Packer16 Posted October 21, 2010 Share Posted October 21, 2010 I will start with a controversial idea that is cheap, has leverage and good amount of short interest (a nice call option). Lodgenet is the largest provider of in-room entertainment in the US. Lodgenet just reported earlier today wth $80 million TTM of free cash flow and a diluted market cap of $116 million. Net debt is about $383 million or 3.4x EBITDA. The current covenant trigger is 3.5x and the current debt does not coem due until 2014. Lodgenet tried to re-finance but walked away becasue the interest expebse was too high. A good move but the stock got pummled after the deal was cancelled. It may get pummled again after the earnings release like has over the past few quarters. Revenue has declined about 6% over the past year primarily due to declines in legacy entertainmnet services. Two possible areas of growth HD roll-out and a next generation system that is more interactive. This is my cheapest and most risky idea. Packer Link to comment Share on other sites More sharing options...
JEast Posted October 21, 2010 Share Posted October 21, 2010 Packer, This does seem to be one of your more risky suggestions. From a Graham & Dodd view at least as they have negative equity of $2 and this is for a $2.80 stock. Of course it will most likely pop to $4 or more at some point, but where is the margin of safety? Cheers JEast Link to comment Share on other sites More sharing options...
Myth465 Posted October 21, 2010 Share Posted October 21, 2010 I own but really wish I bought in at $2.40 vs $4 or so 8). I think its a good bet but dont feel like adding for some reason. Right now its 2% of my port and will likely stay there. They overpaid for the assets and the goodwill was probably written off at some point. Accounting is interesting and due to it I tend to ignore book value. The value here lies in long term contracts with hotel clients and the monopoly nature of the business. The real question is will the products still be used in 10 years and how will new technology be integrated. I don't know the answers to that hence the small position. They have one hell of a FCF yield, but also one hell of a debt / preferreds balance. Link to comment Share on other sites More sharing options...
StubbleJumper Posted October 21, 2010 Share Posted October 21, 2010 My sense is that nobody will be buying their products in 10 years. It's already ridiculously cheap and easy to bring a netbook with you when travelling, and most hotels/motels provide free/cheap internet. Just download movies from netflix, and skip the $12 movie charge on your hotel bill (and the raised eyebrows when you submit your expense claim upon your return the office....we all know what type of movies cost $12 at a hotel!). So, if I were running this business, I'd be looking at the possibility of putting it into run-off. If FCF is currently $80m, can I milk it long enough to pay off the debt and still have something left? I have some reservations about that prospect.... Just screwing around a little on Excel, if FCF declines 15% per year for the next 10 years as people gradually stop using this technology, total FCF over the next 10 years would be a shade over $360m, or roughly the same as its current debt level. Not sure whether this is a likely outcome, but I understand how somebody might arrive at the conclusion that there's limited value in the equity.... SJ Link to comment Share on other sites More sharing options...
JEast Posted October 21, 2010 Share Posted October 21, 2010 Very nice observation StubbleJumper. With Netflix providing movies to your notebook, why pay $12.99 for a movie in a hotel. Plus you can use your jack and plug into the hotel TV anyway. As a user of Netflix, kicking myself for missing something that I have used for a few years and will probably use more in the future. Cheers JEast Link to comment Share on other sites More sharing options...
stahleyp Posted October 21, 2010 Share Posted October 21, 2010 Very nice observation StubbleJumper. With Netflix providing movies to your notebook, why pay $12.99 for a movie in a hotel. Plus you can use your jack and plug into the hotel TV anyway. As a user of Netflix, kicking myself for missing something that I have used for a few years and will probably use more in the future. Cheers JEast aren't the movies in hotels usually newer than the ones on netflix? people will pay for convenience. also, i don't know much about LNET, but if they deal with dirty movies, that could be a moat, too. Link to comment Share on other sites More sharing options...
Packer16 Posted October 21, 2010 Author Share Posted October 21, 2010 I think the main reason for the HD success is that is not available via netbook, etc. Clearly the success is based upon developing new services to offset the GE decline that are not available via netbooks. I think a 15% decline is way below anything these guys have experienced (right now the revs are down 6% but FCF is flat). If you use a more modest decline there is substantial value. The other cigar butt stories (ELNK, USMO) have higher muliples of EBITDA and FCF. I think the addtional risk is the debt here. As Myth stated, this is risky and I have limited to a smaller portion than safer stocks like SURW, SALM and SGA. It will be interesting to see what happens. Packer Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 21, 2010 Share Posted October 21, 2010 aren't the movies in hotels usually newer than the ones on netflix? people will pay for convenience. There are other places online where you can get the latest movie rental release. Amazon will rent it to you for $3.99 for 24 hours, or sell it to you (permanent online download rights) for $14.99. I got those prices from a newly released movie (released this week at Blockbuster) that Amazon is offering this morning. That purchase price is just $2 more than the hotel rental charge. Link to comment Share on other sites More sharing options...
FreeOption Posted October 21, 2010 Share Posted October 21, 2010 NOOF is in a similar, albeit more seedy business. Their balance sheet is better. Much smaller though. Link to comment Share on other sites More sharing options...
stahleyp Posted October 21, 2010 Share Posted October 21, 2010 aren't the movies in hotels usually newer than the ones on netflix? people will pay for convenience. There are other places online where you can get the latest movie rental release. Amazon will rent it to you for $3.99 for 24 hours, or sell it to you (permanent online download rights) for $14.99. I got those prices from a newly released movie (released this week at Blockbuster) that Amazon is offering this morning. That purchase price is just $2 more than the hotel rental charge. eric, you certainly have a valid point. I think we can all agree that, on average, the people on this board will search out for the deal. I don't think the ordinary person feels that way though. ;) Personally, when I rent movies they come from one of the vending machines (redbox, blockbuster) or through netflix. I'd never pay for the hotel movie. I see people spend 2-3x the cost on food from a vending machine than what it costs in the store. However, they'll continue to do it every day. Granted where only talking about a few dollars here and there. I don't see why a movie should be that much different. Besides, it's almost like a little luxury, so it could be argued they are more likely to pay the extra fee. Link to comment Share on other sites More sharing options...
Myth465 Posted October 21, 2010 Share Posted October 21, 2010 I travel for work about 40% and tend to take my laptop and watch bootleg movies on it. You guys are cheap so your opinions are not worth much lol. Honestly I have had the same concerns, I cant see how payday loan places make money either but they do. Someone is ordering these movies, and taking out those loans. They have 2 moats. A monopoly on the TV set in most hotels (also you cant usually hook anything up to these TVs, I have tried), and an early release window. They get movies earlier then you can rent them. You can probably watch movies on the TV at the hotel, when they are just phasing out of the theaters. I like Management and think they are making all the right moves but am concerned. They have to pay off that debt before we get anything so I think the concerns are valid. Link to comment Share on other sites More sharing options...
StubbleJumper Posted October 21, 2010 Share Posted October 21, 2010 It's not just a question of what is currently possible, but more so a question of where we'll be in 5 years. Back in 2005, laptops were expensive and larger/heavier. I would not have considered taking my personal laptop on a business trip, nor would I have considered watching a movie on my business laptop (this would be frowned upon, especially the bootleg variety). Now, 5 years later, a cheapo netbook weighs 2.5 lbs and can be bought for well under than $300. I would not consider travelling anywhere without mine. It just offers too much convenience, entertainment, and communications ability...not to mention the possibility of actually doing work! While netbooks have offered the possibility of downloading movies for the past couple of years, the bigger issue is where we're headed next. We already have netbooks, I-pads, and e-readers. Clearly, there will be some sort of consolidation of these functions into a thin, light, cheap I-pad type of thing on which you can store and watch movies, surf the net, etc, and something like cellular connectivity will probably be the norm (we already have it, but it's a bit steep). In five years, everyone will have one of these types of devices and we probably won't leave home without it. An entertainment device in a hotel room (like a TV) will be a secondary consideration.....or it might be like the current clock-radios in hotel rooms that have an Ipod dock so you can listen to your own tunes on their speakers. Anyway, given where we've come from over the past 5 years, and where we're headed in the next 5 years, I wouldn't want to be in the business of peddling movies or long distance in hotels! SJ Link to comment Share on other sites More sharing options...
RRJ Posted October 21, 2010 Share Posted October 21, 2010 Can't resist sharing one very amusing, but perhaps irrelevant fact about dirty movies in hotel rooms. I read once, from a pretty reliable source that I cannot remember, that the average time a dirty movie is actually watched once it is rented in a hotel room is --- wait for it --- 11 minutes. Surmise what you will about the average viewer's goal in renting the film from this information. If only there were a way for Lodgenet to capitalize on all those paid-for but unwatched minutes. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 21, 2010 Share Posted October 21, 2010 Do these show up on the bill that the corporation (paying for your business trip) sees? Sort of another reason to not like billing it through the room. And if you are not on business, it still might be embarrassing at checkout (depending on the movie title). Give it a decade and I'll probably be able to carry around an entire collection of movies on an IPhone. Just stream it to the Bluetooth monitor -- at home / in the car headrest / in the hotel. We'll see, but that's what I imagine to be perfectly reasonable. Link to comment Share on other sites More sharing options...
Packer16 Posted November 27, 2010 Author Share Posted November 27, 2010 It appears that PAR (a large investor that focuses on travel & lodging) got a board seat. Does anyone have any insight into PAR and its returns and reputation? They also appear to hold other cheap lodging/casino properties (Full House and MTR Gaming). It will be interesting to see what happens going forward. Packer Link to comment Share on other sites More sharing options...
twacowfca Posted November 27, 2010 Share Posted November 27, 2010 Can't resist sharing one very amusing, but perhaps irrelevant fact about dirty movies in hotel rooms. I read once, from a pretty reliable source that I cannot remember, that the average time a dirty movie is actually watched once it is rented in a hotel room is --- wait for it --- 11 minutes. Surmise what you will about the average viewer's goal in renting the film from this information. If only there were a way for Lodgenet to capitalize on all those paid-for but unwatched minutes. Capitalize indeed! Shouldn't that be a growing liability like unused sky miles? :o Link to comment Share on other sites More sharing options...
ClientNine Posted November 29, 2010 Share Posted November 29, 2010 My understanding is that over half of their cash flow comes from adult titles. There is a great article in the defunct Portfolio magazine about the effect of new video sharing sites. This is all from a few years ago and there's no reason to suspect that the video sharing sites are any smaller today than they were then. http://www.portfolio.com/culture-lifestyle/culture-inc/arts/2007/10/15/YouPorn-Vivid-Entertainment-Profile/?print=true C9 Link to comment Share on other sites More sharing options...
Myth465 Posted November 30, 2010 Share Posted November 30, 2010 My understanding is that over half of their cash flow comes from adult titles. There is a great article in the defunct Portfolio magazine about the effect of new video sharing sites. This is all from a few years ago and there's no reason to suspect that the video sharing sites are any smaller today than they were then. http://www.portfolio.com/culture-lifestyle/culture-inc/arts/2007/10/15/YouPorn-Vivid-Entertainment-Profile/?print=true C9 LOL - Your user name is most appropriate for this discussion. I plan to see that movie. Link to comment Share on other sites More sharing options...
PullTheTrigger Posted December 1, 2010 Share Posted December 1, 2010 It appears that PAR (a large investor that focuses on travel & lodging) got a board seat. Does anyone have any insight into PAR and its returns and reputation? They also appear to hold other cheap lodging/casino properties (Full House and MTR Gaming). It will be interesting to see what happens going forward. Packer A couple months ago, I was reviewing the directors, and I noticed J. Scott Kirby on their board. Kirby is President of US Airways. http://www.lodgenet.com/AboutUs/InvestorCenter/Corporate%20Governance/LodgeNetBoardofDirectors_Nov08.pdf PAR Capital Management made a significant investment in US Airways a couple years back and made out quite well. I found this out while doing some Google searches on PAR. Notice that Shapiro previously served on the board of US Airways from 2005-2008. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAWFKONxesWk&refer=home Do a little searching on PAR and US Airways and you'll find some more articles. So, in reality, I think PAR may have at least two seats in their pocket, if not more. I don't have info on PAR's track record. Link to comment Share on other sites More sharing options...
Myth465 Posted December 3, 2010 Share Posted December 3, 2010 Damn I should be standing next to Rogers as the worst market timer. :) Congrats Packer. I sold, I just dont do well with declining businesses. I am already a pessimist at heart, so these dont sit well with me. A similar thing happened with USMO. Lessons learned. Link to comment Share on other sites More sharing options...
Packer16 Posted April 30, 2012 Author Share Posted April 30, 2012 I have given up on LNET as the guidance (based on number of rooms and EBITDA/room) was showing them hitting a loan covenent by the end of the year. They a miracle to not hit the covenant. Once they get past the anticipated debt restrucutre, I may take another look. Packer Link to comment Share on other sites More sharing options...
PlanMaestro Posted April 30, 2012 Share Posted April 30, 2012 Also watching Packer. It might be interesting if they manage to stop the bleeding. The core business was deteriorating too fast for my taste and debt reduction last year was too small because of their new initiatives investment. Link to comment Share on other sites More sharing options...
zippy1 Posted January 1, 2013 Share Posted January 1, 2013 I guess board members are justified in predicting this "turnaround" probably would not work out. LodgeNet to File for Chapter 11 LodgeNet Interactive Corp. LNET -35.00%will gain access to $60 million of new capital under a prepackaged Chapter 11 bankruptcy petition that gives control of the company to investment firm Colony Capital. The company, which provides cable television to hotels, said Colony agreed to provide the capital in exchange for all of the new LodgeNet shares outstanding once it emerges from an expedited Chapter 11 bankruptcy process. Holders of the existing series B preferred stock and common stock will have their interests canceled and won't receive any distributions. http://online.wsj.com/article/SB10001424127887323320404578213362859453942.html?mod=googlenews_wsj 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