Deep Value - Current Sectors Trading at Depressed Prices

[StubbleJumper]

supermarkets might be a cheap sector. SVU/WINN might be a good place to look.

 

I have some money in WINN.   WINN has an EV/EBITA of 2.4, no debt, plenty of cash, selling at half of book and plenty of NOLs carryforwards.  There are plenty of problems though, it's a turn around that has been hit hard during the past year, has great competitors (walmart & publix), and recently 2 main executives resigned and their general counsel will be a head of the retail operations.

 

 

Out of curiosity, it took a really quick look at WINN's balance sheet.  That sucker looks like it's trading at liquidation value.  Eye-balling the balance sheet, if you assume that inventories plus receivables will just offset current liabilities, then you're roughly left with ~$2/sh cash and $12/sh of PPE.  If you give a 66% haircut to PPE, you'd be left with ~$4.  Add the $2 cash to $4 PPE you end up with $6/sh which is where this beast trades.  It's probably worth more dead than alive.

 

Given the competitive landscape, I wouldn't buy WINN with the idea of keeping it as a going concern, but it might be an interesting purchase for SHLD to "run it off" and sell the real estate...

 

 

SJ

[claphands22]

Claphands, as a heads up, I grew up near WinnDixie / Publix and the fight was just never fair. Winn never had any people in it and always felt like the depths of supermarket hell. Publix on the other hand was always brimming with people and was generally a pleasure to shop in.

 

Point is that I never understood how WinnDixie was in business and still dont.

 

WinnDixie was put out of business in 2006 when they went bankrupt. They closed down half their stores and changed management. Since 2006 they've remodeled about half their store base. Each remodeled has cost them around 1-2 million a piece (although they've recently have done mega-remodels costing around 5.)  So the remodeled Winn Dixies should feel like a quality supermarket.

 

Publix is an amazing competitor. Their customer service is bar none. In fact when I was researching these two stores, WinnDixie had all the same complaints: poor customer service, disgusting bathrooms, and bad lighting. While the complaints about Publix were almost nowhere to be found. I eventually found one complaint about Publix which was a story about a manager yelling at his employee because the employee did not give quality customer service...jeeez.

 

WINN is not about picking the best supermarket, it's about picking a probable miss-priced horse. But yeah, WINN could be a dead horse.

[claphands22]

 

Out of curiosity, it took a really quick look at WINN's balance sheet.  That sucker looks like it's trading at liquidation value.  Eye-balling the balance sheet, if you assume that inventories plus receivables will just offset current liabilities, then you're roughly left with ~$2/sh cash and $12/sh of PPE.  If you give a 66% haircut to PPE, you'd be left with ~$4.  Add the $2 cash to $4 PPE you end up with $6/sh which is where this beast trades.  It's probably worth more dead than alive.

 

Given the competitive landscape, I wouldn't buy WINN with the idea of keeping it as a going concern, but it might be an interesting purchase for SHLD to "run it off" and sell the real estate...

 

 

SJ

 

WINN won't be worth much if they had to liquidate. They lease almost all their stores and severance packages would be expensive. A run off wouldn't be a bad idea, but they are kind of doing that now. They've recently closed 30 under performing stores and have cut people from the headquarters, so they are whittling down.

 

I don't want to defend the idea too much, since the more I defend it the more trouble I have selling it but I welcome any ideas that are short winn dixie (already read the two on VIC.) 

[twacowfca]

 

Out of curiosity, it took a really quick look at WINN's balance sheet.  That sucker looks like it's trading at liquidation value.  Eye-balling the balance sheet, if you assume that inventories plus receivables will just offset current liabilities, then you're roughly left with ~$2/sh cash and $12/sh of PPE.  If you give a 66% haircut to PPE, you'd be left with ~$4.  Add the $2 cash to $4 PPE you end up with $6/sh which is where this beast trades.  It's probably worth more dead than alive.

 

Given the competitive landscape, I wouldn't buy WINN with the idea of keeping it as a going concern, but it might be an interesting purchase for SHLD to "run it off" and sell the real estate...

 

 

SJ

 

WINN won't be worth much if they had to liquidate. They lease almost all their stores and severance packages would be expensive. A run off wouldn't be a bad idea, but they are kind of doing that now. They've recently closed 30 under performing stores and have cut people from the headquarters, so they are whittling down.

 

I don't want to defend the idea too much, since the more I defend it the more trouble I have selling it but I welcome any ideas that are short winn dixie (already read the two on VIC.)  

 

I know someone who has a few downscale independent supermarkets.  He used to buy something like one of the Winn Dixie stores that were closed.  He would pay maybe a little over scrap value for the shelving and equipment and get a big discount on what the chain had been paying on the lease.  Then, he would usually  be able to operate profitably for a few years before he had to close down the store.  The exceptional units that continued to be profitable were the ones that were located in a very small town or the non growing outskirts of a larger town that could support only one small store and were far enough away from competition that there was convenience for local residents to shop there.

[Myth465]

We are getting pretty close.

 

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/11/22/bloomberg_articlesLV1VT76JTSE9.DTL

 

 

Frontline says $300-$350 mln would help keep it afloat

 

Frontline Seeks Discussions With Creditors, Counter Parts

 

[Ravi]

Veolia Environment

 

Any thoughts on this. I think they have plenty of debt at the same time has good assets. The cash flow is still good. Worst case, they can sell some of the assets to get things under control like parking lots in US.

 

May be good bet would be to buy the bonds yielding much higher instead of equity

[Aberhound]

United Spirits and United Breweries have both dropped in half despite strong financials because of the difficulties at Kingfisher Airlines discussed here:

 

http://online.wsj.com/article/SB10001424052970204443404577053180012713826.html?mod=googlenews_wsj

 

India is in a classic boom as a result of money printing to keep its currency competitive. Spirits are preferred over beer so I prefer United Spirits business prospects, but United Breweries looks to be a safer and better choice as Heineken owns about 38% and perhaps is in a position to stop inter-corporate guarantees? http://www.moneycontrol.com/annual-report/unitedbreweries/notes-to-account/UB02 Kingfisher beer is excellent and is available for proper due diligence investigations at Vancouver 's excellent Indian restaurants. Perhaps there are some Scotch drinkers that can report on the quality of the UB Spirits brands. UB Holdings notes also show that UB Spirits shares have been pledged so might be seized and sold by the banks. http://www.moneycontrol.com/annual-report/unitedbreweriesholdings/notes-to-account/UBH

 

The March 11 United Spirits statements disclose a $4.5B rp guarantee. http://www.moneycontrol.com/annual-report/unitedspirits/notes-to-account/US

 

The billionaire owner gave a September interview which seems to be misleading at best regarding the security given to the banks.

 

With all the airlines suffering it seems likely the problems will end, the billionaire will lose control of the airline as he says in the interview, and the reason for the related companies to give guarantees will diminish. If we are lucky we might get a chance to buy some of the United Spirits shares if and when the banks sell them.

 

No position.  I look forward to conducting further due diligence.

[Sportgamma]

Hi,

 

Could you guys enlighten me on the phrase Parker stocks as I haven´t heard this particular phrasing before?

[BargainValueHunter]

What are the chances of Frontline pulling out of its death spiral without diluting the equity to the point of no return?

 

http://seekingalpha.com/article/310218-frontline-value-trap

 

Frontline has traded with serious fundamental issues over the last five years that would eventually catch up with any company. Frontline has over $2.6 billion in debt with $3.7 billion in assets, which means the company's debt-to-assets ratio is near 75%. I consider a debt-to-assets ratio over 40% to be dangerous, much less 75%, and considering the company's capital raising issues I believe this has been a recipe for disaster for quite some time. And then you add the fact that the company's revenue and margins have been declining and you have a bankrupt company just waiting to happen.

 

In other words, does Frontline 2011 compare to Mohnish's Frontline of 2003?

 

http://manualofideas.com/blog/2010/06/pabrai_on_frontline_nysefro_ha.html

 

Frontline has a liquidation book value of about $16.50 per share, which means if they simply shut down the business sell all their ships, shareholders would get about $16 a share. If you take the collapsed ship price, you would still get $11 per share. If one could buy the entire business for $3/share, one could turn around the next day and sell the ships and clean up. While the stock was at $3, the company insiders were furiously buying shares.

 

When you looked at the numbers, they had plenty of cash. They could handle $6000/day rates for several months without a liquidity crunch. Also, if they sell a ship, they raise $60-70 million. The total annual interest payments are $150 million. If the income went to $0, they could sell a few ships a year and keep the company going.

[Myth465]

Packer for a while had alot of cheap telecom stocks. I called them Packer stocks.

 

Frontline is screwed. I wouldnt touch it until after a recap. So far it and the other shippers havent made sense. This will only be sorted when ships are scrapped or when debt is removed lowering the operating costs. Till then I will be watching, as I have for 2 years.

[BargainValueHunter]

Wilbur Ross has some interesting comments regarding the shipping sector...

 

http://www.distressed-debt-investing.com/2011/12/distressed-investing-conference-notes.html

 

There are a large number of charter operations with 1 or 2 vessels who compete aggressively on price. He noted that currently shippers require $4 of assets to generate $1 of revenue, not a recipe for good returns on capital. With charter rates down over 45% from their 2007 peak, Mr. Ross predicted that the market would not reach equilibrium for at least another year if not more.

 

As a result of these factors Mr. Ross predicted that the next couple years would be difficult for shippers and that the way the industry finances itself would be fundamentally transformed and that private equity and alternative investors would play a significant role. He believed that banks were going lower the LTVs that they lend against to the 50% range while they previously had been closer to 80%. He noted that a great deal of ship financing over the last several years came from German KG tax shelters, but indicated that this source of funding was not likely plays as big a role going forward.

[BargainValueHunter]

Packer for a while had alot of cheap telecom stocks. I called them Packer stocks.

 

Frontline is screwed. I wouldnt touch it until after a recap. So far it and the other shippers havent made sense. This will only be sorted when ships are scrapped or when debt is removed lowering the operating costs. Till then I will be watching, as I have for 2 years.

 

Perhaps but FRO is up 20% today. Don't know why exactly.

 

The worst may be yet to come but it is a cigar butt with a little left, apparently.

[Green King]

Anyone look into france telecom ? France Telecom SA (ADR)  (Public, NYSE:FTE) 

I never value telecom before can someone give me the basics or point me to it?

 

ty

[BargainValueHunter]

Packer for a while had alot of cheap telecom stocks. I called them Packer stocks.

 

Frontline is screwed. I wouldnt touch it until after a recap. So far it and the other shippers havent made sense. This will only be sorted when ships are scrapped or when debt is removed lowering the operating costs. Till then I will be watching, as I have for 2 years.

 

That was QUICK!!

 

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/12/06/bloomberg_articlesLVSB3P6S972C.DTL

 

Frontline Ltd., the world's biggest operator of the largest oil tankers, plans to split the company to withstand the worst rates since 1999. The shares jumped as much as 35 percent in Oslo trading.

 

Frontline 2012 will take control of the newest vessels as well as outstanding orders at ship yards, Hamilton, Bermuda- based Frontline said today. The new company plans to sell $250 million of shares, of which Frontline will take 10 percent. Hemen Holding Ltd., a company indirectly controlled by Chairman John Fredriksen, will underwrite the remainder. Hemen is giving guarantees of $505.5 million, valid until Dec. 31.

 

"The risk of the company defaulting is gone," Bjorn Roed, an Oslo-based analyst at Terra Markets, said by phone today. "It makes them very competitive in this low tanker market that is expected in the coming years."

 

 

 

[Olmsted]

I cannot believe FRO shareholders got off that easy: SFL basically bailed them out by lowering its rates, FRO shareholders avoid dilution, and Hemen takes the problematic newbuilds off their hands.  Of course, I am biased from being long SFL as of last week.  This was a good deal for both companies, but more positive for FRO.

 

 

[Aberhound]

United Spirits and United Breweries have both dropped in half despite strong financials because of the difficulties at Kingfisher Airlines discussed here:

 

http://online.wsj.com/article/SB10001424052970204443404577053180012713826.html?mod=googlenews_wsj

 

India is in a classic boom as a result of money printing to keep its currency competitive. Spirits are preferred over beer so I prefer United Spirits business prospects, but United Breweries looks to be a safer and better choice as Heineken owns about 38% and perhaps is in a position to stop inter-corporate guarantees? http://www.moneycontrol.com/annual-report/unitedbreweries/notes-to-account/UB02 Kingfisher beer is excellent and is available for proper due diligence investigations at Vancouver 's excellent Indian restaurants. Perhaps there are some Scotch drinkers that can report on the quality of the UB Spirits brands. UB Holdings notes also show that UB Spirits shares have been pledged so might be seized and sold by the banks. http://www.moneycontrol.com/annual-report/unitedbreweriesholdings/notes-to-account/UBH

 

The March 11 United Spirits statements disclose a $4.5B rp guarantee. http://www.moneycontrol.com/annual-report/unitedspirits/notes-to-account/US

 

The billionaire owner gave a September interview which seems to be misleading at best regarding the security given to the banks.

 

With all the airlines suffering it seems likely the problems will end, the billionaire will lose control of the airline as he says in the interview, and the reason for the related companies to give guarantees will diminish. If we are lucky we might get a chance to buy some of the United Spirits shares if and when the banks sell them.

 

No position.  I look forward to conducting further due diligence.

 

This has recovered from the 50% dip with the Diageo announcement. The Rupee has dropped reducing the gain somewhat. Ironically the prospect of the opening of the Indian liquor market seems to be the driving force. Probably United Spirits will become like the Indonesian clove cigaret maker in Indonesia which went on a decade long 20% plus per year tear after Reynolds took over management of the operation. I find it hard to get over my North-American focus and actually buy these cash flow machines. There are plenty of reasons to drink if you live in India.

 

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/9566512/King-of-the-Good-Times-wants-to-raise-a-glass-to-propping-up-his-ailing-airline.html

[savant]

Ironically the prospect of the opening of the Indian liquor market seems to be the driving force. Probably United Spirits will become like the Indonesian clove cigaret maker in Indonesia which went on a decade long 20% plus per year tear after Reynolds took over management of the operation.

 

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/9566512/King-of-the-Good-Times-wants-to-raise-a-glass-to-propping-up-his-ailing-airline.html

 

It is up because of talks between the promoter and Diageo for a majority stake sale.

[SharperDingaan]

Look at the Icelandic companies, & try to pay in Icelandic Kroner. Execution is difficult, but the results canl be rewarding.

[twacowfca]

Look at the Icelandic companies, & try to pay in Icelandic Kroner. Execution is difficult, but the results canl be rewarding.

 

Good idea.  Do you have a short list of Icelandic companies for possible investment?

[SharperDingaan]

http://www.bloomberg.com/quote/ICEXI:IND

 

You need to do your own dig, as the main limitation is where the very small universe is listed; trade scale/transaction cost is an issue as well. New investment is not subject to capital control, & it is possible to do Icelandic Kroner deals at better than the official exchange rate.

 

We hold a modest investment in fish, oil, & property management via a limited term partnership. When capital controls are eventually relaxed we will do very well.

 

There is also an article on Iceland in this months CFA magazine."Necessary Adjustments"

[Sportgamma]

http://www.bloomberg.com/quote/ICEXI:IND

 

You need to do your own dig, as the main limitation is where the very small universe is listed; trade scale/transaction cost is an issue as well. New investment is not subject to capital control, & it is possible to do Icelandic Kroner deals at better than the official exchange rate.

 

We hold a modest investment in fish, oil, & property management via a limited term partnership. When capital controls are eventually relaxed we will do very well.

 

There is also an article on Iceland in this months CFA magazine."Necessary Adjustments"

 

The central bank regularly holds a Króna auction (every two months or so) in which you can get Krona for a 20-25% discount:

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/disney-dollar-special-situation-(quiz-investment-idea)/msg84140/#msg84140

 

I´d recommend looking at Össur and Marel as those two are operating in global markets with 4-5 major players. If one is willing to go through all the hassle, there is also value to be had in private companies.

 

Fisheries are in a very uncertain state at the moment, due to government policies. Properties I think are still very irrationally valued, except maybe some unique/prime locations with very solid cash flows.

 

Gísli

[Green King]

is there a moody's manual one can look at ?

What are the hassle that you are talking about ?

[ItsAValueTrap]

Junior explorers and miners have been whacked lately.  The TSX Venture index is down 40% (this is like the 2008 crash).

 

I recommend that you do NOT buy juniors... the whole sector is flawed and destroys a lot of capital.  However, the best companies in the sector such as Altius Minerals (see the idea board) and Northfield Capital may be good buys.  Pinetree and Aberdeen sell below liquidation value (Aberdeen is trickier if they are mismarking their private companies)... I would rather own Northfield than those companies though.

[Sportgamma]

is there a moody's manual one can look at ?

What are the hassle that you are talking about ?

 

I have no idea if there is a moody's manual .

Hassle was not the right phrasing. I meant the extra research, dd and general involvement one has to put in when investing in a private company as opposed to buying shares in a publicly traded entity.

[SharperDingaan]

Oddly we actually did use the central bank auction, & also hold some Marel.

 

As at Friday the FX rate was 126 ISK to the $C (around 150 ISK using the central bank auction), & Marel was at 135 ISK - or $C 0.90. OK, so you have to hold for a minimum 5 years - but we don't see any similar quality juniors about at comparable prices - even if the market falls off the fiscal cliff. Iceland is not that far away, the people are very friendly, & x-country skiing under the northern lights is pretty special.

 

Agreed on the Real Estate, but players who haven't failed by now are most likely not going to. We're on the property management side, & one of our partners has deep experience in the business.