hasilp89

Friday, June 18, 2021 11:28 AM Have spent some more time on this. Agree its very interesting. Was mentioned upthread but am thinking about what the moat here is - throwing out what I see but open to suggestions / pushback. Mark mentioned on the call that the limit in their industry is supply of cars. "If you can't move cars your vendors aren't going to be with you very long." On the flip side if you can "shift" cars you're vendors are gonna give you more. MOTR can move cars and as a result passes on savings to consumers. Maybe I'm trying to shove this into a box but it seems like there is some sort of scale economies shared there. Access to floorplan facilities - think this was mentioned upthread - on the face of it makes sense that a proven operator is gonna get better financing. Correct me if I'm wrong but the floor plan financing appears is critical to high ROE (especially given low margins). The hustle - when I think of what would make a good used car dealer I think of someone who can wheel and deal - because the available inventory is always in flux you have to be able to think on your feet, source inventory differently when there isn't much out there, be able to move inventory quickly and generally have a feel for what is selling. Selling used cars and turning inventory 11x a year seems to be as as much an art as a science - I honestly think an MBA would be a hinderance. It may have been on the ABG thread but believe some one discussed how important inventory turns were in this industry. From the call it sounds like Cazoo is at 4x vs. MOTR's 11x. (Is this turns per year? Or days to turn a car- assumed the prior) A few random questions: Where have you spent time learning about the vendor/wholesale/auction side of this business - ie where the cars come from? This was one of the (numerous) red flags with $lotz - they were relying on Related Parties for sourcing - as it turns out that relationship recently went sour quite recently. Any concerns with how quickly this appears to be ramping. Noticed Mark said they have around 5 new folks in senior positions. Risk that they move to quickly? Mark mentioned they'd sell 3+ year old / higher mileage vehicles if needed but what's the rationale for sticking so hard to less than 15k miles. Why haven't they pushed ancillary revenues/profits from financing etc? (or have they and I'm missing it - ABG gets 20% of GP from financing vs. 3% of revenue)

This is absurd.

Not sure if this is what you’re looking for but third Avenue have domestic and international RE funds. I used to skim them for ideas but haven’t done so in a while. https://thirdave.com/wp-content/uploads/shareholder-letters/TAREX-Shareholder-Letter.pdf https://thirdave.com/shareholder-letters/

I was happy with C$2b. I’ll take 2.5 though. JPM came out with a 50+ target. Not sure if it was new coverage or an upgrade.

lol. you're only human after all. Petec and viking have contributed some good research on the thread. Easy thinking is its cyclical, high cost structure yuck, believe there is more to the story though. CEO owns a lot of it (and some of the falcons?!?!) and has stated numerous times that he will return capital this year. Additionally debt is limited to a capped pension liability (CAD ~550 ) and a ~150M ABL - so tails i don't think you loose much in a down cycle (by which point i assume you've been returned 50% of your capital at todays prices). We'll see how it plays out.

greg have you looked at stelco at all? trading at 2-3x 2020 2021E FCF.

@kab60 any thoughts on the recent selloff. down about 20% in the last month. Nothing appears to have materially changed long term as far as I know. I assume there could be some surprises to the downside on Q2/Q3 unit sales if they have had inventory issues, but wouldn't change the 3-5 year thesis IMO. Have added a little more at these levels.

well said. Attached are the slides I had referred to and would support the points mentioned above.

Doesn’t it just depend on what management plans to do with it. Ie if they reinvest you can value the cash flows from the reinvestment, if they dividend you value the dividend yield, if they buy back you determine how much more you’ll own and what that value will be. In this case Alan has left the gate somewhat open but has indicated he’d buy back half the shares. Take a private market view - if you owned the entire business yourself how would you value the 1.5b of cash that was on the come this year? Personally I’d be pleased at the current price - call it 50% of my investment in year 1. Sure the cycle can turn and prices fall but there’s no debt and I likely won’t have to put more capital in. Not very academic but how I’d think about it. On the industry cost curve. @Viking hit the nail on the head. There are potentially longer term structural issues at play. If scrap/ton is more expensive than stelcos cash cost, who is the low cost producer. Stelco has a few good slides out there that makes their case and also indicates higher scrap has set new (higher) floors for steel prices. However, EAFs have brushed it off on calls. Steel dynamics specifically commented that scrap supply wasn’t a longer term issue. Another thing steel dynamics ceo said “And with the rationalization of the integrated side of the industry, it's quite possible that you're starting to see them actually produce pig iron which help the supply balance, supply demand balance as well.” Interesting given stelco has increased pig iron capacity and I believe mentioned that they have the flexibility/optionality to sell to EAFs. On the whole I think it is not a simple their cost structure sucks but at the same time I’m not making a prediction one way or the other (would love anyone who has deeper insight) but with 50% cash returned by year end I like the setup.

registration statement was filed and I received a letter from KCC to complete and send to EQ. Assuming others got this. To confirm this is just to remove restricted status and allow me to move shares to my brokerage account right? Some of the language makes it sound like I am selling, however i just want to hold them in my brokerage account.

thank you @ugadawg_98 i will take a look.

??

I have actually been thinking this for a while and told another reader as much a few months back. The GTX registration statement may have disproved the theory but I'm holding out hope. https://www.ft.com/content/6f0d541d-3a47-481f-810b-d41dab13a2c2

Nah more power to you man. I’m only asking questions cause my accountant (he is definitely not fancy) is always pushing back on me when I ask him the same question every year “are you sure there’s nothing else I can do to save on taxes?” Just tryna see what else is out there. Maybe I just need a new accountant ?

cheers - if you're selling though you're just deferring the taxes right - depreciation reduces basis over the years and upon sale you're taxed on the appreciated selling price less basis. Still a great strategy.