Dalal.Holdings Posted January 20, 2017 Share Posted January 20, 2017 Recently spun off from Xerox, it's the more promising of the two (but likely dismissed by Xerox shareholders). Market cap: $3.0B Anual Revs: $6.6B Estimated Operating Cash Flow: $500-600M Non-capital intensive, sticky toll booth type business that handles behind the scenes transactions, consulting, and outsourcing. Cognizant (CTSH) seems like a close peer (and demonstrates the opportunity here). Carl Icahn (who owned 10% of XRX) owns 10% here. CEO Ashok Vemuri was a key player in Infosys and has deep background in the industry. In the short term, shares seem to be under pressure from post-spinoff selling (which would provide an opportunity that Joel Greenblatt might endorse). Link to comment Share on other sites More sharing options...
valuedontlie Posted January 20, 2017 Share Posted January 20, 2017 Convergys (CVG) is a closer comp... this is the old affiliated computer systems business that Xerox acquired many years ago... sales have not grown and margins have eroded considerably... they aren't providing anywhere near the services that Cognizant/Infosys provide... more or less a call center operation... Don't see how this is too exciting at this price... Link to comment Share on other sites More sharing options...
Dalal.Holdings Posted January 20, 2017 Author Share Posted January 20, 2017 Convergys (CVG) is a closer comp... this is the old affiliated computer systems business that Xerox acquired many years ago... sales have not grown and margins have eroded considerably... they aren't providing anywhere near the services that Cognizant/Infosys provide... more or less a call center operation... Don't see how this is too exciting at this price... CVG trades at a P/S ratio close to 1, and at 10 times operating cash flow, which would make CNDT 50% undervalued (100% upside) if you are comparing to this "peer". Conduent also has over 2 times the sales of CVG. As for the erosion in sales and margins, this is due to being tied to slowly dying Xerox and its management. It's probably why Icahn endorsed the breakup. The company now seems to be under proper management. Again, it's in the early stages post-spinoff. The future picture might appear murky to you and many others, but that's precisely why it trades cheaply in our eyes. Link to comment Share on other sites More sharing options...
scorpioncapital Posted January 20, 2017 Share Posted January 20, 2017 It's an interesting potential investing lesson here. Non-capital intensive. Labour intensive. Neither capital nor labour intensive. The above 3 categories seem to cover pretty much any company in the world. The last category would be something like royalties, certain proprietary IP, things that can be made once and replicated over and over - like media content. Of course the weakness there is the obsolescence of your content. Labour intensive would be something where you have essentially people doing stuff that has not been automated. It's human capital intensive but not really fixed asset capital intensive. Whenever I see a non-capital intensive business, I also want to check out another 'gauge on the dashboard'. Number of employees. Conduent has 93,000 of them. As another example, Roper Technologies is non-capital intensive and relative to Conduent also non-labour intensive (10,000 employees to earn 3x the net profit). When you are labour intensive you have to assume outsourcing to other countries for arbitrage, otherwise whether it's capital or labour intensive amounts to the same thing. Even worse for labour intensive as you have to pay benefits, pensions and a building or machinery seldom has such demands :) (although it has depletion). Is Trump's pledge to put America first mean something about the difference between domestic and foreign labour going forward? Are labour prices around the world likely to rise or be muted for a long time? Anyway some things to consider... Link to comment Share on other sites More sharing options...
KCLarkin Posted January 20, 2017 Share Posted January 20, 2017 otherwise whether it's capital or labor intensive amounts to the same thing. That's a very useful mental model. But I disagree with the conclusion above. There are some very major differences which make the economics very different: - you need to pay for capital in advance. you pay for labor in arrears. - capital is generally fixed. labor is variable (at least in US). - services businesses can be sticky Link to comment Share on other sites More sharing options...
scorpioncapital Posted January 20, 2017 Share Posted January 20, 2017 Good points, I mean I look at Berkshire and I truly get the impression that a large organization with massive employment is not bad at all. There really is a wide spectrum from no employees and license to print cash to a major employer being busy as a bee but rock solid. Link to comment Share on other sites More sharing options...
Voodooking Posted June 15, 2017 Share Posted June 15, 2017 I've taken a reasonable sized position on this. Greenblatt is invested, which gives me confidence in any spin-off situation, as he must see value. Looks to me like a strong business that's now under quality management, who is making cuts in the necessary places, and I think it has a real chance to do well going forward. Link to comment Share on other sites More sharing options...
Dalal.Holdings Posted March 6, 2018 Author Share Posted March 6, 2018 Been moving up nicely. Carl still on board... Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted July 17, 2019 Share Posted July 17, 2019 Stock has been a dumpster fire over the last year. So has operational performance. Vemuri, who proved to be more of a prima dona than an effective CEO, is out. Icahn and his ally Darwin Deason (co-founder of CNDT's predecessor company) control 4 out of the 9 total BOD seats. Company just filed today after market close that Bill Parrett is out as Board Chair in favor of one of Ichan's reps. https://www.sec.gov/Archives/edgar/data/1677703/000119312519194781/d778128d8k.htm It's going to be interesting to see what happens here. Very possibly the company is put up for sale. Link to comment Share on other sites More sharing options...
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