What are you buying today?

[Gregmal]

I would add this useless but fun supplementary note on the WFC trade, relating to a scenario mentioned in terms of theoreticals... something Ive done once or twice with similar situations... should the stock somehow blow up($45 as I mentioned is a very powerful support level) you can always run it back so to speak and then go short the long dated $55 puts as well. I like scenarios where worst case is you own a quality company. A lot of my MSG exposure over the years has been rolling very deep in the money calls and shorting deep in the money puts.

[zurgenfeldt]

bought into LUV. Currently a 10-cap.

[Broeb22]

I added a touch more ATTO.

 

I think ATTO trades too low based on the fundamentals and it would trade much higher if not for its largest shareholder (Bain) selling a PIK note to fixed income investors including sovereign wealth funds. The note is due in May 2020 but we should find out shortly what comes out of negotiations between Bain and the note holders.

 

Curious what your PT is on this.

 

I think it's more than a 100% upside and potentially a lot more if the new management team is successful in fixing margins.

 

The crazy upside number if they can fix the business and get some revenue growth over 5 years is much bigger.

 

Revenue is around US$1.7bn now and if they can get to US$2bn in 5 years with EBITDA margins of 15% (the goal for 2022 at the recent investor day last month), then EBITDA is around US$300m vs US$170m now.

 

Peers generally trade north of 8x EBITDA, so that leaves an EV of US$2.4bn.

 

The current DSO are at 90 days which is elevated for one off item in particular but management thinks they can get it to 45 days over time. Some peers are that low on DSO but even getting down to 70 days will free up over US$80m in cash. I can easily see with annual free cash flow plus improving working capital that debt will be closer to US$400m from ~US$565m now in 5 years. Also management is keen on buying back stock and there should be enough cash to do that too. If I model them buying 11.1m shares at $10 vs the current price of ~$3, there are 60m shares left outstanding. So an equity value of US$2bn and 60m shares outstanding is over a 10 bagger from here.

 

I usually don't throw numbers like that out there because it sounds ridiculous but that's why I think the risk/reward is good at these prices.

 

I think most investors are waiting for the resolution of the PIK and I think because of the upside that I'm sure Bain can see, they probably want to hold onto the equity. The big risk is that they turn over their shares to the bond holders who then proceed to sell into the market. I just can't see why Bain or the note holders would do that when they could run a strategic process and get a higher price or just wait to see how successful management is with the turnaround. That being said, I am constantly surprised by market participants.

 

Is some maneuvering around in the capital structure really the big risk? What probability is a bankruptcy in the next few years? What effect would a large customer loss have? What kind of currency swing would cause real cash flow problems?

 

Joel Greenblatt always said he bet the most on positions where he felt he could not lose much even in a bad outcome. You might be more savvy with restructuring-type situations, but this is not very asymmetrical from what I see.

[Castanza]

I added a touch more ATTO.

 

I think ATTO trades too low based on the fundamentals and it would trade much higher if not for its largest shareholder (Bain) selling a PIK note to fixed income investors including sovereign wealth funds. The note is due in May 2020 but we should find out shortly what comes out of negotiations between Bain and the note holders.

 

Curious what your PT is on this.

 

 

I think it's more than a 100% upside and potentially a lot more if the new management team is successful in fixing margins.

 

The crazy upside number if they can fix the business and get some revenue growth over 5 years is much bigger.

 

Revenue is around US$1.7bn now and if they can get to US$2bn in 5 years with EBITDA margins of 15% (the goal for 2022 at the recent investor day last month), then EBITDA is around US$300m vs US$170m now.

 

Peers generally trade north of 8x EBITDA, so that leaves an EV of US$2.4bn.

 

The current DSO are at 90 days which is elevated for one off item in particular but management thinks they can get it to 45 days over time. Some peers are that low on DSO but even getting down to 70 days will free up over US$80m in cash. I can easily see with annual free cash flow plus improving working capital that debt will be closer to US$400m from ~US$565m now in 5 years. Also management is keen on buying back stock and there should be enough cash to do that too. If I model them buying 11.1m shares at $10 vs the current price of ~$3, there are 60m shares left outstanding. So an equity value of US$2bn and 60m shares outstanding is over a 10 bagger from here.

 

I usually don't throw numbers like that out there because it sounds ridiculous but that's why I think the risk/reward is good at these prices.

 

I think most investors are waiting for the resolution of the PIK and I think because of the upside that I'm sure Bain can see, they probably want to hold onto the equity. The big risk is that they turn over their shares to the bond holders who then proceed to sell into the market. I just can't see why Bain or the note holders would do that when they could run a strategic process and get a higher price or just wait to see how successful management is with the turnaround. That being said, I am constantly surprised by market participants.

 

Thanks for sharing

[SafetyinNumbers]

I added a touch more ATTO.

 

I think ATTO trades too low based on the fundamentals and it would trade much higher if not for its largest shareholder (Bain) selling a PIK note to fixed income investors including sovereign wealth funds. The note is due in May 2020 but we should find out shortly what comes out of negotiations between Bain and the note holders.

 

Curious what your PT is on this.

 

I think it's more than a 100% upside and potentially a lot more if the new management team is successful in fixing margins.

 

The crazy upside number if they can fix the business and get some revenue growth over 5 years is much bigger.

 

Revenue is around US$1.7bn now and if they can get to US$2bn in 5 years with EBITDA margins of 15% (the goal for 2022 at the recent investor day last month), then EBITDA is around US$300m vs US$170m now.

 

Peers generally trade north of 8x EBITDA, so that leaves an EV of US$2.4bn.

 

The current DSO are at 90 days which is elevated for one off item in particular but management thinks they can get it to 45 days over time. Some peers are that low on DSO but even getting down to 70 days will free up over US$80m in cash. I can easily see with annual free cash flow plus improving working capital that debt will be closer to US$400m from ~US$565m now in 5 years. Also management is keen on buying back stock and there should be enough cash to do that too. If I model them buying 11.1m shares at $10 vs the current price of ~$3, there are 60m shares left outstanding. So an equity value of US$2bn and 60m shares outstanding is over a 10 bagger from here.

 

I usually don't throw numbers like that out there because it sounds ridiculous but that's why I think the risk/reward is good at these prices.

 

I think most investors are waiting for the resolution of the PIK and I think because of the upside that I'm sure Bain can see, they probably want to hold onto the equity. The big risk is that they turn over their shares to the bond holders who then proceed to sell into the market. I just can't see why Bain or the note holders would do that when they could run a strategic process and get a higher price or just wait to see how successful management is with the turnaround. That being said, I am constantly surprised by market participants.

 

Is some maneuvering around in the capital structure really the big risk? What probability is a bankruptcy in the next few years? What effect would a large customer loss have? What kind of currency swing would cause real cash flow problems?

 

Joel Greenblatt always said he bet the most on positions where he felt he could not lose much even in a bad outcome. You might be more savvy with restructuring-type situations, but this is not very asymmetrical from what I see.

 

Telefonica is the big customer and all though there is a revenue guarantee, ATTO has lots of individual contracts with region, business line etc... that they are dealing with. While it might continue to decline marginally over time, I expect the percentage will mostly get smaller because of growth outside of TF.

 

I think the probability of bankruptcy is pretty low. It’s pretty easy to see how accretive ATTO would be to almost any competitor so I think that would be the most likely scenario. The bonds aren’t pointing to financial distress (trading above par) and there is almost no short position despite all of the obvious concerns.

 

Currency swings are a big issue over time given the debt is fixed in USD. They do hedge the debt when it’s issued but that can only do so much. I’m bearish on the USD so I see it as another potential tailwind. From an operational perspective they are somewhat naturally hedged.

 

I could definitely be wrong and the PIK is not the dominant factor here. I’m definitely wrong more than I would like but it’s the most logical thing I can think of. If the stock was at $6 today vs $3 ahead of this PIK announcement, my position would be a lot smaller. After the PIK, I might own more at $6 than I do today, all else being equal.

[Gregmal]

Added a little CTO. Always amusing how the brainiacs at these "institutional" firms can be so stupid. Yea...great time to liquidate your funds position; 3 days before Xmas, during blackout... LOL dopes

[Spekulatius]

Added a little CTO. Always amusing how the brainiacs at these "institutional" firms can be so stupid. Yea...great time to liquidate your funds position; 3 days before Xmas, during blackout... LOL dopes

 

I was looking at this stock for some year end dislocations, but there isn’t much volume. I don’t think their last acquisition indicates that management is selective about where to put their money either. Shopping malls in Jacksonville ?

http://ir.ctlc.com/file/Index?KeyFile=401493134

[Gregmal]

Added a little CTO. Always amusing how the brainiacs at these "institutional" firms can be so stupid. Yea...great time to liquidate your funds position; 3 days before Xmas, during blackout... LOL dopes

 

I was looking at this stock for some year end dislocations, but there isn’t much volume. I don’t think their last acquisition indicates that management is selective about where to put their money either. Shopping malls in Jacksonville ?

http://ir.ctlc.com/file/Index?KeyFile=401493134

 

The main driver right now, as you pointed out, is probably the volume. Any half observant investor sees that, yet Mr. Institution somehow just decided to blow out 250k+ shares in what seems to be a few days...genius. I wanted to double check my cynicism, but a look at the rest of the V3 portfolio was just as baffling and confirmed that these guys just have poor judgment. I am having a hard time reconciling the volumes, so perhaps the company took some of the shares privately, although Im almost positive theyre currently in a blackout, so not sure how that works. But what an idiot. They've been monsters repurchasing shares since Winters left and would have happily taken down those shares if this guy wasn't interested in packing up and going on vacation....I'm all for using 4% debt to buy as many shares $15+ below the low end of NAV.

 

The Jacksonville purchase isn't totally out of nowhere. They already owned several outparcels at St Johns from another deal. Simon owns the other half and its a very upscale retail corridor. I can live with it at a mid-high single digit cap rate and their track record in Florida, which is very good. I'd rather they stick to Florida than try to be heroes buying crap like Party City and Joanne's up in NY and MA...I also think the property serves other purposes; mainly I believe it will be mortgaged in order to retire the convertible note in early March. Getting rid of that poison pill is huge and basically puts the company in play. Either way, at a $280M m/c and a few upcoming catalysts, its one of the few things not nosebleed expensive right now I justify chucking money at a little bit.

[boilermaker75]

Yesterday I wrote some BRKB Dec 27 expiration 225-strike puts; WFC Jan 10 expiration, 53-strike puts; and BK Jan 17 expiration 50-strike puts.

[Gregmal]

Started venturing into SPCE with some puts.

[boilermaker75]

Wrote some BRKB 225-strike Jan 3 expiration puts earlier today for $1.02 per share.

[Spekulatius]

Bought some more DD (swapping some of my my CTVA sales proceeds I to this). One of my better ideas for 2020.

Feels like tax loss selling is causing the weakness.

[Gregmal]

Added a good amount of PCYO the past week, EZPW, added some CTO, got some GRIF today, and for shits, got into some $5 calls on TAST as there seems to be a reasonable chance this'll bounce over the next Q.

 

Like last year, dont think I really need to do very much in order to do very well in Q1.

[Sunrider]

Added a good amount of PCYO the past week, EZPW, added some CTO, got some GRIF today, and for shits, got into some $5 calls on TAST as there seems to be a reasonable chance this'll bounce over the next Q.

 

Like last year, dont think I really need to do very much in order to do very well in Q1.

 

What is your expectation for EZPW? Seems with Cohn back in charge and paying himself well, no incentive to common stock value? So it's cheap, but seems the market doesn't trust him on account of his past actions, and the financing last year was probably also so expensive because nobody trusts the guy.

Thanks!

[Gregmal]

Added a good amount of PCYO the past week, EZPW, added some CTO, got some GRIF today, and for shits, got into some $5 calls on TAST as there seems to be a reasonable chance this'll bounce over the next Q.

 

Like last year, dont think I really need to do very much in order to do very well in Q1.

 

What is your expectation for EZPW? Seems with Cohn back in charge and paying himself well, no incentive to common stock value? So it's cheap, but seems the market doesn't trust him on account of his past actions, and the financing last year was probably also so expensive because nobody trusts the guy.

Thanks!

 

I'd concur with that assessment. I think saying the bar is low here is an understatement. The guy is a world class scoundrel. I was absolutely floored by the stock awards they hand out as well. But at the current prices, I believe that is well reflected. This company, even with its mismanagement, hasn't spent a whole lot of time trading below a 7 handle. The Cohen thing I think really seemed to be the last straw for many people. So my feel there was that you had a point of capitulation. I certainly wouldn't expect improvement as far as governance goes, but the buyback is important and if used should put a floor under this. And then, again because expectations are so low, I think give this thing a pop once its confirmed they've actually been using it. For a company thats exceptionally cheap, that'll move the needle. My tipping point to jump in a little was the glorious public beating Aaron English put on these guys during the latest call. No I dont think it will change these scumbags, but I think at least temporarily, everyone kind of has an incentive to at least get this back to the pre Cohen announcement levels. Many times Ive found that these hucksters like to remain in the dark and control the narratives. When they get called out like this, sometimes, there may be enough of an ego involved that it compels them to make minor(and usually temporary) adjustments to save face a little bit.

[boilermaker75]

Wrote WFC 53-strike, Jan 10 expiration puts

[Lance]

Over the past two days I trimmed IAU and bought IRM, MAC, MCY, ORI, TCO and WPC then sold TCO on a small increase.

 

Thanks

Lance

[Spekulatius]

Over the past two days I trimmed IAU and bought IRM, MAC, MCY, ORI, TCO and WPC then sold TCO on a small increase.

 

Thanks

Lance

 

So with WPC, ORI and MCY, you are bullish on property insurers? ORI looks interesting based on valuation metrics. I have owned MCY before ( a long time ago) when it traded at book value. I used to have my car and property insurance with them when I lived in CA.

[Sunrider]

Added a good amount of PCYO the past week, EZPW, added some CTO, got some GRIF today, and for shits, got into some $5 calls on TAST as there seems to be a reasonable chance this'll bounce over the next Q.

 

Like last year, dont think I really need to do very much in order to do very well in Q1.

 

What is your expectation for EZPW? Seems with Cohn back in charge and paying himself well, no incentive to common stock value? So it's cheap, but seems the market doesn't trust him on account of his past actions, and the financing last year was probably also so expensive because nobody trusts the guy.

Thanks!

 

I'd concur with that assessment. I think saying the bar is low here is an understatement. The guy is a world class scoundrel. I was absolutely floored by the stock awards they hand out as well. But at the current prices, I believe that is well reflected. This company, even with its mismanagement, hasn't spent a whole lot of time trading below a 7 handle. The Cohen thing I think really seemed to be the last straw for many people. So my feel there was that you had a point of capitulation. I certainly wouldn't expect improvement as far as governance goes, but the buyback is important and if used should put a floor under this. And then, again because expectations are so low, I think give this thing a pop once its confirmed they've actually been using it. For a company thats exceptionally cheap, that'll move the needle. My tipping point to jump in a little was the glorious public beating Aaron English put on these guys during the latest call. No I dont think it will change these scumbags, but I think at least temporarily, everyone kind of has an incentive to at least get this back to the pre Cohen announcement levels. Many times Ive found that these hucksters like to remain in the dark and control the narratives. When they get called out like this, sometimes, there may be enough of an ego involved that it compels them to make minor(and usually temporary) adjustments to save face a little bit.

 

Thanks ... I still have a small position (bag holder) ... and have been in two minds on whether to give this another month or just cut it. Simply don’t trust these guys to not do something stupid.

[sleepydragon]

GD and BPR

[Gregmal]

Bought a little more GRIF. If nothing more, because the divergence of GRIF's value relative to the general market melt up, and the lack of SWAN stocks currently available.

[Broeb22]

Bought some GDDY and KAR.

[Spekulatius]

Bought some ATTO as a rebound play.

[SafetyinNumbers]

Bought some ATTO as a rebound play.

 

I posted a comment on this article today:

 

https://seekingalpha.com/article/4314926-atento-deserves-your-attention

 

I think this week's selling is coming from RSU's issued 30 months ago that vested on Jan 2. Last year it was a similar story and the stock declined 14% in 5 days following the vesting of RSUs on a lot of volume and this year it's also down about 14% on significant volume in the 4 days since vesting. Last year ATTO bounced back 13% the following week. Not sure if we'll see a replay but it's a reasonable speculation.

[Spekulatius]

Bought some ATTO as a rebound play.

 

I posted a comment on this article today:

 

https://seekingalpha.com/article/4314926-atento-deserves-your-attention

 

I think this week's selling is coming from RSU's issued 30 months ago that vested on Jan 2. Last year it was a similar story and the stock declined 14% in 5 days following the vesting of RSUs on a lot of volume and this year it's also down about 14% on significant volume in the 4 days since vesting. Last year ATTO bounced back 13% the following week. Not sure if we'll see a replay but it's a reasonable speculation.

 

Thanks good comment. It does seem selling on no news and typically I don’t think that indiscriminate sellers are that well informed.