Cevian Posted November 8, 2018 Share Posted November 8, 2018 Any investors in CODI? There have been a lot of threads lately on how difficult it is for people to emulate Buffett's private business acquisition strategy. Most holding companies are having a difficult time getting the recipe right. These guys seems to have figured it out and IMO are doing a great job and earning a good reputation. P.S. I've taken a fairly large position recently since it appears that that someone sold a large block. Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted November 9, 2018 Share Posted November 9, 2018 At first glance the debt looks a little concerning. $1.1B in debt + two classes of preferred stock. The debt is also on the expensive side, particularly the 8% senior notes and 7.875% series b preferreds. What makes you like the stock? Link to comment Share on other sites More sharing options...
Peregrino Posted November 9, 2018 Share Posted November 9, 2018 Been a while since I’ve looked at the company, but the share price has hovered around mid teens per share for the past several years and they’ve maintained a high single digit yield over that period. As I recall their strategy was to buy assets unlevered and make the new subs take out debt from the parent whose interest payments provide the cash for the parents dividend. Sort of like a BDC plus PE portfolio wrapped in one. Link to comment Share on other sites More sharing options...
matts Posted November 9, 2018 Share Posted November 9, 2018 This is an externally managed BDC-like company. It pays the manager 2% fee along with a "profit allocation" according to a formula that I could not find being disclosed even in the 10K. I'm SURE the terms are very shareholder friendly... I don't know if the stock is cheap, but this has nothing to do with "Buffett's private business acquisition strategy". So can we be a little more careful about dropping his name? can you tell us what the profit allocation formula is? I wasn't able to find it. Link to comment Share on other sites More sharing options...
gfp Posted November 9, 2018 Share Posted November 9, 2018 Try pages 185-190 of the original S-1: https://www.sec.gov/Archives/edgar/data/1345122/000095013305005575/w15027sv1.htm And, yes, I think it's ridiculous that they basically haven't published it since This is an externally managed BDC-like company. It pays the manager 2% fee along with a "profit allocation" according to a formula that I could not find being disclosed even in the 10K. I'm SURE the terms are very shareholder friendly... I don't know if the stock is cheap, but this has nothing to do with "Buffett's private business acquisition strategy". So can we be a little more careful about dropping his name? can you tell us what the profit allocation formula is? I wasn't able to find it. Link to comment Share on other sites More sharing options...
matts Posted November 9, 2018 Share Posted November 9, 2018 Thanks. So it's basically 20% of all gains. They have a 7% annualized hurdle, but if they hit it, there is a catch-up provision to make sure they get 20% of all gains. Seeing how the long-term average of the stock market is what? around 9%? It's not a big accomplishment to hit the hurdle over time. Disclosing your fees once every 15 years seems reasonable... Uncle Warren would be proud. Call me when they switch the fees to 20% ABOVE 7% and start disclosing it to people who may not have been part of the IPO in 2005. btw, love how in the presentations, at first glance and to retail investors, it might seem like the profit allocation is 0.1%. They don't bother to clarify or disclose the truth anywhere else. Link to comment Share on other sites More sharing options...
Peregrino Posted November 9, 2018 Share Posted November 9, 2018 Not sure what you guys mean when you say they don't disclose their compensation formula. Its stated very clearly on page 33 of their 6/15/2017 Investor Day slides http://ir.compassequity.com/static-files/e95f94fe-bbce-4550-88f1-9c3dc5437c61 Link to comment Share on other sites More sharing options...
matts Posted November 9, 2018 Share Posted November 9, 2018 Not sure what you guys mean when you say they don't disclose their compensation formula. Its stated very clearly on page 33 of their 6/15/2017 Investor Day slides http://ir.compassequity.com/static-files/e95f94fe-bbce-4550-88f1-9c3dc5437c61 Fair enough. But I didn't see it in the updated investor presentation that is featured on their IR page. It has most of the analyst day slides, but not that one. Also, nothing I could find in their annual report/10k. All documents an investor would go look at as opposed to the non-current (now) analyst day presentation. That does not seem odd to you? Every BDC that I remember glancing at was much more transparent than that. Link to comment Share on other sites More sharing options...
gfp Posted November 9, 2018 Share Posted November 9, 2018 Yeah, it's great that they included it in a presentation slide - but it was nowhere to be seen in many years of SEC filings, including 10Ks. Link to comment Share on other sites More sharing options...
Peregrino Posted November 9, 2018 Share Posted November 9, 2018 Don't have a bone to pick as I'm neither long nor short, but it's mentioned tangentially in the 2017 Annual Report (numbered page 60, actual page 81) that they charge these fees http://ir.compassequity.com/static-files/d1796688-fca9-4ef4-b016-28e27e9ef0f4 And while not spelled out with a numerical calculation in that document, it IS spelled out in their Proxy from April 2018 (numbered page 26, actual page 32) http://ir.compassequity.com/static-files/bb2b98b2-ab27-46d4-956a-2f521d993d61 Hope this helps dispel the notion that they're being secretive about the fees they charge. Link to comment Share on other sites More sharing options...
matts Posted November 9, 2018 Share Posted November 9, 2018 Don't have a bone to pick as I'm neither long nor short, but it's mentioned tangentially in the 2017 Annual Report (numbered page 60, actual page 81) that they charge these fees http://ir.compassequity.com/static-files/d1796688-fca9-4ef4-b016-28e27e9ef0f4 And while not spelled out with a numerical calculation in that document, it IS spelled out in their Proxy from April 2018 (numbered page 26, actual page 32) http://ir.compassequity.com/static-files/bb2b98b2-ab27-46d4-956a-2f521d993d61 Hope this helps dispel the notion that they're being secretive about the fees they charge. They mention fees all over the place. It's the formula that is important. But you're right, you found 2 recent documents that do have the formula. Notion dispelled as far as I am concerned. Link to comment Share on other sites More sharing options...
Cevian Posted November 19, 2018 Author Share Posted November 19, 2018 Thank you all for the great feedback. After doing some further in-depth research and reading through the financials since 2006, I have decided to exit my position entirely since I'm definitely not comfortable with the current amount of leverage (debt + pref shares) on the balance sheet. This along with the high dividend makes me doubt the companies ability to generate sufficient cash flows going forward. In the interest of adding some figures I crunched in case it helps future investors. % Increase in Shareholder's Equity % Increase in S&P 500 with Dividends Included (CODI) (from Berk annual report) 2007 63% 5.5% 2008 18% -37.0% 2009 -7% 26.5% 2010 13% 15.1% 2011 4% 2.1% 2012 -24% 16.0% 2013 25% 32.4% 2014 42% 13.7% 2015 8% 1.4% 2016 2% 12.0% 2017 4% 21.8% Link to comment Share on other sites More sharing options...
Peregrino Posted November 19, 2018 Share Posted November 19, 2018 Does your increase in shareholder's equity for CODI include the 9% dividend yield they have been paying for the past several years, or is it just book value growth? Link to comment Share on other sites More sharing options...
Peregrino Posted November 19, 2018 Share Posted November 19, 2018 Once you add back in dividends, you get a 13-14% return for 2017. 2016 BV = 894.5 2017 BV = 926 Delta BV in 2017 = 926 - 894.5 = 31.5 2017 Div Paid = 88.26 88.26 + 31.5 = 119.8 total return 119.8/894.5 = 13.4% total return on BV Share price gyrations and re-rating can adjust that, but not a bad result. Link to comment Share on other sites More sharing options...
Cevian Posted November 19, 2018 Author Share Posted November 19, 2018 Good point Peregrino. The percentages are just increases in shareholder's equity without factoring in (or adding back) the annual dividend payment. I agree, very impressive. I was initially enamoured and taken in by the dividend yield actually. The trouble is that, unless a business is generating truly organic cash flows, it is difficult to pay out close to 10% in dividends each year. With the recent increase in leverage, it almost feels like the dividend is being financed by debt. I'm just not comfortable with the level at this stage. Link to comment Share on other sites More sharing options...
Guest cherzeca Posted June 2, 2019 Share Posted June 2, 2019 barrons article today on CODI, which brought me to this thread: https://www.barrons.com/articles/compass-stock-has-a-huge-yield-and-is-a-good-way-to-avoid-the-trade-war-51559347200?mod=hp_LEAD_3 seems they will soon delver a bit Link to comment Share on other sites More sharing options...
Jurgis Posted June 3, 2019 Share Posted June 3, 2019 So they are paying out 2-and-20 (with 7% hurdle) to outside manager. This seems quite a drag for the company. Link to comment Share on other sites More sharing options...
Peregrino Posted June 3, 2019 Share Posted June 3, 2019 FWIW, I think they pay the fee to their own management, not an external entity, no? Having just done a review of them, the fees are basically the same as what a BDC charges. Looks a little bit like a publicly traded PE portfolio and in that context not much strikes me as out of the realm of the going market rate for such services. Only real difference in this case is that the hurdle rate is 1pp below the 8% level that PE firms generally charge, so the "GP"/management in this case is earning a promote on slightly more of the profits than your typical sponsor, but not egregiously so. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now