The Float Of The Companies I Own

Originally I was planning on evaluating the float of every company I have written an article on but decided to just focus on the companies whose stock I currently own.  Below I am going to give you an example of the full analysis on one company and then just do an overview and chart of the rest of the companies as the calculations are all the same.

Brazil Fast Food Company (BOBS)

All numbers for BOBS are in $R million unless otherwise noted.

  • Financial Assets: Cash and cash equivalents of 28.4+prepaid expenses of 1.2+advance to suppliers+deferred tax assets net of 6.8=38.5
  • Operating Assets: All other assets such as goodwill, IA, AR, inventories, etc of 89.3.
  • Total Assets=127.8.

Liabilities

  • Equity of 38.3
  • Debt of 21
  • Float-Accounts payable & accrued expenses of 9.7+payroll and related accounts 6.7+taxes 4.6+deferred income tax 0.2+current portion of deferred income 2.5+current portion of contingencies and reassessed taxes 2.1+other current liabilities 0.8+deferred income 2.4+long term contingencies and reassessed taxes 17.9+other liabilities 1.2=float of 48.1

Total liabilities are 69.4

Float/operating assets=53.86%.  BOBS float is supporting 53.86% of operating assets meaning that BOBS float is not completely free.  The float being completely free would mean that the company’s operations are being operated generally by completely free money if the ratio was over 100% and the float is costless.  A situation where float is costless is when an insurance company is earning an underwriting profit.  BOBS still has a pretty good portion of its OA operated by float, as you will see in the chart below, which is always a good thing.

Pretax profits/total assets=ROA

  • 17.4/127.8=13.62%

Pretax profits/ (total assets-float) =levered ROA

17.4/79.7=21.83%

BOBS MAIN CMT STRT VIVHY DOLE
Float/Operating Assets

53.86%

90%

27.27%

60.53%

37.68%

27.69%

Unlevered ROA

13.62%

9.59%

14.23%

10.65%

6.43%

1.29%

Levered ROA

21.83%

9.73%

19.25%

20.59%

9.67%

1.79%

As you can see from the chart, BOBS, MAIN, and STRT all have float supporting more than 50% of each companies operating assets and BOBS, CMT, and STRT’s levered ROA make the companies look even better than I already thought they were.

VIVHY and DOLE, my two spin off companies that I do not plan to hold for as long as the other companies above, have ratios that are generally quite a bit worse than the other four.  Looks like I have been doing a decent job of spotting float in my long term companies before I even knew what it was.

To tie this whole theme up of the past several weeks I am capping it off by analyzing and evaluating an insurance company, the ultimate providers of float and a big reason why Buffett was able to compound his returns at such a fantastic rate over the past four decades.  I started research last night on an insurance company whose market cap is under $75 million and will have the write up written as soon as possible.  It will take me longer than usual to get this article ready because this is the first time where I have truly tried to evaluate an insurance company and need to learn as I am going; the specific terms and best ways to evaluate this type of company.

In the mean time I will probably post some links but from now on I will not be posting updates on what I am doing anymore.  I am constantly reading, learning, and trying to find companies to research and evaluate so if I don’t post for a while, from here on out that just means I haven’t found a company I think deserves a full write up.

A Portfolio Update And Two Powerful Insights Every Serious Investor Should Read

Portfolio Update

Yesterday I made some adjustments to my portfolio and the portfolios I manage and I just wanted to update those positions.

Personal Portfolio and Portfolios I Manage:

  • Bought Strattec Security Corporation $STRT

Personal Portfolio:

  • Sold Altria $MO up 18%.
  • Sold Philip Morris $PM up 24%.
  • Sold Intel $INTC up < 1%, could have sold a while ago up 30%, doh!

All sold positions are after fees but before taxes.  I never bought any of the above three positions for the portfolios I manage and I bought Altria, Philip Morris, and Intel before doing any kind of valuations or any kind of in depth research so I am a bit fortunate to end up anything in those positions.

I said a couple months ago that I planned to hold the above positions for the foreseeable future because I felt that I could have my results compound well over time in all of the three companies.  I still think that is true for all of the above companies but have still decided to sell them all.  Lately I have been gaining confidence in my abilities to analyze companies, and I now think that I am at the point where I am getting pretty good at analyzing companies and think I can find better opportunities in the smaller mid to nano caps that I am concentrating on now.

Also as Red reminded me of the other day, why would I try to compete with the millions of people who are invested in and analyze those massive companies when I can find less competition, potentially less efficiency, and more upside, in the much smaller companies.

After selling those companies to free up cash for future opportunities, my current portfolio stands as follows, ranked by position size.  Portfolio does not add up to 100% because of rounding:

  1. $VIVHY.PK-28% of portfolio.
  2. Cash-26% of portfolio.
  3. $STRT-16% of portfolio.
  4. $MAIN-11% of portfolio.
  5. $CMT-8% of portfolio.
  6. $DOLE-8% of portfolio.

Two Powerful Insights Every Serious Investor Should Learn From and Reread.

Fundoo Professor-Presentation On Moats And Floats.

The Red Corner Blog-Kfaftwerk; A look at economies of scale and how Wal-Mart changed its industry and made a ton of money.

I hope you enjoy the above links as much as I have.

I have already started researching another company and tomorrow I will post some links and ask your advice on something I have been thinking about quite a bit lately.

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.

Portfolio Update and A New Dole Article Planned

I just sold my entire position in Taseko Mines (TGB).  TGB released its most recent quarterly report yesterday and yet again it was a disappointment.  It seems that ever since I bought into this company every quarter has been a disappointment at least on some level with excuses being given by its management for why it is not performing as good as it could.  Also of note is that TGB had to resubmit its New Prosperity mine assessment report at the end of September and now a decision will not be made until sometime in 2013 about if the mine will be approved or not.  The original plan was to have a decision by this month which was the only reason I had even held onto it this long.

This is yet another company I bought before doing any kind of valuations and only minimal research and again I paid the price with a total loss of 47%.  The only thing that again saved me was that at least I was smart enough to make my positions pretty small when I first started out so I didn’t lose a ton of money.

My portfolio is now 23% in cash and I am down to owning stock in only six companies. After clearing out the only remaining company that I knew for sure I was going to sell at some point, I now only own stock that I think are good companies and have the potential to continue to compound into the future.

The three remaining companies I own from before doing valuations and anywhere near the amount of research that I am doing now: $MAIN, $MO, and $PM, are all by my estimates either fairly valued or overvalued by quite a bit and I may sell stock in each of these three companies if I detect deterioration in any of their businesses.  If I do not see deterioration in the businesses I will most likely hold these companies for years because I think each of these companies will compound their results well into the future, unless of course I find a better company to put my money into.

The three companies I have bought into since doing valuations and the amount of research I am doing now are: $CMT, $VIVHY, and $DOLE.  At this point I still think that CMT and VIVHY are undervalued and will let you know if I decide to buy any more stock in either of those two.

This gets me to Dole.  I got a request from one of the readers of my original Dole article that I posted on Seeking Alpha who liked my original analysis series on Dole, Chiquita, and Fresh Del Monte and he was asking if I would do an updated valuation and analysis article on Dole now that it has sold some of its assets and is able to pay off most of its debt.

The reader asked if I would do an updated article giving my thoughts on how Dole stands now after it sold some of its assets and paid down debt, if I still think that it is undervalued, and what I think of its operations going forward now that it eliminated its biggest problem.

I have learned a lot since that time and hope to use some of my new knowledge to see what I think about Dole now, if I still think they are undervalued after rising in price as much as 75% at one point and currently still being up 47% since I originally bought into it.  I am researching its land, other assets, and history more fully now in preparation so that when its next quarterly report comes out on November 15th I am ready to value the company with updated numbers and post the article shortly after that.

In the mean time I will continue to post any updates and links that I think contain knowledge.  I may also every once in a while ask some questions of you since I know some of you are more knowledgeable in certain areas than I am.  Since I am planning on adding some new things to this article I may need some feedback making sure I am applying the new techniques correctly.

Core Molding Technologies Valuations and Analysis

This is the entire article I have been working on which has been posted this morning to Valuefolio.com for his 50 Stocks in 100 Days Valuation series. I hope you enjoy all the new things I have added to my analysis and the amount of research I have done for this company.  Due to what I found out about Core Molding Technologies while researching, valuing, and analyzing them, CMT has become only the third companies stock I have bought in the past year along with Vivendi and Dole.  Let me know what you think about the article.

This is a guest post by Jason Rivera, founder of Value Investing Journey, a value investing blog. The tone of honesty and humility at his blog is refreshing. His quest for great stocks and as a value investor results in unique, authentic, high-quality content. In this article he values Core Molding Technologies as part of our 50 Stocks in 100 Days series. Follow Jason on twitter @JMRiv1986

For those of you who have not viewed my site and other analysis articles, I hope you enjoy my analysis and valuations, if not let me know where I am going wrong and what I could do better.  For those of you who have visited my site and have seen my valuations, I hope you like some of the tweaks I have made in my analysis.  I am now doing even more thorough research than I have been doing and I have incorporated some new things into my write ups as well, I hope you enjoy.

Core Molding Technologies (CMT) is going to be the subject of this article.  Core Molding Technologies is a manufacturer of fiberglass reinforced plastic products.  They supply products to companies in the medium and heavy trucking, automotive, marine, and other commercial industries.  The plastics are used in automobile hoods, air deflectors, air fairings, splash panels, engine covers, fenders, and bulkheads. They have five production facilities in: Columbus, Ohio; Batavia, Ohio; Gaffney, South Carolina; Warsaw, Kentucky; and Matamoros, Mexico.

Core Molding Technologies has about 90% of its current business coming from the medium and heavy trucking industry.  Sales to Paccar and Navistar make up about 75% of current sales as of the most recent quarter.  CMT has been slowly trying to increase sales to other companies, which I think is a good thing in the long term because if its relationship deteriorates with either of the above two companies CMT could be devastated.  CMT states that its current relationship with both Paccar and Navistar are good and that they work closely with both companies to solve any issue, work on research and development, and pricing.

As of this year’s proxy form, Navistar currently has a seat on CMT’s board of directors as it is owns 9.2% of CMT’s stock, so I do not see Navistar ending its relationship with CMT any time soon.  CMT insiders own around 16% of the company’s stock.  Mario Gabelli personally, and through his funds owns 14.1% of CMT’s stock.  Rutabaga Capital owns 9.5% of its stock.  Rutabaga is a private investment firm whose concentration is in “Undervalued, unloved companies.”

I always like to see high insider ownership, and I am happy that CMT is owned by a couple value oriented investment firms.  I was especially happy to see that Mario Gabelli is a big owner of CMT’s stock, especially since he has bought shares in the company with his own money.  I also really like the ownership by Navistar as that could lead to a potential buy out, or at the very least a continued partnership between the two companies.  I am going to be watching very closely to see if and when any of the above start selling CMT’s stock as that could be a sign that there are big problems ahead for the company.

Here are some quotes from two of CMT’s biggest buyers about the potential huge catalyst in CMT’s main area of operations, the trucking industry:

  • From Paccar, “Over six million heavy duty trucks operate in North America and Europe, and the average age of North American vehicles is estimated to be seven years. The large vehicle parc and aging industry fleet create excellent demand for parts and service and moderate the cyclicality of truck sales.”
  • From Navistar “For our Truck segment, we expect benefits from further improvements in our “traditional” volumes as the industry continues to increase from the historic lows experienced in 2009 and 2010. According to ACT Research, the average age of the truck fleet was 6.7 years at the beginning of 2011, which is the highest average age since 1979. We anticipate higher sales in 2012 for truck replacement as our customers refresh aging fleets. We also expect demand for trucks to increase as freight volumes and rates continue to improve as the economy recovers. In addition to increased demand, we expect to further benefit from improved revenues and margins associated with the exclusive use of our proprietary engines. We expect to realize benefits from plant optimization actions taken during the trough of the truck cycle. Finally, we anticipate positive contributions from business acquisitions and investments made during this period.”

The above is exceptional news and should serve as a catalyst for CMT.

These valuations were done by me, using my estimates, and are not a recommendation to buy any stock, in any of the companies mentioned.  Do your own homework.

All numbers are in millions of US dollars, except per share information, unless otherwise noted.  Valuations were done using 2011 10K and second quarter 2012 10Q.

Asset Reproduction Valuation

Assets: Book Value: Reproduction Value:
Current Assets
Cash & Cash Equivalents 0 0
Accounts Receivable (Net) 26.3 20
Inventories 12.6 6
Deferred Tax Asset 1.8 0
Other Current Assets 2.8 0
Total Current Assets 43.5 26
PP&E Net 51.9 25
Deferred Tax Asset 1.1 0
Goodwill 1.1 0
Total Assets 97.6 51

 

I am using the companies fully diluted share count of 7.4.

  • 51/7.4=$6.89 per share.

EBIT and Net Cash Valuation

Cash and cash equivalents are 0

Short term investments are 0

Total current liabilities are 27

Cash and cash equivalents + short-term investments – total current liabilities=0+0-27=-27

  • -27/7.4=-$3.65 in net cash per share.

CMT has a trailing twelve month unadjusted EBIT of 16.5.

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

  • 5X16.5=82.5
  • 8X16.5=132
  • 11X16.5=181.5
  • 14X16.5=231
  • 5X=82.5/7.4=$11.15 per share.
  • 8X=132/7.4=$17.84 per share.
  • 11X=181.5/7.4=$24.53 per share.
  • 14X=231/7.4=$31.22 per share.

Since CMT has had a record trailing twelve months in terms of EBIT, I have decided to normalize EBIT and taken the 10 year average of 8.2 to determine the more normalized intrinsic value of CMT in case it is not able to keep up the pace of the past year.

  • 5X8.2=41
  • 8X8.2=65.6
  • 11X8.2=90.2
  • 14X8.2=114.8
  • 5X=41/7.4=$5.54 per share.
  • 8X=65.6/7.4=$8.86 per share.
  • 11X=90.2/7.4=$12.19 per share.
  • 14X=114.8/7.4=$15.51 per share.

Revenue and EBIT valuation

I am again using trailing twelve month numbers.

Numbers:
Revenue: 168
Multiplied By:
Average 10 year EBIT %: 6.69%
Equals:
Estimated EBIT of: 11.24
Multiplied By:
Assumed Fair Value Multiple of EBIT:                 8X
Equals:
Estimated Fair Enterprise Value of CMT: 89.92
Plus:
Cash, Cash Equivalents, and Short Term Investments: 0
Minus:
Total Debt: 13
Equals:
Estimated Fair Value of Common Equity: 76.92
Divided By:
Number of Shares: 7.4
Equals: $10.39 per share.

 

My low estimate of value using a 5X EBIT multiple was $5.84 per share.  My high estimate of value using an 11X EBIT multiple was $14.95 per share.

Price to Book and Tangible Book Valuation

Numbers:
Book Value: 53.13
Minus:
Intangibles: 2.2
Equals:
Tangible Book Value: 50.93
Multiplied By:
Industry P/B: 2.2
Equals:
Industry Multiple Implied Fair Value: 112.05
Multiplied By:
Assumed Multiple as a Percentage of Industry Multiple: 95%
Equals:
Estimated Fair Value of Common Equity: 106.45
Divided By:
Number of Shares: 7.4
Equals: $14.39 per share

 

My low estimate of value using 75% of industry multiple was $11.36 per share.  My high estimate using 125% of industry multiple was $18.93 per share.

Ratios

Ratios
Current Assets to Current Liabilities: 1.59
Total Debt to Equity: 23.60%
Total Debt to Total Assets: 12.30%
ROIC 10 yr avg From Morningstar: 10.62%
Unadjusted ROIC TTM : 24.60%
Normalized ROIC: 12.23%
Cash Conversion Cycle TTM: 54.47
Unadjusted EV/EBIT: 3.93
Normalized EV/EBIT: 8
ROE 10 yr avg: 15.73%
ROETTM: 21.10%
ROA 10 yr avg: 6.56%
ROA TTM: 11.49%
COGS as a % of revenue 10 yr avg: 83.36%
COGS as a % of revenue 2011: 79.16%

 

My Interpretation of the Ratios:

  • I do not see any current problems with CMT’s debt levels.
  • CMT’s ROIC is incredible, even if they fall back to the more normalized levels of above 10%.  If CMT can keep up the level of the previous year this company is very undervalued.
  • The cash conversion cycle is a measure of how fast a company can turn its inventories into cash.  In CMT’s case it takes them about 54.5 days to make the conversion.  The number is lower than the high of about 73 in 2009, but not back to pre recession levels which were around 42 on average.  I do not see a major problem here but would like to see the number creep down over time.
  • If CMT can keep its current revenue and profit levels going then they appear to be massively undervalued on an EV/EBIT basis.  If they revert back to the 10 year average EBIT then they appear to be about fairly valued on that basis.
  • ROE and ROA appear to be boosted recently in comparison to the 10 year average in part due to Cost of Goods Sold decreasing as a percentage of revenue.  Hopefully they can keep up that pace as well.

Competitors

The competitors that CMT lists in its annual and quarterly reports are as follows: Sigma Industries, Decoma Composites (an owned subsidiary of Magna International), Molded Fiber Glass Companies, and Continental Structural Plastics.  Here are my thoughts on each competitor after doing research on them.

  • Sigma Industries has operations in various industries including the heavy trucking industry, where CMT gets most of its sales from currently.  Sigma’s operations are mainly in Canada currently so it appears not be too much competition for CMT at this time.
  • Magna International (MGA) is one of the largest and most diversified auto parts suppliers in the world.  I was a bit worried about the competition from Magna towards CMT, but the company currently does not make sales in the medium and heavy trucking segment.  Magna’s main operations are in cars and light trucks at this time.  Magna does state in its 10K that they are always looking for opportunities in various arenas including the heavy trucking industry, Magna’s entry into the heavy trucking industry would be something to watch out for. I think that Magna buying out CMT would be a better option because currently CMT has a market cap of around $50 million and Magna’s is $10.4 billion, meaning it would be a very minimal monetary investment and would also save them time from having to learn the processes by themselves.
  • Molded Fiber Glass Companies is a privately held company whose operations appear to be mostly in the automotive and wind energy arena.  The little Molded Fiber Glass does in the trucking industry does not appear to be in direct competition with CMT as its operations are in entirely different states and regions.
  • Continental Structural Plastics is a privately held company who has operations in automotive, heavy truck, agricultural, HVAC, construction, and material sales.  The following is the best information I could find on Continental “Continental Structural Plastics, Inc. manufactures structural plastic components, bumper beam reinforcements, rocker covers, oil pans, stamped steel seat frames, and underbody shields. It also offers composite seat bases, engine oil sumps, and composite sunshade substrates; and moulders of glass-mat thermoplastic composites, as well as long-glass-fibre-reinforced thermoplastic and direct-LFT composites. The company was founded in 1982 and is based in Troy, Michigan with manufacturing plants in Petoskey, Michigan; and Sarepta, Louisiana.”  Again, CSP does not appear to be a direct competitor in to CMT as they appear to make different products.

After looking into CMT’s competitors it appears that it does not have a direct competitor at this time and that it has found a very profitable niche which also might come with some minor competitive advantages.

Pros

  • Undervalued by almost every one of my estimates of intrinsic value.
  • I have not found any major direct competitors in CMT’s main area of operations.
  • The company has found a niche in its industry that has made them very profitable.
  • The company’s margins have been consistently good to great over the last 10 years: ROIC 10% average over that time period for example.
  • Even if CMT is not able to keep up the pace of the previous year in terms of revenue and margins and reverts back to its 10 year averages, the company has been profitable over that time, even during the recent recession.
  • Navistar, who is CMT’s biggest customer, owns about 9% of the company.  CMT insiders, outside value investment firms including Mario Gabelli personally, and through his funds, own over 30% of the company.
  • By my estimation, the company looks like a potential buy out candidate.
  • The company has been becoming more efficient in its operations in recent years.

Cons

  • The vast majority of CMT’s sales are to only two companies, and they would be devastated if its relationship with either of the two companies deteriorates.
  • CMT is a very small company whose market cap is currently only around $50 million.
  • CMT could be hurt if a bigger, better financed, company enters its industry.
  • On a revenue and margins level, CMT has had a record past year which might not continue into the future.
  • If the past holds true, CMT’s results will be hurt quite a bit by any kind of recession or down turn in the economy.
  • CMT has very low average trading volume of around 15,000, so it could experience wild swings in price.

Potential Catalysts

  • The trucking industry currently has the highest average age of trucks since 1979 which should lead to sustained sales and margin growth.  The high age of the current trucking fleet should at least partially protect CMT’s revenues and margins if there is some new recession, as you can only hold off buying a new truck for so many years and many companies held off buying trucks during the recent recession.
  • In my opinion CMT would be a great buyout candidate for someone like Magna who would be interested in entering the medium and heavy trucking industry as that would be less of a money and time investment for any potential buyer.
  • Navistar who already owns more than 9% of the company also could be a potential buyer.

Conclusion

With all of the above stated I will be using my trailing twelve month unadjusted 5X EBIT estimate of intrinsic value of $11.15 per share.  The reason I am using this estimate of value is that by my estimation CMT should be able to at least partially sustain the previous year’s record revenue and margin numbers.  The 5X EBIT estimate is also conservative enough that it leaves a margin of safety if CMT were to revert back to previous year’s revenue and margins.

I actually think that CMT should be valued at one of my higher estimates of value due to the steadiness of its margins over the past decade and some of the other factors listed above, but I chose this estimate of intrinsic value due to the company’s small size and some of the other risks listed above, just to be safe.

The current share price is $7.35 which gets me a margin of safety of about 35%, reaching my minimum threshold of 30%.

Due to the previous, and for the reasons I listed throughout my article, I have decided to buy into CMT, making it only the third company I have bought this year along with Vivendi and Dole.

If you liked this analysis please visit my value investing blog Value Investing Journey and follow me on Twitter @JMRiv1986.  As always your comments, critique, and criticism are welcome.  Let me know what you think I could do better, where I might have gone wrong, and what you liked about the analysis.

Last minute update as I am getting ready to publish.  Navistar’s CEO of 30+ years has stepped down effective immediately.  This situation is something I am going to watch very closely, but with the information that is currently available I still have decided to buy into CMT at this time.  Hopefully this situation will not affect Navistar’s relationship with CMT.