Value Investing Question about a Buffett Quote |
- Question about a Buffett Quote
- Why is Levered FCF / EV a flawed multiple?
- Treasury Stock makes for Negative Shareholder's Equity. How can I value this company going forward?
- What is Amazon?
- Terravest Industries (presented by Guy Gottfried)
- Mulpha International Bhd (KLSE:Mulpha)
- Short & distort? The ugly war between CEOs and activist critics
- The Great American Cardboard Comeback
| Question about a Buffett Quote Posted: 24 Mar 2019 06:03 PM PDT I was reading somewhere that when Buffett and Munger got asked, "What is the best business in the world", they said they got in trouble a few years before for saying what they thought it was, and refused to mention it again... Does anyone know what they were originally talking about? [link] [comments]  |
| Why is Levered FCF / EV a flawed multiple? Posted: 24 Mar 2019 09:39 PM PDT Hey guys, just wanted to post a bit of discussion on FCFF (Free cash to the firm) and its impacts on EV/FCF, FCF yield on EV, Free Cash ROA. I'm not in line with traditional finance methodology so I might be entirely wrong. In terms of measuring profitability to shareholders, I believe Levered FCF / EV is the superior metric. FCF / Price is flawed in that impacts from payments of principal on net debt are excluded from the calculation. Although these do technically "clean" or de-leverage the book of a company, payments to principal on net debt just decrease interest and increase book value– but this does not increase future FCF (other than the interest impacts) since no assets are added. For example, a company with 100 B in debt and 1 B in equity might be mainly oriented towards creditors, and free cash flow might not be in shareholders eyes for a long time since the company might be stuck dealing with paying creditors principal or even just paying preferred share dividends. Even if "mandatory debt repayments" may be factored into FCF as short-term impacts, they are not provided over a period and so might temporarily depress FCF in a short period when the company has to pay back its debt. These sorts of firms have insane FCF / Price ratios since only interest payments are factored into FCF, but the impacts from net debt are ignored entirely (like Windstream holdings, and other extremely levered firms). I do understand that "cleaning" the book can result in allowing for additional debt offerings which can provide a company with fresh cash, but this is mitigated with the risks present in taking on debt (covenants). On the other hand, FCF / EV factors in the impact of debt principal in the denominator, since EV can represent impacts from preferred shares, debt (which can be refinanced), or other impacts like minority stakes. If a company has a large amount of debt financing, then payments to principal on net debt might suck up a lot of FCF. These might not be represented sufficiently by a FCF / Price multiple as debt due in, say, 3 years won't show up in the current multiple. Nevertheless, FCF / Price is great for unlevered firms / firms without minority stakes or preferred shares. Also, UFCF / EV doesn't factor in interest payments, only the impacts from debt principal in the denominator. This results in important miscalculations, since whether a firm pays 3% or 27% interest on its debt makes zero impact whatsoever to UFCF / EV. This means that its role as profitability of an entire business is entirely flawed. You cannot just factor out interest and use debt in the denominator – this results in excluding extremely valuable information on what interest rate is paid. Therefore, this metric seems flawed for its purpose. For example, Kohl's showed up on my screener - although they have to pay 16.6% of fcf annually just to pay interest. This excludes the impact of the principal they will also have to pay. Another way to think about why FCFF / EV might be misleading is a firm that takes out 100 B (exaggerated figure for clarity) in loans and receives 100 B in cash. EV will consider the new debt and cash to effectively nullify each other, and FCFF will ignore the interest payments. Therefore, the FCFF / EV would be the same, but interest would squander all of real free cash flow available for equity holders. Interest could even be so great that the firm might go insolvent. Therefore, FCFF / EV would represent the entire firm.. but would be a relatively useless metric for any shareholders. I understand this is not in line with conventional finance teachings, but I have no inclination as to what is wrong about using these updated metrics. The same logic applies for UFCF/EV as EBIT/EV.. EBIT does not reflect interest payments at all and EV just reflects the net debt principal. [link] [comments]  |
| Treasury Stock makes for Negative Shareholder's Equity. How can I value this company going forward? Posted: 25 Mar 2019 05:01 AM PDT I was looking at Weight Watchers (WTW), and it has negative SHareholder's Equity despite having healthy Profit Margins and Healthy Retained Earnings. This fucks up my ROE calculations and results in Liabilities being much greater than Assets. How do I value this properly? Here is the link to the financial statements: http://financials.morningstar.com/balance-sheet/bs.html?t=WTW®ion=usa&culture=en-US [link] [comments]  |
| Posted: 25 Mar 2019 02:04 AM PDT |
| Terravest Industries (presented by Guy Gottfried) Posted: 24 Mar 2019 11:55 PM PDT |
| Mulpha International Bhd (KLSE:Mulpha) Posted: 24 Mar 2019 11:32 PM PDT Overview - Mulpha is an investment holding company listed on the Bursa Malaysia selling at 50% discount to its net assets while earning profits and increasing the NTA. The primary activities of its subsidiaries are property development, resort owner/operation, commercial property and investment holdings. In fact, one of its investment holdings (ASX:AOG) is worth Mulpha's entire market cap (800MM MYR). Mispricing - This is a discount to net asset play (Cigar Butt) on an illiquid, overlooked business where the chairman is a 45% owner. The source of misjudgement/price discrepancy comes from the fact that it is listed in Malaysia with the majority of its investments in Australia. Due to domestic bias combined with the illiquidity, locals from Malaysia/Australia are hesitant to invest. Valuation - It is currently trading at 800M MYR and has a reported NTA of 3315m MYR. The reported Net Assets is a look through NTA (since, ASX:AOG itself is also discounted to NTA). The constituents are as follows: 1) ASX:AOG is listed in Australia and is an owner-operator of retirement villages and Mulpha owns 22% (they also share the same chairman). Mulpha's ownership of AOG is 800 MYR. Once adjusted for the discount to NTA of ASX:AOG, Mulpha's ownership is 1500 MYR (almost double Mulpha's market cap). 2)The other major part of its value is properties (mostly hotels/resorts and development sites). I valued those at 2100m MYR . The sum of the above is 3600M MYR. Less 2500M MYR total debt plus 480M cash/equivalents = 1580MYR Enterprise Value. This is a conservative valuation and although less than half of the reported NTA, it still provides at least a margin of safety of 50%. Management - The same management/directors used the Aveo brand in China without disclosure in the ASX:AOG business. Doesn't show great integrity. No dividends have been paid in the past 10 years but a special dividend was paid recently when one of the investment holdings (another cigar butt) was distributed to shareholders. A search for another related business Sun Hung Kai & Co. Limited (0086:HKG), that again shares the same management/directors, did not show any major red flags. 85M MYR (5.5% of NTA) of "Provision of Financial Assistance" to Mulpha Ventures with a 60% default rate in loans is a concern. The above are not ideal, however, the large discount is quite compelling. Catalyst/Potential Takeover - AOG has announced a number of offers for purchases of parts/whole business. Mulpha being a major stakeholder is in agreeance with the sale. While a sale to other parties would help Mulpha realise gains in the form of liquid cash (turning this into a net-net), Mulpha's takeover of AOG would be undesirable for Mulpha shareholders as it would require debt raising, share issues and the lockup of more assets into illiquidity. [link] [comments]  |
| Short & distort? The ugly war between CEOs and activist critics Posted: 24 Mar 2019 07:40 AM PDT |
| The Great American Cardboard Comeback Posted: 24 Mar 2019 01:23 PM PDT |
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