Vivendi Update

Vivendi CEO says that its future lies in its content and media businesses and that it may announce the sale of its telecom units at its next annual shareholder meeting in April.

Also of note from this article is that the CEO estimates SFR to be worth 20 billion Euros by itself, or approximately $26.22 billion.  That estimate is 5 billion Euros more than the 15 billion Euros I estimated SFR to be worth in my latest sum of the parts valuation on Vivendi.

I think the CEO’s estimate of what SFR is worth is a bit optimistic, but if true that means that with Vivendi’s current market cap at $28.2 billion that the market is currently recognizing that Vivendi’s other assets are only worth a combined $2 billion.  We know this cannot be true because Vivendi’s 60% stake in $ATVI is currently worth $7.44 billion just by itself.  If SFR is really worth 20 billion Euros that means that the market is massively undervaluing Vivendi as a whole.

If I were to apply the CEO’s estimate of SFR’s value to my sum of the parts valuation that brings the value per share of Vivendi up to $42.45 per share, or $28.66 per share after subtracting debt and still not including UMG.

Vivendi’s new CEO may think that SFR is worth 20 billion Euros and as a shareholder I hope they are able to sell it for that price, but I am not counting on it, and I still think Vivendi is undervalued.

Advertisements

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.

Investment Philosophy Review For New Visitors And Setting Up My Next Article

Let me first set up my next article for anyone who might be new to the site.  I only take into consideration with my valuations and analysis what I can see now, and pay almost no attention to rumored future possibilities or estimates of revenues and margins.

The only time future possibilities play any role in my articles are in situations where there is a clear catalyst: Activist/value investing firm or individual involved, the company is undergoing some kind of strategic review and is owned and controlled by a few people as in the case with Dole (DOLE) before I bought it, or the company’s management is trying to figure out ways to unlock the companies undervaluation by asset sales or spin off as in the situation with Vivendi (VIVHY.PK) before I bought into them.  Even in the above situations I still only valued the assets and operations as they are presently.

Generally, any other future potential I see in the company plays no part in my valuations or analysis, and is treated as the proverbial icing on top of the cake.

I like as much of a margin of safety as possible as I am a very conservative investor.  I see future possibilities and analyst and company estimates of the future generally as highly and unrealistically optimistic, which makes them wrong a lot and is why I have learned not to pay much attention to them.

Having stated all of that, I have begun my next article which is on Jack in the Box.  I hope to have the article up as soon as possible.

New valuation techniques

Finally I can get to the new valuation techniques I have been working on lately, some are from the Manual of Ideas free download that I wrote about here, and see how they apply when used on Vivendi.

I will only put the base case on here and explain how you can change the values higher and lower if you would like to incorporate some of these into your use.

First up is a revenue and EBIT based valuation:

  • TTM revenue=28.8 billion
  • Multiplied by:
  • Average 7 year EBIT %: 18.24%
  • Equals:
  • Estimated EBIT: 5.11 billion
  • Multiplied by:
  • Assumed fair value multiple of EBIT: 8X
  • Equals:
  • Estimated fair enterprise value of VIVHY:40.86 billion
  • Plus:
  • Cash, cash equivalents, and short term investments:4.85 billion
  • Minus:
  • Total debt: 15.71 billion
  • Equals:
  • Estimated fair value of common equity of VIVHY: 29.99 billion Euros.
  • Equals:
  • $36.60 billion.
  • Divided by
  • Number of shares: 1.242 billion
  • Equals:
  • $29.47 per share.

If you want higher and lower estimate of values than you just change the EBIT multiple.

Second technique is a book value and P/B technique.

  • Book Value: 23.75 billion
  • Minus:
  • Intangibles: 6.814 billion
  • Equals:
  • Tangible book value: 16.94 billion
  • Multiplied by:
  • Industry P/B: 2X
  • Equals:
  • Industry multiple implied fair value: 33.88 billion (27.28 Euros per share)
  • Multiplied by:
  • Assumed multiple as a percentage of industry multiple: 95% (1.9X multiple of tangible book.
  • Equals:
  • Estimated fair value of the common equity of VIVHY: 32.19 billion Euros.
  • Equals:
  • $39.4 billion
  • Divided by:
  • Number of shares of 1.242 billion
  • Equals:
  • $31.72 per share.

To adjust this valuation change the industry multiple percentage.

As you can see, using these techniques I am still finding VIVHY to be very undervalued to its current price of $18.33 per share.

I was originally planning on putting more on here, but I will save those for my next company analysis and valuation.  I used five different valuation techniques to value the company I am researching right now, including one that is not in the MoI publication.

I will hopefully have the analysis up at the latest by Monday since I am going to be at one of my best friends weddings this weekend.

This is just a sample of some of the techniques in the Manual of Ideas free publication.  There are several more, including some industry specific ones, like how to value gas and oil reserves.  I highly recommend downloading the free publication from MoI to hone some of your techniques and maybe learn some new ones.

Hope you enjoy

Cove Street Capital and an article on Activision Blizzard that has an opposing view to mine

Cove Street Capital

I found this site on csinvesting’s site, yet again.  So far I have read through a few of the links that CS has posted from Cove Street Capital’s site and thought I would share this site with you.  I cannot vouch for the accuracy or quality of research done, since I have not researched the companies that he talks about, at least what little I have looked into so far.

However, I decided to put it up here because the way Cove Street thinks about the companies, the industry they are in, and how they outline their investment thesis is impressive, and could be something to learn from, an example is here.  I will continue to look through the site to see if I see anything else that stands out.

Activision Blizzard article

Here is a pretty good article about Activision Blizzard and their future prospects.    I do not really like how he mainly talks in generalities, but he does go over ATVI’s gaming properties very well and lays out a decent bull case for the company.  He also does not value the company.

I wanted to put this on the blog mainly because it is an opposite opinion that what I laid out in my article on Vivendi here.  It is always a good thing to seek out differing opinions than the ones you have.  Not only might you learn something, you might also see something in the analysis that you might have missed.

Hope you enjoy