More news on Vivendi.

This article talks about Universal Music Group and how at this time Vivendi is not going to sell or spin off UMG.  Also talks about UMG and their buyout of EMI.

The article also goes over ATVI a bit, and talks about Vivendi’s conglomerate discount again.

http://www.bloomberg.com/news/2012-06-30/vivendi-s-fourtou-goes-back-to-future-with-ouster-of-levy.html

More good news for Vivendi shareholders.

More good news on the spin-off/asset sale front.

The articles go over spin-off and asset sale possibilities that Vivendi could do to unlock value.

The main thing I found interested is that they appear to be trying to sell or spin-off ATVI first which is what I think they should do, and what I stated in my article here.

I was surprised to see that they are thinking about selling SFR though.  They originally owned 66% of SFR and last year bought out the remaining 44% so that could be a quick show that buying the remaining portion was a mistake.

Whatever they decide to do, Vivendi will most likely unlock their missing value and the share should go up quite a bit higher after they make their decisions.

http://www.bloomberg.com/news/2012-06-29/vivendi-said-to-plan-sale-of-stake-in-activision-blizzard.html?cmpid=yhoo&source=email_rt_mc_body&ifp=0

http://in.reuters.com/article/2012/06/29/us-vivendi-assets-idINBRE85R17E20120629

Dole VS Chiquita VS Fresh Del Monte (Part 4)

This article is the fourth and final article in the series detailing the businesses of Dole (DOLE), Chiquita (CQB), and Fresh Del Monte (FDP).  If you want to see the valuations and brief descriptions of these companies please view these articles: DOLE, CQB, and FDP.

In this article I will go over the margins of all the companies to determine if there are any sustainable competitive advantages.  I will decide whether I would buy any of these companies as they currently stand, without the possibility of any kind of merger, spin off, or massive asset sales.  I will also look into whether or not a merger between any of the companies would be a good thing.

Before I start with my analysis of the three I need to go back and look into Dole’s total contractual obligations in comparison to Chiquita’s and Fresh Del Monte’s.  At the time I did Dole’s valuations I wasn’t doing as thorough of research as I am doing now, and did not talk about their total obligations in the original article I wrote.

On page 40 of Dole’s 2011 10K they list their total obligations and commitments as of December 31, 2011.  The total obligations and commitments, including debt is $4.68 billion, and over the next two years it comes out to $2.661 billion.  Their current market cap is $765 million. Not a great ratio, but not terrible like Chiquita’s. The total obligations/market cap ratios for all of the companies are:

  • Dole: 4680/765=6.12
  • Chiquita: 3167/220=14.40
  • Fresh Del Monte: 1992/1310=1.52

Fresh Del Monte has by far the most sustainable ratio in my mind and should have no problems if another crisis hits them individually or the economy as a whole.  Dole might be able to make it through another crisis, even if they don’t decide to do some kind of asset sale or spin off like they are looking into right now.  Chiquita’s ratio is horrendous and I would be worried about them if I was a shareholder of theirs.

All of these companies have low amounts of cash and cash equivalents on hand, which is another thing to possibly worry about with Dole and Chiquita if something bad were to happen in the economy.  In any kind of emergency they would most likely either default on some of their obligations,  have to draw down their credit facilities or, try to take on some more debt if they could, most likely on unfavorable terms.

Now let us get to the margins of all three and try to determine if any of them have a competitive advantage.

Dole (DOLE) Chiquita (CQB) Fresh Del Monte (FDP)
Gross Margin (Current) 10.5 12.9 8.8
Gross Margin (5 years ago) 9 12.4 10.8
Gross Margin (10 years ago) 16 16.1 16.1
Op Margin (Current) 2.7 -0.3 3
Op Margin (5 years ago) 1.9 0.7 5.2
Op Margin (10 years ago) 6.5 2.2 10.3
Net Margin (Current) 0.75 0.69 2.84
Net Margin (5 years ago) -0.83 -1.05 5.34
Net Margin (10 years ago) 0.83 0.91 9.34
FCF/Sales (Current) -0.58 0.12 2.66
FCF/Sales (5 years ago) N/A -0.08 2.42
FCF/Sales (10 years ago) N/A 2.37 11.86
BV Per Share (Current) $9.30 $17.42 $30.41
BV Per Share (5 years ago) N/A $21.03 $23.65
BV Per Share (10 years ago) N/A $15.80 $13.51
ROIC (Current) 2.16 1.53 5.21
ROIC (5 years ago) -2.12 -2.72 11.66
ROIC (10 years ago) 1.98 1.63 22.56
Insider Ownership (Current) 59.06% 3.33% 35.72%

These companies for the most part all have operations in the same segments and the next table will be showing the margins of those comparable operations.

Dole Chiquita Fresh Del Monte
Total Fresh Fruit EBIT 172 N/A N/A
Total Fresh Fruit Revenues 5,024 N/A 2,721
Fresh Fruit EBIT Margin 3.42% N/A N/A
Total Vegetable EBIT 31 N/A N/A
Total Vegetable Revenues 1,002 N/A 523
Vegetable EBIT Margin 3.10% N/A N/A
Packaged Food EBIT 96.5 N/A N/A
Packaged Food Revenues 1,197 N/A 355
Packaged Food EBIT Margin 8.10% N/A N/A
Total Operations EBIT 300 33.7 116
Total Operations Revenues 7,224 3,139 3,590
Total EBIT Margin 4.15% 1.07% 3.23%

In a perfect world Chiquita and Fresh Del Monte would have broken their operations out further like Dole does.  Instead they choose to combine their operations reporting data, especially the Operating Margin data, otherwise known as EBIT.  So at this point it is impossible for me to break out the data further than it is in the above table.

Taking the above information, combined with the information in the previous articles, I think that I have enough information to make some judgements on the companies.

As things currently stand I would NOT buy Chiquita under any circumstance, not even with the possibility of a spin off or asset sale.  Their low margins, combined with their huge amount of total obligations, and low cash on hand scare me too much to invest in them.  That is not even taking into account the fact that in my valuations I found them to be about fairly valued to slightly undervalued, not nearly enough of a margin of safety for me considering all the risks. I also do not see them being bought out by anyone due to their high amount of total obligations.  The only thing going in their favor is that they are selling for less than book value by a good margin, which is currently $17.42 per share, but at this point it looks to be justified.

Fresh Del Monte is interesting.  They are selling for less than book value by a good margin, which is currently at $30.41 per share, they generally have the best margins of the three companies, and they also have high insider ownership, which I always love.  However, by my estimates they appear to be slightly overvalued at this point, and have low cash on hand.  They are also the company out of the three in the best position to make some acquisitions, in my opinion a merger between Dole and Fresh Del Monte could possibly be a good thing. They have already been buying back a lot of shares and are the only one out of the three to pay a dividend, which are more pluses.  At this point I am not going to buy Fresh Del Monte, but I will wait for an opportunity when they are undervalued and will reassess at that time whether or not I will be a buyer then.

Without the possibility of a spin off or asset sale that I outlined in my original article on Dole, I would not be a buyer into their company right now either.  Pretty much the same problems as Chiquita: high debt/total obligations, low cash, low overall margins.  However, they do have high inside ownership, they are selling at a slight discount to book value, and by my valuations are extremely undervalued.  I do stick to my original assessment about Dole though, that they are a great spin off opportunity if they decide to do a spin off or asset sale.  If they do what I suggested in the original article I think they could unlock value, get rid of a lot of their debt, and become a much more focused and profitable company.  Especially if they put a lot of their resources into the packaged fruit portion of the business, as it has the highest margins in Dole’s operating structure.  Dole also has the 88,000 acres of land that they could sell some of to pay down debts as well.

I did buy half of a position in Dole based on the spin off thesis in my original article.  I am waiting to see if they announce a spin off or asset sale to jump fully into Dole at this point.  They are in the spin off portion of my portfolio which I plan to hold for 6 months to several years.  I do not consider them a long term buy and hold for decades company.

It also appears to me that none of the companies have any kind of sustainable competitive advantage, with their wildly fluctuating margins over the past 10 years, and no one becoming dominant.

I hope everyone has enjoyed and learned something from the analysis and valuation series on Dole, Chiquita, and Fresh Del Monte, and I look forward to some feedback.

Alexander and Baldwin Inc (ALEX) spin off analysis and valuation.

Alexander and Baldwin (ALEX) is a Hawaiian company that has operations in two very distinct businesses that are about to be spun off into two separate companiesAlexander and Baldwin after the spin is going to be a land owning, leasing, and building/office owning and leasing company with operations in Hawaii and California.  Their subsidiary A&B Properties is also going to be spun into the new ALEX, which is the only reason I am even interested in this stock after my valuations, and we will get to that later. The Agribusiness subsidiary, a Hawaiian sugar and renewable energy company, is also going to be kept in the new ALEX.

Matson, which is going to be spun off from ALEX, is a transportation and shipping company with operations in Hawaii, Guam, China, and other islands in the Pacific Ocean.

Before I get to my analysis of the spin off here are my valuations of ALEX pre spin off.

ALEX asset valuation done on 5-19-2012.  All numbers in millions of US dollars, except number of shares and price per share.  Using 2011 10K and March 2012 10Q.

These valuations are done by me, using my estimates, and is not a recommendation for you to buy the stock. Do your own homework.

Assets Book Value Reproduction Value
Current Assets
Cash 22 22
Marketable Securities 0 0
Accounts Receivable (Net) 173 147
Inventories 40 20
Prepaid Expenses 32 16
Deferred taxes-tax liability 0 0
Total Current Assets 267 205
PP&E Net 1,634 817
Goodwill 0 0
Total Assets 1,901 1022

Total shares=42

  • 1901/42=$45.26 per share.

Reproduction Value

  • 1022/42=$24.33 per share.

Current price pre spin=$48.08 per share.

Second ALEX valuation done on 5-19-2012 using March 2012 10Q and 2011 10K.  All numbers in millions of US dollars, except number of shares and price per share.

  • Cash and cash equivalents are 22+Short term investment of 0
  • Number of shares=42
  • Total current liabilities=278

Short term investments + Cash and cash equivalents-current liabilities=-256

  • -256/42=-$6.10 of net cash per share.

EBIT of 114 taken from 2011 10K

  • 5X, 10X, &14X EBIT are: 5X=570, 10X=1114, 14X=1596
  • 5X+22 of C&CE=592, 10X+22=1136, 14X+22=1618
  • 592/42=$14.10 per share.
  • 1136/42=$27.05 per share.
  • 1618/42=$38.35 per share.

Current share price=$48.08 per share. Current Market cap=$2 billion

Enterprise Value=Market cap+debt+minority interest&preferred shares-total C&CE.

  • 2000+559+0+0-22=2537
  • EV/EBIT=22.25

So not only is Alex extremely overvalued by my estimates on an intrinsic value basis, on a relative EV/EBIT level it is still overvalued at 22.25.  The only thing redeeming this spin off in my eyes is their land ownership of ALEX and the potential that comes with that.

The only reason I kept researching this company after my valuations was that A&B Properties owns 88,000 acres of land, most of which is in Hawaii.

Conservatively valuing the land at $5000 per acre you get; 88000X$5000=$440 million in potential land value.  Now dividing that by the number of shares you get 440/42=$10.48 of potential land value per share.  That is not even counting the 8 million square feet of office, industrial, and retail properties that they own.

For now I won’t even consider owning ALEX, with my most conservative estimate of price being $14.10 per share and the share price around $48.  I will continue to research, see how they structure the spin off, and watch for an opportunity if the price gets low enough.

My first article posted on seekingalpha.com

I just got my first article published on seekingalpha.com, a website that is viewed by everyone from beginning investors all the way up to advanced investors, so I am incredibly excited that it got published.

For those who would like to see it and follow the discussion in the comments section you can do so here.

Dole Valuations

Here are my valuations of Dole (DOLE)

Dole asset valuation done on 5-19-2012.  All #’s in millions of $.  Using March 2012 10Q and 2011 10K.

These valuations are done by me, using my estimates, and is not a recommendation for you to buy the stock. DO YOUR OWN HOMEWORK.

Assets:                                     Book Value:                               Reproduction Value:

Current Assets

Cash                                            106                                                   106

Marketable Securities                     0                                                       0

Accounts Receivable (net)          739                                                   628

Inventories                                   877                                                   438.5

Prepaid Expenses                        64                                                      32

Deferred taxes-tax liability           185                                                   55.5

Total CA                                     1,971                                                1,260

PP&E Net                                    901                                                   540.6

Goodwill                                      413                                                     124

Intangible Assets                        740                                                     370

689 million of IA is their estimate of what the DOLE brand is worth.

Total Assets                             4,025                                                 2,294.6

Number of shares = 88m

With IA: 4,025/88=$45.74 per sahre

Without IA: 3,285/88=$37.33 per share

Reproduction Value

With IA 2294.6/88=$26.08 per share

Without IA 1924.6/88=$21.88 per share.

Current share price=$8.96 per share

Second Dole valuation:

Done on 5-19-2012 using March 2012 10Q and 2011 10K.  Numbers in millions of $.

Cash and cash equivalents=106 + short term investments of 0=106

Number of shares=88

Total Current Liabilities=1,090

Short term investments+cash and cash equivalents-current liabiliites=-984

-984/88= -$11.18 in net cash per share

EBIT of 300 taken from 2011 10K

5X, 10X, and 14X EBIT= 5X=1,500, 10X=3,000, 14X=4,200

1,500 + C &CE above of 106=1606, 3,000 +106=3,106, 4,200+106=4,306

1606/88=$18.25 per share

3106/88=$35.05 per share

4306/88=$48.93 per share

Current price is $8.96 per share

Current market cap=782.9 million

EV=MKT cap+debt,minority interest & preferred shares- total C&CE

EV=782.9+1626=39=0-106=3,381 m                                      EV/EBIT=11.27

Dole owns 117,000 acres of land, mostly in Hawaii. 117,000 X $5000, which I think is a conservative estimate of land prices in Hawaii=$585 million in potential worth of land.

585/88= $6.65 per share potential of land per share, with again a current share price of $8.96 per share.

Subtracting my estimate of their potential land value you get the rest of Dole, cash, and debt for $2.31.

Being a very conservative investor, normally I would never touch a stock with this much debt in relation to market cap, EBIT, cash on hand, and a negative net cash number, even with the massive margin of safety.

Another knock against it is that it is a fresh fruit business, which makes it a commodity business leading to widely fluctuating prices, revenues, and margins.

However, the management has has been paying down debt slowly over the past several years. Dole is also currently under strategic review by their directors and management to see how they can unlock lost value and pay down debt at the same time.

http://seekingalpha.com/news-article/2700131-dole-food-company-inc-announces-first-quarter-2012-results-and-strategic-business-review

In the article they state that “As part of this review, the alternatives we may consider include a full or partial separation of one or more of our businesses through a spin-off or other capital markets transaction, as well as other alternatives that will enhance shareholder value. We are committed to enhancing shareholder value and this review is a company priority.”

Normally I would take the above statement with a grain of salt but their biggest shareholder Mr. David Murdock currently owns 58.1% of all shares.  He originally brought Dole public again in 2009 at a price of $12.50 per share meaning he has already lost several hundreds of millions of dollars.  Obviously he would want to do what is in his own self interest and hopefully what is best for the shareholders to make that money back, and unlock further value.

Leading me to believe that they are going to find under their strategic review that they are either going to sell off some assets, including some of the land, or more likely spin off one or more companies to help pay down some of their debt.

Personally I think they should move most of their resources into the packaged fruits section of their business as it has the highest margins by far, concentrate less on the fresh fruit section by selling or spinning off at least a portion of that business , sell or spin off the fresh vegetable section outright, and either lease or sell part of their land holdings which could substantially pay down debt and raise the stock price.  They would also be a more focused company if the above were to occur as well.

Again feel free to give feedback.

Vivendi to sell Activision? Description of other subsidiaries.

http://www.ign.com/articles/2012/06/08/vivendi-to-sell-activision

A little bit of nice timing here coming off my post yesterday.  Anyways I have been hearing these rumors for a month or so now and am just waiting for their meeting on June 22nd to see what they have decided or not decided to do.

Activision Blizzard (ATVI) description- Worlds biggest video game company, and in my opinion has the best overall portfolio of games in the entire industry.  Call of Duty, Skylanders, Diablo, Starcraft, World of Warcraft, among others are included in the portfolio. This is the asset that I think would make the most sense to sell or spin off.

Call of Duty produces over $1 billion of revenues by itself with every game they produce, which comes out once a year usually in November.

However most of these franchises have either just come out with games or are past their prime in my opinion. World of Warcraft while still a cash cow is gushing subscription members every month, and Blizzard has already started to move resources into their next MMORPG which has no release date. Diablo III just came out so won’t expect another game in that series for a while. Call of Duty while still producing huge revenues and profits is at its peak to me and can only go down from here. The development studio who makes the Call of Duty series has been fighting with and losing a lot of team members over the last several years which will also hurt quality in the future.

I also see the entire console video game industry in a decline as well.  You can only keep asking people to pay more for less, for so long before they decide to stop buying games and consoles, especially with cheaper games coming out either free to play or for under $10 on tablets and phones.

The next generation of gaming systems is going to start coming out later in 2012 which is also another reason they should sell before that happens due to the higher costs and lower profitability that comes from every new console generation.

In my opinion now would be the perfect time to sell ATVI, will likely never be able to get a higher price than they would now due to the above. The only problem would be finding someone big enough to buy them.

GVT description-Fixed phone and internet Brazilian telecom who Vivendi recently bought.  Has great growth potential but will cost a lot in the short term due to high amounts of cap ex in the telecom industry. Should be one of the better Vivendi holdings over the long term though as their margins are good.  My main concern with this one is that Vivendi over payed for it so it will take longer to recoup that investment, and being in Brazil you never know what company might be expropriated by  the goverments in South America.

Maroc Telecom description-Mobile/internet/fixed phone company with most of their business in Morocco.  Same problem with cap ex as GVT above especially since they are going to be transitioning into 3G coverage from 2G, also could eventually pay off due to more data plan subscriptions from the smartphones that run 3G.  Maroc has also been having problems with the government in Morocco as they have been having to cut rates thus losing out on revenues and lowering margins.

Canal+ description- Pay TV/cinema company with operations mainly in France. Another asset I could see them spinning off or selling. Owns 80% of Canal+ France which they have been trying to buy out completely to no avail which could lead them to sell their portion of it. Does own the rights to show Ligue 1 soccer matches and UEFA Champions League matches in France which is a major advantage.

Universal Music Group description-Biggest owner of music and music publishing rights in the world. Produces the lowest EBITDA and CFFO margin of the entire group.  Also doesn’t seem to fit the profile of the rest of the subsidiaries which might lead this to being sold.  However owns the rights to music from the likes of: Rihanna, Lady Gaga, Justin Bieber, Eminem, Taylor Swift and various other major music artists.  The music industry could also see a comeback to higher profitability with things like ITunes, Pandora, and Spotify though if they can figure out how to monetize their publishing rights properly.

SFR description- Mobile/fixed phone/internet company with operations mostly in France. Vivendi’s biggest revenue generator currently and probably most important to the groups success in the future.  Currently facing some headwinds in France with having to cut rates which is lowering margins. They are facing new, tougher, and cheaper competition in their market which is also currently lowering margins and causing a loss of subscribers.  Also losing some business due to the difficulties of the European economy and the loss of discretionary income by some individuals.  Recently bought out the remaining 44% of SFR from Vodafone which in my opinion they overpaid for, but should pay off in the future. Will hopefully return to profitability in the near future.