khturbo

I can't find the letter anywhere but I'm pretty sure Pabrai was down ~50% in 2018.

Market is starting to realize just how accretive the ESL deal is going to be, I think. I was surprised it wasn't up a lot on the initial announcement given their track record on improvements on M&A.

They can't increase the size of the balance sheet, I believe. They can take new deposits but would need to flex their other assets down.

Sounds great, see you tomorrow! Looking forward to it!

Ya I think the weak outlook for this year is why the stock has been so weak. They didn't put any growth projects into service last year but have a few quite big ones over the next 12 months which will drive quite strong EBITDA and DCF growth. If you're referring to the actual guidance, they always just guide for DCF to be 1.2x their planned distributions then they beat it every year. Not sure why they even bother to do that. I do like both of those as well. I own a bit of KMI but have sold most to buy more MMP as MMP has underperformed quite significantly over the last year or so. I just need to wait for a little while so that KMI goes into the LT cap gains bucket for a few clients. EPD is also obviously excellent. I guess that's the thing - all the big players look interesting. I worry less LT about MMP because of the stellar management and because they have less pricing based business than others.

Here's the twitter thread with a few good follow up comments and thoughts on it.

Historically the best run MLP. Track record speaks for itself: 804% return since 2005 compared to 223% for the S&P 500, 260% for $BRK, and 513% for $BAM. I just posted a writeup and thought it would be of interest for anyone interested in the space or even generalists: https://concentratedcompounding.com/magellan/ Looks like 12-13% IRR at the very least to me with low leverage.

https://concentratedcompounding.com/brk2/ Here's a follow up looking through all the risks, or in this case, the lack thereof. Hard to find anything that is even close to similarly not risky as Berkshire.

Not to defend Transdigm, but: - Like you say, military has power and mechanism. So if they want, they should kick Transdigm's butt. If they don't, then they themselves are part of problem (of transferring taxpayers' money to TDG). - Unlike patients in Valeant's case, I have little sympathy for airlines or aircraft manufacturers or whatever other companies that source replacement parts. They are also big boys and can kick TDG's butt if they want. If they don't, then they themselves are part of problem (of transferring their shareholders' money to TDG). BTW, I'm not arguing against what khturbo said. It's possible that there are legit reasons to pay TDG through the nose. But if TDG is extorting, then its customers are not as powerless as patients who have to pay pharmas through the nose. That's exactly right. There are mechanisms to pick other suppliers. Customers aren't powerless, which makes the whole argument that TDG is evil / Valeant incorrect. @spekulatius - this is a question of scale. There were sales numbers in the report, and you can back into TDG's revenue to DoD is in the range of $100-150mm. If you take the margins down to cost of capital, which would require direct legislation, which itself would be legislation going the other way than recent legislation that just passed, then the loss in EBITDA would be about half of that. TDG's EBITDA is $2bb before the ESL acquisition. This isn't exactly doomsday. And just to be clear, they don't break any laws. They don't report cost for a specific set of parts, which is within their legal right to do as the laws are currently written. Again, it will take new legislation to change that.

I might as well respond to this here. I'm the person that posted the joke gif above. The tweet about doing more than reading one article was too snappy on my part, I do admit. I talked with Tepper about the company privately as I mentioned might be better on the twitter thread. First and foremost, if you're interested in the company and haven't read the Dod IG report, that's the first thing you should do. The whole thing is at the bottom of this page: https://www.dodig.mil/reports.html/Article/1769041/review-of-parts-purchased-from-transdigm-group-inc-dodig-2019-060/ Read the whole report at the link at the bottom, not just the summary. First and foremost, the actual business impact isn't super enormous. Using some data from the report, it seems like the revenue run-rate is in the $100-150mm range to the DoD. If they legislated tomorrow the 15% margin that they use then TDG's EBITDA might go down by $50mm, which would be a ~$15 / share in impact. They've legislated thing to go the other way where they increased the TINA thresholds, so the odds of this are pretty slim, even longer term. More importantly, I think it's important to address his claim that Transdigm is "evil." Lots of people think this or think that their customers hate them or whatever. If you know aerospace, you know how important on time delivery is. Just look at what happened to Airbus when they had trouble with their engine supplier. They couldn't deliver their planes. I read an article a little while back about the US government owning 2x the number of F-35s that they need to be combat ready because they know that lots of planes will be waiting on parts and repairs. Those planes cost $100mm a piece. One of the things that Transdigm is very, very good at is delivering on time. There was a slide in a presentation a few years back showing on-time delivery in the mid 90% range. Anyone that knows manufacturing knows that's incredibly high. So when they take over a company, they significantly improve on time delivery metrics. Prices go up as well. But it's not just like the customer is getting screwed. They're getting the parts when they need them, which is much more important than some extra price on such a cheap part. Secondly, and very importantly, these aren't true monopolies. If you talk to the people that run these businesses, there are market mechanisms where they would lose their positions if they increased prices too much. In some cases it might take 2-3 years, but it can still happen. This is much different than in a situation like pharma where in some cases no one else is allowed to make a drug and you have an absolute monopoly. In aerospace, it's a current monopoly, sure, but with abuse you lose your position. Commercial companies go around OEMs all the time as we've seen with Heico. There are other mechanisms besides PMA parts. If you realize that there are other options, then you realize that charging a lot doesn't force your customer to use you long term, and you realize that it's hard to be evil when your customer has a choice. Knowing that you can switch suppliers, but also knowing it's a long, difficult process, is it a surprise that the DoD hasn't done this historically? When they aren't exactly spending their own money? They did a similar report in 2006, so they obviously know about TDG. They could have done any number of things to stop working with TDG in the meantime, but they haven't. They keep coming to TDG and saying they need a part tomorrow, so TDG charges a high price. They've asked for a partial refund, which I'm sure TDG will grant. If they really want to stop working with TDG, they are free to do so. I think the notion that TDG is evil is inseparable from the notion that there's nowhere to turn besides them, which is incorrect. If TDG all of a sudden said that one random part would cost $10mm, do you think that TDG would sell lots of those parts? Obviously not. TDG doesn't do this because they'd lose all of their sales in short order.

Awesome, thanks for sharing!

This must be a high growth / high margin business if they paid 7x sales for it. It will be interesting to see what types of companies they buy going forward to try to hit that kind of mid-teens IRR on their deals.

Yes true on the infrastructure side. It does seem like they could put a lot of capital to work there, and I would be pretty excited if they did. And @Vince, there's a sources and uses of cash page in the Q4 supplemental showing the parent cash flow situation. The $2.5bb I used was just a round number. It was $2.4bb last year off the top of my head so it should grow to $2.5bb+ this year and with OAK the run rate would be probably closer to $2.8bb by the end of the year.

Kyler, Where do you get that personal perception from? Yes, good point. To clarify, I was referring to the parent. It seems to me that credit was the last big platform they wanted to have. With the acquisition that's now built out. I don't see anything that's going to require a huge amount of capital for the parent at this point. Flatt has said as much at certain points in the last few quarterly letters. Brookfield entities will certainly still be investing over time but a lot of that will come through raised capital or retained earnings at the LPs. The parent is on a $2.5bb+ run rate of FCF and they don't have much to invest in by themselves. They'll put some money into the new RE fund but will have plenty left over. I don't know, do you guys see any other places where the parent needs to invest? We've also now consolidated everything in BPY so there's not a big need for capital there either.

Vince and villainx, thanks for the comments. I agree with your guys's thoughts as well. I think there's definitely a possibility that Oaktree grows quicker than I estimated it might. Vince I think you had it right when you said that "BAM's umbrella should help, at least a little." I'm hoping for a bit more growth than I estimated and I think it's fairly reasonable. I think we'll get a good idea of it next time we get a recession. It seems like there could be LOTS of distressed debt. I also agree on the issue of valuing the shares. I'm sure Marks and Karsh wanted shares and it makes sense to give some to get the deal done. But BAM should still have plenty of liquidity and cash left after the deal - $2.35 bb cash for the deal, probably $2.5bb+ in fcf to the parent this year, and $1.7bb in cash once they sell the piece of real estate they took onto their balance sheet to syndicate. They might have a draw for the real estate fund but should definitely have at least $1bb for repurchases and probably a bit more. If they do value the stock correctly, and since they're done with the growth initiatives, it feels like they'll use all of that money for a repurchase. I hope so anyways just like you do.