SafetyinNumbers

I can’t answer the question but I do think the strong dollar is the cause of a lot of imbalances around the world. I think it’s artificially keeping commodity prices low which might result in supply shortages. It’s making US manufacturing less competitive which is increasing income inequality. It’s forcing interest rates negative in other “safe haven” currencies.

I’m doubling down on Atento (ATTO) for 21. I think Covid obscured the operational improvements in 2020. Net debt has declined materially in 2020 ($595m to $515m) to make the stock relatively cheaper and safer in my opinion. I held on (and added early unfortunately) through the volatility and feel better about the business than a year ago. Management did a great job managing through Covid and the decline in the BRL but the hit to headline EBITDA was hard in Q1 and Q2 especially. EBITDA margins bounced back to 12.7% in Q3 and I’m expecting improvement in 2021 to 14%. USDBRL has been stable for three quarters @5.4 and is currently below that average (which is good!). If oil rallies as many expect, ATTO could be an indirect beneficiary through its emerging market currency exposure. At current exchange rates, ATTO could put up north of $200m in EBITDA in 2021, at 8x EBITDA which is a low end multiple, my intrinsic value estimate is $67 using $500m in net debt which accounts for dilution of options and RSUs. Lots of risk in that estimate of course but too much in the price of ATTO, in my opinion. Street estimates for 2021, are very deceptive. The “street” is expecting $160m in EBITDA (11.4% EBITDA margin) but that’s made up of three estimates: Barrington $174m Goldman $114m Morgan Stanley $192m To the extent there are active managers left, I have been in the room when a PM asks an analyst what came up on the quant screen. In this case, Atento screens at 4.6x consensus EV/EBITDA. The PM will ask the analyst who covers it, he’ll ask what the multiple is on Goldman’s estimates and the analyst will correctly answer 7.8x. You see Goldman’s net debt ($686m vs $515m) is way higher because it’s EBITDA estimate is way lower. The PM will then look the analyst directly in the eye and say “Can we short it or buy puts?” and the analyst will say “No, it has no listed options and it’s illiquid.” That’s the end of the discussion. What the PM doesn’t know is that Goldman has not updated their estimates since before ATTO reported $45m in EBITDA in Q3. In fact, their 2020 EBITDA estimate is $94.9m while ATTO has already reported $107.8m 9MTD. Goldman will eventually drop coverage or change their estimate if ATTO decides to pursue refinancing the 2022 debt in January forcing them to update the street on Q4 preliminary estimates which will likely improve on Q3. If consensus moves to Morgan’s $192m in EBITDA, even at the current EV/EBITDA multiple of 4.6x that would result in an ATTO price of $25. If the active funds don’t come, maybe the quant funds will. If there is a lot of variation in estimates, it makes sense for low volatility quant strategies (most of them!) to avoid those stocks. ATTO’s estimates will become significantly less variable if Goldman updates or removes it’s estimates although the former is better as more estimates are helpful. Recently spun out peer Concentrix (CNXC) trades at around 9x EV/EBITDA.and has very strong free cash flow. Their business strategy (growth by acquisition) and market position (big in Asia and smaller in LATAM) makes them seem like the perfect dance partner for Atento in 2022 when ATTO has achieved 15% EBITDA margins and has grown sales for a couple of years (assuming stable exchange rates). At 8x 2023E EBITDA of $270m (assumes 16% EBITDA margin expectations with 5% CC revenue growth) which CNXC would pay in the summer of 2022, ATTO would fetch ~$100/share give or take. ATTO would still be accretive to CNXC even if paying a fair multiple because of synergies and CNXC has a much lower cost of capital and would save on refinancing the bonds. It’s possible, CNXC wants to buy ATTO now but the three controlling shareholders of ATTO, GIC, HPS and Farallon (~70% ownership) will want a fair price and I think they recognize it’s a lot higher than here. I don’t know what’s going to happen but with the stock less than $14 and a recently incentivized management team and BOD (1.7m options with an 8 handle in August), I like the odds. Next week should see some stock for sale as RSUs vest today and there is some forced selling to pay taxes next week by the RSU trustee. I'm estimating about 150k shares for sale.

Adding more ATTO on a retest of the breakout at $12ish. I'm not very technically inclined but that seems like an important level. More importantly to me, the move from $10ish to $12ish, took the EV/EBITDA multiple from 3.7x to 3.9x so there seems like a lot more room to run if multiples can expand or if investors can gain more confidence in the numbers after they report Q4 or if Goldman finally updates their estimates. ATTO bonds are trading in the high 90s (due in 2022) so a bit of a disconnect between equity and debt persists. The equity is significantly less liquid than the bonds which might help explain the disconnect. https://finra-markets.morningstar.com/BondCenter/BondTradeActivitySearchResult.jsp?ticker=FATNL4525153&startdata-ipsquote-timestamp=12%2F15%2F2019&enddata-ipsquote-timestamp=12%2F15%2F2020

Starting tor read about these guys. Seems to be a fair amount of the business in Brazil, which is going to be challenged, right? Brazil (~40% of revenue) has their highest EBITDA margins at 16%. Both revenues and costs are in BRL so it has hurt on a linear basis already in Q2/Q3 results. The USDBRL averaged 5.38 both of those quarters and it’s currently at 5.06 (but volatile) so if that holds there should be a positive currency impact next year, all else being equal. Given Q3 margins were above last year I think it’s safe to say they have been up to the challenge.

Added more ATTO today Tiny market cap but big company. They reported a strong Q3 and will likely again in Q4. Goldman, one of the three analysts didn’t update estimates post earnings last month so the forward EBITDA consensus is way too low. I think he’s either embarrassed or indifferent (ATTO reported $45m in EBITDA and GS was at $18m). Either way, consensus 2021E EBITDA is only $158m, while the three estimates are $114m, $174m and $185m. For 2022E, the consensus is $171m with Goldman at $138m and the other estimate at $204m. Throwing out Goldman’s stale estimates, ATTO is trading at 3.7x EV/EBITDA. Competitor Concentrix (CNXC) was just listed on the Nasdaq after spinning out of Synnex and it trades at ~9x EBITDA making, ATTO quite accretive for an acquisition. Slide 31/32 in their analyst meeting deck make a pretty good case to buy Atento to solve for growth in emerging markets and for accretive acquisitions. https://ir.concentrix.com/static-files/6c895513-f519-46ce-9566-5c33ca93a8dc I think this deal happens within two years which will be after ATTO management gets margins up to its target of 15% and the stock price is much higher. At 8x EBITDA on the consensus 2022E number of $204m, yields a target of $70 vs the current price of $10.45. Lots of room to be wrong in between those numbers and still be happy. In fact, I think the EBITDA estimates are too low so I see upside beyond that.

I totally agree. I’m sure you are aware of this but for anyone else who might happen upon it. There is a big deemed dividend for Canadian resident investors in taxable accounts for shares tendered to the offer and I think the tax treatment is also terrible for US residents (in taxable accounts at least).

I own a few gold miners and even a few warrants. I like the macro backdrop but also there are quite a few juniors trading at very low valuations. Individual names are definitely harder but the rewards can be big.

More ELF.TO

That was quite the head fake from GMP on the dividends. Now bid up on the original thesis that the credit spreads are two wide and significantly more equity will be issued to take in RGMP. GMP just suspended their preferred dividend for what looks like a technical reason / incompetence but I don’t know for sure. Essentially, they need to have a shareholder meeting to reduce the stated capital and from what I can tell they haven’t had their 2019 AGM yet so it should be by year end. Anyway, another bad idea in a string of bad ideas from me. Apologies. Most likely only a bad idea in the short term. If one can use price weakness to add to the GMP prefs at lower levels on this news, when the dividend is restored later this year, will turn out to be an even better idea. I didn’t expect holders to react rationally.

GMP just suspended their preferred dividend for what looks like a technical reason / incompetence but I don’t know for sure. Essentially, they need to have a shareholder meeting to reduce the stated capital and from what I can tell they haven’t had their 2019 AGM yet so it should be by year end. Anyway, another bad idea in a string of bad ideas from me. Apologies. Most likely only a bad idea in the short term. If one can use price weakness to add to the GMP prefs at lower levels on this news, when the dividend is restored later this year, will turn out to be an even better idea. I didn’t expect holders to react rationally.

GMP just suspended their preferred dividend for what looks like a technical reason / incompetence but I don’t know for sure. Essentially, they need to have a shareholder meeting to reduce the stated capital and from what I can tell they haven’t had their 2019 AGM yet so it should be by year end. Anyway, another bad idea in a string of bad ideas from me. Apologies.

Bought a little more AH.DB. ~35% YTM, due in 23 months and I think they have enough liquidity (for now at least) to pay it off.

I think an SIB would be more accretive that a buyout of EVT or an acquisition but you could definitely be right. Also, while buying EVT has the fringe benefit of buying the ELF it owns, it’s controlled by the family anyway and to avoid tax they would have to keep all of their ownership. I like there is almost zero interest in the poll and the name. I was clamouring for a buyback for years at the AGM and I have to give Duncan credit, he didn’t swing until he saw a fat pitch with the NCIB, in what were scary markets. The family bought a ton of stock last fall and then the company bought 20% of the free float (5% of shares outstanding) in two months and the NAV discount is bigger! A SIB seems like the next logical step and would be legendary from a value creation standpoint. Companies don’t get many chances to make a potential 100% return on every dollar they spend on the day they spend it.

E-L Financial executed an immensely successful NCIB earlier this year and the shares still trade at the biggest NAV discount of all time. The company raised $200m of 30yr 4% bonds and I think it makes the most sense to pursue a substantial issuer bid with that cash.

Reupped in case someone interested didn't see it the first time.

Added to ELF.TO

If anyone is looking for another pref to get into, I think the GMP.PR.B is interesting. It resets at 289bp over and yields 9.7% at the current payout but that will drop to 8.7% in April 2021, if the 5 yr yield stays down here. Can also choose to convert to floater (GMP.PR.C) if one thinks inflation may come sooner rather than later. I think it's just mispriced because no one has taken a look since they sold their investment bank to Stifel. Now it's just a bag of cash with a clearing business that breaks even and a one third stake in Richardson GMP, which is an independent wealth manager that should have less volatile earnings stream than the old investment bank. Also, they are supposed to buy the rest of the Richardson GMP business for stock. That will triple the equity backing the preferred so it seems like the credit will just get better. If I were them I would do an SIB on the preferred like Dundee did but I'm sure they think of the preferred as cheap capital.

Civ 6 is definitely a lot better than Civ4. I think I spend about half an hour day on it so not finding it taking up a ton of time. I can’t spend all my time looking/thinking about markets (I am a full time investor) so I find this an intellectually stimulating hobby. Of course to each his own.

I started playing this game for the first time in years because of the quarantine and it’s been a little addictive. If you have played it before then you might appreciate: One more turn! This time I asked some of my oldest friends if they would be interested in playing because it’s competitive and I needed something to replace sports. The game is actually conducive to playing over long periods of time. Like chess by email back when that was a thing. Also, because it’s turn based and slow, if you make 1 move a day it takes almost no time. Although the load time might be annoying. I have several games going now so it might be a move or two in each game per day. I’m setting expectations because one of my friends likes action and wants to do live trash talk as opposed to over WhatsApp every four days. All that being said, playing with people you know is addictive. Mostly because you feel better then them when you crush their dreams. Anyway, it’s a fun game because it’s politics and strategy and I thought there is likely some amazing competition on this board and I want to see if I’m any good. Plus we could do the trash talk here. That’s if political talk about imaginary politics is allowed on the new site. I’m not sure if anyone will respond to this so PM me if anyone wants to set up a game or three (it’s nice to have a few turns to make if you decide to load everything up). Also, even if no one wants to play with me. You should still give it a shot. What inspired me to buy the game a few years ago was Dan Carlin’s Hardcore History. I could hear him narrate the key turning points in a game. I know I’m a nerd. If you like ancient history and gold based economies it can be an immersive distraction from the real world and whatever is going to happen with our economy. Thanks for reading.

May I ask which? I would suggest Brookfield Office Properties. I own BPO.PR.N I like them because they are receiving dividends from the core office property segment of Brookfield Property Partners (BPY). This is the safest part of BPY (not retail). And there is no way that dividends will be suspended because BPY can’t access the cash flow from it’s office properties without first paying the BPO divs. BPY needs that cash to pay its own distribution and support it’s retail segment through these hard times. I like the prime floaters for credit quality and upside if rates ever go up like BAM.PR.B, BCE.PR.H and TRI.PR.B. I think GMP.PR.B and AZP.PR.C have high yields because investors haven't appreciated the fundamental changes in the respective businesses. We could see some compression in yields over time plus they are rate resets.

I like margin expansion, deleveragings, management changes and special situations like spinoffs or anything else that causes indiscriminate selling. All of those things can cause multibaggers if the multiples have contracted too much especially on unusually low margins. Sometimes you can get all of these opportunities in one name like ATTO. Technically for ATTO the indiscriminate selling by portfolio managers like Wellington might have just been because they expect the PIK Note holders to be indiscriminate sellers so they became indiscriminate sellers first. I don't know if that's true but the narrative fits the fact pattern. The surprise will be if the PIK Note holders (of which there are only a handful) agree with the bulls even half way on valuation and don't sell stock. I think there likely are fundamental investors that have looked closely, agree that it's too cheap and have not bought or not bought their full position. I expect it's because they expect the PIK Note holders might sell or can't afford to own it if they do sell (even if it's a low probability) because it means they will underperform their benchmark. No one is paid to own ATTO if it underperforms the benchmark and especially not professional money managers who have clients that trigger a manager review if they miss their assigned benchmark by a certain margin. I find with the list of characteristics for 100 baggers that it resembles the characteristics of the most highly valued stocks in the markets based on most quantitative factors except for size and maybe insider ownership. The current market certainly favours size over anything else given the passive money and all of the ETFs looking for "investable" stocks. Active managers are definitely big fans of insider ownership. That leaves less room for stuff like ATTO. Maybe it's been too easy for too long to buy big cap growth or dividend growth depending on your personality that more small stocks are getting more undervalued than normal. The last bear really put a price on liquidity which means there are just less eyes looking. I was listening to this Macrovoices podcast today (https://www.podbean.com/ew/pb-w8zsy-d0d01f) and if you buy into the guest's view, we are close to the end of very low interest rates because debt monetization is coming. I don't know if the forecast is reasonable or not but I certainly benefit more in my portfolio if long rates go up and I also don't own a lot of high growth high multiple stocks because higher interest rates should mean multiple contraction (I think at least). That could hurt many stories that people assume have the chance to be multibaggers soon. Of course, even if that analysis is right, it doesn't mean any given value proposition is going to result in positive returns including ATTO in which I am very much in the red so far.

I added to Arrow Exploration (AXL.V) in the last few days. It’s a bit of a convoluted situation but it spun out of Canacol (CNE.TO) in the fall of 2018. CNE took back a note/cash and a kept a small equity stake while spinning out the rest to it’s shareholders. The cash raised by Arrow was through a private placement at US$1/share. Arrow was supposed to get a bank line soon after the spin but they did not get it done. The company finally began a strategic process in December 2019. The data room opened last week and my understanding is that quite a few CAs have been signed (but I don’t know that for a fact). The company also filed for a shareholder meeting for March 19 and apparently reflects Stifel’s confidence that there is enough time to get a deal done and papered in February, in time for a March 19 vote. It should be noted that the company still hasn’t had an AGM for 2018 so they needed to have a meeting before the end of March anyway. Stifel’s confidence makes sense to me. They helped AMER.L when it received a hostile bid from a French E&P last July and ended up selling to GPRK announced in November for a very big premium. What's interesting about that deal was that there were multiple well funded interested parties (as disclosed in the background section of the scheme filing). So many that AMER.L asked for cash bids only. AMER.L has 4x the production of AXL.V and sold for 13x the EV or over 20x the market cap. AXL.V production is a bit heavier so it should get a discount but the current discount seems too big. CNE has been exerting significant influence at the company despite their tiny equity stake and has even put its General Counsel as Chairman of AXL. This has made a lot of investors nervous. I think it opens up CNE to litigation if the equity is permanently impaired so the investment might be quite asymmetric. I think we’ll find out soon. https://www.stifel.com/docs/pdf/canada/arrow-intro-letter.pdf

I will offer up Atento (ATTO.N) as a potential multibagger. I think there are catalysts in the two months that could jump start the process. This is the forum link: https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/atto-atento/msg392712/#msg392712 This is a SA article I wrote earlier this month: https://seekingalpha.com/article/4314926-atento-deserves-your-attention I attached the SA article in case access is limited. Atento_Deserves_Your_Attention_-_SA_-_1.18.20.pdf

I posted a comment on this article today: https://seekingalpha.com/article/4314926-atento-deserves-your-attention I think this week's selling is coming from RSU's issued 30 months ago that vested on Jan 2. Last year it was a similar story and the stock declined 14% in 5 days following the vesting of RSUs on a lot of volume and this year it's also down about 14% on significant volume in the 4 days since vesting. Last year ATTO bounced back 13% the following week. Not sure if we'll see a replay but it's a reasonable speculation. Thanks good comment. It does seem selling on no news and typically I don’t think that indiscriminate sellers are that well informed. Thank you. They also filed yesterday for a shareholder meeting to be held on Feb 4 to authorize the BOD to pursue a premium (or discount) tender for up to 30% of the shares at their discretion over the next 5 years. https://www.sec.gov/Archives/edgar/data/1606457/000119312520003870/0001193125-20-003870-index.htm More details in the article above as well.

I posted a comment on this article today: https://seekingalpha.com/article/4314926-atento-deserves-your-attention I think this week's selling is coming from RSU's issued 30 months ago that vested on Jan 2. Last year it was a similar story and the stock declined 14% in 5 days following the vesting of RSUs on a lot of volume and this year it's also down about 14% on significant volume in the 4 days since vesting. Last year ATTO bounced back 13% the following week. Not sure if we'll see a replay but it's a reasonable speculation.