What are you buying today?

[rkbabang]

Not today, but earlier this week I added to my MIDD, UBNT, and BAM positions.  And took some profits by selling about half of my OSTK holdings.

 

[flesh]

Added ads.

 

vsto good here, cost basis 13.50.

 

-Steady state fcf 120-140m. Achieved by hair cutting 33% (33% greater hair cut that whats been impaired thus far)  of acquired post 13 ebitda and normalizing the ammo side of business for pre obama 10 yr cagr growth in nics data. fcf plus interest to ev is still under 10x (conservative because lots of evidence shooting sports have become more main stream)

 

-New ceo likely sand bagged recent qtr so he can now save the day.

 

-Selling some non core assets, mgmt says sales of 130m in this non core segment, so if sold at 1x sales = 130m debt pay down, focused on paying off debt.

 

-Next two year fcf higher than steady state, receivables much higher than payables, destocking happening, likely 150m+ fcf next 1-2 years = significant debt pay down.

 

-Durable brands that aren't going anywhere (unless all brands do)

 

-capex going down back half cy 18, r and d may go down a bit as well

 

-Biggest risks to my mind are further deterioration in retail that's not compensated for by internet penetration on the outdoor brands side

 

-Possibility ammo sales remain muted if everyone really did stock up although this would be temporary

 

Its highly probable the debt/equity looks much, much different end of cy 18. If my assumptions are correct I see 30-90% gains in 18 months absent economic contraction as a run of the mill outcome.

 

 

[kab60]

ADS as in Alliance Data Services? Care to distill your thesis into a couple of lines?

[flesh]

ADS as in Alliance Data Services? Care to distill your thesis into a couple of lines?

 

I've fine tuned my understanding of the co since but there's is a ADS thread I posted in a month or two back that you can look at. I was going to put out a mini write up on vsto at 13/share in the old vsto thread but no one responds to my posts so I didn't.

[kab60]

ADS as in Alliance Data Services? Care to distill your thesis into a couple of lines?

 

I've fine tuned my understanding of the co since but there's is a ADS thread I posted in a month or two back that you can look at. I was going to put out a mini write up on vsto at 13/share in the old vsto thread but no one responds to my posts so I didn't.

Cool! Totally missed that and I was starting to look into it. Thanks.

[LC]

bought a little more compass minerals

[NewbieD]

Bought a little Ferronordic machines pref. Company announced they redeem half of prefs now, half when they have updated yearly accounts = law requirement. 9-10% yield meantime = a few months. Risk should be low.

 

Added some Storytel.

[boilermaker75]

Rewrote puts that are expiring today, GILD at 70 and AMGN at 170.

 

Again

[sarganaga]

Bought small amount of Compass Minerals (CMP)

[Liberty]

Bought small amount of Compass Minerals (CMP)

 

Just had a glance out of curiosity. Are you not worried by the debt-to-EBITDA levels?

[LC]

Bought small amount of Compass Minerals (CMP)

 

Just had a glance out of curiosity. Are you not worried by the debt-to-EBITDA levels?

SI made a good post on the debt here: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/cmp-compass-minerals-international/msg302112/#msg302112

 

Just to add a quick caveat: it's definitely a concern and something to monitor. the salt business is pretty stable so it provides some downside protection if the brazil business does not pan out as expected. the next few qs will be illuminating.

 

[sarganaga]

Bought small amount of Compass Minerals (CMP)

 

Just had a glance out of curiosity. Are you not worried by the debt-to-EBITDA levels?

 

That is concerning to me as well. The increased debt due to the acquisition of the rest if Produquima coupled with the poor relative performance of the salt business due to warm winters have made things a bit tight. They claim to be at the end of an intensive capex cycle. They have also done some restructuring, that along with the improvements at Goderich salt mine, will save $50 million a year. According to their last conference call, they expect to be back at their targeted leverage by 2019. I really like salt business and especially the non correlation aspect of it.

[Liberty]

Thanks. Have you calculated how big a shock the company could absorb before the debt becomes unmanageable? ie. Some unforeseen delay/downturn/bad luck cuts EBITDA by 10/20/30%? I'm wondering because just looking at the past few years, it looks like op. income is volatile by more than 40% over short periods.

 

By unmanageable I don't necessarily mean it kills it. These companies tend to sell assets in those situations... But that still impairs the value, especially since it's hard to get good prices on distressed sales. Like burning the furniture for heat...

[sarganaga]

Thanks. Have you calculated how big a shock the company could absorb before the debt becomes unmanageable? ie. Some unforeseen delay/downturn/bad luck cuts EBITDA by 10/20/30%? I'm wondering because just looking at the past few years, it looks like op. income is volatile by more than 40% over short periods.

 

By unmanageable I don't necessarily mean it kills it. These companies tend to sell assets in those situations... But that still impairs the value, especially since it's hard to get good prices on distressed sales. Like burning the furniture for heat...

 

It looks like they had $130 million in long term debt come due this year, $11 million in 2018, $11 million in 2019, $10 million in 2020, AND $919 million in 2021.Interest expense going forward is a $35 million or less. If they had a 30% drop in EBITDA, I think They'd still be OK for the next few years. The $919 million that needs to be refinanced by 2021 is more concerning if you look at it from a diminished cash flow scenario over the next 3 or 4 years. They also have several tax disputes with the Canadian government, but have already posted deposits that would cover a good portion of the dispute, but worst case could cost them another $50 million +.

 

My misgivings about this are the same as yours. I worry about debt ... a lot. I'm buying it because I think the salt business is a simple wide moat cash machine. I think Produquimica was a good fit for them, although obviously  in a more competitive business than salt. It's near multi year lows. Management spells out what is to me a convincing plan going forward, added efficiency in the salt business & growth in the specialty plant input business. I believe them when they say they're going to lower debt. They seem to be shareholder friendly. This will be about a 2-3% holding for me when I finish buying. I will watch the execution of their stated plans going forward very carefully.

 

 

 

 

 

[Liberty]

Thanks, sarganaga. I can't comment on the actual business, as I just looked at the financials (I try to at least have a quick look when I see a name I haven't seen before), so I know there's a large part of the picture that I'm missing. If it's indeed stable and they can get decent returns on capital because of a moat, then there might be a delevering story. Not knowing the past history of the business, my next question would be how did they get in the current situation and why debt has gone up so much and returns haven't been that good for many years (a turnaround story too?), but I know that's another tangent and I'll move it to the company's thread if I want to know more. Thanks.

[LC]

Debt is mainly due to financing the Produquimica acquisition. Recent lower than normal returns are mostly due to warm winters.

[sarganaga]

Finished buying a 2.5% position in Compass Minerals (CMP)

[EricSchleien]

Increased my position in Liberty Braves and also increased my position in Partners Value Investments LP which in my view is a much better way to invest into Brookfield Asset Management.

[Paarslaars]

Have been slowly adding to my oil positions last weeks.

OBE is now my second largest position (first BRK) with the drop in FELP.

I'm starting to get very concentrated in one industry for the first time, getting a bit nervous.  :-\

 

[TorontoRaptorsFan]

Increased my position in Liberty Braves and also increased my position in Partners Value Investments LP which in my view is a much better way to invest into Brookfield Asset Management.

 

Hi Eric,

 

Why not buy just BAM since they have an ownership stake in a slew of their spinoffs?

[John Hjorth]

Increased my position in Liberty Braves and also increased my position in Partners Value Investments LP which in my view is a much better way to invest into Brookfield Asset Management.

 

Hi Eric,

 

Why not buy just BAM since they have an ownership stake in a slew of their spinoffs?

 

Quote from the BAM topic in the Investment Ideas forum:

 

gokou3,

 

PVF.UN is levered with preferred stock also, in layers.

 

[Rainforesthiker]

Bought a 5% position in DISCK (Discovery Communications) after the recent sell-off

[John Hjorth]

Bought a 5% position in DISCK (Discovery Communications) after the recent sell-off

 

Somehow, your new board signature has a lot of appeal to me, Jeff!

[DW]

Bought a little more Wells Fargo and Google today

[Rainforesthiker]

Bought a 5% position in DISCK (Discovery Communications) after the recent sell-off

 

Somehow, your new board signature has a lot of appeal to me, Jeff!

 

:)