WeiChiLoh

Hupsteel. Trades at 60% of NCAV. Doesnt burn cash. Is in fact liquidating so that NCAV is turning to cash. Hidden real estate value that will materialize over the new few quarters. High dividend yield.

Kraken - China mieville

his money is greener than others

Thank you very much for your reply. How about the tax impact? does it occur ratably or will it be upon receipt of cash...the latter doesn't make sense to me as the cost position is still an uncertainty...

Well...not exactly the same...the company i am looking at has a finite life. But i am looking at STON as a potential short though...but the yield scares me.

I think about it like this. I count cash collected as real cash. The company can spend it or do whatever it wants with it. Then when I look at deferred revenue, I almost ignore it. While it is a liability because the future services are owed to the customer, It's not like debt where it has to be paid off with cash. Owing services and owing interest and principal are very different. For example, take Rosetta stone. It has deferred revenue from it's software and recognizes the revenues with the memberships expiring. If the company you're talking about isn't as asset light as a software company and has service contracts that require expenses, i would probably adjust for future earnings to be lower to account for the added costs required to provide the owed services. Either way, cash up front is great for the business. Yes I agree it is good because negative WC yeah yeah....but what if this is a company in liquidation. Market cap is $50m but has $100m in cash...also has $100m in deferred revenue that is has to recognize....say that $100m in deferred revenue will hit the income statement next year...and the company has a 50% EBT and 40% tax rate....dont this mean the company will have a cash outflow of $50m (expenses) and $20m (tax outflow)? So the true cash balance is actually $30m.. Am I thinking about this right? Assuming no non-cash expense of course.

I think about it like this. I count cash collected as real cash. The company can spend it or do whatever it wants with it. Then when I look at deferred revenue, I almost ignore it. While it is a liability because the future services are owed to the customer, It's not like debt where it has to be paid off with cash. Owing services and owing interest and principal are very different. For example, take Rosetta stone. It has deferred revenue from it's software and recognizes the revenues with the memberships expiring. If the company you're talking about isn't as asset light as a software company and has service contracts that require expenses, i would probably adjust for future earnings to be lower to account for the added costs required to provide the owed services. Either way, cash up front is great for the business. Yes I agree it is good because negative WC yeah yeah....but what if this is a company in liquidation. Market cap is $50m but has $100m in cash...also has $100m in deferred revenue that is has to recognize....say that $100m in deferred revenue will hit the income statement next year...and the company has a 50% EBT and 40% tax rate....dont this mean the company will have a cash outflow of $50m (expenses) and $20m (tax outflow)? So the true cash balance is actually $30m.. Am I thinking about this right?

Hey guys, I have hit an accounting roadblock that I can't seem to get my head around. Can someone help? If we have a company that provide long term services to customers (say 3 or 10 years) which are paid upfront in cash, but recognize the revenue and incur expenses ratably over the life of the services....how should one think about the cash balance? Say the company operates in a 90% tax regime (always good to push theory to the limit to test it). I would think the EV of the company is artificially low because that cash in the balance sheet is needed in the future for expenses and tax outflow. If the company has a 100% margin...dont we have to cut that cash balance by 90% (tax) as that cash is not actually excess and is required? How would it impact the 3 statements? Is it sort of like an off balance sheet liability? I would really appreciate some insights as there is this company that has such a characteristic and I can't seem to crack it.

thanks for the link. It was really helpful!

Hey guys, I am looking at some opportunities in the thermal coal industry but realised that my knowledge is lacking. Are there any books that would help? Thanks, appreciate it.

Interesting observation considering some emails I've received recently. I've been included on a thread that's debating why NICK's credit quality has dropped and why it's getting worse. I would say they have loosened significantly in the past few years, and that might be cause for concern, or maybe not. I always appreciate the different perspectives, that's what makes a market! Can you elaborate further on this point? The drop in credit quality. What metrics are you referring to? Lets shift the conversation to the other thread. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/nick-nicholas-financial/

Interesting observation considering some emails I've received recently. I've been included on a thread that's debating why NICK's credit quality has dropped and why it's getting worse. I would say they have loosened significantly in the past few years, and that might be cause for concern, or maybe not. I always appreciate the different perspectives, that's what makes a market! Can you elaborate further on this point? The drop in credit quality. What metrics are you referring to?

Seems like this is in the wrong thread.

Has anyone been following this company? Seems like a very interesting special situation-ish company. The company recently closed a dutch tender, reducing its share count by 38%. Note that 80% of shares were tendered, and combined with the thin liquidity (average daily volume of ~50k), this seems to be the perfect setup for non-fundamental selling, as event-driven guys sell. This company seems to have all three characteristic of a value investment, unloved (subprime auto lending), unknown (50k average daily volume, adjusted market cap < $100m) and special situation (dutch tender). Now to the interesting part, valuation. The Dec 2014 10Q shows NICK has $155m in tangible capital. Since the company drew $70m from its credit lines for the tender, the new tangible capital is $85m ($155m - $70m). Pre-tender, the company had 12.3m in share outstanding. Post-tender, 4.7m share were bought back ($70m/$14.86 per share), leaving the new share out 7.7m. Currently trading @ $12.64 would mean that the P/TBV of this company is ~1.15x. Downside seems pretty protected. It is interesting to know that the company recently rejected a $16 offer for the company. Now, lets talk about the UPSIDE. Always exciting to talk about the upside. Over the LTM, the company generated $15.9m in net income, which includes a non-tax-deductible (although it can be deducted in the later period) $1m professional fees. This fees are the fees relating to the potential sale of the business. This means the adjusted net income of this business is $16.9m or $2.20 per share ($16.9m/7.7m). MEANING, this company is trading at 5.75x P/E. Run rate margin is approximately at average margin. So normalized P/E should be around the area too. While I like to use comparable (CACC trading at 17x P/E), i think the business economics is just too different. NICK seems to have a more stringent underwriting threshold, combining quantitative factors (like most auto lenders do) and qualitative factors (interviewing the applicant). The result is a slower growth rate, as compared to CACC, but a more stable net profit margin (CACC STDEV % AVG is ~48%, compared to NICK's 20%). Thoughts?

My family own ~10% of the share outstanding on a company. Management of this company owns ~40% of the share outstanding. This company is listed, and has its entire market capitalization in cash, de minimis liabilities (yup, you heard that right). Needless to say, this is a Japanese company. However, its core business is highly capital destructive...barely turning a profit, if any. The company also owns a great deal of real estate, which after consulting with several real estate brokers, we estimate to be worth nearly 1.5x - 2x of market capitalization. However, after speaking to management, management is just adamant about doing anything about the situation. What to do?

Perhaps it is self fullfilling or cold reading.

but either ways, I am long BCOR & TPUB.

What is wrong with the long yahoo, short baba & yahoo japan trade? I cant seem to find a problem.

my god. i am an INTJ too.

Stop me if I am wrong. Since EBIT would be too low given aggressive depreciation, EBITDA - CAPEX seems more appropriate. 2014 EBITDA @ $450M. CAPEX @$100M. Interest Expenses - $50M. Tax - 40%. FCFE - $180M This is probably CONSERVATIVE, believe it or not, as EBITDA includes ($30M) EBITDA loss in New Ventures, which from the looks of things, should turn positive soon...maybe 2016? It also includes growth CAPEX from New Ventures. So normalized EBITDA probably too low, CAPEX too high. Using 2014 full year guidance. Redbox $390m EBITDA $18M+$29M Maintenance CAPEX = $47M Maintenance Capex - Used upper end of guidance, allocate corporate CAPEX according to revenue, probably too aggressive as a good portion of corporate CAPEX is probably embed into New Ventures Tax @ 40% FCFF = ~$200M Discount Rate = Unlevered beta of 2? - Guess it is hard to say whether Redbox will still be around in 10 years? That come up to be roughly 2.7 levered beta. 18% cost of equity. Cost of debt roughly 3% (after taxes). Cost of capital = 12.5% Perpetual growth - 1%? Value of Redbox = $1.7B Coinstar $120m EBITDA $5M+$5M Maintenance CAPEX = $10M Maintenance Capex Tax @ 40% FCFF = ~$66M Discount Rate = Unlevered beta of 1? - Stable business? That come up to be roughly 1.35 levered beta. 10% cost of equity. Cost of debt 3%. Cost of capital = 7.5% Perpetual growth rate - (3%) - I stand by my belief that the shift to digital kills Coinstar business. Value of Coinstar = $600m Redbox + Coinstar = $2.3B = $82 + Upside optionality from New Ventures + If price hikes are indeed successful. More optionality there too.

Yea. I kind of figured that out. (Before you told me, YAY) I was initially puzzled how collectively 6-years CAPEX exceeded D&A by only 10%, even though Redbox had a 140% kiosks growth over the same period. Yes, another possible driver is that 2014 was a relatively soft box office year, unlike 2015, probably a box office record year. Thanks for the idea. It is indeed exciting. I will update you on my findings.

I still do not get how I got FCF multiple horribly wrong. I need guidance. Over the last 6 years, collectively, CAPEX is roughly inline with DA. So I guess EBIT (1-t) would be appropriate. EBIT(1-T) $260(1-40%) = $160 EV $2B / EBIT $160 = 12.5X Please help. I am dying to know the answer.

I kind of get it now.... Redbox has content license agreements with several studios to release titles on the day of retail releases. NFLX does not have this. Did I get it right?

Alright! I will give it a go again. Give me a day.

Outerwall seems fun! SHLD and FNMA...kind of a crowded situation. Outerwall is interesting, it screens well...but from a rudimentary reading of the 10K....it sucks. 9X FCFF business. Operating in segments which has tremendous secular headwinds. Why pay $2 for Blu-ray & $1.50 for DVD, per day per title, when I can pay $8 per month for all the titles I want. Coinstar is also kind of terrible. Shift to digital-based payment media should add pressure to the business. D&A, not including amortization of content library, is ~50% of EBITDA. A fun project. meeeeeh http://www.clipartbest.com/cliparts/Kcj/g7R/Kcjg7Rgpi.png Hahahaha..What? :)