HJ Posted March 15, 2014 Share Posted March 15, 2014 I also have a pretty basic question related to the EV/EBITDA metric to Packer or anybody else: What is embedded in the EV/EBITDA valuation metric. What are the basic assumptions that are driving a generic FCF model for the cable / telecom business? To arrive at a 5x ev/ebitda multiple for a generic telecom company vs. a 7x for cable, what are the underlying assumptions that get you there? Is the difference as simple as 5%+/- revenue growth rate vs. a flat growth rate in a generic FCF models? I know it's an impossible task, but I'm still trying to square away a 5-7x ebitda multiple in these businesses vs. a 10% pretax operating income in consumer products, vs a 11-12x P/E for banks. Link to comment Share on other sites More sharing options...
Packer16 Posted March 15, 2014 Share Posted March 15, 2014 I like use FCF if the firm is in a mature market with little or now growth. In these case FV is about 10x FCF. Using the Graham formula 8.5 + 2G provides a nice FCF benchmark. If the firm is growing (like cable cos and GNCMA, CNSL and SHEN), I use EV/EBITDA as they require capital to grow with the goal being that at maturity the cap ex will tail off and you can use FCF. I typically do not perform projections so for growing firms with negative FCF, I use EV/EBITDA. The 6x - 7x for telco is based upon acquisition multiples (which I track) as is the 8x for cable cos and 9x for TVs. At these multiples the acquirers can obtain enough synergies to make the deal work economically. Packer Link to comment Share on other sites More sharing options...
indythinker85 Posted March 16, 2014 Share Posted March 16, 2014 Packer, you looked at the Doosan preferred (000155)? I have bought the Hyundai pref. around these prices but only that one. Someone posted a good list on another thread: http://ify.valuewalk.com/wp-content/uploads/2014/02/moi201401_ideas-korea.pdf Many still appear to be cheap and I'm curious if you have sifted though some of these. I have looked at a few but they have increased since I started looking. Some of the ones I like are LG Corp (003555), SK Corp (003605), Lotte Chilsung (005305) and Hyundai HCN (126560). If you had to pick 3 or 4 of your favorite S Korean prefs would they be the ones you mentioned above? Packer Link to comment Share on other sites More sharing options...
Kiltacular Posted March 18, 2014 Share Posted March 18, 2014 Packer, you looked at the Doosan preferred (000155)? I have bought the Hyundai pref. around these prices but only that one. Someone posted a good list on another thread: http://ify.valuewalk.com/wp-content/uploads/2014/02/moi201401_ideas-korea.pdf Many still appear to be cheap and I'm curious if you have sifted though some of these. I have looked at a few but they have increased since I started looking. Some of the ones I like are LG Corp (003555), SK Corp (003605), Lotte Chilsung (005305) and Hyundai HCN (126560). Packer Packer, Thanks for your reply Link to comment Share on other sites More sharing options...
indythinker85 Posted March 20, 2014 Share Posted March 20, 2014 Packer, you looked at the Doosan preferred (000155)? I have bought the Hyundai pref. around these prices but only that one. Someone posted a good list on another thread: http://ify.valuewalk.com/wp-content/uploads/2014/02/moi201401_ideas-korea.pdf Many still appear to be cheap and I'm curious if you have sifted though some of these. I have looked at a few but they have increased since I started looking. Some of the ones I like are LG Corp (003555), SK Corp (003605), Lotte Chilsung (005305) and Hyundai HCN (126560). Thank you will continue my search! Packer Link to comment Share on other sites More sharing options...
frommi Posted March 21, 2014 Share Posted March 21, 2014 Packer i really like your approach. But i have a really tough time to put more than 5% into positions like intralot or lukoil. Do you discount these non-developed world companies heavily when you compare them to US/EU holdings, or do you have a max position size? Or do you have so much of these ideas? I am asking because for example Lukoil is so cheap according to what i thought would be a good rule, even when i discount it quite heavily i should put nearly 11% of my capital into it and this is with 22 current positions. Link to comment Share on other sites More sharing options...
Packer16 Posted March 21, 2014 Share Posted March 21, 2014 It depends. For Intralot, most of there operations are outside Greece primarily in the US and developed Europe so I don't look at them as an EM company. Lukoil is more difficult. I have about a 5% position by cost in each. The Intralot has increased but Lukoil has declined. Russia is more difficult but I think the trials are reflected in the current price and that is fine with me as an investment there will provide a return for the risk. My larger concern is where the stock price does not reflect the risk. The positive about the Russian companies is Putin is not nationalizing firms and does not have a history of this type of thing beyond one political rival versus places such as Venezuala, Bolivia, Ecuador and Argentina. The real question is do you get potential return for the risk (in this case yes) and how much risk do you want to take on (which is a personal issue). I have 2 of these high "risk" situations in the portfolio today - Lukoil and Freddie and Fannie pfds which I have limited to about 15% of the total portfolio. Packer Link to comment Share on other sites More sharing options...
One World Trader Posted March 22, 2014 Share Posted March 22, 2014 Hi Packer What do you like that is selling this week? Link to comment Share on other sites More sharing options...
no_thanks Posted March 22, 2014 Share Posted March 22, 2014 Hey Packer, I just saw that Heritage Global Inc. is being spun out by its parent company Counsel Corp. I believe you are also in the valuation industry, and was wondering if it looks like a good deal to you. Thanks. Link to comment Share on other sites More sharing options...
Liberty Posted March 22, 2014 Share Posted March 22, 2014 Hi Packer, I was wondering if you had looked at Liberty Global? I know it's probably not cheap enough for you (it's certainly not GNCMA level), but I'm curious to know what you think of the assets, management and their M&A strategy? Any obvious problems you're seeing? I'm looking at it from a "good business at a fair price" point of view. It seems like one that could keep compounding for a long time just by scaling up - running the TCI playbook in the fragmented European market - and buying back shares with the FCF -- a buy and forget about it kind of business.. Thank you in advance. Link to comment Share on other sites More sharing options...
Packer16 Posted March 22, 2014 Share Posted March 22, 2014 In terms of Heritage Global they are in a different business than I am in. They perform auctions and liquidation sales. The business I am in is the same as Duff and Phelps. The margins are much lower than the valuation business primarily due to the buying and selling of liquidation items. Packer Link to comment Share on other sites More sharing options...
no_thanks Posted March 23, 2014 Share Posted March 23, 2014 Ah, my mistake. Thanks for the response. Link to comment Share on other sites More sharing options...
Packer16 Posted April 2, 2014 Share Posted April 2, 2014 I looked at Liberty Global and as you state they are good long-term investment (with compounding ability) in worldwide cable. I owned it back when it was in financial distress as United Global Com and Malone came in to the rescue of the common shareholders. Since then, the price has been too high for me. I cannot evaluate it versus other compounders as they are out of my circle of competence. It has a great history and capital allocator at its helm. Packer Link to comment Share on other sites More sharing options...
Liberty Posted April 2, 2014 Share Posted April 2, 2014 Thank you, I appreciate your response. Link to comment Share on other sites More sharing options...
no_free_lunch Posted April 13, 2014 Share Posted April 13, 2014 Packer, I know you are a big fan of howard marks. Has this translated into you buying into oaktree and/or do you have an opinion on the stock? Link to comment Share on other sites More sharing options...
Packer16 Posted April 13, 2014 Share Posted April 13, 2014 I do like his thinking however OAK is too expensive for me now. I would rather invest in GP Strategies where I can get a discount to NAV plus the asset manager for free. If OAK ever did decline in value I probably would be interested but I think they trade at like 9% of AUM adjusted for LP investments. Packer Link to comment Share on other sites More sharing options...
EliG Posted April 13, 2014 Share Posted April 13, 2014 I was close to selling but will hold on given the pullback. I have a FV of GM of around $55 so the warrants still have nice upside. Hi Packer, Are you still holding GM B warrants? Would you consider adding more at the current price? If not, how low they have to go to pique your interest? Thank you in advance. Link to comment Share on other sites More sharing options...
Packer16 Posted April 13, 2014 Share Posted April 13, 2014 As to adjustments for penetration I typically exclude from my potential buying pool those companies whose revenues and cash flows are declining and far those whose revenue and cash flows are increasing at a faster rate. I don't specificly increase the multiple for these higher growing firms so I may miss some of the growth value but I see free growth is part of the margin of safety I get along with a cheap price. I do like the warrants here but you need to do your own DD. The recalls are providing a perfect buying opportunity as they have a temporary impact on profitability. Packer Link to comment Share on other sites More sharing options...
tombgrt Posted April 13, 2014 Share Posted April 13, 2014 Packer, what is your opinion on the current risks of holding the GM warrants instead of the common stock? A 25% share drop would half the warrants while it would take a 50% share price increase (more or less) to double the value of the warrants. This is always the risk with leverage but at this point and in this market, maybe one should prefer to take on less leverage. What i'm trying to say is that I don't feel you get compensated enough for taking the warrants, let alone at a stock price of $40! Link to comment Share on other sites More sharing options...
Packer16 Posted April 13, 2014 Share Posted April 13, 2014 You are correct about the leverage but I am not smart enough to know the time to get out of the common and into the warrants. I think we are in the early to mid innings of the car replacement cycle and GM has some great products and very little leverage. The warrants provide cheap leverage about a 1.4% borrowing rate and have another 5 years to go. So although they will "amplify" a bumpy ride I think the ride is in the right direction. If you use $55 as FV for GM the warrants should be worth $37 and they are trading at $15. This does not include future growth which is financed at 1.4% a pretty nice security. Packer Link to comment Share on other sites More sharing options...
tombgrt Posted April 13, 2014 Share Posted April 13, 2014 That's a great way of looking at it, thanks! Any losses are more than likely to be temporary indeed... I saw you posted in the HRT topic as well. Do you own it or is not not up alley? I feel like such as a "lurker" or copycat having already stolen your GNCMA/ALSK and AIQ ideas but I can't help but see the obvious values here compared to many other companies out there. I'm sure many of your followers here feel the same way and feel somehow indebted. I sure do! ;) Link to comment Share on other sites More sharing options...
Packer16 Posted April 13, 2014 Share Posted April 13, 2014 I think HRT is cheap but have been focusing on more companies that have good cash flows and away from resource "potential" companies. It is great when you can get both like Lukoil. HRT also has cash flow from Polvo (about $67m in 2003) but also has G&A expenses that will consume most of that cash flow ($59m based upon Q4 operating expenses annualized). I may re-examine this once I can get a feel if the operating expenses going forward are going to be lower. Packer Link to comment Share on other sites More sharing options...
no_free_lunch Posted April 13, 2014 Share Posted April 13, 2014 I feel like such as a "lurker" or copycat having already stolen your GNCMA/ALSK and AIQ ideas but I can't help but see the obvious values here compared to many other companies out there. I'm sure many of your followers here feel the same way and feel somehow indebted. I sure do! ;) +1 Link to comment Share on other sites More sharing options...
jay21 Posted April 13, 2014 Share Posted April 13, 2014 Packer are you buying the GM class B warrants here? I do like the warrants here but you need to do your own DD. The recalls are providing a perfect buying opportunity as they have a temporary impact on profitability. Packer You are correct about the leverage but I am not smart enough to know the time to get out of the common and into the warrants. I think we are in the early to mid innings of the car replacement cycle and GM has some great products and very little leverage. The warrants provide cheap leverage about a 1.4% borrowing rate and have another 5 years to go. So although they will "amplify" a bumpy ride I think the ride is in the right direction. If you use $55 as FV for GM the warrants should be worth $37 and they are trading at $15. This does not include future growth which is financed at 1.4% a pretty nice security. Packer Link to comment Share on other sites More sharing options...
cobafdek Posted April 17, 2014 Share Posted April 17, 2014 Packer, regarding the art of trading, a few questions on your trading style: 1. Do you have a General Rule on scaling into an investment? Assume you've found a great bargain, established an upper limit price, and wish to allocate 5% of your portfolio to it. Do you go all in? Or do you space the trades out over time (weekly? monthly?), hoping to average down? If the latter, how many trades to reach your predetermined percentage allocation? 2. If/When you deviate from your General Rule, what factors will alter the pace and amount of your buying? 3. Somewhere above in this thread, you mentioned that your top 10 stocks represent 80% or so of your portfolio. Concerning the rest of the stocks with smaller allocations, did these fail to become one of the Top-10 because the market moved too fast for you to scale in? 4. Is there any science to back up yours, or anybody else's, particular art of trading? 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