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If humans were able to act accordingly to the laws of mathematics...

What does this mean?

 

Just a pithy comment. As others mentioned bonds trade at ~2% while equity FCF trades at ~12%. I haven't seen this for a while. Sometimes saw the inverse bonds would trade at ~10% and equity FCF trades at 3-4%.

 

Isn’t this common? With bond yields where they are and investment grade companies borrowing for <2% many many stocks have a wide spread to their equity FCF yield.

Admittedly, the yield spread for Berry is one of the widest, but there are lots of other cases in pharma , defense, tobacco, materials etc.

 

At the risk of going to far afield in this thread, what are the largest your aware of?  For me its Nexstar:  20% FCF yield versus under ~5% debt yield.

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If humans were able to act accordingly to the laws of mathematics...

What does this mean?

 

Just a pithy comment. As others mentioned bonds trade at ~2% while equity FCF trades at ~12%. I haven't seen this for a while. Sometimes saw the inverse bonds would trade at ~10% and equity FCF trades at 3-4%.

 

Isn’t this common? With bond yields where they are and investment grade companies borrowing for <2% many many stocks have a wide spread to their equity FCF yield.

Admittedly, the yield spread for Berry is one of the widest, but there are lots of other cases in pharma , defense, tobacco, materials etc.

 

At the risk of going to far afield in this thread, what are the largest your aware of?  For me its Nexstar:  20% FCF yield versus under ~5% debt yield.

Most of the the broadcasting networks as well as radio stations have huge spreads. Something like GTN also has a 20 pct. FCF yield and probably the same spread as Nexstar. Townsquare is up more than 150 pct. since I last commented I believe (and changed my mind on the Company), but it still has a 22 pct. FCF yield (just going with 2021 estimates). Debt a bit more expensive, so probably also around a 15 pct. spread. They can work out massively, I'm just more comfortable with the terminal value of Berry.

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Has anyone taken a dive into Silgan?  Same industry but focused on cans as well as plastic (also caps and enclosures).  Slightly smaller but has better operating margins (12% vs 9%).  Trading at similar levels.  Just as acquisitive and very well managed.

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If humans were able to act accordingly to the laws of mathematics...

What does this mean?

 

Just a pithy comment. As others mentioned bonds trade at ~2% while equity FCF trades at ~12%. I haven't seen this for a while. Sometimes saw the inverse bonds would trade at ~10% and equity FCF trades at 3-4%.

 

Isn’t this common? With bond yields where they are and investment grade companies borrowing for <2% many many stocks have a wide spread to their equity FCF yield.

Admittedly, the yield spread for Berry is one of the widest, but there are lots of other cases in pharma , defense, tobacco, materials etc.

 

Really? Always thought of it as a recent phenomenon.

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True, I think that’s ultimately the bet here.

 

but tough to imagine a perfectly smooth transition.

 

I mean if Berry has no real long term secular risks it’s a $100+ stock, no?

 

Yes, it could be at some point:

https://twitter.com/theunemployeda1/status/1363609288913149952?s=21

 

Note, I was too stupid to recognize this company, despite owning a few shares.

 

I saw that and I was like Spek is in for a surprise!

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  • 2 weeks later...

just factor flows.

 

no celebrations til my Jan 22 $80's are in the money.

 

I was looking at the LEAPS and thought maybe I should throw a few chips at it.  My hunch on a lot of these LEAPs were right in hindsight.  EQR, VNO etc.  Well, coulda, woulda, shoulda. 

 

I am glad that you threw some chips in these options!  It is a great way to add some torque without putting too much capital at risk. 

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Hoping the run up in oil prices doesn't squeeze margins.  They have pass thru pricing on most contracts but admit that there is a delay in the effectiveness of the pass thru.

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Berry comparable transaction. GIC buying 47% stake in Loews' packaging sub. Looks like 10x EBITDA to me for a similar, but inferior business.

 

 

https://loews.com/FileStore/Altium-Lenders-Presentation.pdf

 

Loews Corporation Adds GIC as Partner in its Packaging SubsidiaryGIC to acquire 47% stake in Altium Packaging valuing the company at US$2 billion

PR Newswire

NEW YORK, March 12, 2021

NEW YORK, March 12, 2021 /PRNewswire/ -- Loews Corporation (NYSE: L) announced today that it has entered into a definitive agreement to sell 47% of Altium Packaging, a leading rigid plastic packaging and recycled resin company, to GIC, Singapore's sovereign wealth fund. The transaction is expected to close in the next 30 days.

"We are pleased to welcome GIC as a shareholder of Altium Packaging. GIC is a well-established, long-term investor with a track record of success. Having Loews and GIC – two world-class institutions – as our partners will be invaluable as we continue to pursue our growth strategy and seek accretive acquisitions that add further scale and end-market diversification," said Sean Fallmann, President & CEO of Altium Packaging.

The company serves a diverse network of market segments and is a leader in sustainable plastic packaging solutions. In addition, Altium's Envision Plastics recycled resin business is a top supplier of recycled high-density polyethylene in North America. Altium's Dura-Lite® bottles are designed to use 10-25% less plastic than comparable traditional designs and are being created to serve the food, household chemical and industrial end-markets.

The closing of the transaction is subject to customary closing conditions.  This press release contains forward-looking statements relating to expectations, plans or prospects for Loews Corporation and its subsidiary, Altium Packaging, including with respect to Loews Corporation's expectation that the sale of a 47% interest in Altium will be consummated. These statements are based upon the current plans, expectations and beliefs of management of Loews Corporation and are subject to many risks and uncertainties that could cause actual results to differ materially from the current plans or expectations described in the forward-looking statements. Many of these risks and uncertainties are beyond the control of Loews Corporation.

About Altium Packaging

Altium Packaging is a leading customer-centric packaging solutions provider and manufacturer in North America. Altium specializes in customized mid- and short-run packaging solutions, serving a diverse customer base in the pharmaceutical, dairy, household chemicals, food/nutraceuticals, industrial/specialty chemicals, water, and beverage/juice segments. Altium also operates a leading post-consumer resin recycling business, Envision Plastics. With 64 packaging manufacturing facilities in the U.S. and Canada, two recycled resin manufacturing facilities, and about 4,000 employees, Altium has an integrated network that consistently delivers reliable and cost-effective packaging and recycled resin solutions to meet the needs of a wide range of customers. From its state-of-the art Studio PKG®, to the recycling technologies of Envision Plastics, to its experienced manufacturing teams across its network, Altium delivers high performance solutions to meet even the most challenging applications. Learn more at www.altiumpkg.com.

About Loews Corporation

Loews Corporation is a diversified company with businesses in the insurance, energy, hospitality, and packaging industries. For more information, please visit www.loews.com.

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Resin prices have gone nuts recently, perhaps one might get a good opportunity when Berry reports earnings next time: https://www.plasticstoday.com/resin-pricing/weekly-resin-report-soaring-resin-costs-stun-buyers

 

Yeah, I read a WSJ article stating the same.  In the past, I would buy puts on Berry directly to hedge against a bad quarter and being worried about the RPC acquisition outcomes (financial restatement risk).  Maybe, buying puts in a basket of plastic packagers like Avery Denison and Sealed air makes sense.  I don't really want to restart my tax seasoning period. 

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  • 3 weeks later...

chipping away at the higher cost debt. 

Q1 2020 there were ~$2.5 billion of higher cost 2nd priority notes. those are down to $1.1 billion now, with $200mm of the 5 1/8% of 2023 (of the original $700mm) open at par on 7/2021 and for a slight premium now.   

i don't fully understand why they didn't get rid of $100mm of the 5 1/8% of 2023's vs $100mm of the 4.5%'s of 2026, but whatever. I trust those will be gone soon. 

 

Quote


Item 8.01    
Other Events.
On April 7, 2021, Berry Global, Inc. (“BGI”), a wholly owned subsidiary of Berry Global Group, Inc. (the “Company”), elected to redeem $100 million aggregate principal amount (the “Redemption Notes”) of its outstanding 4.500% Second Priority Senior Secured Notes due 2026 (the “Notes”), in accordance with the terms of the indenture governing the Notes. As specified in the Notice provided to the holders of the Notes, the Redemption Notes are called for redemption on May 7, 2021 (the “Redemption Date”) and the redemption price for the Redemption Notes shall be equal to 102.250% of the aggregate principal amount thereof, plus accrued and unpaid interest to the Redemption Date. Following such redemption, the Company expects that $400 million in aggregate principal amount of the Notes will remain outstanding. BGI intends to fund the redemption amount with cash on hand.
 

 

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  • 3 weeks later...

Since there was some discussion about resin pricing, I thought I'd share the following excerpt from another packaging company that reported earnings recently (WinPak):

 

Quote

Raw material costs for Winpak’s three principal resins started to increase during the fourth quarter of 2020. During the first quarter of 2021, this trend continued and intensified with sharp resin price increases implemented by producers. The rapid elevation in resin costs has come about due to: heightened North American demand for feedstocks, unplanned plant outages at producers, an increase in global demand for feedstocks creating a vibrant export market and to add further pressure on producer supply, the severe winter event “Uri” occurred in midFebruary across the US Gulf Coast. This storm caused epic power, water, and electrical outages throughout the Gulf Coast where most of the resin producers are located. Resin production was significantly disrupted with plants slowly returning to service in the second half of March, however, several are not yet operating. This supply disruption has forced producers to put customers on allocations and most have declared force majeure. The Company has been working diligently to source sufficient supply of the affected resins, however, there is the potential that we could encounter some resin shortages, for a short period of time, and may have to curtail certain production lines until producer supply has been stabilized. The reduced producer supply capabilities have created marked resin price increases which will elevate the Company’s costs of goods sold in the upcoming quarters and put stress on gross profit margins. Fortunately, these higher resin costs will generate appreciable customer selling price increases due to the pass-through of higher raw material costs as 66 percent of Winpak’s revenues are indexed albeit with a three to four-month time lag. The Company expects to pass on selling price increases to non-indexed customers as well. Additionally, there have been noteworthy increases in freight costs with this dynamic expected to be prevalent in the upcoming quarters.

 

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  • 2 weeks later...

Fantastic results for 1Q.  5% organic growth and increasing EBITDA despite higher resin pricing. 

I can't believe this is trading at less than 10x free cash flow.

Company anticipates being at target leverage this year allowing them to redeploy capital to acquisitions and stock buybacks.  Cha ching!

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