Public Company Share Repurchase-Cannibals

[ValueArb]

3 hours ago, Malmqky said:

 

Oh come on, returns would have declined regardless due to Berkshires size.

 

Although that kind of proves your point (I assume you don't manage billions).

That’s correct, Warren was forced to turn away from higher return net nets because they didn’t have enough liquidity for a large portfolio. Charlie correctly pointed to buying quality businesses as the least bad alternative (though Buffett continued to mix in the occasional net-net during the 70s).

 

I don’t ever expect to grow my portfolio until it’s too large for net-nets, but it would be a fantastic problem to have.

[schin]

2 minutes ago, ValueArb said:

That’s correct, Warren was forced to turn away from higher return net nets because they didn’t have enough liquidity for a large portfolio. Charlie correctly pointed to buying quality businesses as the least bad alternative (though Buffett continued to mix in the occasional net-net during the 70s).

 

I don’t ever expect to grow my portfolio until it’s too large for net-nets, but it would be a fantastic problem to have.

@ValueArb - What is that number? Is there a fund does net-nets anymore? Even microcaps?

[Spekulatius]

SEB is not a great business, but they took at ~17% of outstanding shares buying back stock from a major shareholder group at a ~15% discount. Quite impressive. Shares when from ~1.16M to 0.97M in one scoop. Trading far below book value now.

 

Edited February 28 by Spekulatius

[oscarazocar]

The SEB repurchase wasn't just from a "major shareholder group", but the Bresky family which still owns over 73% and has controlled and run the company for many decades.

 

It's a very odd transaction.  Why would they sell a huge block at such a large discount to tangible book value when the stock has traded above that level for many years?  Presumably they would get a decent premium to tangible book value if they sold the company outright.

[FCharlie]

GM purchased 15% of their shares in December, with another 5-6% likely repurchased in Q1 as their ASR is settled. 2024 EPS estimates have risen from $6.76 to $9.00 since this buyback was announced, and the stock has risen 29%.  Interestingly, the stock traded at about 4.5X earnings before and still trades at about 4.5X earnings. I don't follow this company closely, but let's say GM continues to generate $10 billion of free cash flow going forward, and continues buying stock at 4.5X earnings, how long until the stock rerates higher to say 7.5X earnings? And is 7.5X earnings appropriate if you are growing EPS by 15-20% annually? Why not 9X earnings? The potential returns get incredibly appealing in these types of situations, and these situations seem to be more and more common as the breadth of the market continues to diverge with many companies share prices left for dead. 

 

			Total Number of Shares Purchased(a)(b)						Weighted-Average Price Paid per Share(c)						Total Number of Shares Purchased Under Announced Programs(b)						Approximate Dollar Value of Shares That May Yet be Purchased Under Announced Programs(b)
October 1, 2023 through October 31, 2023			25,399						$	32.32					—						$1.4 billion
November 1, 2023 through November 30, 2023			—						$	—					—						$11.4 billion
December 1, 2023 through December 31, 2023			215,202,490						$	31.60					215,189,872						$1.4 billion
Total			215,227,889						$	31.60					215,189,872

[oscarazocar]

17 hours ago, ValueArb said:

Just came across Apogee Enterprises (APOG). A "leading provider of architectural products and services for enclosing buildings, and high-performance glass and acrylic products used in applications for preservation, protection and enhanced viewing".  Last decade has grown revenues at a decent clip (7%), while growing profits at a higher rate (10% ish). Dividend yield close to 2% while it has retired about a quarter of its shares over the last 6 years.

 

This doesn't meet my purchase criteria (its not a net-net) so I stopped my research there, but mr market is offering it at a 10 PE for those who like this kind of thing.

 

 

APOG has a great niche business, the Large-Scale Optical segment, that makes coatings for picture frames and is very steady and highly profitable.  It is different in character than the rest of the APOG businesses, less cyclical, and provides ballast if the main business has a big down cycle.

[ValueArb]

44 minutes ago, oscarazocar said:

 

APOG has a great niche business, the Large-Scale Optical segment, that makes coatings for picture frames and is very steady and highly profitable.  It is different in character than the rest of the APOG businesses, less cyclical, and provides ballast if the main business has a big down cycle.

 

BTW: I forgot to mention the reason I came across it was it announced a restructuring to increase margins. I don't know if its trying to focus more on that segment, like I said I haven't done the research but that would make sense. They've been focused on increasing margins and ROE for the last 3 years, and say all the right things from the limited amount of filings I did read. 

 

Okay, now I have to research it, its just getting too interesting even if I don't buy it.

[Vish_ram]

I own and like MUSA, the greatest cannibal

[ValueArb]

12 hours ago, schin said:

@ValueArb - What is that number? Is there a fund does net-nets anymore? Even microcaps?

 

My tiny "fund" does. I don't think there is a specific number, its just net-nets get rarer and rarer the larger the market cap (and more importantly, the greater the trading liquidity). I believe Walter Schloss closed his fund at $130M in 2000, and that was probably too large for a net-net only fund (I think his returns the previous decade showed this). Translating that to today's dollars I would guess a similar fund size would be around $250M, so I'm going to guess that a net-net only approach can work up to $100M.

 

The truth is as your fund grows you'll need to add quality businesses, or accept lower quality net-nets than you did previously. There are obviously foreign markets (like japan until recently) where you could focus as well, but I'm trying to avoid that for now.

[Xerxes]

MGM International

 

"We started the quarter with great momentum across our businesses. While we were faced with a difficult cybersecurity issue in September, our employees rose to the occasion with incredible resilience and determination. With the incident now behind us, we are a stronger company having been through the challenge," said Bill Hornbuckle, Chief Executive Officer and President of MGM Resorts. "Going forward we have much to be optimistic about with Formula 1's inaugural Las Vegas race next week and early next year the debut of the MGM Collection with Marriott Bonvoy followed by the Super Bowl. Beyond these catalysts, MGM China is performing exceptionally well, and we have a pipeline of development opportunities including New York and Japan alongside the growth and development of our international digital business and BetMGM."

 

"We continue to view share repurchases as an attractive opportunity to return value to our shareholders," said Jonathan Halkyard, Chief Financial Officer and Treasurer of MGM Resorts. "Year-to-date, we have repurchased approximately $1.7 billion in stock. Our buyback program totals $6.2 billion since the beginning of 2021, reducing our share count by over 30%."

 

https://investors.mgmresorts.com/investors/news-releases/press-release-details/2023/MGM-RESORTS-INTERNATIONAL-REPORTS-THIRD-QUARTER-2023-FINANCIAL-AND-OPERATING-RESULTS/default.aspx

 

IAC reflection on the name

 

"Our largest holding, MGM is a keen beneficiary of growth in the travel & leisure sector, which has materially outpaced broader consumer spending generally for the last 20 years. Consumers’ ever increasing time spent on social media has elevated exposure and access to new experiences, making the top of the travel & leisure funnel – FOMO – only grow. As social currency moves away from ownership (less shareable online) towards experiences, MGM has gained. MGM is also the market leader in Las Vegas, which showed the world again this past weekend why it’s the global center for sports and entertainment experiences: nearly every major live tour, show, fight, race, competition, chef, and soon to be every major league sport, has a Las Vegas outpost, and MGM often plays host. Even as post-pandemic tailwinds fade, the shift from goods to experiences is a decades-long trend, not a fad, and the increasing premium on live events and experiences makes MGM a bona fide trophy asset. But the MGM secret seems to be safe with us, as the company has been able to buy back 35% of its shares outstanding since we got involved, still at incredibly attractive prices relative to earnings, especially for something so unique. We owned nearly 20% at the end of 2023 and, with continued repurchases, could still own more before the secret gets out."

 

 

 

[FCharlie]

1 hour ago, Vish_ram said:

I own and like MUSA, the greatest cannibal

Thanks for mentioning this one. In 2015 their market cap was about $3 billion and they've spent $3 billion buying shares since that time. They've opened about 500 new locations in that time. They are a lot like AutoZone. 

[nsx5200]

6 hours ago, FCharlie said:

Thanks for mentioning this one. In 2015 their market cap was about $3 billion and they've spent $3 billion buying shares since that time. They've opened about 500 new locations in that time. They are a lot like AutoZone. 

I didn't dig too deeply, but it seems like they had to borrow to buy back shares, and yet their EPS is still not going up, if Macrotrends' data is accurate.  Their operating performance is also not too consistent, even though their target market is the high volume, low margin business.  Doesn't smell like a no-brainer to me yet.  Is there something else besides the cannibal side that I missed, @Vish_ram?

[Vish_ram]

32 minutes ago, nsx5200 said:

I didn't dig too deeply, but it seems like they had to borrow to buy back shares, and yet their EPS is still not going up, if Macrotrends' data is accurate.  Their operating performance is also not too consistent, even though their target market is the high volume, low margin business.  Doesn't smell like a no-brainer to me yet.  Is there something else besides the cannibal side that I missed, @Vish_ram?

i focus on 5 year trend mainly on FCF/sh and its growth. EPS has generally trended higher.

 

many companies have relevered their Balance sheet. If FCF is used to buyback stock with revenue growth intact, I’m all in. 

[Mephistopheles]

@Spekulatius What do you make of Autonation's operating margins over the last three years vs. the previous eight? 7% or so from '21 to '23 vs. 3-4% range in the years prior. As the used car market deflates, I'm thinking that 7 P/E multiple is not reliable.

[Vish_ram]

Please welcome ODP to this club

[Castanza]

3 hours ago, Vish_ram said:

Please welcome ODP to this club

 

1 billion repurchase program and ticked away about half of that since Nov 22

 

Edited February 29 by Castanza

[Spekulatius]

6 hours ago, Mephistopheles said:

@Spekulatius What do you make of Autonation's operating margins over the last three years vs. the previous eight? 7% or so from '21 to '23 vs. 3-4% range in the years prior. As the used car market deflates, I'm thinking that 7 P/E multiple is not reliable.

My guess is as good as anyone’s, but I think the margins might end up higher than pre COVID-19.

 

The situation with the vehicle shortage during COVID-19 is unprecedented and the fat dealer margins during that time will mostly reverse to more normal levels. 

[Castanza]

13 hours ago, Spekulatius said:

My guess is as good as anyone’s, but I think the margins might end up higher than pre COVID-19.

 

The situation with the vehicle shortage during COVID-19 is unprecedented and the fat dealer margins during that time will mostly reverse to more normal levels. 

 

 

 

37k inflation adjusted

 

 

Those margins can come down anytime!

[Saluki]

There doesn't seem to be a post on Investment Ideas for Ross Stores, I don't want to make one because I hate retail.  But this place seems like a good place for this piece of news. 

 

Ross Stores Reports Results for Fourth Quarter and Fiscal 2023 (yahoo.com)

The Company’s Board of Directors recently approved a new two-year $2.1 billion stock repurchase authorization for fiscal 2024 and 2025. This new program represents an 11% increase over the recently completed repurchase of $1.9 billion of common stock during 2022 and 2023 combined. 

 

The stock is up about 50% in the past year so I don't know at what the previous buyback was finished, but even at today's prices, a $4bln buyback would be about 8% of the shares. 

[Spekulatius]

CAR (Avis) was discussed in the Tidbits thread and is the most aggressive cannibal I am aware of. They also levered up to do it, so results still TBD (Mr Market does not seem to be enthused right now)

[Sweet]

CAR is interesting but the finances are crazy to me.  If I was in charge I’d have cleared a lot debt first and then got on with the buybacks.  Their profits are definitely coming down as prices in the used car market drops too.  I hope at some point the finances make sense to me.  At some point I could see me taking a position there.

[Spekulatius]

21 minutes ago, Sweet said:

CAR is interesting but the finances are crazy to me.  If I was in charge I’d have cleared a lot debt first and then got on with the buybacks.  Their profits are definitely coming down as prices in the used car market drops too.  I hope at some point the finances make sense to me.  At some point I could see me taking a position there.

I think they should pretty much eliminate the corporate level debt and just keep the secured debt to finance their cars fleet. Putting debt at both levels seems crazy to me.

[schin]

Does anyone have any examples of cannibals that didn't eventually increase in value?

 

CAR has the possibility to be like Long-Term Capital. Good strategy until a Black Swan event takes them out.  I also like companies that address corporate debt first before buy backs. Little or no debt gives companies a lot of flexility in good and bad times.. I rather than build the ark waiting for the thousand year flood.

 

Otherwise, it's like picking nickels in front of a bull dozer.

[Dinar]

36 minutes ago, schin said:

Does anyone have any examples of cannibals that didn't eventually increase in value?

 

CAR has the possibility to be like Long-Term Capital. Good strategy until a Black Swan event takes them out.  I also like companies that address corporate debt first before buy backs. Little or no debt gives companies a lot of flexility in good and bad times.. I rather than build the ark waiting for the thousand year flood.

 

Otherwise, it's like picking nickels in front of a bull dozer.

Sure, Charter comes to mind.  

[schin]

1 hour ago, Dinar said:

Sure, Charter comes to mind.  

 

The beauty behind this is they have positive earnings, so the game is not necessarily over. Trading at a P/E of 9, it can catch up.