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@changegonnacome I don't have access to Bank of America's report, unfortunately - though you seem to know the company/industry pretty well anyway. I recently bought a position (B shares - hopefully there's a DISCB-type scenario ?) but am still digesting the investment thesis - so I am coming in with a naive and unsophisticated view here. The 2 things that stand out to me: 1) Incumbents are basically the only European telcos that have made somewhat-respectable returns on capital in the last 10+ years. I understand this is mostly due to their fixed networks which they've used to charge wholesale (mobile backhaul and/or reselling internet services) fees. As you mentioned, the LBTY JVs businesses seem like they're basically an incumbent except with a better/faster fixed network. 2) Some months back, I came across a Barclays report which analyzed deal-by-deal why the last ~decade of European mergers did not seem to have "worked". The conclusion was the cost/capex synergies appear very real, but these were generally offset by lower revenues (due to the regulatory approval conditions that effectively encouraged irrational competition, which as you mentioned may finally be changing after years of industry underinvestment). Admittedly, I'm mostly relying on broker reports. But it seems like an interesting place to look if an analyst basically says they're pretty certain it's trading at 1x 2025 FCF after likely share repurchases - but oh wait, there's no immediate catalyst, so maybe don't buy much just yet...??

Wondering if anyone is still following Liberty Global? Someone sent me these two attached reports which I found pretty interesting (1x 2025 FCF???) Redburn Report - Liberty Global - 2021-05.pdf Redburn Report - Liberty Global - 2020-11.pdf

Ander, can you share a summary of your asset build-up model, with details on how you treated PPA re-contracting and electricity prices? I understand their argument that the forward curve prices are down, but I am trying to reconcile my value estimate with their comments that this is a fair value under the forward curve. In my simplistic model, I assumed hydro generates the same CFs post-PPA while everything else goes to 0 after their PPA expiries, then IRR'd everything back to today. On balance, I figured these assumptions were quite conservative. Anyway, it's still shocking they did not conduct a full+formal marketing process. It is ironic they talked about how they got good prices on those biomass plants because they proactively went to sellers who weren't conducting full auctions.

Did you just do a simple long K/short A trade, or did you execute it some other way? The price discrepancy seems kind of ridiculous to me, but the MTM losses may become very large if you get weird trading activity again.

Thanks for the write-up. I was smart enough to look at this last fall, but not smart enough to buy it. The numbers looked compelling to me and as you mentioned the balance sheet is reasonably strong, but I didn't buy it because it was my understanding (which was apparently incorrect, based on your write-up) that they sold mostly to the Permian, and I was worried about what the regional Permian sand would do to their economics. Can you expand on exactly why they are the low-cost supplier using any available data/numbers you have, and/or how you're thinking about competing suppliers in their market?

Everyone has their own comfort level (however justified) on how much to bet on management. I own some shares and am betting on him, and we'll find out over time whether it is a good bet or not. In the meantime, all anyone can do is make an educated guess and analyze capital allocation decisions as they are made. As previously mentioned, it is entirely possible that a good manager can make better-than-industry returns by buying low and selling high (or at least, not buying high). It's no different from an investment manager doing better than average by doing exactly the same. You can get a sense of Sokol's hit rate by carefully scrutinizing the publicly available facts...but even for that, one can overweight Sokol's genius by simultaneously underweighting Abel's contribution. Abel joined MidAmerican/CalEnergy in 1992, after all. The positives on Sokol are well-known and hopefully not overstated. To me, some of the negatives are: 1) there was a history even within MidAmerican of...shall we say, a JV/partner ownership dispute where MidAmerican management was in the wrong (at least as determined by a judge). Combined with his unceremonious exit from BRK, is this more than just an isolated incident and/or is this a relevant data point? Maybe, maybe not. 2) based on Sokol's MidAmerican share sales to BRK + his generous but well-deserved compensation, he was worth $200m++ prior to exiting BRK. No idea what his compounding has been like since then, but let's say he's worth $400m now. He owns about $40m of Atlas Corp now, and about half of his shares were granted (I think around $6 or $7), with the rest purchased with his own capital. So he has almost certainly put only a very small percentage of his net worth into Atlas/Seaspan. For #2, I would ask why? It's hard to believe 95%+ of his net worth is completely tied up in illiquid assets. It looks like he has purchased (very) minor amounts in the open market around ~$8/share, but if Atlas is truly the bees knees, then why hasn't he purchased more when there have been multiple opportunities to do so? I don't have a good answer. But I don't have good answers to a lot of questions for other companies I own, too.

I'm a shareholder so I believe in the long story and valuation more than the downside but there are a lot of questions/issues that offset the list above: - cable bundles are in decline and that may be accelerating; Discovery is a core in the bundle; - because of above, the subscriber numbers are likely to be relatively flat and face long term headwind; - ad spend has been hit hard even if viewship has held up. DISC doesn't benefit as strongly from political as network - the streaming service has been poor to non-existent. They just fired the head they brought over from Amazon recently; They are so late to the game and behind that it is questionable if there is ever going to be a product there. - they own their content but unscripted shows are rarely binged or watched repeatedly. - they've never done a stellar job of monetizing viewership. If I have to hear Zaslav talk about their outsized share of eyeballs vs ad spend as an opportunity one more time.... I bought some Discovery last fall at ~5x FCF generally with the same thesis as above, and figured the streaming business (if/when it ever worked) was a free option. At the current price now, it seems to me that you're now paying for some success in streaming. On the other hand, I don't even know how to assess what the streaming business would be worth under a "bluesky" scenario. How are you/anyone else assessing the risk/reward at the current price?

Not sure how to post screenshots/images (is this forum ever going to enter the 21st century???), but see the below top 10 holders as of Sept 30: Firm: # Shares Held / % of CSO Neuberger Berman BD LLC: 7,290,977 8.172% J.P. Morgan Asset Management, Inc.: 4,859,512 5.447% BlackRock, Inc. (NYSE:BLK): 4,638,420 5.199% Connor, Clark & Lunn Investment Management Ltd.: 3,644,859 4.085% The Vanguard Group, Inc.: 3,312,927 3.713% Mangrove Partners: 2,969,505 3.328% Walthausen & Co., LLC: 1,961,490 2.198% State Street Global Advisors, Inc.: 1,480,296 1.659% RMB Capital Management, LLC: 1,400,000 1.569% BNY Mellon Asset Management: 1,166,513 1.307% Notes: - Neuberger Berman: has held their stake for several years, and hasn't bought or sold much in the last couple years - Connor, Clark & Lunn: increased their stake by 58% in Q3, and has been a long-time shareholder - Mangrove Partners: used to be the largest shareholder a few years ago, then sold 71% of their shares in Q2, before buying back some of it in Q3 It's interesting that the only 2 questions on this morning's call were basically: 1) did you run a fully-marketed process, and 2) what's the break fee if someone tops your offer? From the CEO's comments to question #1, it seems like there was no formal marketing process other than the 2014 one which as previously mentioned is a completely meaningless comparison. Anyway, I'm also in the same mindset as ander.

I've also been looking at buying ~1-year out of the money puts as well - but the problem I have had is trade execution as they are extremely illiquid. For example, there may be 1-year puts on Company X at $10, 13, 15, 17, 20, etc. I might be happy buying all of these puts (obviously depending on the price), but I don't want to put limit orders in for all of these in the off-chance that they get filled and I'm left with a huge outsized put position in 1 stock. I've seen some ridiculous prices being filled, but was unlucky to have "chosen" the wrong strike price. Does anyone have ideas on how to better execute longer-dated options?

I agree. It is one of my largest positions and I think the price is wholly unsatisfactory. For all the management talk about how the assets are so clearly undervalued, etc, you'd also think they would be able to get a better price if they did a full marketing process. I know of hydro plants being bought for ridiculously lofty multiples right now. Anyway I'll be waiting for more information as well.

I'll take a crack at some of the questions but you may find the answers lacking. I'm still in the early stages of learning about the industry and company in general, and not quite sure what types of things to look out for other than comparing financial performance vs other companies. Sales: I believe there was a minor slump going into covid, but most of the decline this year was overwhelmingly due to covid. Next year will probably be better than this year (in terms of revenues), and I understand domestic steel sentiment/prices are improving right now, and the company raised prices this month. Cost competitiveness: Apparently ~85% of Tokyo Steel's SG&A is trucking fees (ie, linked to domestic gasoline prices) to client sites...can't imagine this helps their cost competitiveness. On China scrap steel imports, I understand China's scrap steel imports have effectively been nil since 2019. From ~2014-2018, China was importing 200k tonnes; in the few years prior they were importing ~300-600k tonnes. I assume restarting imports would impact the global prices of scrap steel...in the short-term, presumably most countries would see a rebound in industrial activity, and in the long-term I understand (?) China is trying to become more self-sustaining for their own scrap steel, along with all the other stuff reported in the news. I have no idea what the impact (net of the above comment) over time will be. Retooling for steel in cars/selling abroad: Quoting from a Jefferies initiating coverage report from 2015: "Tokyo Steel made a huge investment and built the Tahara plant, the company’s first new factory in decades, opened in ’09 in Tahara city, located 4.2km from the Toyota facility that produces Lexus models. Long story short, the expansion to auto steel didn’t work out as expected, and the company had to take a massive haircut. Tokyo Steel wrote down the whole plant in Mar ’13. Tokyo Steel spent ¥160bn+ to build a top-notch facility in Aichi prefecture, making it easier to ship metal sheets to carmakers and electronics producers. The rationale for this was 1) construction demand in Japan was in a structural declining trend, and 2) auto/electronics were in an upswing. Also, the company had a lot of cash in hand, and demand was ripe when they did the FID." Other than that, I really don't know! Management/succession plan: I don't know on succession planning. Fwiw, from that same Jefferies report: "Tokyo Steel’s president, Toshikazu Nishimoto, is the first one outside the Ikegami family appointed to top management in Jun ’06. He has extensive experience in managing the steelmaker; we believe Tokyo Steel regrets the Tahara mishap and is now more careful in allocating capital." Universities: Interesting question, I had never thought about that. The only person's education background I can find is Toshikazu Nishimoto's, who went to Waseda. I was viewing Tokyo Steel more as a candidate for a basket of these types of situations - being something that looks extremely cheap with a management team that is doing something about it (ie, repurchases), and where the business is not obviously atrocious. I'd like to get a better sense of where this company sits on the regional cost curve...but as this involves learning about a couple of related industries as well as other regional (Korea/China) players, it seems a little more complicated than I thought. Anyway, I figure if they go through a rough patch, they may burn say $100m of cash (based on historical financials). So then they'll have $500m of cash instead of $630m, but I figure their land+PP&E is probably also worth a couple billion; as long as I'm somewhat in the ballpark of ~$100m through-the-cycle annual FCF and they keep repurchasing shares, I think the investment will do OK. I'm not sure if this is too naive of a thesis though - I'd like to hear why the future may not be like the past that I described in my initial post (OCF history since 1998). Some of your questions get to the heart of what might go structurally wrong with the business, and I have to admit I don't have a good sense of that right now.

Thanks for your thoughts petec, especially re the Panama canal. I have heard Atlas allude to this in calls but not explain it in that detail (or I didn't pick up on it). Are there any other sources/data you can share for this - particularly on your comment "the limits on ship size are imposed by port capacity and journey length (you can't use huge ships on short journeys because the dwell time in ports is too long)" Their corporate debt is basically split ~20% revolver, ~60% TL, and the rest FFH notes, and scheduled repayments are a few hundred m/year. But I take your points and think you're putting out better ones than me. On your MidAmerican question: "15/0.73=20x eps in 18 years for a CAGR of 18%, partly driven by an increase in leverage? That seem fair?" It's fair to say that though he was likely also responsible for the ~2x increase in earnings from 1990 to 1991 too (he cut 25% of employees in the first few months of 1991, and started a few-year trend of increased load factors on the geothermal plants)...but I don't know if they raised equity in 1991. Anyway, it's a good record however which way you cut it, and it is more anomalous that he did that while also substantially improving the business quality.

Thanks for the suggestions everyone. I do have access to Capital IQ for financials, and I just double-checked the numbers from the broker reports and the one English annual report on their website. Any thoughts/insights anyone has on what's happening in the EAF vs BF industry in Asia/Japan (or anything else on the company) would be much appreciated too!

Have been looking at some Japanese companies and was wondering if anyone has a good way to translate Japanese annual reports. The below information may not be entirely correct as I've tried to gather it from a bunch of (English) sources and I'm also not familiar with steel companies, so any insights are really appreciated! Tokyo Steel Manufacturing (5423.T) came up on a screen. A quick overview - all numbers in USD for ease of viewing. - $750m market cap; $631m cash/equivalents with negligible debt as at Sept 30 - LTM 3Q20 OCFs of $235m, capex of $68m = LTM FCF of $167m - Since 2015, FCF has ranged from $99-229m/year - LTM share repurchases of $93m (plus another $133m repurchases in the prior 3 years) + dividends of $19m It is the largest EAF steel producer in Japan, and operates 4 plants with combined ~6mt/year of production capacity. Its newest plant (built in ~2010) I think is the largest in the world at 2.5mt, next oldest was built in 1995, and the other 2 plants were built in the 1960s though one of these plants was upgraded in 2006ish. Products vary by plant, but are generally steel beams used in construction and flat/rolled coils. I understand they're trying to make more steel products that go into cars. Almost all their steel is sold within Japan. Steel sales volumes are currently weak. I believe their largest/newest plant is only running at ~40% capacity. There are at least 2 analysts (Jefferies and Morgan Stanley) that cover it and there is some concern that China has just removed its scrap steel import restrictions, meaning scrap steel prices are expected to increase = higher input costs for EAF plants. Even so, both analysts are forecasting FCF of ~$100m/year for the next few years. No idea whether that is too high or low. Some historical background that I can find: - Since 1998, there have been 3 years with negative operating CFs (2010 -$51m, 2013 -$31m, and 2014 -$25m). There were negative EBITDA margins in 1994-1997, but I don't have CF statement info for those years. - Since 1998, operating CFs excl-2005 (see comment below) have a mean and median of ~$150m, with a standard deviation of $125m. - During 2006-2011, capex was enormous at $2.2b cumulatively. This was due to the upgrade of one of their 1960s plants, and building the new plant. In 2005, the company generated anomalous/record operating CFs of $734m vs capex of $49m, and the cash on hand ($1.2b at YE 2005) must've been burning a hole in their pocket. - Maintenance capex currently appears to be running at ~$70m/year, but has been increasing in recent years. Other than the 2006-2011 period, capex levels have consistently been ~$30-70m. I understand in Japan/Asia, blast furnace plants are still mostly used. Comparing Tokyo Steel (EAF) with JFE and Nippon Steel (I believe they're mostly BF plants) in the last ~30 years, Tokyo Steel's EBIT margins have historically had a higher "beta" - during good times, it was ~2x JFE and Nippon Steel's margins, but the latter fared much better during the 1990s and early 2010s downturns. In the last ~5 years, Tokyo Steel, JFE and Nippon Steel's margins have all seemed to converge, with Tokyo Steel being the outperformer, and interestingly JFE and Nippon Steel's EBIT margins have declined in the last 2 years while Tokyo Steel's has increased. But I have no idea how/why/if this is sustainable. I initially got interested in Tokyo Steel because they're one of the very few Japanese companies I've seen that are using their cash to aggressively repurchase shares (I'd love to hear of others though!).

Yeah sorry, I meant the contracted rates of the stuff they've been buying (not spot rates which as you noted are extremely strong right now). They said the ships they're building/recently acquired are generating EBITDA of ~$10m/year, so assuming ~65% EBITDA margins, the revenues seem to be similar to the 15 vessels delivered to Yang Ming in 2015-16 (which are generating revenues of ~$16.5m/year). But anyway you're right, the 18y newbuild contracts at those rates are far better vs say the YM ships which were only on 10y contracts. Edit: Should note the YM vessels were 14k TEU, so the recently-announced newbuilds likely have slightly lower newbuild costs than the YM ones. So yeah the economics may very well be good on those, assuming no MSC (or whoever the liner was) credit issues.