Patmo
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Posts posted by Patmo
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According to the most recent 10Q California's audit is ongoing and now extends through 2013.
If you assume that 50% of the recycle sales eventually are audited by the various states in which ARCI does business (many states wait for a big boy like California to collect and then try to free ride on their work) and assume an average tax collected of 6% of recycle sales for each of the last three years you get approximately $40ml in taxed sales or $2.4ml in tax due. This assumes no penalties but I doubt there would be penalties in this situation unless there is alot more to the story because of the social good associated with this sales activity.
Anyway, if you added $2.4ml to the current EV of $28.2 you get $30.6ml, with EBITDA of around $7ml, or 4.4x. Regardless of your assumptions, I think this is part of the story.
With the absolute crap quality of new applicances today (designed IMHO to wear out in three or four years instead of the eight to twelve that prevailed just a few years ago) it seems like the opportunity to do more recycling could be on the rise, but of course that is just my specualtion.
I like that management owns about 20% and that their compensation is reasonable, with the top three officers taking home between 10-15% of EBITDA.
I passed on this years ago but am going to look at it again. The CEO is 73 which I find interesting.
The CEO (who I believe was also founder/owner-operator type, not sure) retired and in his place is newcomer former COO who was initially hired in 2013. The CFO subsequently left recently as well, I suspect/speculate that he felt wronged in being looked over for the new guy. At any rate I like what the new CEO says he's been doing. I'm not sure how the company works and whether the appliance sale side can be dumped or whether it's a necessary evil for the company to do business, but the trend shows they have been and will continue to increase focus on the recycling side, which is (coincidence!) much more profitable.
Are there precedents for this kind of tax issue? Do companies have a chance at settling on this or is it just a black-or-white you owe or you don't, at the mercy of the governments? Also, the company only mentioned California investigating so far, I wonder if the co actually paid taxes or not in other jurisdictions. The co remains pretty cheap anyway as per your conservative calcs, but a $2ish mil charge would be nice to not have to pay.
Also, I get a drastically different EV outcome than you. Do you mind sharing what you put in there? Did you factor short term debt (line of credit)? My calc is almost 10mil lower than yours.
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I made some quick digging, and it looks like there was a big drop in share price on news that the company didn't pay California sales tax in 2011 or 2012, and could potentially have to pay them back. The company's only California operation is a recycling facility, one of 11 for the company. Recycling was 22.1 and 26.1% of revenues in 2012 and 2011 respectively. At a 10% sales tax rate, the company would owe a little over $530k in taxes assuming the California operation is of average size (eg. 1/11 of recycling revs). I double this charge in EV in case of additional fees and a hunch that California is one of the larger recycling operations for the co.
EV/ttmEBIT is still 3 factoring this charge. Very interesting considering new mgmt is being proactive in seeking out contracts and cutting expenses in the fat and the recycling business is very profitable and has a nice future. Appliance retailing business is actually a loser for the co, despite being competitive with the big retailers price-wise due to offering "special buys" (the otherwise good appliances that the appliance cos won't market, like out of box stuff, etc)
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ARCI sells appliances under the brand Appliance Smart and also offers appliance recycling programs. At $2.7/share It's trading slightly below book value of $3 and EV/ttmEBIT 2.86.
I'm sorry I don't have much to say just yet as I didn't read everything I could yet. I do know that there's new mgmt in place as CEO retired and CFO is moving on to bigger things. New CEO is proactive and has already begun undertaking measures to increase top line and cut costs in the fat. Guidance is high 6-figure, low 7-figure cost savings for 2015. This alone would bring EV/15EBIT down to 2.5.
It looks like kind of a boring, crappy, low margin business at first glance, but cheap enough to warrant an investigation.
I'll do more digging later on and provide an update on my more relevant findings.
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Well you seem to be pretty damn good at reading reports/investing in general judging from what you picked up on ESI latest 10Q (unless it's a different roark?) and overall quality of comments, so I guess it would make sense to look at this as the next weapon to add in your arsenal?
Short of forking over some material $ for industry reports of questionable quality, one would (often) need to go full spy mode to obtain the required information. Sounds kind of exciting. I'm just in the process of getting a grip on the nuts and bolts so personally that's not something I envision doing anytime soon and obviously I have nothing to contribute re: scuttlebutt strategy, but it seems there's nothing for you to lose in the spot you're in. Only downside is you'd have to step out of your comfort zone a little, something every big boy has to do once in a while.
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If you are really interested in spinoffs I have two suggestions:
1) Study the Liberty Media spinoff carefully and pay careful attention to all of John Malones spinoffs.
2) Do exactly the same as 1) with William Erbey and Ocwen.
What's special about William Erbey and Ocwen? Is he a Malone pupil? Or is it the way he carries his business that you think is impressive? Just curious, I don't know about this guy much.
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I use a way that seems simple... I just look at ROE through a dupont analysis and adjust for leverage to find out what ROE would be with 0 debt (aka assets/equity is 1). Is there something wrong with this?
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Comcast merger might have some interesting merger securities, considering how hard they're pushing for it.
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Excess cash is dependent upon industry so you need to look at what the comps have and any in excess of the high end of the range is a reasonable estimate. However you have to understand the cash cycle of the industry also to identify excess cash.
Packer
Obviously, size of the comp (and other things) can affect the meaning of a comp's cash balance. What should be used as a basis of comparison to scale? % of Total assets?
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God is the adult version of santa claus, the boogeyman, etc. Literally no more and no less. There has never been magic, and there never will be. This is such a simple issue to me that I have a hard time understanding how people even have arguments regarding this, let alone all the other bullshit.
I was waiting for the bus a couple years ago when some priest started yelling at me (so much for live and let live) after I answered his query that no, I did not believe in god. "How do you explain the universe?!?!?", he shouts. The same way you explain everything else, keep trying until you figure it out. If god is merely a placeholder for human ignorance, it's a pretty weak god. We've been defeating it little by little for millennia now.
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Frankly I have no clue why someone would think 7x EV/FCF is the cheapest stock out there. So many exceptions posted already and several of them have been discussed on this forum in great detail. It would be nice if the topicstarter chimes in again. What am I overlooking? Are you looking for US stocks only? Am I missing some other considerations?
I think it's that we only own 6 stocks and the ones posted aren't in my circle, so I'd rather own one at 7X FCF (deducting all capex not just maintenance) than a cyclical stock at 4 or something. I weight my confidence in the business the highest of anything when considering a stock.
Oops you were asking for stable companies only, I guess we just derailed your thread a bit with ESI and for profit education talk.
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If I would say that there is a decent chance all student loan funding would be cut off because their stats look pretty bad, and that would mean equity holders would be wiped out, what would be your quick response (for ITT)?
Not going to happen.
There's too much of lobbying money, too big a political price to pay , not to mention too many employees ( around 50K) and too many students ( more than 2 million) that would be affected for govt to do anything as serious as cutting off ALL funding.
Reduced govt funding - Yes. Zero govt funding - not a chance.
In a reduced govt funding scenario, I think the best of the for-profits are going to survive ( irrespective of how education landscape changes).
If we forget about market valuations and just go purely by quality, who do you think is/are the the top dogs?
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No quick response, just hold. Tbh I read even on here everyone talking down gold at end of last year and it just flew over my head. I feel like I had a better perspective on gold than I have on FPE, but margin of safety is way too huge to listen to doomsday talk. However it turns out I know I will have had expected value from this investment skewed way in my favor.
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ITT Tech (ESI) is currently the cheapest I know of. But you have to go by the 2013 FS which are in the process of being restated to consolidate the PEAKS program, a pretty sizeable beast. $215 million senior debt, but the PEAKS trust has an unknown amount of assets (student loans receivable) intended to be used to service this debt. The company estimates that a sizable amount of receivables intended to be applied against the debt is impaired.
Anyway, excluding the PEAKS program, ESI trades at 1x EV/EBITDA-allcapex 2013 according to a quick calculation using google finance's statements. Adding in the entire $215mil debt still gives EV/EBITDA-allcapex of 3, still quite cheap.
Patmo,
I notice you have TESB listed as TESB.EN rather than TESB.BR so I was wondering if that is just an different exchange?
thanks
Zorro
No, just my mistake.
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ITT Tech (ESI) is currently the cheapest I know of. But you have to go by the 2013 FS which are in the process of being restated to consolidate the PEAKS program, a pretty sizeable beast. $215 million senior debt, but the PEAKS trust has an unknown amount of assets (student loans receivable) intended to be used to service this debt. The company estimates that a sizable amount of receivables intended to be applied against the debt is impaired.
Anyway, excluding the PEAKS program, ESI trades at 1x EV/EBITDA-allcapex 2013 according to a quick calculation using google finance's statements. Adding in the entire $215mil debt still gives EV/EBITDA-allcapex of 3, still quite cheap.
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Personally I don't calculate that crap, I know I spend significantly less than I earn to begin with aka I have a large personal finance margin of safety! I'm reasonably cheap on the big stuff, so that I can live well on the day-to-day. I own a 7yo car paid in cash, rent a room, etc. So I don't think twice if I want to treat a coworker to lunch, go do activities of any kind, buy books on amazon etc. I also only buy stuff when I need/want them rather than chasing bargains for crap I won't use. I enjoy life much more that way than having a brand new car, boat, mortgage, RV, 3D HD plasma TV and stay up all night, calculating every penny to figure out whether I'll make it this month. These toys just won't make me happier enough to justify the cost. Rant over :-X.
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I just use Google's... Does the job.
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Topics like who's the best investor between Buffett and Greenblatt are really interesting. I bet if it's discussed over a few dozen more posts a clear winner will emerge.
More importantly though, who's the best lead singer, guitarist, bassist and drummer of all time?
I don't know if you are talking about my post, but my point was the exact opposite of what you may have gleaned from it.
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For me Greenblatt, not Buffett, is the authority on this because of his track record in investing in special situations.
2- I would just study Warren Buffett. His track record is better than Joel Greenblatt's.
I don't think this is correct. Joel Greenblatt's public track record for the 10 years he had his hedge fund, which did exactly the type of investing he describes in You Can Be a Stock Market Genius, was 50.0% per year gross/40% net of incentive fees. I don't think that Buffett beats this in any 10 year period.
Warren Buffet is amazing and his accomplishments are to be respected and studied, but there are better investors out there as well. Nobody is the best in the world at anything for 60 years straight, let alone the most competitive "game" in the world. Joel Greenblatt is probably top shelf, and there are a plethora of others that nobody knows that are really damn solid.
When I read or hear people talking Buffet with their "mental model inventory" this and their "wonderful, wonderful" that, citing their favorite Buffet quote as proof that their argument is right, I can't help but think of kids mimicking their favorite sports athlete. Lebron always wears red caps? Man I'm only wearing red caps from now on! Sid Crosby said in an interview that to be good at hockey you need to practice team plays? Man I'm never doing individual drills again! It's like there's no place for individual thought, if you don't go full Buffet you might as well put yourself in the trashcan where you belong.
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I have done no analysis and I never said that I did. I was just pointing out that your argument is results-oriented. If you put $1000 on black and win with roulette, did you make an 'indisputably' correct decision? No - you were just lucky. To judge the decision you have to focus on the business, not the stock price. Hence the CYNK reference.
You said, "The fact that a stock goes up after you decline to buy it doesn't mean your analysis was wrong".
Ok, then what shows this analysis is wrong or right?
Two points
1) Its antithetical to value investing to believe that market price moves validate or invalidate the research you did.
2) It doesn't really matter if your thesis was incorrect on something you didn't buy. Its almost never worth rehashing it.
The reality is that value investing will always miss some great ideas. You have to be comfortable with that.
I would never buy AMZN and I can't possibly fathom how someone who calls themselves a value investor as I conceive value investing could buy the shares. But that's ok.
Me too, but I'll also have more respect for someone who does their own thinking than a BuffetBitch who takes every word that comes out of our favorite friend's mouth as purer truth than the laws of nature. When you think for yourself, you give yourself a chance to improve. When you follow like a blind sheep, you stay a blind sheep.
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Agree 100%. It's also going to happen, but it will take a while. Seems like a generational type of change, where our kids or the kids of our kids will see things in a different light and make smarter choices. A long way down the road people will think we were fumbling idiots for having this stuff criminalized in the first place.
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Hmm. Warren Buffett vs Palantir. Thats a tough one.
-CM
See my post, page 2...
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Pretty much all of Buffet's quotes... Not because what he says isn't sensible, but because many peoples take it as gospel, the word of God himself. People even use his word as an argument, as if what he says is pure fact and any deviation in thought is WRONG. Dang...
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No I mean that when Malone spins something off now, and he holds a large stake in it, everyone will pile into it. Since Greenblatts book is so popular, an Liberty media was one of the best investments in that book.
what is the best way to get in this thing?
You're right, and I've been looking at a few recent spinoffs and none seem to be interestingly cheap. It could be that everyone started looking at spinoffs again since everything else was expensive.
I don't know if I even want to get in on this, I was just posting because it's pretty interesting and makes for good practice. I'll let the spinoff happen and see what people are going to trade it at.
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Patmo - looks like your math is right on the shares but I don't think you can just divide today's market cap across the number of shares. The share count is right but the division of the market cap between Liberty Media and Liberty Broadband will depend upon the deemed value of the assets under each entity. There's a pretty good discussion under the Liberty Media topic which shows the current discount vs asset value (you can apply the discount to either Charter within LB or Sirius within LM).
Well, that makes more sense. The $4.6bil 26% stake in charter, TWC at $400mil plus $3bil tax asset alone come up to $8bil. TruePosition is like a $60mil revenues a year business, so it doesn't seem to matter. I don't know what kind of leverage they intend on putting on broadband, but that initial prospectus seems to be trying hard to spook people into thinking it'll be in debt to the gills.
For some reason the pro forma BS on page F-35 doesn't account for the $300mil swap or the $3bil deferred tax asset ($8bil NOLs). At any rate, judging by this piece, debt would be something like $500mil total for broadband. Seems like nothing?
I wonder what Charter itself's intrinsinc value really is. Face value EV/EBITDA is about 10. I don't know what assets they are depreciating and how long they'll produce, but it makes up 2/3 of that ebitda. P/oCF is like 7. Doesn't seem terribly over or undervalued at first glance, although it has lots of debt itself.
The Ethics of Public Discussing a Short Position
in General Discussion
Posted
Have you been swayed to discussing your short position openly? I'm quite curious what idea made you dip your toes in the short pool.