giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 Gio, Cash eps has stock comp in it. Remove that. Apply a market multiple based on your estimate of average durability of the products. You will get a similar value to balance sheet value. Well, I simply think that, if for the next 5 years they keep growing Cash EPS at the same rate they have grown them in the past, it is quite unlikely the market will reduce their multiple meaningfully. ;) Anyway, your 3x claim imo is misleading: it is not as if those businesses are worth 3x all of a sudden… A NPV is the discount to the present of business results far into the future… Let’s see what’s really behind that 3x: as I have already said, 2 things: 1) Much fat to cut in the first place (most of all unproductive R&D) + synergies + a much better sales force + a lighter fiscal burden. 2) To make grow a business that until VRX’s purchase wasn’t growing. That’s all I think it takes to justify VRX’s price today. Add the value of future deals, and VRX might be undervalued today. I am not saying, of course, that 1) + 2) are easy to achieve… Far from me! But understand that they are definitely joint at the hip: the same bureaucratic management who allows a bloated cost structure to persist is also the one who doesn’t enable a business in a growing industry and with lots of tailwinds to grow. Remove that mediocre management, put in place a great capital allocator, and lots could be achieved! Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 Beyond the above nit picking, how are you comfortable with adding amortization of intangibles to "Cash EPS"? That is my concern. Revenues better grow in a hurry if VRX ever wants to generate real fed notes since Salix completely changed the durable product argument (though I will absolutely agree that Salix's patents are almost all 10+ years from expiration). Can we agree that "true" R&D is significantly higher than reported R&D? Future book R&D will also have to increase at a high rate because they need to complete research on Salix's 8 other products (which is the main method of generating returns on the acquisition in my mind). As long as there is organic growth, the businesses acquired by VRX are worth more than at the time they were purchased, not less. If you see organic growth, it means that, even if a product is gradually losing market share, other products are being successfully commercialized and are taking its place. During the Allergan saga VRX was accused of not being able to grow organically, because of the lack of R&D… Imo they have proven those accusations utterly wrong and unfounded! Now, furthermore, you are saying internal R&D investments might increase meaningfully in the near future: any pharma company adjusts its earnings the way VRX does, if VRX’s internal R&D is really getting closer to the amount spent by other pharma companies, why should VRX adjust its earnings differently? However, if their "Cash EPS" was truly cash generated, then where is all the cash!? I think it should be clear by now that the $11.4 billion in cash VRX claims to have generated since 2008, before interest payments, are perfectly legitimate. Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 Beyond the above nit picking, how are you comfortable with adding amortization of intangibles to "Cash EPS"? That is my concern. Revenues better grow in a hurry if VRX ever wants to generate real fed notes since Salix completely changed the durable product argument (though I will absolutely agree that Salix's patents are almost all 10+ years from expiration). Can we agree that "true" R&D is significantly higher than reported R&D? Future book R&D will also have to increase at a high rate because they need to complete research on Salix's 8 other products (which is the main method of generating returns on the acquisition in my mind). As long as there is organic growth, the businesses acquired by VRX are worth more than at the time they were purchased, not less. If you see organic growth, it means that, even if a product is gradually losing market share, other products are being successfully commercialized and are taking its place. During the Allergan saga VRX was accused of not being able to grow organically, because of the lack of R&D… Imo they have proven those accusations utterly wrong and unfounded! Now, furthermore, you are saying internal R&D investments might increase meaningfully in the near future: any pharma company adjusts its earnings the way VRX does, if VRX’s internal R&D is really getting closer to the amount spent by other pharma companies, why should VRX adjust its earnings differently? However, if their "Cash EPS" was truly cash generated, then where is all the cash!? I think it should be clear by now that the $11.4 billion in cash VRX claims to have generated since 2008, before interest payments, are perfectly legitimate. Cheers, Gio But don’t take my word for it. Listen instead to what Mark Leonard of CSU (another large investment of mine) has to say about this topic: A quick observation before we leave the discussion of Maintenance Revenues and cash flows. In assessing CSI’s value, it is tempting to look at cash flows after tax, interest and capex as the “real” return on shareholders’ capital. However, you should only do that if you can convince yourself that the underlying (mostly intangible) assets of our businesses are not deteriorating. The analysis of Maintenance Revenues in Table 2 is designed to give you some tools to assess the health of those intangible assets. If Maintenance Revenue continues to grow organically, there’s reason to believe that our intangible assets are not deteriorating. --2014 CSU AL Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 I think adding in the 1.4B from the Nestle deal is fair, but where did the skin care drug portfolio come from? I am not sure I am following… It comes from capital they have previously deployed?... If you don’t take that sale into consideration, you should also correspondently decrease the amount of capital deployed. Am I right? Anyway, would you be so kind as to change your spreadsheet, adding in the proceeds from the sale of the aesthetic portfolio in 2014? Just to see how it would look like? Clearly that’s what VRX is doing tracking cash payback periods on their largest deals (and therefore also IRR). Thank you, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 JC Penney, Herbalife, Target... Anymore examples needed of Ackman necessary to prove that he is not flawless. To compare the odds of a turnaround like JCP with the odds of an investment in a high-quality, high-growth company like VRX yields no useful information imo. Buying back shares by companies at higher prices than today is synonymous with the vast majority of corporate buybacks. If that is the idea you have formed about VRX, I guess our views are simply too far apart. Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 rpadebet, I am just curious: It is simply amazing the amount of time you are devoting to a company you clearly have no longer an investment in… For instance, since I have sold my investment in BH, I think I have written no post on its thread… You instead seem to be “on a mission” with VRX! I sincerely hope you devote at least as much time to the companies you are actually investing in right now! Though I would be hard pressed to understand how… given the fact yesterday you have spent practically the whole afternoon posting about VRX… Really baffling! Cheers, Gio Link to comment Share on other sites More sharing options...
Cardboard Posted September 4, 2015 Share Posted September 4, 2015 Maybe he is short which I think I am about to... Cardboard Link to comment Share on other sites More sharing options...
tombgrt Posted September 4, 2015 Share Posted September 4, 2015 rpadebet, I am just curious: It is simply amazing the amount of time you are devoting to a company you clearly have no longer an investment in… For instance, since I have sold my investment in BH, I think I have written no post on its thread… You instead seem to be “on a mission” with VRX! I sincerely hope you devote at least as much time to the companies you are actually investing in right now! Though I would be hard pressed to understand how… given the fact yesterday you have spent practically the whole afternoon posting about VRX… Really baffling! Cheers, Gio Some serious pot and kettle shit going on here. This is coming from the guy who is on COBF almost non-stop while "running three companies" and who spams posts and tweets like there is no tomorrow. I have no idea where you find the time (but have a decent clue...). Fucking brilliant... Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 Some serious pot and kettle shit going on here. This is coming from the guy who is on COBF almost non-stop while "running three companies" and who spams posts and tweets like there is no tomorrow. I have no idea where you find the time (but have a decent clue...). Fucking brilliant... The fact I find very useful to write about the companies I own is so much baffling to you? I think it is very helpful to put my thoughts on paper, when I have real money invested in a company. What’s so strange about it? Though I would agree with you that probably I am spending too much time thinking about my investments, and too little managing the businesses I own… But how much have I written about Lancashire, or Altius, or Oaktree, or Biglari Holdings, or even Fairfax, since I have sold them? Because that is what I have asked rpadebet… Not how much time he devotes to thinking about his actual investments! Therefore, I don't get the comparison... Cheers, Gio Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 Maybe he is short Ahah!!... He said VRX was his largest holding until a few weeks ago… I guess you think it is reasonable to go from the largest long position to a short position in a matter of weeks… which I think I am about to... At last someone with the conviction to act on his ideas! Cheers, Gio Link to comment Share on other sites More sharing options...
Green King Posted September 4, 2015 Share Posted September 4, 2015 Some serious pot and kettle shit going on here. This is coming from the guy who is on COBF almost non-stop while "running three companies" and who spams posts and tweets like there is no tomorrow. I have no idea where you find the time (but have a decent clue...). Fucking brilliant... The fact I find very useful to write about the companies I own is so much baffling to you? I think it is very helpful to put my thoughts on paper, when I have real money invested in a company. What’s so strange about it? Though I would agree with you that probably I am spending too much time thinking about my investments, and too little managing the businesses I own… But how much have I written about Lancashire, or Altius, or Oaktree, or Biglari Holdings, or even Fairfax, since I have sold them? Because that is what I have asked rpadebet… Not how much time he devotes to thinking about his actual investments! Therefore, I don't get the comparison... Cheers, Gio Are you having a problem with persian messenger syndrome ? Or do you have no experience with the freedom of speech ? Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 Are you having a problem with persian messenger syndrome ? Or do you have no experience with the freedom of speech ? As there is freedom of speech, I am also free to ask, right? I find it strange, therefore I ask… If rpadebet doesn’t want to answer, no problem! What bothers you so much? Cheers, Gio Link to comment Share on other sites More sharing options...
Green King Posted September 4, 2015 Share Posted September 4, 2015 Are you having a problem with persian messenger syndrome ? Or do you have no experience with the freedom of speech ? As there is freedom of speech, I am also free to ask, right? I find it strange, therefore I ask… If rpadebet doesn’t want to answer, no problem! What bothers you so much? Cheers, Gio That sounds fair enough. Link to comment Share on other sites More sharing options...
merkhet Posted September 4, 2015 Share Posted September 4, 2015 I'm going to bring up, once again, that it is incredibly troubling to me that people are saying things like "why do you spend so much time discussing this company if you don't own it?" and "if you dislike the company so much, you should put your money where your mouth is and short it." (I've seen it on this thread, Biglari and others. And, I'll point out that it's the newer posters who seem to engage in this.) It's basically an attempt to try to shut down people who have a different view than you, and it's dangerous for an investment ideas board like this to not have dissent. As a side note, I don't recall anyone ever saying "if you like the company so much, you should put your money where your mouth is and go long." People seem to respect praise of a company but not criticism. IMO, this thread is now officially a dumpster fire. A phrase I usually reserve for things like the Washington Redskins or the overall record of the Cleveland Browns. http://www.urbandictionary.com/define.php?term=Dumpster+Fire Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 It's basically an attempt to try to shut down people who have a different view than you, and it's dangerous for an investment ideas board like this to not have dissent. Well, of course you can think whatever you’d like… But, at least as far as I am concerned, you are totaly wrong: I have often expressed the thought that not only I find useful to put my reasonings about investments on paper, but I also like to post them on a board like this one… exactly because I want to hear dissenting views! I have said this many many times before! Gio Link to comment Share on other sites More sharing options...
merkhet Posted September 4, 2015 Share Posted September 4, 2015 It's basically an attempt to try to shut down people who have a different view than you, and it's dangerous for an investment ideas board like this to not have dissent. Well, of course you can think whatever you’d like… But, at least as far as I am concerned, you are totaly wrong: I have often expressed the thought that not only I find useful to put my reasonings about investments on paper, but I also like to post them on a board like this one… exactly because I want to hear dissenting views! I have said this many many times before! Gio Dude, you are literally the last person on this board that I would describe as "wanting to hear dissenting views." (It might be a tie with one or two other new posters.) See below from a week ago. If we're just going to be comparing intellectual dick size, I suspect that you will lose. I have two graduate degrees in law and business from two of the top universities in the country, and I can't recall ever scoring below the 98th or 99th percentile in much of anything. I am sure you are a genius. But let me ask you: do you think even someone with your IQ and intellectual prowess could prove VRX is a fraud or that it isn’t, reading 10-Ks and listening to results reported by management? If your answer is “yes”, I sincerely fear your genius is too detached from reality. Cheers, Gio Why pose it as a question if you're not actually interested in the answer? Your post basically translates to asking me the following. (Allow me some theatrics.) Gio: Can you _______? If you answer yes, you are a pedophile. (A toucher of children, in case that doesn't Google Translate correctly for you, Gio.) Me: Well, I certainly don't want to be a pedophile, so... Link to comment Share on other sites More sharing options...
rpadebet Posted September 4, 2015 Share Posted September 4, 2015 rpadebet, I am just curious: It is simply amazing the amount of time you are devoting to a company you clearly have no longer an investment in… For instance, since I have sold my investment in BH, I think I have written no post on its thread… You instead seem to be “on a mission” with VRX! I sincerely hope you devote at least as much time to the companies you are actually investing in right now! Though I would be hard pressed to understand how… given the fact yesterday you have spent practically the whole afternoon posting about VRX… Really baffling! Cheers, Gio Ha Ha Gio. You are accusing me of getting bored in this market? I plead guilty. I promise not to post here when I have more interesting things to do. Hey btw I have a 5 share investment in VRX, so I am long on your side, just to a smaller extent. ;) I also plan to buy more if it hits a 100 again without any fraud suspicions. Will you notify me when it gets there ? ;) And regarding spending my time on this after selling, I think it is an interesting subject with many nuances. There is a lot I learnt from posts here which I think might be useful when I analyze other investments. Don't you think? Most of my other stocks are simpler by comparison. Most have one or two problems they are working on and the stock/business will do well if they fix those, won't do well if they don't. Others are in high growth areas/industries and I just have to let them rip. Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 And regarding spending my time on this after selling, I think it is an interesting subject with many nuances. There is a lot I learnt from posts here which I think might be useful when I analyze other investments. Don't you think? Most of my other stocks are simpler by comparison. Most have one or two problems they are working on and the stock/business will do well if they fix those, won't do well if they don't. Others are in high growth areas/industries and I just have to let them rip. Thank you very much! That was an excellent answer! :) Cheers, Gio Link to comment Share on other sites More sharing options...
rpadebet Posted September 4, 2015 Share Posted September 4, 2015 Maybe he is short Ahah!!... He said VRX was his largest holding until a few weeks ago… I guess you think it is reasonable to go from the largest long position to a short position in a matter of weeks… Gio You are right. It is not only not reasonable, I also don't have the courage/IQ (read balls) to short something as levered as this. Add to that the "conviction" of the longs despite the possibility of overvaluation/aggressive promotion by management makes it a dangerous short for me. I explained a few posts back, I am not looking to risk my capital for a maximum of 100% gain with uncertain time period and possible pain along the way. + my employer prevents me from shorting anything Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 Dude, you are literally the last person on this board that I would describe as "wanting to hear dissenting views." (It might be a tie with one or two other new posters.) See below from a week ago. Ah! Come on… That was just me teasing you a little bit, because you were arguing with OM about who among you had achieved the most prestigious university degrees! Nothing more… Anyway, again free to think whatever you’d like! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
rpadebet Posted September 4, 2015 Share Posted September 4, 2015 It's basically an attempt to try to shut down people who have a different view than you, and it's dangerous for an investment ideas board like this to not have dissent. Well, of course you can think whatever you’d like… But, at least as far as I am concerned, you are totaly wrong: I have often expressed the thought that not only I find useful to put my reasonings about investments on paper, but I also like to post them on a board like this one… exactly because I want to hear dissenting views! I have said this many many times before! Gio I frankly don't mind Gio and others here questioning my motivation. I am a random poster on the internet and Gio wants to know "what is in it for me". But like I have said before, the focus needs to be on the analysis and not the analyst. All the reputable investors at some point started as an unknown quantity. Michael Burry whose praises people sing here was a random internet message board poster too not long ago!! And no I am not comparing myself to him, we are not even in the same planet of IQ. If personal biases and motivations are important to put the analysis in perspective, then please apply the same standard to Ackman, Sequoia, ValueAct and Pearson!! They are massively long this, of course they are going to sing only praises and make it look as good as it possibly can. Link to comment Share on other sites More sharing options...
merkhet Posted September 4, 2015 Share Posted September 4, 2015 Dude, you are literally the last person on this board that I would describe as "wanting to hear dissenting views." (It might be a tie with one or two other new posters.) See below from a week ago. Ah! Come on… That was just me teasing you a little bit, because you were arguing with OM about who among you had achieved the most prestigious university degrees! Nothing more… Anyway, again free to think whatever you’d like! ;) Cheers, Gio Actually, that was OM trying to shut people down because he "eats IRRs for breakfast" and "was an engineer w/ a graduate degree and a CFA." :) See? There you go again. Not wanting to hear a dissenting view. ;) Link to comment Share on other sites More sharing options...
jay21 Posted September 4, 2015 Share Posted September 4, 2015 It's basically an attempt to try to shut down people who have a different view than you, and it's dangerous for an investment ideas board like this to not have dissent. Well, of course you can think whatever you’d like… But, at least as far as I am concerned, you are totaly wrong: I have often expressed the thought that not only I find useful to put my reasonings about investments on paper, but I also like to post them on a board like this one… exactly because I want to hear dissenting views! I have said this many many times before! Gio I frankly don't mind Gio and others here questioning my motivation. I am a random poster on the internet and Gio wants to know "what is in it for me". But like I have said before, the focus needs to be on the analysis and not the analyst. All the reputable investors at some point started as an unknown quantity. Michael Burry whose praises people sing here was a random internet message board poster too not long ago!! And no I am not comparing myself to him, we are not even in the same planet of IQ. If personal biases and motivations are important to put the analysis in perspective, then please apply the same standard to Ackman, Sequoia, ValueAct and Pearson!! They are massively long this, of course they are going to sing only praises and make it look as good as it possibly can. ValueAct seems a little press shy. I don't feel VRX gained notoriety until the AGN saga. Ackman is way more promotional. Sequoia even said they need to take leverage down. So it doesn't seem to be too promoted other than Ackman. Its the position sizing that is really crazy to me. If this is anywhere near a fraud, all these funds are risking losing 10% to 20% on this position alone in one year. It would also risk their career as all of them are insiders who should have the best chance at uncovering fraud. I would think a lot of investors would pull money from their funds. Link to comment Share on other sites More sharing options...
giofranchi Posted September 4, 2015 Author Share Posted September 4, 2015 Actually, that was OM trying to shut people down because he "eats IRRs for breakfast" and "was an engineer w/ a graduate degree and a CFA." :) See? There you go again. Not wanting to hear a dissenting view. ;) Well… I was teasing you… Because I already knew OM shares my idea about VRX… While I didn’t know yours! What was the point in teasing him? ;) Cheers, Gio Link to comment Share on other sites More sharing options...
Cardboard Posted September 4, 2015 Share Posted September 4, 2015 It is my first time looking at Valeant's financial statements and all I can say is wow! - Net debt of $30 billion - Intangibles and goodwill of $40 billion or over 80% of assets. - Book value of $6.5 billion - Call it $10 billion of annualized revenues - $4.5 billion of EBITDA if you eliminate all acquisitions costs, restructuring. - And GAAP net income of around breakeven? People talk about cash EPS. Where is it? - Annualized cash flow of $1.8 billion per GAAP. - And there are 343 million shares and climbing fast, to give a $78 billion market cap and total entreprise value of $108 billion. On what basis is this cheap or even a GARP? How can you possibly analyze this when all the action is under investments and financing on the cash flow statement? In other words, it is near impossible to determine free cash flow. I realize that Ackman is a big backer but, think about the fact that on June 30, this was 29.9% of his longs in his fund. So he is tapped out and he has lots of ennemies. Only his mouth can help the stock going forward. Or maybe some side deal which kind of looked like some insider trading the last time. Zoetis next? I am not sure I will go short right away since this looks like a momo stock but, it will certainly be on my watch list. Cardboard Link to comment Share on other sites More sharing options...
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