What a Lovely Frickin' Day!

[ubuy2wron]

My cash position dropped 8% today. I bought TOL, BAC, AAPL HSE_T and some more yellow media debt and an levered ETF for the tsx60, most money I have put to work in a single day in a long time. I also closed some equity hedges I had on. Today looked like an outside day to me and I was set up for  it.

[biaggio]

ubuy, what do you mean by "outside day to me"?

 

I was busy working, was surprised to see market up so suddenly in the last hr of the day. Would it be naive to think there could be folks manipulating market (is it possible?) or is market a coiled spring(from being oversold) just waiting for any excuse to go up.

 

Who knows + I know it does not matter, just buy undervalued mispriced assets, but interesting none the less.

[beerbaron]

For those canadian fellows, anybody looked at Rona? It's starting to look deecent for a canadian equity.

 

BeerBaron

[beerbaron]

GVC

- Growth company, trading at less than 5x FCF

- Publishing operation is much less effected by what is going on.

- Very intelligent management, Shareholder Friendly.  Buying back shares aggressively at this low price.

 

Ahh... Glacier Media is there a value investor in Canada that did not look at it? Good company in a misunderstood market.

 

Thanks for you insight for the other 3 ideas uncommonprofit, especially IDG. Their sales is shrinking so fast it's quite scary.

 

BeerBaron

[Viking]

I have owned GVC on and off for the past couple of years (started following when I saw Francis Chou has purchased). As an FYI, I think Francis has been reducing his position in GVC (although I may be getting GVC confused with HF). I like what management has done. Growth pre-2008 was fueled via aquisitions & debt. When the downturn in 2008 hit management cut costs and used free cash flow to pay down debt. Last year the company started buying back a small amount of stock (given the low share price and lack of cheap aquisition opportunities). With debt now very manageable and free cash flow almost back to 2008 peak levels management this year initiated a dividend and is again purchasing some shares. My watchouts for GVC is its management structure (majority owned by a small group led by Sam Grippo if memory served me correct), very low trading volume (making it quite difficult to buy or sell stock in any volume), declining industry (newspapers), and elimination of tax loss carry forwards (earnings up till now have pretty much been tax free; not so moving forward). Bottom line, the company is well run, cheap and profitable. 

[Liberty]

For those canadian fellows, anybody looked at Rona? It's starting to look deecent for a canadian equity.

 

BeerBaron

 

I had a quick look (very quick look) and what I saw was: small profit margins, fairly stable revenue over the past 5 years, not much cash on the balance sheet, and declining operating cashflow. That sector is pretty competitive without much competitive advantage for any store (they mostly compete on price), and at a PE of 14, it doesn't seem particularly cheap.

 

Am I missing something? Why this when there are such great bargains right now? Is there a hidden asset that I'm overlooking?

[uncommonprofits]

especially IDG. Their sales is shrinking so fast it's quite scary.

 

It seems pretty evident they are growing digital 'volumes' faster than almost anyone (note under the current agency model it would seem that sales are being reported net rather than gross).  But I am assuming you are speaking of the physical store business itself.  While it is true that small format SSS have been down 2-3% for each of the past two years -- Superstores have been flat.  I don't find anything scary in that.  In Q1 both Small format and Superstores were each down slightly more than 5%.  That's a little bit more alarming perhaps, but they are on it.  The company is well into a 2 year transformational agenda which should build sales and increase margins.  Ted Marlow is heading this up (check his bio and the success at URBN). 

 

Also note that it is becoming pretty clear that Kobo has lined itself up as the major publishing e-commerce content partner with Facebook (under an open content model as opposed to the current Kindle, Apple and even Nook models that are all locked).  My gut feel on it is that Kobo has likely increased in value to the point that at the current price the seller is paying me to take IDG's physical stores.... and giving me $6 of tax loss carry forwards to boot (maybe even some of the balance sheet cash too!).   

 

My watchouts for GVC is its management structure (majority owned by a small group led by Sam Grippo if memory served me correct), very low trading volume (making it quite difficult to buy or sell stock in any volume), declining industry (newspapers), and elimination of tax loss carry forwards (earnings up till now have pretty much been tax free; not so moving forward). Bottom line, the company is well run, cheap and profitable.

 

To this point most of their newspapers have not experienced declines like elsewhere in the industry - in fact there has been some orgainic growth.  There is a move though to increase their presence in business, professional and trade publications -- also growing digital.  The company is growing organically -- not just by acquisition.  I think they speak the truth about their newspapers being much less impacted ... but we do live in a fast evolving world.

 

I would estimate that there remains about $0.55 of tax losses remaining as at Q2/11.  I figure earnings should be sheltered for a couple years yet at which time I am hopeful organic growth, stock buybacks and accretive acquisitions will more than offset any tax occurrence going into the third year.  Yes, the eventuality of incurring tax might limit FCF growth for a bit but even a flat free cash flow yield of 20%+ over the next 2-3 years and growing from there still seems quite attractive. Also keep in mind there is margin improvement potential and such so it is possible they use the tax losses sooner than a couple years but that too would be a good thing -- I view the 20% FCF yield as more of a base -- with growth a few years down the road.

[beerbaron]

For those canadian fellows, anybody looked at Rona? It's starting to look deecent for a canadian equity.

 

BeerBaron

 

I had a quick look (very quick look) and what I saw was: small profit margins, fairly stable revenue over the past 5 years, not much cash on the balance sheet, and declining operating cashflow. That sector is pretty competitive without much competitive advantage for any store (they mostly compete on price), and at a PE of 14, it doesn't seem particularly cheap.

 

Am I missing something? Why this when there are such great bargains right now? Is there a hidden asset that I'm overlooking?

 

It,s all about the moat, they compete on pricing but nobody could build mega warehouses anymore in their area. It's pretty close to a grocery type of business, there should be 2-3 players  in the market with no new entrants since the land is already taken. It's still a little bit overpriced for me but it's on my watch list. Totally agree, US business are much better buys right now.

 

[Liberty]

It,s all about the moat, they compete on pricing but nobody could build mega warehouses anymore in their area. It's pretty close to a grocery type of business, there should be 2-3 players  in the market with no new entrants since the land is already taken. It's still a little bit overpriced for me but it's on my watch list. Totally agree, US business are much better buys right now.

 

Agreed, but what's that kind of moat good for if it doesn't help you preserve high margins and/or high growth? It can probably protect them from being put out of business, but it doesn't seem to lead to particularly attractive economics. But as I said, I just had a 2-minute look, so I might be missing something...