/2010: Shares jumped 15% today on the filing that CEO and Chairman bought 100,000 shares at a price of 1.06. This seems great but a look at the proxy shows her salary was over 800k for the past three years and grand total she owns a mere 430k (approx) shares. Her last purchases occurred in 2009 at a price double of today, but only 20,000 shares. This sounds like David Einhorns book and with this new information I will probably hold off for a while.
Stats: P/S: 0.11, P/B:0.9 P/E:2.2 P/FCF 0.85 63million MC. EV/EBITDA: 6.95 Current ratio 0.8.
Whys it cheap: TON's of debt. A ripe 1.351 billion in liabilities. Even if the MC went to 1 million the EV/EBITDA ratio would be an astonishing 6.5, not quite the typical response. Vultures are going insane over it and understandably so.
Its in a dying industry as well, I think in 2005, or whenever the huge Pulitzer acqusition took place, shareholders should have crapped their pants and said "I'll keep my pants but sell the stock." Alas hindsight is always 20/20. Lets move onto the foggy and often stoichastic future and figure out a path.
Debt Breakdown: All figures as of December 26, 2010...from their 10Q.
1.052 billion in debt
-969 million in long term debt
-620,515,000 in an A Term Loan with a 4.125% interest rate: 26million/year in interest.
-279,425,000 revolving credit facility 4.125% : 11.52 million/yr interest
-152,000,000 Pulitzer Notes: 9.55% 14.5 million/yr interest
Total Interest Payments per year of: 52million/year. Ouch. EBITDA of 173 million TTM. Required (2009 amendment) principle payments of ~80million/year 37 million available to the common.
There are numerous covenants in their 2009 Amendment (can't find anywhere easy) that require payment of debt both prepayment and certain leverage ratios. Basically this locks them into an all or nothing. Pay off the debt or eat shit and die. Simple, pure and to the point.
Rambling thoughts: I actually like the debt covenants. Its in a dying industry and clearly management, needs restraint. Is this simply the greatest point of pessimism? Relative valuations lead to mixed results. GCI in some ways is priced more favorably but I hesitate to go to a slaughterhouse and write a thesis on Darwinism, so screw relative valuations.
Quick model: 5%EBITDA decay per year for five years: 133 million. 400 million in debt will be paid off.
Yearly Interest payments of 4.125% and 5.5%, 7.5%: 35.1million, 42million and 52 million respectively.
133-42-80 leave ~11million avail to common. 0.7 (error/tax factor) X 11=7.7...8x valuation gives 61 million MC...in line with current MC with significantly less debt. Very crude calculations. Pretty conservative assumptions especially based on 10year trailing financials.
The downside is protected by, ironically, the leverage. They can't do anything and fundamentally, although dying, local small newspapers are strong. People love 'em and with all that is sweeping the nation (tea party lunacy) a sense of community really seems to warm peoples hearts(nostalgic dopamine rush I guess).
This is tough though, one bad year could very well wipe out shareholders. I think the bull market is going to run for a touch longer and with everyone yield hungry I believe this will get refinanced and likely at a reasonable (read below 5%) rate. I know I would never sleep making this a full position, but being so cheap and being locked into a model that works with no wiggle room the lines are clearly defined.
Under 1.40 this looks like a buy, I suspect I'll pay a 10-20% premium for refinancing clarity. Might be worth a tracking position, 1-2% portfolio, see where the refinancing rates fall and if under 5% double the position and sell at a double. Hmmmmmmmmmmmmmm
Edit 5/4/2011: Even with the stock dropping I have held off. It seems issues with refinancing have occurred. I now wait to see if a permanent loss will happen or I will wait for refinancing to occur and take a hit on the upside.
Edit 5/5/2010: Shares jumped 15% today on the filing that CEO and Chairman bought 100,000 shares at a price of 1.06. This seems great but a look at the proxy shows her salary was over 800k for the past three years and grand total she owns a mere 430k (approx) shares. Her last purchases occurred in 2009 at a price double of today, but only 20,000 shares. This sounds like David Einhorns book and with this new information I will probably hold off for a while.
Tuesday, April 26, 2011
Universal Corp UVV
As of 4/26/2011
Background: Grower of all things tobacco, and some other crops including sunflower seeds. Dividend Aristocrat, operates at (best I could tell) a running duopoly with Alliance One International (a Seth Klarmin holding). Pretty solid analysis at Gurufocus.
Stats: 42.98/share, 989 million MC, EV/EBITDA: 6.13, P/B 1.03, 35% payout ratio on a 1.90 annual dividend (4.5%). 11.33% BV growth in past 10 years. P/S 0.4. Piotroski score of 5
Reason for cheapness: Not sure, most likely due to tobacco alliance and considered a crappy commodity. More research is needed but I'm having trouble nailing down the CF statements which has prevented me from buying on a whim.
Would buy?: Yes under BV. If I could get in under 40/share I'd purchase. Everything statistically is awesome and its fairly moated. Pretty good pricing power and this is a definite contrarian play. Although study after study says that tobacco usage is waning I find that hard to believe. Go to any, and I mean ANY, college campus and everyone smokes. Its like for every study that comes out extolling the destructive nature of tobacco more and more kids smoke. I don't know if its just that cool but it'd be just that cool to get in under 40.
10K readings look pretty solid as well, nothing fishy or crazy shenanigans, but I hope to read another year or two before (if) a precipitous drop occurs. Awesome insider ownership helps too with purchases occurring around BV.
Problems:
1. Possible financial issues? Seems remote but some more digging should uncover this and other things.
2. Tobacco really is waning: Yeah right. More kids at Cornell smoke then in an opium den in Bangladesh. And they were considered smart.
3. Litigation: I think they are fairly shielded from major issues due to not actually marketing the product. Have had some minor concerns in foreign lands, paying off officials but nothing to cause major disruptive issues. This is adequately provided for in the price.
With low valuations and a super dividend anything below BV looks quite capable to produce 10-15% annualized returns: based on BV increasing and dividend. Tobacco is one of the few crops that generally doesn't need to be subsidized and therefore will most likely stay as a staple for cash strapped 3rd world countries. Couple that with modest increase in tobacco consumption worldwide (1-3% annually I believe), I would feel comfortable making this a long term holding at the right price. Running as cheap as it does and operating as a duopoly with AONE I could also see a buyout occurring from MO or PM or BTI to shave costs and start vertical integration.
Cheers
Edit 5/6/2011: I think this is a pretty solid deal. It trades at a 10% discount to tangible book value. From what I can tell there are a couple of things holding it back/dropping it. 1. Worry that its being destroyed via large cigarette companies (PMI) buying out their farmers contracts. I think this is overrated because they are getting better than book value deals out of this and also this could backfire on the manufacturers part. A big part of UVV is their relationship with farmers. PMI doesn't have a working relationship (as far as I know) with the farmers. 2. Inventories are creeping up but some issues with crops have been always present. This is part of the farming business, some years are fat others are lean. Management is good and will learn and respond.
CEO holds 69,250 shares~2.9million. About 2/3 his 2010 compensation. Not much
6/11/2010: With the recent sell off I feel comfortable taking a position in this. Small for now (2%) on the belief that a further accelerated drop is in the cards. With a closing price of 37.00, a TBV of 45/share I see a ~20 margin of safety just to get to adequate levels. Reverse DCF shows an extreme drop in earnings is priced in (>10% at a 15% discount rate). A well run business in perhaps not the greatest industry, its truly a business that could be run by idiots. Management seems competent though. Order posted and Long UVV.
6/14/2010: Got about 4% of the portfolio in there (little overstated as large cash inflows should occur soon). Really felt it was about a 2% inflow. Next point of entry for averaging down will take place at 30/share. Otherwise I'm content sitting and waiting for the dividends to roll in.
Background: Grower of all things tobacco, and some other crops including sunflower seeds. Dividend Aristocrat, operates at (best I could tell) a running duopoly with Alliance One International (a Seth Klarmin holding). Pretty solid analysis at Gurufocus.
Stats: 42.98/share, 989 million MC, EV/EBITDA: 6.13, P/B 1.03, 35% payout ratio on a 1.90 annual dividend (4.5%). 11.33% BV growth in past 10 years. P/S 0.4. Piotroski score of 5
Reason for cheapness: Not sure, most likely due to tobacco alliance and considered a crappy commodity. More research is needed but I'm having trouble nailing down the CF statements which has prevented me from buying on a whim.
Would buy?: Yes under BV. If I could get in under 40/share I'd purchase. Everything statistically is awesome and its fairly moated. Pretty good pricing power and this is a definite contrarian play. Although study after study says that tobacco usage is waning I find that hard to believe. Go to any, and I mean ANY, college campus and everyone smokes. Its like for every study that comes out extolling the destructive nature of tobacco more and more kids smoke. I don't know if its just that cool but it'd be just that cool to get in under 40.
10K readings look pretty solid as well, nothing fishy or crazy shenanigans, but I hope to read another year or two before (if) a precipitous drop occurs. Awesome insider ownership helps too with purchases occurring around BV.
Problems:
1. Possible financial issues? Seems remote but some more digging should uncover this and other things.
2. Tobacco really is waning: Yeah right. More kids at Cornell smoke then in an opium den in Bangladesh. And they were considered smart.
3. Litigation: I think they are fairly shielded from major issues due to not actually marketing the product. Have had some minor concerns in foreign lands, paying off officials but nothing to cause major disruptive issues. This is adequately provided for in the price.
With low valuations and a super dividend anything below BV looks quite capable to produce 10-15% annualized returns: based on BV increasing and dividend. Tobacco is one of the few crops that generally doesn't need to be subsidized and therefore will most likely stay as a staple for cash strapped 3rd world countries. Couple that with modest increase in tobacco consumption worldwide (1-3% annually I believe), I would feel comfortable making this a long term holding at the right price. Running as cheap as it does and operating as a duopoly with AONE I could also see a buyout occurring from MO or PM or BTI to shave costs and start vertical integration.
Cheers
Edit 5/6/2011: I think this is a pretty solid deal. It trades at a 10% discount to tangible book value. From what I can tell there are a couple of things holding it back/dropping it. 1. Worry that its being destroyed via large cigarette companies (PMI) buying out their farmers contracts. I think this is overrated because they are getting better than book value deals out of this and also this could backfire on the manufacturers part. A big part of UVV is their relationship with farmers. PMI doesn't have a working relationship (as far as I know) with the farmers. 2. Inventories are creeping up but some issues with crops have been always present. This is part of the farming business, some years are fat others are lean. Management is good and will learn and respond.
CEO holds 69,250 shares~2.9million. About 2/3 his 2010 compensation. Not much
6/11/2010: With the recent sell off I feel comfortable taking a position in this. Small for now (2%) on the belief that a further accelerated drop is in the cards. With a closing price of 37.00, a TBV of 45/share I see a ~20 margin of safety just to get to adequate levels. Reverse DCF shows an extreme drop in earnings is priced in (>10% at a 15% discount rate). A well run business in perhaps not the greatest industry, its truly a business that could be run by idiots. Management seems competent though. Order posted and Long UVV.
6/14/2010: Got about 4% of the portfolio in there (little overstated as large cash inflows should occur soon). Really felt it was about a 2% inflow. Next point of entry for averaging down will take place at 30/share. Otherwise I'm content sitting and waiting for the dividends to roll in.
Monday, April 25, 2011
Trying this again
Ok, I honestly don't really care if anyone reads this...its purely for me to track my ideas and have a long term valuation record. I'm going to try to update a company a day, simple ideas from screens or 10K readings. Ideally I'd like to place some sort of value and enter into positions upon them reaching. I figure this to be just short of impossible though so at the very least I'll simply chart my portfolio and continue valuation.
As of today the market is fairly overvalued in my opinion. CAPE is sitting at a robust 23.6. I bet (very sparingly) that the market will continue to rise. With that said, the one thing I have learned over the past several months is that the right selection hedges against both up and downside risk. That is, there have been numerous days I have continued to outpace the broad indices based on buying stocks with limited downside risk. This has then continued to aid me as my upside has beaten the broad market, despite a 50% cash position.
Idea's are few and far between. I'm warming up to small positions in LEE, IDCC, and well thats about it. A lot of screens trying to look for great cash cows (OSV, MFI, etc) show mostly cyclicals. Looking at the high earnings yields coupled with extensive other indications I think this has to be close to the top of this bull market.
Michael Burry stated that low PE's in cyclicals are almost always market tops, and on top of that I feel analysts are starting to push cyclicals simply based off of the low PE's. I'll write up some more tomorrow. Peace future Ian.
As of today the market is fairly overvalued in my opinion. CAPE is sitting at a robust 23.6. I bet (very sparingly) that the market will continue to rise. With that said, the one thing I have learned over the past several months is that the right selection hedges against both up and downside risk. That is, there have been numerous days I have continued to outpace the broad indices based on buying stocks with limited downside risk. This has then continued to aid me as my upside has beaten the broad market, despite a 50% cash position.
Idea's are few and far between. I'm warming up to small positions in LEE, IDCC, and well thats about it. A lot of screens trying to look for great cash cows (OSV, MFI, etc) show mostly cyclicals. Looking at the high earnings yields coupled with extensive other indications I think this has to be close to the top of this bull market.
Michael Burry stated that low PE's in cyclicals are almost always market tops, and on top of that I feel analysts are starting to push cyclicals simply based off of the low PE's. I'll write up some more tomorrow. Peace future Ian.
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