kab60 Posted October 18, 2017 Share Posted October 18, 2017 Just read the transcript. Thought it sounded good. Gross got an out in regards to admitting any eventual integration problems, and he totally didn't take it. Seems to be going very well. Integration is about being swift and having experience, and he has both with him bringing over his former integration team. Add in mid single digit organic wholesale growth (12,5% including big onboardings) as well as them confirm ing an attractive RE climate and them actively pursuing a sale/leaseback deal I'm quiet happy with what I heard. If they deliver on Florida AG the price doesn't seem bad. Leverage is obviously too high when their TSA with Albertsons ends, but they do seem aware and potentiel RE sales will be used for debt repayments which sounds good to me. No idea what the market heard that I missed. Link to comment Share on other sites More sharing options...
valuedontlie Posted October 18, 2017 Share Posted October 18, 2017 The 2 messages I got: EBITDA going lower If they do $485m this year and TSA rolls off that leaves $397.5m + ~$25m for AG (includes 1yr of synergy) + ~$25m for full-year/synergy at Unified = $450m or so -- with interest moving higher and no good baseline capex estimate, it's hard to say what sort of FCF this could be... Leverage going higher With the $180m AG purchase net debt would be $1.78bn which is 3.95x my FY19 EBITDA ($450m). Also, they have generated $60m in op cash flow so far this year and have another $210m in capex to outlay so it's possible they'll have to borrow to fund some capex for the remainder of the year. Sale-leasebacks will help the leverage but at the expense of new leases and rent payments so there's a trade-off there. Selling the retail business for a reasonable multiple (no small feat) could go a long way. Still some heavy lifting to do here. Link to comment Share on other sites More sharing options...
valuedontlie Posted October 19, 2017 Share Posted October 19, 2017 Guggenheim analyst re: divesting retail business -- "Divesting retail segment "is not an option" as the $4.5b in retail volume provides "valuable procurement scale and capacity utilization to the critical wholesale business," despite segment’s declining Ebitda Although SVU would be open to divestitures with long-term supply contract, that may not be achievable given these stores’ weak performance" Link to comment Share on other sites More sharing options...
Sullivcd Posted October 19, 2017 Share Posted October 19, 2017 At $450m EBITDA and $90m maintenance capex you have a company producing $360m on EV of $2.1b. kab60, where did you find the $90m maintenance capex number? I couldn't find it. Link to comment Share on other sites More sharing options...
compoundvalue Posted October 19, 2017 Share Posted October 19, 2017 Mixed thoughts after reading the 10Q: I really like the CEO aggressively going after changing mix from retail to wholesale. Having said that, the preferred way to do it IMHO was to divest some of the retail activity and not to buy additional wholesale activity. Also with respect to the new DC in Juliet Illinois I would rather have them lease DCs instead of buying them, in fact I would like to see a sale and lease back spree and not a shopping spree. Obviously the TSA wind down is significant but according to the 10Q should have an impact of $50m on fiscal 2019 EBITDA and $40m on fiscal 2020 EBITDA so might be offset by Unified+Associated+wholesale growth+some cost synergies. So I can see a reasonable scenario where EBITDA is going sideways for fiscal 2019 and 2020 and maybe even growing slightly. The most worrisome part IMO is in the capital allocation front. Will be closely monitoring to see it doesn't become an aggressive rollup play. I think I still like the odds Link to comment Share on other sites More sharing options...
kab60 Posted October 19, 2017 Share Posted October 19, 2017 They bought the Joliet DC out of bankruptcy, so I don't think a sale-leaseback was a possibility. This was from Q417 CC re maintenance capex (sorry it was 95m, not 90m): From a capital perspective, we plan to invest between $240 million and $265 million in fiscal 2018, which includes nearly $90 million toward a distribution center in the Northeast and approximately $95 million of maintenance-related spending. It's definately a tough time to sell their retail assets, but PE has significant dry powder - as have others. Another added benefit of a sale will be less capex. Management is comped for growing Ebitda, so one definately needs to be aware of excessive leverage/overly aggressive rollups, but they bought 2,5 of their competitors, so there might be some adder benefits. I accepted to live with the comp since it was matched by a TSR target, but it's not optimal. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted October 19, 2017 Share Posted October 19, 2017 Hey all: I thought the markets were supposed to be "efficient". SVU produces numbers that "beat the street", the stock goes up 10%. Then, some "analyst" says "look out AMZN is coming!" and the stock goes down 10% in the SAME DAY. Today, the sell-off continues bigly.... Who are all the people who are selling? Are there that many people that take heed of one analyst? I've never heard of them... This "Telsey" has a terrible reputation on Glassdoor. As has been discussed before....how is AMZN going to take significant market share in the grocery industry? They are at 1%, can they go to 1.25%, yeah, OK How is AMZN going to go to 2%, 3% or 4%? They are going to have to open,staff, stock HUNDREDS of new stores. That is going to require capital in the BILLIONS. They have lowered prices significantly at WFM, so presumably their profit margin is reduced. AMZN likes selling stuff for a loss or zero profit. How is that going to work with billions more invested in the grocery industry? Obviously, I think the market has not thought this through all the way. Link to comment Share on other sites More sharing options...
DooDiligence Posted October 19, 2017 Share Posted October 19, 2017 Hey all: I thought the markets were supposed to be "efficient". SVU produces numbers that "beat the street", the stock goes up 10%. Then, some "analyst" says "look out AMZN is coming!" and the stock goes down 10% in the SAME DAY. Today, the sell-off continues bigly.... Who are all the people who are selling? Are there that many people that take heed of one analyst? I've never heard of them... This "Telsey" has a terrible reputation on Glassdoor. As has been discussed before....how is AMZN going to take significant market share in the grocery industry? They are at 1%, can they go to 1.25%, yeah, OK How is AMZN going to go to 2%, 3% or 4%? They are going to have to open,staff, stock HUNDREDS of new stores. That is going to require capital in the BILLIONS. They have lowered prices significantly at WFM, so presumably their profit margin is reduced. AMZN likes selling stuff for a loss or zero profit. How is that going to work with billions more invested in the grocery industry? Obviously, I think the market is not thing this through all the way. All that + Amazon has to take over pharma, auto parts, entertainment, etc. Link to comment Share on other sites More sharing options...
kab60 Posted October 19, 2017 Share Posted October 19, 2017 I don't think this is about Amazon. Their retail ops are under pressure, Amazon or not, and they need to monetize retail if significant value is to accrue to equity holders (coming from lower debt and a re-rating). As someone else said sale/leasebacks isn't a perfect cure, it comes with drawbacks. If one thinks wholesale will do some 300m this year (without Unified) you have some 100m coming 3 years post close from Unified and Florida AG assuming everything goes to plan (but usually experienced M&A folks lowball so might be higher). Slap a 7 x multiple on for an EV of 2,8b. Then you have some different options on top as well as 3 years of CF from ops, but it's quiet important they allocate capital correctly. Florida AG looks bad. EV/rev of 0,3 compared to 0,15 for SVU. It increases scale, but there is always integration risks, and I'm not sure what to expect from Market Centre. Still like the odds, and one could argue for a higher multiple than 7 which would be significant given the leverage. Link to comment Share on other sites More sharing options...
flesh Posted October 19, 2017 Share Posted October 19, 2017 What do you guys think the catalysts are, if any? Where will next three year ebt go? Link to comment Share on other sites More sharing options...
kab60 Posted October 19, 2017 Share Posted October 19, 2017 I'd like to say debt paydown, but we don't have much visibility on capex which is quiet important, and I don't think management is done doing deals. Which means it's a levered equity stub in a hated sector, so one needs to have a stomach for volatility. Catalysts? Positive comps in retail, sale of retail, sale of DC's/termination of leases, major sale/leaseback transaction of DC's, continued strong growth in WS, new big customer wins, increasing inflation etc etc. Lots of ways to win here, but financial and operating leverage is high. Link to comment Share on other sites More sharing options...
Williams406 Posted October 20, 2017 Share Posted October 20, 2017 That is some extraordinary price movement. Stock up to the low $20's post earnings/acquisition releases. Plummets during conference call and here we sit with a $14 handle. With this kind of market cap, even selling a few DC's and buying back stock looks good to me. But it isn't clear management would prioritize repurchases at all even if they had excess capital. Link to comment Share on other sites More sharing options...
Williams406 Posted October 26, 2017 Share Posted October 26, 2017 Blackwells Capital letter to SVU Board: http://www.businesswire.com/news/home/20171026005322/en/ Link to comment Share on other sites More sharing options...
kab60 Posted October 26, 2017 Share Posted October 26, 2017 Not much insight, pretty much what has been laid out here, and there's a lot of focus on stock price performance versus concrete initiatives. I obviously support a major sale/leaseback transaction as well as divesting retail (or at least at much as possible without hurting wholesale - not sure what the right number is), but please spare me a dividend. I'm not even sure I like buybacks here, since the latest transaction will push up leverage. So while a major buyback could result in a windfall, it also leaves the business more vulnerable, and I'm not sure this is the right time considering we're probably more near a top in this cycle than a bottom. Link to comment Share on other sites More sharing options...
Sullivcd Posted October 26, 2017 Share Posted October 26, 2017 Agreed, a dividend and buyback would be the worst thing possible right now. Management needs to stop levering up and create a clear, predictable fcf stream with wholesale while streamlining the rest of the business. If they can pull this off, we are going to make alot of money. Link to comment Share on other sites More sharing options...
compoundvalue Posted October 26, 2017 Share Posted October 26, 2017 Divestiture of some of the retail activity and sale\leaseback RE transactions will be very welcomed. The cash should be used to repay debt and support organic wholesale growth (in that order) IMO. I think that Mark Gross is the right man to execute on it. Don't like the idea of a dividend\share repurchase at all. I think that the best part about this is that the the probability for additional (and risky in my mind) M&A activity has just dropped. It all boils down to capital allocation, at the end of the day there are only 5 possible uses of FCF: 1. Repayment of debt 2. Reinvestment in CapEx/WC 3. Share repurchase 4. Dividend 5. M&A In this specific situation I think that the first is highly desirable, the second could also be highly accretive given current management's capabilities and experience and the last three have the potential to kill SVU in some scenarios Link to comment Share on other sites More sharing options...
no_free_lunch Posted October 27, 2017 Share Posted October 27, 2017 This is an interesting situation. Could be a multi-bagger if managements plays the cards right. I am a bit concerned though that M&A is the most likely path. It is what management has been doing and it is what they keep saying they will do. Stock price is down so it will all be with debt. Could still work out but I think that is what you are getting here. I am in if I think management will pull the right levers. I am not convinced that's the case so on the sidelines for now. Link to comment Share on other sites More sharing options...
Sullivcd Posted December 12, 2017 Share Posted December 12, 2017 Goldman issued a sell rating on 11/14, just under a month ago. It hits a low of $14.57 on the news, a few pennies above its 52-week low. This morning it hit $20.18 for a gain of 38.5%. Crazy stuff, congrats to all who held firm through the noise. Link to comment Share on other sites More sharing options...
compoundvalue Posted December 14, 2017 Share Posted December 14, 2017 http://www.supervaluinvestors.com/mobile.view?c=93272&v=200&d=2&id=5266310 Link to comment Share on other sites More sharing options...
DTEJD1997 Posted December 14, 2017 Share Posted December 14, 2017 Goldman issued a sell rating on 11/14, just under a month ago. It hits a low of $14.57 on the news, a few pennies above its 52-week low. This morning it hit $20.18 for a gain of 38.5%. Crazy stuff, congrats to all who held firm through the noise. Kind of makes me wonder about Goldman...maybe they have their "B" team working on this? The last ones to know? Comical to issue "SELL" call at bottom of market. Time will tell & we'll see but my money is against Goldman. Link to comment Share on other sites More sharing options...
Sullivcd Posted December 14, 2017 Share Posted December 14, 2017 The cynic in me wonders how many shares their traders picked up that day. Link to comment Share on other sites More sharing options...
Sullivcd Posted December 28, 2017 Share Posted December 28, 2017 Now up 50% from Goldman call. Link to comment Share on other sites More sharing options...
compoundvalue Posted January 10, 2018 Share Posted January 10, 2018 http://www.supervaluinvestors.com/phoenix.zhtml?c=93272&p=irol-newsArticle&ID=2325913 Link to comment Share on other sites More sharing options...
jouni1 Posted January 10, 2018 Share Posted January 10, 2018 what were the expectations? seems like an odd market reaction once again Link to comment Share on other sites More sharing options...
compoundvalue Posted February 8, 2018 Share Posted February 8, 2018 https://www.businesswire.com/news/home/20171026005322/en/Blackwells-Capital-Outlines-Value-Enhancement-Plan-Supervalu-Letter Link to comment Share on other sites More sharing options...
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