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.

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.

Main Street Capital Brief Thoughts and Valuations

Main Street Capital (MAIN) is the final company I have not talked about yet that I still own from before doing any type of valuations or anywhere near the amount of research I am doing now.

Main Street Capital is a business development company that provides long term debt and equity capital to lower middle market companies and debt capital to middle market companies.  Main Street seeks to partner with entrepreneurs, business owners, and management teams and generally provides “one-stop” financing within its lower middle market portfolio.  Main Street’s lower middle market companies generally have revenues between $10 million and $150 million.  Main Street’s middle market debt investments are made in businesses that are generally smaller in size than its lower middle market portfolio companies.  Description taken from its website here.

My reasons for originally buying into Main Street were its high margins, and its monthly and growing dividend.  I liked that it had seemed to find a niche in its business operations that made the company highly profitable, enabling it to pay out the dividends.  I also liked that around 90% of its investments in the companies it invests, in is first lien debt, meaning that if these companies do have any problems, that MAIN still has a very good chance of making its money back.  I also liked that only around 2.5% of its portfolio at that time was thought to be problematic.

What I see now are generally the same fantastic things about this company that is now up 50% since I bought into it, again fortunate due to not valuing the company.  My current cost basis is $19.03 per share and the current share price is $29.09 per share.  MAIN has recently been setting new 52 week highs on almost a daily basis.  The company seems to very well run and reports bigger profits on almost a quarterly basis.

Price to Book and Tangible Book Valuations

  • Low estimate is $16.30 per share.
  • Base estimate is $23.81 per share.
  • High estimate is $31.45 per share.

My concerns with MAIN now is that it appears to be overvalued, it has been recommended by Jim Cramer, and even though the company appears to be overvalued it keeps climbing higher and higher on almost a daily basis.

With my low cost basis in relation to current price, I am going to hold MAIN in my portfolio and hope to continue to collect and reinvest the dividends for the time being.  I am going to watch this company very closely as I like its prospects into the future, but if I see any kind of deterioration in the business, I am going to lock in my profits and sell my position.

Main Street Capital could be a very good long term dividend growth stock if it can keep making prudent and profitable investments but I would not recommend buying into the company at this time as I think MAIN is overvalued.  As with the last several companies I talked about, I hope MAIN can keep on its current path and I hope to have my investment compound well into the future.