GM - General Motors

[Dalal.Holdings]

We love hearing words like these from Mary Barra (emphasis added):

 

“For GM, this represents another major step in the ongoing work that is driving our improved performance and accelerating our momentum. We are reshaping our company and delivering consistent, record results for our owners through disciplined capital allocation to our higher-return investments in our core automotive business and in new technologies that are enabling us to lead the future of personal mobility."

 

The focus on capital allocation is what makes Mary different than any other peer.

[CorpRaider]

True.  If she buys an insurance company or Mondelez, we might be on a whole notha level.  ;D

 

Think 4 x Ebitda and .8 P/BV (for the finance arm) is an ok price?

 

 

[RadMan24]

Yes.

[Dalal.Holdings]

Barra makes Barron's best CEO's list (and the cover):

http://www.barrons.com/articles/the-worlds-best-ceos-an-exclusive-barrons-list-1490419136

 

Meanwhile, Mark Fields keeps marking down Ford's profit expectations (despite times being good), Carlos Ghosn stepped down from the top of Nissan, and who knows what Sergio is up to other than clamoring for "deals".

 

I guess people might finally be noticing that in the auto world, only one CEO stands out when it comes to actually running an auto biz that focuses on return on capital.

[Guest notorious546]

DJ David Einhorn Wants GM to Create Two Classes of Stock

Tuesday, March 28, 2017 02:30:00 PM (GMT)

 

 

 

 

 

 

By David Benoit and Mike Colias

    General Motors Co. is facing pressure from investor David Einhorn to boost its languishing stock price.

    Mr. Einhorn's Greenlight Capital Inc. wants the auto maker to split its common stock into two classes: one that pays dividends and a second that would entitle its holders to all earnings, including stock buybacks, after the dividend is paid, according to people familiar with the matter.

    Greenlight believes the move could attract new investors who are willing to pay more for potential earnings growth, potentially boosting the auto maker's market capitalization by as much as $38 billion, the people said. GM's market value currently stands at around $52.2 billion, according to data provider FactSet, and currently pays an annual dividend of $1.52 per share.

    A GM spokeswoman called the proposed share structure "unprecedented and untested" and said it creates risks that are "unacceptable" and "aren't in the best interest of our shareholders."

[Steven B]

Ah, so that's what Mr. Einhorn was alluding to in his letter. Very interesting but not something I think they would consider. If the dividend ever got cut......definitely would increase the volatility which is not something staid General Motors will want to stomach.

[Guest notorious546]

https://www.greenlightcapital.com/934618.pdf

[TwoCitiesCapital]

Isnt' that basically the difference between preferred shares and common equity? Sounds like he's just basically suggesting they issue preferred shares with a variable dividend and repurchase common equity with it.

 

And if that's the case, why not simply issue long-term debt at a low-fixed rate and repurchase the shares with it?

 

[CorpRaider]

Spin off a REIT.  hehe.  Einhorn is 100% legit though.  Glad to see the pressure is staying on mgmt.  BUYBACK.

[AJDelphi]

A little slow on commenting on the Einhorn presentation, but I think he should be pushing for a more aggressive buyback.

 

I'd much rather see something like $5-$8 Billion spent on buybacks for a year or two as opposed to the $2.5-$3.5 Billion they have been spending. That seems like a much easier way to increase the value. Their credit ratings are probably what is stopping that from happening though.

[Dalal.Holdings]

Much of Einhorn's position in GM is via call options rather than merely the stock alone. Hence this nonsense attempt at an artificial catalyst to get the market to revalue GM's shares (before his calls expire):

 

https://seekingalpha.com/article/4046209-david-einhorn-doubles-general-motors-long-position

 

Yeah, what Einhorn says is true: GM sports the lowest P/E (by certain forward looking measures) in the entire S&P 500 and has an obscenely low dividend payout compared to its yield (another way of saying it's an obscenely low P/E). Does that mean management should consider this nonsense? No. Let Mr. Market take his time to revalue GM and let GM buy as many shares as it can with P/E < 6.

[merkhet]

Much of Einhorn's position in GM is via call options rather than merely the stock alone. Hence this nonsense attempt at an artificial catalyst to get the market to revalue GM's shares (before his calls expire):

 

https://seekingalpha.com/article/4046209-david-einhorn-doubles-general-motors-long-position

 

Yeah, what Einhorn says is true: GM sports the lowest P/E (by certain forward looking measures) in the entire S&P 500 and has an obscenely low dividend payout compared to its yield (another way of saying it's an obscenely low P/E). Does that mean management should consider this nonsense? No. Let Mr. Market take his time to revalue GM and let GM buy as many shares as it can with P/E < 6.

 

Agree -- though, along those lines, I also agree with AJDelphi that I'd like to see some more aggressive action on the buyback. Doesn't even have to be an increase in the total amount. Front-loading their buyback with the extra $2 billion that they've freed up through the Opel deal should do the trick.

[Guest notorious546]

I agree.

 

I think it's valuable that people like Einhorn tend to try new ideas like this. It's what drives innovation and well looking at things through a different lens is what will allow you to see a differentiated value at times. Good Try Einhorn but not sure if this particular idea will work out.

[Dalal.Holdings]

I agree.

 

I think it's valuable that people like Einhorn tend to try new ideas like this. It's what drives innovation and well looking at things through a different lens is what will allow you to see a differentiated value at times. Good Try Einhorn but not sure if this particular idea will work out.

 

His position in GM calls rather than stock alone speaks volumes regarding his motives. I guess Munger would call it "incentive caused bias".

[tylerdurden]

Much of Einhorn's position in GM is via call options rather than merely the stock alone. Hence this nonsense attempt at an artificial catalyst to get the market to revalue GM's shares (before his calls expire):

 

https://seekingalpha.com/article/4046209-david-einhorn-doubles-general-motors-long-position

 

Yeah, what Einhorn says is true: GM sports the lowest P/E (by certain forward looking measures) in the entire S&P 500 and has an obscenely low dividend payout compared to its yield (another way of saying it's an obscenely low P/E). Does that mean management should consider this nonsense? No. Let Mr. Market take his time to revalue GM and let GM buy as many shares as it can with P/E < 6.

 

I agree that the proposal doesn't make too much sense but I can certainly relate to the frustration in terms of the stock price.

 

It is also perfectly conceivable that market continues not to appreciate the value of the stock for even longer, even if they buyback sh.t loads of stock. This peak auto / disrupted industry argument will not disappear anytime soon. Does that matter whether the p/e is 5x or 3x for any potential buyer, if he thinks the doomsday around the corner? I think David Einhorn probably appreciates this more now so he is trying very unusual methods to force his way... I personally think that market will assign the appropriate value to GM only after going through the downcycle and realizing the existing downside protection/earnings potential. Perhaps someone will buy GM or something but leaving that aside I don't see how the stock can move to 50 usd range anymore...

[boilermaker75]

I looked at GM about 10 years ago. A quick look again and I see that over the last 5 years GM’s free cash flow has been a negative $1billion. (Looking over 10 years it is a lot, lot worse.)

 

GM has a PE of only 6, but GM needs more than they earn to continually retool. So GM doesn’t generate any cash that can be taken out of the business, without borrowing.

 

What am I missing?

 

[Dalal.Holdings]

I looked at GM about 10 years ago. A quick look again and I see that over the last 5 years GM’s free cash flow has been a negative $1billion. (Looking over 10 years it is a lot, lot worse.)

 

GM has a PE of only 6, but GM needs more than they earn to continually retool. So GM doesn’t generate any cash that can be taken out of the business, without borrowing.

 

What am I missing?

 

Dunno what figures you are looking at, but you need to separate out the financing biz from automotive to get accurate cash flow numbers. Also, should be obvious that looking at 10 year numbers (or even 5) at a company that emerged from bankruptcy about 7 years ago might skew a lot of those early numbers.

 

As for what you're missing, not sure. Maybe you can ask Einhorn, Pabrai, and Ted Weschler at Berkshire about what that might be.

[Patmo]

I looked at GM about 10 years ago. A quick look again and I see that over the last 5 years GM’s free cash flow has been a negative $1billion. (Looking over 10 years it is a lot, lot worse.)

 

GM has a PE of only 6, but GM needs more than they earn to continually retool. So GM doesn’t generate any cash that can be taken out of the business, without borrowing.

 

What am I missing?

 

Dunno what figures you are looking at, but you need to separate out the financing biz from automotive to get accurate cash flow numbers. Also, should be obvious that looking at 10 year numbers (or even 5) at a company that emerged from bankruptcy about 7 years ago might skew a lot of those early numbers.

 

As for what you're missing, not sure. Maybe you can ask Einhorn, Pabrai, and Ted Weschler at Berkshire about what that might be.

 

Ah yes, the tried and true namedrop argument. Can't go wrong with that one

[Shooter MacGavin]

Bear with me because I'm venting!

 

What's been so frustrating is they've used up all their auto FCF cash over the past 5 years, partly for the ignition switch re-call, partly to pay down legacy liabilities which seemed to grow due to actuarial changes, partly to blow money on some incredibly dumb acquisitions in my view and they have done a half-ass attempt at buying back the stock. The diluted share count has come down only 7% in 5 years.  For a stock that is trading around 5x-6x earnings. 

 

Until recently, they kept raising the dividend.  When you raise the dividend, you lower your financial flexibility from a credit perspective so you need to hoard cash on your balance sheet.  Which means less cash available for repurchasing stock at 5-6x earnings.  Taxable shareholders are now receiving cash and paying taxes instead of getting the double tax-deferral/value accretion benefit from share repurchases.

 

As good as a job at turning around GM as they've done (I give current management a B+...I give Steve Rattner and team an A+), GM's management team has squandered capital badly.  Einhorn's approach is unnecessarily complex and is focusing on the wrong thing through a silly program like he tried to introduce to Apple shareholders a few years ago. He worries too much about "what the market thinks of the stock."

 

If the market doesn't like the stock, great.  He should ask GM to cut the dividend, and use up $5-7B excess cash sitting on the balance sheet plus future cash flow to buy in over 24% of their stock in the first year and then at a 12% clip after that.  The task should be to make the stock more valuable for current investors, not to try to cajole and nudge other market participants to trade stock at a higher value.  Keeping the multiple the same, you have a double of the stock in 4-5 years just from the buy-in.  Earnings growth is just gravy.  Multiple expansion is dessert.

[cmlber]

Until recently, they kept raising the dividend.  When you raise the dividend, you lower your financial flexibility from a credit perspective so you need to hoard cash on your balance sheet.  Which means less cash available for repurchasing stock at 5-6x earnings.  Taxable shareholders are now receiving cash and paying taxes instead of getting the double tax-deferral/value accretion benefit from share repurchases.

 

Mary Barra is the best CEO ever though, a world class capital allocator.  ;)

 

 

[Shooter MacGavin]

I bought the stock in part because Tim Solso was chairman of the board.  And then he somehow checked out, and gave the chairman title to Mary Barra. She's fine, but she is not very articulate and not really honed in on the numbers.  That's frustrating.  One thing that is incredibly irritating is they give you an EPS guidance without telling you what sharecount they are using.  It's a hedge for themselves.

 

As a warrant holder you're suffering here more than you would on bank TARP securities because the dividends are effectively transferred away from you, as opposed to a repurchase.  One way to offset that is just to replicate the position with margin and put options. 

[Philip Morris IV]

GM kicks ass, as usual: http://www.gm.com/mol/m-emergency_news-2017-gm-2017-q1-release.html

 

EPS $1.70 vs. consensus estimates of $1.46

 

GM Reports Strong Net Income, Up 33.5 Percent to $2.6 Billion

[...]

First-quarter 2017 Records:

 

Revenue of $41.2 billion, up 10.6 percent

EBIT-adjusted of $3.4 billion, up 27.9 percent

EBIT-adjusted margin of 8.2 percent, up 1.1 points

EPS-diluted-adjusted of $1.70, up 34.9 percent

North America EBIT-adjusted of $3.4 billion, up 48.8 percent

North America revenue of $29.3 billion, up 10.7 percent

 

Records:

 

GM Financial net revenue of $2.9 billion, up 38.7 percent

 

Stock price is still -9% from announcement of Opel/Vauxhall sale.

[jrallen81]

It must be time to buy, because GM common is just wearing me out. Just years of waiting for a revaluation, lord.

[PLynchJr]

Buy when it hits 28 and sell when it gets above 36.  Rinse and repeat.  :P

[LowIQinvestor]

I doubt it gets to $28.

 

$6.00 -$6.50 EPS for 2017 

with stock at $33 !!!???

 

the world is ending