Laxputs

This is a daily 1/2 hour show on macro economics. Good guests, intelligent host, range of macro economic issues. Produced in high def. One commercial break. I recommend it. Yesterday's was on oil and its affect on the economy. https://www.youtube.com/user/BoomBustRT

3 hours later.. going to go ahead and answer my questions... correct me if I'm wrong. 1. Seems like hotel companies report non-GAAP figures like FFO (funds from operations) (and adjusted funds from operations). The main difference between these figures and Net Income is the lack of building depreciation. This suggests to me that a person could look at cash flow from operations as nearly FCF. 2. This was in the 10-K of a company I've been looking at: "The useful life of each property is evaluated annually based on certain factors including construction materials used, location, condition of the property and the particular capital maintenance program and requirements of the property. The only exception is land which has an unlimited useful life; therefore, it is not depreciated." So it seems like land is always being reappraised but that the asset could still be "hidden" if it is small enough in relation to total assets and the cash flows derived from that property are under performing a reasonable capitalized rate. I could be off on these.

1. When valuing a company that owns a series of hotels, can one consider the OCF to closely equal FCF? If the useful life of the asset, the hotel, is several decades (greater than 60 years?), can depreciation be seen as a non-maintenance capex item? And given that general upkeep is already expensed, OCF equals FCF? I noticed that for a shipping company this was the case if the asset, the ships, were to be seen as being run until they couldn't be used anymore and then not replaced. Seems like if an asset has an extremely long useful life (hotel has a longer life than a ship), one could just disregard depreciation on the Income Statement? 2. Is the land on the balance sheet where a hotel resides, valued on the generation of its cash flows (i.e. if the hotel is earning a pittance as compared to the value of the land, the land could be a hidden asset)? Or is the land valued based on current market value of the real-estate given location and similar values, etc.? TIA

In regards to Hawaiian Holdings, how should one view the reconciliation from Adjusted Net Income to GAAP Net Income, with regards to the fuel hedging? Why doesn't GAAP reflect what the company actually paid for its fuel, given the hedging the company has in place? Why does there need to be a difference in the two figures due to GAAP? Here is the latest quarter summary for reference: http://investor.hawaiianairlines.com/phoenix.zhtml?c=82818&p=irol-newsArticle&ID=1979966 TIA

Interesting. Thanks for the reply. What do you think is a good metric to compare airline companies that lease airplanes?

Canadian.

Thanks. Taking HA for example and using this recent 10-Q, what do you say EV is: Here is a link: http://investor.hawaiianairlines.com/phoenix.zhtml?c=82818&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTk3MTMwNDcmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d Pg 38 breaks down debt and capital lease obligations Debt and capital lease obligations = 1372 MCAP = 13.4 x 62.9 = 843 Cash + short term investments = 564 EV = 1651 Or do we include " Operating leases--aircraft and related equipment" as well = 641 EV = 2292 TIA

Thanks. Does one capitalize the lease obligations at 8x when calculating EV and then add back the lease payments for the year to EBITDA?

Does it make sense to value companies with significant rent/lease expenses with EBITDA + R? The reason being an owner of the business can decide her own capital structure and the Rent is not a necessary expense? TIA

Can't get EUPIC on IB. Thanks though.

Great start! Thanks. I'll spend some time on it. Looks like original research time as I can't find anything out there in the Value Investing community. Not a bad sign at all.

I have very few European companies I am watching. There must be some micro-cap gems out there where the baby is being thrown out with the bath water. So if you have some ideas try to fit some rough guidelines: -Under 1b mcap -Decent management -Cheap on a FCF multiple basis and/or EV/EBITDA -Low debt (high interest coverage costs if debt)

http://www.valuewalk.com/2014/09/tesla-ceo-musk-predicts-autonomous-car-in-six-years/

It's true, I definitely have some exposure there.

My portfolio definitely has a huge influence from the Red Corner. I don't have all of his ideas though. And AIQ, Emeco, Enterprise, Macro, were all discussed thoroughly here. I first heard of AIQ, and Emeco from Packer. My response would echo Yada as to why it's similar to Red Corner's. I can't find higher upside and lower downside than his ideas. I try to poke holes in them and look at all the ideas posted there very critically but end up buying into most of them. What I'm doing differently now versus 6 months ago: 1.Asking for higher returns from a purchase. At least 25% / year. It used to be 10%. 2.Focusing on smaller, often more illiquid stocks. 3.I'm now going global, versus N.A. listed. 4.I do much more extensive analysis and participate in this forum. 5.I hold 8 positions instead of 6. 6.I source ideas more broadly, follow more blogs, read more posts. We can discuss Future Bright more in-depthly in its own thread. Thanks for the responses.

I'm really trying to get better at this. I'm doing things very differently than I was 6 months ago. Learning lots from the threads on here and some of the members that have been helping me by responding to some PM's. I have no plans to stop harassing you anytime soon. If you see something you don't like in my portfolio, mention it (be it an allocation or diversity issue, or a weakness in one of the companies). If it's related to one of the companies, I may re-post that comment in the actual thread pertaining to that specific company. Future Bright Texhong Keckseng Macro Enterprises Enterprise Group Emeco Alliance Health Care Services 17% cash

Still an interesting read. I imagine some people are still following this. Central topic in the latest article concerns how the Euro debt will be the cause of certain major market corrections. And investors fleeing to safer harbours (US equities and USD) will provide long-term rallies in those markets. Would be interesting to hear some feedback on this one: http://www.icecapassetmanagement.com/uploads/documents/2014.09%20IceCap%20Global%20Market%20Outlook.pdf

Just finished a year of Guru membership. It's close to worth it. Would easily be worth it if they included data on foreign companies. I'm not renewing as of yet though. Would be interested to hear site for reliable 10 year data from world wide companies. I'd pay for that.

Is land depreciated off the balance sheet over time? I can see buildings needing to be depreciated, but land? Or does it get assessed and adjusted based on current market prices of similar selling land? But if that's the case, how are there companies with "hidden value in real-estate that has been depreciated [or written-off] over the years"? TIA

Watch this very well done short doc. 15 minutes. Then tell me how to profit from it please.

Is there anything wrong with doing approximate math on a growth stock like this: Earnings are 4000. Grows at 10% for 10 years. Earnings in year 10 will be 11640. 11640 / current shares = 25. 25 x multiple of 15 = 375. If we knew those were the numbers, what is the stock worth today? 375? Or is this where we add in a discount rate? Thanks.

Really good post. Thanks for trying to help me understand this. 1.Why would accounting rules dictate that sometimes an asset is depreciated faster than its useful life? 2.From the 10-Q: "Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining period of the lease." Are LHI amortized because they relate more to design layout, installing fixtures, etc., and their useful life is more inexact given the intangible nature of their value? 3.The answer the CFO and other analysts have said when the question comes up why there is such a difference between depreciation and maintenance cap ex is: Leasehold improvements are significant and depreciated over the life of the asset but maintenance cap ex is spent more on equipment and other costs. Or another similar answer is that they over depreciate their assets and the assets actually last a lot longer. 4.It seems to me the crux is LHI. When they open a new location they have to spend on LHI - the upfront costs that are not so much maintenance as they are building the place out to be a gym--more one time costs even though of course the place will have to be maintained. They obviously need to do maintenance on that over the years to keep it looking like a good gym. If they expand to a new location without closing an old location that would be under growth LHI and would not relate to OE (only the yearly maintenance on that location would relate to OE of a new location) . If they close an old location and open a new location, that LHI has to be under maintenance cap ex, and that has to affect OE. 5. Their location numbers have not expanded since 2008 but there will still be a big difference between depreciation and maintenance cap ex given the amortization of the LHI is over the life of the lease. In theory, if they did not open any new locations going forward, after the LHI are amortized off the books D&A and maintenance cap ex would converge. They have plans to open new centres in areas they have a proven market and economies of scale working in their favour. And they have plans to open boutique studious. So this won't happen. 6.If they keep the same lease, same location, when the lease expires, they get a lot of value from the original LHI because they do not need to spend the investment in LHI at a new place, they can just spend on maintenance cap ex, about 20-25m a year, and reap all the cash flows. If they can keep the vast majority of their locations without having to open a new location to replace an expired lease, then maintenance cap ex is likely accurate. Given their history and the industry trends, I am betting and hoping they can do so. I believe I understand this investment a lot more after writing this down. But please look to poke holes in it. The key to OE being roughly accurate is keeping the same number (or more) of gyms in the same lease locations, without having to spend money on LHI to replace expired leases/locations. If they can do this (and manage debt, membership numbers, lease renewals, etc.,--of which I am less concerned) OE should be fairly accurate. They don't need to be very accurate for a massive yield. LHI should really be seen as growth IF the gym count is kept constant (or increased) and the gym's locations are kept constant by lease renewal. The company may face lease re-ratings. The company has a lot of debt. The company is facing competitive headwinds. So there is a company that has been around for 40 years in a business that is easily understood. Offering better than a 20% OE yield with a 10% dividend and half its share price in cash, that has bought back large amount of its stock during sell off times, and operates in a growing industry. Any contrarian investors out there? :) Thanks.

Thanks for the quick replies. This may be getting too specific now, without knowing the company, but I'm looking at Town Sports International. CLUB. The CFO has stated that 4% of sales, or about 20-25m is what's needed for maintenance cap ex. But their depreciation is around 50m a year. This creates a massive difference between earnings and owner earnings. He has said that "a lot of our depreciation that we incur for the company relates to our leasehold improvements which run over the life of the lease and I would say a smaller degree of our maintenance cap ex reflects a leasehold improvement component as opposed to equipment and other types of maintenance cap ex that we’re spending money on". I am trying to understand if the 20-25m a year includes all cap ex costs that are necessary to maintain the gym and membership base, including replacing leases that expire by outfitting new locations if necessary. They pump out the CFFO so if the maintenance cap ex is correct, the yield becomes attractive. But I still can't understand how there can be such a large discrepancy between D&A and maintenance cap ex over the long term.

There are a few companies that come up in the value investing blogosphere (BDMS, LTM, CLUB) where it is alleged the company consistently reports greatly lower earnings than FCF. It is often due to there being a difference between maintenance cape ex and depreciation and amortization. Can this occur over the long term without it being an accounting trick? Should D&A always equal maintenance capex over the long term?