An Updated Sum Of The Parts Valuation of Vivendi, Buying More Shares, Also a Brief Update on $CMT

While I am waiting for Dole’s next quarterly report to come out so I can finish my updated valuations and analysis of it, I have been researching some new companies and reanalyzing Vivendi and Core Molding Technologies since new information has come out about both.

After revaluing CMT with updated quarterly numbers it is still selling at a very good discount to my estimate of intrinsic value and I may buy more shares at any time after hearing specifics from CMT management about how Navistar’s problems are affecting it.

When I did my first sum of the parts valuation of Vivendi in July I had no information or very limited information about the values of its subsidiaries: GVT, Canal+, SFR, and Universal Music Group.  Since that time some information has come out about three of those, which has helped clarify the sum of the parts valuation quite a bit.

Vivendi is still seeking to spin off or sell some of the below companies to unlock value in its shares.

  • An estimated sale price for SFR if Vivendi were to find a buyer is at 15 billion Euros
  • Canal+ 20% estimated price that Vivendi does not own has a conservative estimated IPO price of $900 million.  Vivendi owns 80% of Canal+ meaning conservatively its estimated stake in Canal+ has a price of $3.6 billion.
  • Vivendi is seeking 5.5 billion Euros for its 53% stake in Maroc Telecom.  Vivendi’s current 53% stake market price in Maroc Telecom is worth 4.72 billion Euros or $6.02 billion.
  • Vivendi owns 60% of Activision Blizzard which is currently worth $7.44 billion at market.
  • Vivendi is seeking at minimum 7 billion Euros for GVT.
  • I still cannot find any reasonable estimate of value for Universal Music Group so at this point I will still leave this out of my estimates.

Adding all of the above together and converting everything to US Dollars gets us to a total estimated price of $46.13 billion.  Vivendi’s numbers of shares are still 1.242 billion.

  • $46.13/1.242=$37.14 per share.

For the sake of being conservative and assuming that Vivendi will not be able to get the prices it wants from some sales or spin offs of some of the subsidiaries, which is already the case in a couple instances, I will knock off $7.14 from the per share estimate which gets us to an extremely conservative, probably too conservative, value of Vivendi at $30 per share, which still does not even include UMG or Vivendi’s cash and debt.

Here is my original Vivendi article from June for a comparison of the values then and now.

The $30 per share price is an absolute worst case estimate of value.  Today I bought more shares at $19.22 per share for all portfolios that I manage, meaning there is still a 36% margin of safety to my absolute lowest case value of Vivendi, and an almost 50% discount to my more reasonable estimate of value.  Neither of the two estimates even take into account Universal Music Group, Vivendi’s cash, or debt.

Vivendi now makes up about 25% of my personal portfolio.

Jack In The Box Overvalued Despite The Recent Hype

Recently I have been seeing quite a bit about Jack in the Box (JACK) and its long term potential through a possible spin off down the road of its subsidiary Qdoba, the entire company being bought out by one of the bigger fast food chains, or though its margin growth now that it has about 72% of its Jack in the Box fast food restaurants being owned by franchisees.  Franchise royalty margins I have seen estimated as high as 80%.

After seeing all of the above and how undervalued everyone seems to think JACK currently is, I decided to research the company myself.  Most of what I have read about JACK from other people is that it is undervalued because of the “Future potential” of the company with what I talked about in the first paragraph given as reasons; there are a lot of ifs in every pro JACK article I have read thus far.

If you have read any of my previous valuation and analysis articles, you know that is not how I operate.  For those of you who have not seen any of my previous articles I do not base my buy or sell decisions on ifs.  I value the company’s assets and operations as it is now, and future potential is only icing on the cake to me in most cases.  Here is an overview of my investment philosophy.

With the rest of this article I will be showing you why I think JACK is overvalued and give you reasons why I will not be investing in it at this time.

Jack In the Box Overview

JACK owns and operates a total of 2,247 Jack in the Box fast food restaurants, about 72% of which are owned by franchisees. Jack in the Box is one of the largest hamburger chains in the US with operations in 19 states, with the vast majority of its operations in California and Texas.  JACK also owns Qdoba and has 614 total restaurants, about half of which are owned by franchisees. Qdoba is a fast food Mexican restaurant with operations in 44 states currently.  For further information on JACK please visit its website here.

Jack in the Box has recently finished up reimaging some of its restaurants by changing the logo, updating the menu, and making its restaurants look more modern.  The recent reimaging of Jack in the Box restaurants has led to higher capital expenditures and sometimes lower revenues over recent years.  Now that the bulk of the reimaging is done, Jack in the Box is hoping to become even more profitable.

In recent years Jack in the Box has under gone the process of selling some of its restaurants to franchisees so it can get into the higher margin area of collecting royalty and franchise fees.  Jack in the Box currently has around 72% of its restaurants owned by franchisees with plans to eventually have 80% of its restaurants owned by franchisees.

Qdoba has been going through a rapid growth phase since being acquired by JACK in 2003 and JACK management states that it believes there is future potential of between 1,800 and 2,000 Qdoba restaurants in the United States.

As of the most recent 10Q, JACK gets 56.9% of its revenue from sales at its restaurants, 27.7% from distribution sales, and 15.5% from franchise and royalties.  Total company costs are 83.5% of total revenues which come from food and packaging 32.3%, payroll and employee benefits 28.7%, and occupancy and other 22.5%.

Valuations

These valuations are done by me and are not a recommendation to buy stock in any of the following companies mentioned.  Do your own homework.  All numbers are in millions of US dollars, except per share information, unless otherwise noted.  The following valuations were done using its 2011 10K and 3Q 2012 10Q.

I did my other normal valuations as well but from now on plan to only post the ones that I think are most relevant.

Low Estimate of Value:

Assets: Book Value: Reproduction Value:
Current Assets
Cash & Cash Equivalents 10.8 10.8
Accounts Receivable & Other Receivables (Net) 84.9 72.2
Inventories 37 18.5
Prepaid Expenses 32.2 16
Deferred Income Tax – Deferred Tax Liability 39 19.5
Assets Held For Sale & Leaseback 62.4 31
Other Current Assets 1 0
Total Current Assets 267.3 168
PP&E Net 825.5 495.3
Goodwill 140.5 84.3
Other Assets Net 241 120
Total Assets 1474.3 867.6

Number of shares are 45

Reproduction value:

  • Without goodwill: 783.3/45=$17.40 per share.

Base Estimate of Value:

Cash and cash equivalents are 10.8

Short term investments are 0

Total current liabilities are 266

Number of shares are 45

Cash and cash equivalents + short-term investments – total current liabilities=

  • 10.8+0-266=-255.2/45=-$5.67 in net cash per share.

Jack in the Box has a trailing twelve month EBIT of 120.

5X, 8X, 11X, and 14X EBIT + cash and cash equivalents + short-term investments:

  • 5X120=600+10.8=610.8
  • 8X120=960+10.8=970.8
  • 11X120=1320+10.8=1330.8
  • 14X120=1680+10.8=1690.8
  • 5X=610.8/45=$13.57 per share.
  • 8X=970.8/45=$21.57 per share.
  • 11X=1330.8/45=$29.57 per share.
  • 14X=1690.8/45=$37.57 per share.

From this valuation I would use the 8X EBIT and cash estimate of intrinsic value, $21.57 per share.

High Estimate of Value:

Numbers:
Revenue: 2165
Multiplied By:
Average 5 year EBIT %: 7.50%
Equals:
Estimated EBIT of: 162.4
Multiplied By:
Assumed Fair Value Multiple of EBIT: 11X
Equals:
Estimated Fair Enterprise Value of JACK: 1786.4
Plus:
Cash, Cash Equivalents, and Short Term Investments: 10.8
Minus:
Total Debt: 451
Equals:
Estimated Fair Value of Common Equity: 1346.2
Divided By:
Number of Shares: 45
Equals: $29.92 per share.

I will explain my reasons for picking these valuations in the conclusions portion of this article, but by my estimates JACK Is currently either fairly valued or overvalued by almost every valuation technique I did, except for the valuations with very high multiples.

Margins and Debt In Comparison To Competitors

Jack in the Box (JACK) Sonic (SONC) McDonald’s (MCD) Yum Brands (YUM) Chipotle Mexican Grill (CMG) Company Averages
Gross Margin 5 Year Average 16.28% 34.30% 37.94% 26.20% 24.28% 27.80%
Gross Margin 10 Year Average 17.08% 43.38% 40.42% 32.59% 11.73% 29.04%
Op Margin 5 Year Average 7.46% 16.24% 27.42% 14.22% 12.76% 15.62%
Op Margin 10 Year Average 7.07% 18.05% 22.62% 13.50% 6.64% 13.57%
ROE 5 Year Average 20.16% 66.33% 30.26% 131.56% 18.55% 53.37%
ROE 10 Year Average 18.77% 43.71% 23.19% 105.85% 10.27% 40.36%
ROIC 5 Year Average 11.17% 3.38% 17.38% 24.97% 18.49% 15.08%
ROIC 10 Year Average 10.91% 8.97% 13.37% 23.54% 10.22% 13.40%
FCF/Sales 5 Year Average -0.26% 6.48% 15.90% 7.70% 6.92% 7.35%
FCF/Sales 10 Year Average 0.80% 7.10% 12.86% 6.70% 2.26% 5.94%
Cash Conversion Cycle 5 Year Average 0.78 1.23 0.91 -36.35 -5.24 -7.92
Cash Conversion Cycle 10 Year Average 0.27 1.14 -1.22 -49.02 -5.21 -10.81
P/B Current 2.9 12.4 6.7 14.3 8.2 8.9
Insider Ownership Current 0.38% 6.12% 0.07% 0.50% 1.64% 1.74%
EV/EBIT Current 14.25 9.65 12.16 15.81 26.53 15.68
Debt Comparisons:
Total Debt as a % of Balance Sheet 5 year Average 30.78% 80.91% 35.28% 45.24% 0 38.44%
Total debt as a % of Balance Sheet 10 year Average 26.84% 50.77% 35.22% 40.72% 0.14% 30.74%
Current Assets to Current Liabilities 1.02 1.38 1.24 0.97 4.13 1.75
Total Debt to Equity 1.03 9.69 0.97 1.6 0 2.66
Total Debt to Total Assets 30.50% 71.20% 41% 37.21% 0 35.98%
Total Contractual Obligations and Commitments, Including Debt $2.6 Billion $1 Billion $27.20 Billion $11.42 Billion $2.20 Billion $8.88 Billion
Total Obligations and Debt/EBIT 21.67 8.85 3.15 5.4 5.82 8.98

My thoughts on the above comparisons:

  • McDonald’s is by far the most profitable company of the five as it far outdistances the competition in gross margin, operating or EBIT margin, FCF/sales, etc.
  • Sonic and Yum Brands’ ROE and ROIC are astounding but are inflated by both companies high levels of debt in comparison to the other three companies.
  • JACK’s margins have generally declined in the last five years in comparison to the entire 10 year period.  Most of the other company’s margins during that time have been improving.
  • Chipotle’s margins are pretty amazing, especially when you see that it does not have any debt so the numbers are not inflated like Sonic and Yum.
  • On an EV/EBIT basis Chipotle looks to be very overvalued currently with a ratio of 26.53.
  • The insider ownership of all the companies is horrendous.
  • The P/B of this industry is by far the highest I have seen since doing in depth research.
  • The EV/EBIT ratios are also much higher than the companies I have been researching lately.
  • The P/B and EV/EBIT ratios being much higher than what I have been finding lately leads me to believe that this entire industry is either fairly valued or overvalued currently.
  • The entire industry has some very high debt levels due to the costs of food, restaurant leases, etc.  Debt levels have risen quite a bit recently as all of the companies, with the exception of CMG and MCD, have taken on more debt in the past five years.
  • MCD, YUM, and CMG’s total obligations and debt/EBIT ratios look very sustainable into the future.
  • JACK’s total obligations and debt/EBIT ratio is dangerously high at 21.67.  Especially of concern is that the bulk of its obligations and debt are due before 2016.
  • Sonic’s debt levels also seem to be too high to me.
  • Helping out SONC, MCD, YUM, and CMG is that most of the four company’s debt and total obligations are coming due after 2016.

Let us now get back to JACK.

Pros

  • JACK has been buying back a lot of shares and has reduced its share count by 13 million since 2009, down to 45 million as of the most recent quarter.
  • JACK has decent margins that have been consistently positive over the past decade.
  • Now that the reimaging of Jack in the Box is done cap ex should go down and profit margins should go up over time.
  • Qdoba is a high growth asset that is also currently more profitable than Jack in the box.
  • JACK’s debt ratios, excluding total obligations, all look very good compared to its competitors.
  • Selling restaurants to franchisees will get JACK into the higher margin business of collecting royalty and franchise fees.
  • Fortunately most of JACK’s debt has low interest rates.
  • JACK owns the land underneath some of its restaurants which provides at least partial downside protection due to the possible sale of the land if it was facing dire problems and was forced to sell some of its assets.

Cons

  • JACK’s debt ratios above are very misleading as they do not include contractual obligations and commitments.
  • JACK’s total obligations and debt in comparison to its profitability levels are way too high in my opinion with a total obligations/EBIT ratio of 21.67, which is by far the highest of the group and dangerously high in my opinion.
  • Most of its debt and obligations are due within the next 5 years further exacerbating the debt situation in my eyes.
  • Margins have been declining at JACK over the past five years, in part due to the reimagining of its Jack in the Box restaurants.
  • JACK’s margins while decent and relatively steady over the past few years, are also generally quite a bit lower than its competitors.
  • JACK’s FCF/sales margin is negative over the past five years while the industry average is 7.35% over that time.
  • JACK is overvalued by almost every one of my estimates of intrinsic value.
  • The entire fast food industry appears to be either fairly valued or overvalued at this time.
  • About 85% of its revenues go towards paying costs, greatly affecting margins.
  • JACK will continue to put a lot of its resources towards opening and running restaurants and food costs.  Some of the cost of new restaurants is paid by the developer however.
  • A 1% point increase in short term interest rates would result in an estimated increase of $3.6 million in annual interest expense.  Interest rates can only go higher from where they are at now.
  • Has a low amount of cash on hand.
  • Managements pay seems too high to me.
  • How JACK management structures the pay, bonuses, and awarding of options and restricted stock is very convoluted.  The most recent proxy is longer than the most recent annual report, most of which is spent explaining how management is awarded some of its compensation.
  • Horribly low insider ownership.
  • I do not see any kind of moat or competitive advantages within JACK.

Potential Catalysts

  • Margins should rise now that the store reimaging of Jack in the Box restaurants are done, which could eventually lead to a higher estimate of value.
  • The total obligations and debt situation could be a negative catalyst if JACK should have any problems.
  • As of the most recent proxy, Fidelity Management & Research Company owns 14.9% of JACK.  If FMR decides to liquidate a portion or all of its position in JACK there could be a big sell off in the stock.
  • If JACK management decides to sell or spin off Qdoba it would send the stock price higher.
  • JACK could be bought out by a bigger fast food chain.

Conclusion

The reason I chose the above estimates of intrinsic value, that I am sure the JACK bulls will say are too low, are because of the problems I found with JACK as it currently stands: Its huge amount of total obligations and debt, the bulk of which is coming due before 2017, its relatively low and decreasing margins in comparison to its competitors, along with all of the other reasons I outlined above.

I need as big of a margin of safety as possible and for the most part only value what I see in the company as it presently stands.  All of the other articles I have seen have been talking about how much JACK could be worth if it spun off or sold Qdoba, or the entirety of JACK gets bought out.

To my knowledge JACK management has not said anything about spinning off Qdoba so to me valuing a company on speculation of what could happen in the future is very dangerous.  I saw an article the other day where someone wrote that if Qdoba was spun off could sell for 30X EV/EBITDA because that is what Chipotle sells for.  Buying any company at 30X EV/EBITDA is insane to me, especially potentially Qdoba as I do not think it has any discernible sustainable competitive advantages.  I do not even know how someone would make money on that transaction, especially since Qdoba would most likely not pay any dividend as it needs to grow its store count.

Even if JACK management does decide to spin off or sell Qdoba, the valuations and analysis that I laid out above were encompassing the entire company, and I still found JACK to be overvalued on almost every count.  I do expect JACK’s margins to rise over time now that the bulk of its reimaging is done, but the debt and total obligations scare me too much to be a buyer even if that happens.

Speculating is no longer what I do when investing, and to me buying into JACK now is almost purely a speculation play in the hopes that it gets bought out or spins of Qdoba.  In my opinion JACK is overvalued, has no discernible moat or competitive advantages, and has some huge problems with its debt and total obligations.  Combined with the rest of my above analysis, I think JACK is a bad investment currently.

For me personally, how I invest, what I need as a margin of safety, and the problems I outlined in the article, lead me to the conclusion that the risks far out way the pros as JACK currently stands, and I will not be a buyer of it at this time.

Dole Update, Closed out partial position in Dole up almost 70% in 104 days

Dole today spiked up more than $2 per share at one point and ended closing today up $1.21 per share or 9.42% on the following news, the quoted text is from The Wall Street Journal Online:

Dole Food Co. Inc. said Wednesday it is in advanced discussions with Japanese trading house Itochu Corp. for the possible sale of its packaged-foods and Asian fresh fruit and vegetable businesses.

The California-based company, said no definitive agreements have been reached, and it continues to be in discussions with several other parties regarding these and other assets.

Dole said it divulged the talks in response to market rumors. Japanese business news provider Nikkei reported that Itochu is poised to purchase the U.S. firm’s businesses for as much as $1.7 billion.

Dole launched a strategic review of its businesses in May after reporting a slump in profits. The company said in July that it was considering a full or partial separation of one or more of its business, including potential spin offs, joint ventures and sales transactions.

Dole’s second-quarter profit fell 21% as the company saw lower fresh-fruit revenue, though sales of fresh vegetables and packaged foods improved.

After the news came out I sold just under half of the position I bought for a couple people’s money that I manage, cost basis around $8.50 per share sold around $14.50 per share, or up around 66% in just over 100 days since I bought it for them.  Here is the link to my first article about Dole that got published on June 13th on Seeking Alpha.

Dole Is Undervalued, Could Be A Winner From Spin-Off Or Asset Sale

I sold about half of the position because most of the margin of safety is gone and I wanted to lock in some profits in case the deal ends up falling through with Itochu.

I kept just over half the position because I valued Dole at the very low end at $18.25 per share and as high as $48.93 per share in June.  I also kept about half of the position because if any of the potential deals do go through then Dole will be able to pay off most, if not all of its massive debt which is Dole’s biggest problem at this time.  Also if it is able to pay off most or all of its debt, it could possibly start to grow its operations which could also help the share price.

Sometime in the near future I am going to start working on an updated Dole article and apply the knowledge and techniques I have learned since the original article.

Until next time.

Dole update, some links, and my plans

Dole

I was planning on doing an entire write up on my thoughts on Dole now that it is up almost 50% since I wrote my articles on it and its competitors, but these two links from the Motley Fool and Seeking Alpha respectively, do a good job of talking about most of what I was going to.  Why is This Insider Buying Shares of Dole?  Top Insider Buys Filed on August 15th.

I wonder what Mr. Murdock knows or expects to happen?  Since July 24th he has bought almost 5 million additional shares and he now controls just fewer than 62% of the company.  I wonder if he is thinking about taking the company private again or if he knows or expects a spin off or asset sale to happen.

In any event, it is usually a good sign to see an insider buying this amount of stock before the company is expected to announce some kind of plan to enhance the value of the company.

In my opinion Dole is still undervalued but it has come a lot closer to my estimate of intrinsic value. The almost 50% appreciation in stock price thus far has come on almost zero news, so I am excited to see what kind of price movement happens when and if Dole announces some kind of spin off or asset sale. The following are the links to my four articles detailing Dole, Chiquita, Fresh Del Monte, and my concluding thoughts: Part 1, Part 2, Part 3, and Part 4.

Links

From Farnam Street Blog, @farnamstreet on Twitter who I would highly recommend following, they give some quotes on learning.

From Psychology Today, and tweeted by @favillapsych who I would also recommend following, they give you examples of how geniuses think and how to improve your thinking.  I especially like this portion of the article, which I think is very applicable to the investment world, quoting from the article:

GENIUSES PRODUCE.

A distinguishing characteristic of genius is immense productivity. Thomas Edison held 1,093 patents, still the record. He guaranteed productivity by giving himself and his assistants idea quotas. His own personal quota was one minor invention every 10 days and a major invention every six months. Bach wrote a cantata every week, even when he was sick or exhausted. Mozart produced more than six hundred pieces of music. Einstein is best known for his paper on relativity, but he published 248 other papers. T. S. Elliot’s numerous drafts of “The Waste Land” constitute a jumble of good and bad passages that eventually was turned into a masterpiece. In a study of 2,036 scientists throughout history, Dean Kean Simonton of the University of California, Davis found that the most respected produced not only great works, but also more “bad” ones. Out of their massive quantity of work came quality. Geniuses produce. Period.

From Deloitte, The Persistence Project and its associated articles.  Some of the links are pretty dry, and while I do not necessarily agree with everything they put forward I do think the articles contain some very good information about what makes certain companies great in comparison to others.  Quoting from the site:

Discovering the causes of superior corporate performance

Trying to understand what makes great companies great is the defining quest of popular management research. Sadly, like the quests of great literature – from the grail to the fleece – the search seems endless. Even the most famous and influential efforts at uncovering the causes of enduring success have of late been knocked off their pedestals, and often for good reason. Why should we bother even to try?

Well, if George Mallory wanted to climb Everest because it was there, then, following Thomas Berger, we determined to try our hand at the recipe for persistent superior performance precisely because it isn’t there.

To make any progress, we recognize we’ll have to try a different approach. We’ve begun with advances in statistical techniques to define a unique sample. You can read more about that in our monograph, A Random Search for Excellence.

 

My Plans

I was planning to get right into my 2 week plan that I outlined here a couple days ago, but since my internet was out yesterday I decided to start The Investment Checklist.  On top of hearing that this book is fantastic, I hope it helps me refine my checklists and also helps me figure out a way to more efficiently maximize my research and analysis time.

After I get done reading I will officially start my version of deliberate practice that I talked about the other day.

 

Intel’s and my Vision for Education, Profile of Seth Klarman, and Dole news

Intel’s Vision of the future classroom

This is an amazing 3 minute video of Intel’s vision of the future classroom.

Education is one of my few other passions outside of investing.  I have always been a person who loves to learn, but find that our current educational system, from kindergarten to college is extremely antiquated and needs to be massively updated. When I make enough money I going to devote a lot of it to the upcoming education revolution and am going to open up my own school teaching investing, how to manage money, history, science, etc from a young age.

Profile of Seth Klarman

Here is profile of Mr. Klarman that has some interesting tid bits in it.

Dole news

This is mainly an article talking about the potential spin-off again, but this is some new news from the article.

“Combining the packaged foods division with Dole’s Asia operations into a stand-alone entity could be done with an Asia-based company, DeLorenzo said. Another option would be to initiate a joint venture with third parties through an initial public offering.

“We have generated a lot of interest in Asia,” DeLorenzo said. “It is a high growth area for all our businesses. It is more stable than North America and Europe, possibly because it is more demand driven. …. It would make sense in many ways. About 90% of our packaged foods assets are in Asia and many of the products for them are sourced out of Asia.”

 

Here is some more good news from Dole, this time insider buying from Mr. Murdock who already owns around 58%% of the company and is the Chairman and CEO.

Again, too bad I did not have any available cash in my personal investment account to buy Dole as it is now up almost 30% since I bought it in some accounts I manage, ugh.

Dole and Vivendi news, Disgusting politicians (again), and “Evidence” of a coming recession

Before I get to some valuations I wanted to post these updates and news stories since it was a busy news day yesterday.

Dole

I thought this article was pretty benign yesterday when I first read it.  It is Dole’s second quarter and strategic review update.  The second quarter about matched the “analysts” expectations and they didn’t really announce anything of major value about the strategic review, quoting:

Strategic Business Review

Deutsche Bank Securities Inc. and Wells Fargo Securities LLC are assisting the Board of Directors and management in reviewing a number of strategic alternatives. The company is currently evaluating prospective transactions and options for a number of the companys businesses and has been in discussions with numerous third parties who have expressed interest in select businesses. For the worldwide packaged foods business, the company is exploring a possible sale transaction as well as a possible spin-off of this business to current Dole stockholders. The company is also exploring a possible separation of the worldwide packaged foods business in combination with Dole operations in Asia, into a stand-alone, primarily Asia-based company either through a possible joint venture with third parties interested in partnering with Dole or through an initial public offering in Asia. All of these alternatives are intended to enhance shareholder value. The company believes it is on track to achieve one or more of these possible transactions, or any other transaction in connection with the strategic review, by the end of the year. However, there can be no assurances that the company will pursue or complete any of the strategic alternatives that are currently being reviewed or any other transaction. The company intends to disclose developments with respect to the progress, if any, of the strategic review process at such time as the company determines that further disclosure is appropriate or where possible definitive agreement terms require disclosure.

 

They have been saying pretty much the same stuff for a few months now so I was surprised to see this morning that Dole is up more than $1 per share or about 11%.  Glad I bought more shares for some accounts I manage.  Unfortunately, I still have not been able to buy shares for my personal account, waiting for money to be available to put into the account, ugh.

Vivendi

Something surprising from Vivendi came out yesterday also.  This article talks about how Vivendi is allegedly looking to sell GVT, its Brazilian telecom subsidiary.  I was surprised to see this because I remember reading somewhere that they would not sell GVT, that they were planning on building around them.

In my opinion, GVT is the best long term subsidiary for Vivendi, it has the greatest upside potential, it is in a growing country that wants better telecom.  But it also is going to have a lot of expenses due to upgrading their telecom network, which might be one reason why they are looking to sell.

Vivendi must either be getting some pretty good offers for GVT, or they are having a lot of problems selling ATVI.

Disgusting politicians, again

This article is about how Eric Cantor, or someone from his office, changed language in the STOCK Act that was passed in congress earlier this year to stop insider trading on Capitol Hill.

The language that was changed would now make members of the politicians families exempt from the law.  After having this brought to their attention there is now “outrage” and they are now “working to change the law back to what it was originally intended to be.”

Disgusting politicians.

Signs of the coming recession?

First up is an article that talks about how South Korea is going through another banking crisis.

Second is an article that gives “Overwhelming Evidence of a Coming Recession” here in the US.

I will leave it up to you to decide whether you think a recession is coming or not.

Next up will be some of my new valuation techniques I have been learning

Vodafone dividend from Verizon, Microsoft buying Activision, and what I am doing now

Vodafone and the possible dividend from Verizon

This is a fantastic article about the potential special dividend Vodafone might be getting from Verizon.  The article talks about the relationship between the two companies, how big the dividend could be, whether it could become a regular thing, and whether there could be a possible Vodafone/Verizon merger or if Verizon could buy out Vodafone’s 45% stake in them.

What if Microsoft Bought Activision Blizzard?

This article talks about some scenarios that could possibly happen in the video game industry if Microsoft were to buy Activision Blizzard.

What I am doing now

I am currently reading Valuation: Measuring and Managing the Value of Companies, one of the free books that Csinvesting put on his site, so it will be a few more days until I will be putting up some more valuations.

I have also been learning and applying some of the different valuation techniques from the Manual of Ideas to some of the stocks I have already written about, and will post some of them after I finish reading Valuation.

I can’t wait to start diving into some more annual reports and finding another company to evaluate, as this book is so far kind of a let down. Valuation is a good book so far, about a quarter of the way through it, but a lot of the stuff I have already learned from Damodaran’s free valuation course, Bruce Greenwald’s books, and from various other books I have read.  So far up to where I have read in the book, it is almost exclusively talking about how to do DCF valuations, which I don’t do, with a little bit of strategy mixed in, and how companies with high ROIC are better investments than lower ROIC companies.

Until next time.

Shifting gears, Dole news, and my latest article published

Shifting Gears

Recently I have been concentrating pretty heavily on trying to find, assess, and value new companies that I could invest in.  I am now going to be shifting gears for a bit to expand my knowledge.

The Manual of Ideas that I posted about a few days ago, and the 32 free books from csinvesting are amazing,  I am most of the way through the MoI free publication and the information in it is incredible.

I am going to be studying specifically from the MoI publication the valuation techniques that they go over, try to learn them, revalue some of the companies I have already valued, and incorporate some of them into my valuation techniques.

When I feel comfortable with the new techniques I will post some of the new valuations here, and see if that changes my assumptions on some of the stocks I have already talked about.

After I finish up with the MoI, I am going to start one of the free books that I downloaded yesterday from csinvesting’s site, so it will probably be a little while before I look for a new company to evaluate.

In the meantime I will still be posting any news I find on companies I own, my random thoughts, and any new, good information I find from websites and blogs.

Dole News

The first article talks about the best and worst boards in the country, Dole came out as one of the worst.  The main reason being that Dole, being majority owned by one person, is not a very transparent company.

The second article is another article, from another analyst, saying that if Dole decides to do some kind of asset sale or spin off they could be worth $16 a share, and talks about how the packaged fruit business has amazing margins. I have specifically talked about all of this in my article here.  So why am I posting this?  Because stated in the article from Dole CEO David DeLorenzo “Our goal would be to accomplish something by the end of this year. We have come across some opportunities that, if we are able to execute, would be good for both the packaged foods business and the commodities business.” That is new news.  Emphasis is mine.

For those who are interested in the company, which I am, it looks like we have the rest of this year to accumulate shares before they announce anything on the spin off or asset sale front.

Latest article posted

My latest article, on L.B. Foster, has been posted to Seeking Alpha and can be viewed here, for those who want to follow the discussion in the comments section.

Minority Report, Batman tech, and a few good articles on stocks I have written about

Minority Report and Batman Tech

This first article is kind of scary and the people who developed it must not have watched Minority Report.  Clip is 10 minutes.

There is a new program that cops are using under the name PredPol, that is supposed to predict crime.

Very scary in my opinion due to where it could lead.  It will only be a matter of time until something exactly like what was used in Minority Report is being used.

The article also talks about other tech that cops could be using in the near future.  The one that caught my eye is “A ShotSpotter system uses microphones positioned around a city to detect gunshots and triangulate their location within 40 to 50 feet. A human at ShotSpotter’s headquarters confirms if it’s a gunshot and alerts the police. The system starts at $40,000 for every square mile of coverage.”  Sounds like this from Batman.  The clip is just over a minute long and I think they should heed Fox’s words from the movie.

Stock articles and valuations on stocks I own from others.

The first stock article talks about how Vodafone might be getting another big dividend from Verizon and what Vodafone might do if they get the dividend.

The second stock article goes over three value stocks and talks about their growth characteristics.  One of the stocks he talks about is Dole.  While I generally agree with his assessment that Dole could be worth upwards of $16 if there is some kind of spin off or asset sale, I think he is downplaying the risk from the debt which I talked about in my article on Dole.

He also talks about Forest Oil and NVR.  Both look like opportunities that should be researched.  Here is an amazing analysis on NVR from 2001 that I originally got from csinvesting’s site.  I also recommend reading the comments section here for more on NVR from 2001.  Read his analysis carefully and the discussion in the comments section.  The way he thinks about things, his reasonings for buying, and how he researches are to be learned from.

The third article talks about Fresh Del Monte, Dole, and Chiquita.  In my opinion this is a very good analysis and includes some if the reasons I will look to buy FDP when the stock price drops.  Here is my article comparing the three companies.

Alexander and Baldwin: Post spin off analysis and valuation

In my previous article on Alexander and Baldwin, I got into the valuation and analysis of the combined Alexander and Baldwin (ALEX) and Matson (MATX) companies.

In this article I will detail the post spin ALEX, value and analyze the company and, determine if I will be a buyer now.  I will be using newer, and I think better estimates of the land value.

I will also assess and value the non-landholdings of the company.  I will value the buildings they own and their potential value through either sale or rent.  I will also talk about the Agribusiness portion of the company which farms, produces, and sells sugar cane.  The Agribusiness also produces power for some of the land they own.  For a discussion of ALEX in general either view my article listed above or the company website here.

I am now going to detail their individual businesses a bit before the valuations.

Alexander & Baldwin, through its real estate subsidiary A&B Properties Inc., develops and sells real property, primarily in Hawaii, and operates a commercial portfolio comprising nearly 8 million square feet of retail, office and industrial space comprising 45 properties located in Hawaii and in eight states on the U.S. Mainland. A&B Properties also owns over 88,000 acres of land, primarily on the islands of Maui and Kauai.

Much of the landholdings on Maui are farmed by Hawaiian Commercial & Sugar Company (HC&S). On Kauai, McBryde Resources, Inc. leases our 4,000-acre coffee plantation to an international, vertically-integrated coffee company. Both HC&S and McBryde are significant renewable energy producers, generating over 200,000 megawatt hours of electricity from renewable energy in 2011.  Taken from their website here, where you can also go for more information.  Also here is a link for pre-spin ALEX’s annual and quarterly reports.

Valuations done on July 4th 2012.  These valuations are done by me, using my estimates, and are not a recommendation to buy the stock.  Do your own homework.

ALEX own 8,000,000 square feet of commercial, industrial, and retail buildings that I am conservatively valuing at $100 a square foot.  ALEX could also rent out their properties conservatively for $1 a square foot per month.

  • 8,000,000 X 100=$800,000,000 in potential building value through sale.
  • Or 1 X 8,000,000=$8,000,000 in rent per month from renting the properties.  $8,000,000 X 12 months =$96,000,000 per year in potential rents earned.

ALEX also owns 88,000 acres of land.  However, after doing some further research I now know that 36,000 of that is used in the growing, producing, and selling of sugar cane, and at this time would likely not be sold.

Valuing of the land:

  • 88,000 X $6,000=$528,000,000 potential value of all the land.
  • 88,000-36,000=52,000 acres of land after taking out the land for sugar cane production.
  • 52,000 X $6,000=$312,000,000

If you read my previous article you might have noticed that I upped the per acre price from $5,000 to $6,000 per acre.  I did that because Larry Ellison recently bought 88,000 acres of land in Hawaii for approximately $500 million, which comes out to a per acre price of $5,682 per acre.  I upped  it a bit higher than his price per acre because most of the land ALEX owns in on Maui and Kauai, presumably higher priced locations.  However, I left the price per acre pretty low and am still likely undervaluing the land because I am no Hawaiian real estate expert and I want to be as conservative as possible.

  • Number of shares are 42 million.
  • 800,000,000 + 528,000,000=$1.328 billion
  • 1328/42 =$31.62 per share.
  • 800,000,000+ 312,000,00=$1.112 billion
  • 1112/42=$26.48 per share.

The $26.48 per share is not including income from sugar cane acreage, production, and sale.  It is not including power production and sale.  The $26.48 per share is just including the 52,000 acres of land that could be sold and the conservative potential of all buildings.  They also have a conservative potential of $96 million incoming rent from those properties if they keep them.

A more moderate to high valuation.

In place of the $1 per square foot per month that was used in the above valuation now we are going to use $2 per square foot per month X 8,000,000 = $16,000,000 per month.  Times that by 12 months to get $192,000,000 in potential rental income per year.

Replacing the $100 per square foot sale price above, we are now going to assume a $200 per square foot sale price.

  • 8,000,000X200=$1.6 billion

Still leaving out the sugar cane acreage above and using the same dollar amount for that land potential you get.

  • 1.6 billion + 312 million=$1.912 billion
  • 1912/42=$45.52 per share.

Again the $45.52 per share is not including the things talked about at the end of the first valuation.

In my opinion ALEX should either sell off or start developing some more of the 88,000 acres of land.  I also think they should keep leasing their buildings because that is huge potential cash flow every year.

Since I am a very conservative investor I use very conservative numbers in my valuations.  I am most likely undervaluing the land at least a little bit, and the buildings probably a little bit more than I should.  However, since I am no Hawaiian real estate expert I need a good margin of safety.  I usually like at the very least a 30% margin of safety and preferably a 50% margin of safety.  I generally use the lowest value I get as my base case, this time the $26.48 per share.   Thus not getting me the margin of safety I need.

Stating that, I still will not be buying into the post-spin ALEX, especially after the stock is up about 30% in the past three trading sessions.  I will continue to research ALEX and I will be waiting for my opportunity when the price goes down.  I am still very intrigued by the land that they own and the potential rental income from the buildings they own.

I did not talk about margins because I am waiting for the 10Q of the new ALEX before I make any judgements on those.  However, if the company is overpriced, like I think this one currently is, I still would not buy even if the margins are great.

I did not talk about the sugar cane and power production portions of the business much because I do not want to count future, highly uncertain earnings from a commodity type business.  I only want to count things that are a little bit more certain like land prices and building prices into this valuation.  Probably a bit too conservative but I want to be safe.  The rest of the company is just icing on the cake to me.

As always feedback is welcome.