CorpRaider Posted November 23, 2013 Share Posted November 23, 2013 Gio, I mentioned this one (POST) back in the CFX thread and you suggested I start a thread on it. Well it looks like Brooklyn has a post on the name after one of the new tiger cubs mentioned it at the Robin Hood conference, so I thought this would serve as a good starting point. Brooklyn basically sums it up nicely. I own none, it is just on my shopping list for when Mr. Market has a sale. For your reading pleasure: http://brooklyninvestor.blogspot.com/2013/11/post-holdings-post.html Link to comment Share on other sites More sharing options...
giofranchi Posted November 23, 2013 Share Posted November 23, 2013 Yes! Just a few hours ago I have read the post by the Brooklyn Investor and I have thought about your suggestion to look at POST! Good idea and thank you! ;) Gio Link to comment Share on other sites More sharing options...
bz1516 Posted November 23, 2013 Share Posted November 23, 2013 I joined this board recently looking for small cap and micro cap ideas. so naturally when I see one i get excited and take a look. I certainly note the stock has had a nice trajectory. Yet when I look at it I see the obvious: a decline in gross profits which appears to be increasing on modest revenue growth, a further decline in operating profit based on increased SG&A, an increase in interest, and a substantially negative TBV. I also see a 78 year old CEO. So I'm having a very hard time seeing why this stock makes sense, yet the shares have shown a nice steady uptrend. Would appreciate hearing an explanation? Link to comment Share on other sites More sharing options...
Compounder Posted November 23, 2013 Share Posted November 23, 2013 Its that 78 yo CEO's track record of capital allocation and creating value plus the fcf and the options that provides him with. However imho that doesn't make this a buy at any price. Link to comment Share on other sites More sharing options...
Liberty Posted January 11, 2014 Share Posted January 11, 2014 http://brooklyninvestor.blogspot.ca/2014/01/post-annual-report-2013.html Link to comment Share on other sites More sharing options...
loganc Posted January 11, 2014 Share Posted January 11, 2014 I joined this board recently looking for small cap and micro cap ideas. so naturally when I see one i get excited and take a look. I certainly note the stock has had a nice trajectory. Yet when I look at it I see the obvious: a decline in gross profits which appears to be increasing on modest revenue growth, a further decline in operating profit based on increased SG&A, an increase in interest, and a substantially negative TBV. I also see a 78 year old CEO. So I'm having a very hard time seeing why this stock makes sense, yet the shares have shown a nice steady uptrend. Would appreciate hearing an explanation? As mentioned previously, POST is obviously interesting due to Stiritz. I think POST is hard to analyze based on current and past financial statements due to the large number of deals that have been done. He has used leverage and issued equity in terms of convertible preferreds to do a lot of deals recently. I think you have to parse a lot of this to see the true performance of the business (i.e. there aren't going to be GAAP earnings here due to the fact that Stiritz would rather pay bond holders and use the capital to do deals rather than pay taxes). As for the performance of the business, I believe they have stabilized the traditional Post brands in the RTE market, which were in decline within Ralcorp. If you focus on the downside here, I think it is hard to lose money given the value in the RTE Post brands. Very hard to predict upside as it is dependent on the capital allocation efforts of Stiritz but I am quite confident the strategy. POST is obviously what one would want to own in this particular sector. Whether or not better values can be found elsewhere is a different topic. Link to comment Share on other sites More sharing options...
Hubris Posted January 12, 2014 Share Posted January 12, 2014 I've been in this for a while. So far I have seen very few people recognize the amount of potential dilution. The market cap needs to be adjusted there is a potential dilution of around 14M shares due to two series of preferred stock that were offered and management options, now combine that with shares outstanding of 32M - 33M thats a very serious amount of dilution. But according to my calculations its still trading around an fcf multiple of 13 and around 11 EV/EBITDA pro-forma for all the acquisitions announced so far. Not very expensive yet has potential. Link to comment Share on other sites More sharing options...
RandyC Posted February 15, 2014 Share Posted February 15, 2014 Bill Stirtitz, POST's CEO, has purchased something like 7% of HLF for his own account since Sept. 2013. Even though it's a personal position, does that suggest a possible future link-up between POST and HLF, perhaps via an LBO of HLF, as he suggested here: http://www.bloomberg.com/news/2013-11-13/herbalife-investor-stiritz-says-he-d-help-an-lbo.html http://www.forbes.com/sites/nathanvardi/2013/11/19/bill-stiritz-wants-to-tell-herbalife-how-to-deal-with-bill-ackman/ Given Stirtiz's track record as an aggressive and incredibly successful acquirer as Ralston's CEO (21% CAGR over 21 years, I think?), is this too far-fetched? Link to comment Share on other sites More sharing options...
TeddyLampert Posted March 11, 2014 Share Posted March 11, 2014 Hi, I am new to following $POST Does anyone have any view on the equity issuance POST just announced? If Stiritz is the amazing capital allocater we all believe he is, wouldn't his selling his company's equity be a sign he thinks the shares are currently overvalued? Also, regarding the preferred shares, I'm still just getting up to speed, but could anyone please explain under what conditions the preferred shares would convert to common to the detriment of existing holders? Sorry if I am missing something obvious here. Thanks. Link to comment Share on other sites More sharing options...
TeddyLampert Posted March 11, 2014 Share Posted March 11, 2014 According to the following presentation, Pro Forma Adjusted EBITDA for the twelve month period ended December 31, 2013 is $346 mm (see page 9. http://www.postholdings.com/media/491238/postholdings_guidanceupdate_20140310.pdf) This amount does not include the Powerbar/Musashi contribution, which is $15-17 mm. Add that, and the proforma adj EBITDA for 2013 would have been $361 mm Today's net debt: $1.5 bn (includes the $250 mm sr notes just announced minus the $250 cash raised from the equity issuance) Market cap: $2 bn EV = $3.5 Thus, EV/EBITDA = 9.7x My thoughts are that this is a cheap price to pay for the Post growth story and Stiriz's cap allocation skills. But I have the following questions/reservations before deciding to enter: - I was thrown off by the equity raise, as I previously posted. This is contrary to the chapter from Outsider CEO, which I think mentioned that Stiritz avoided share dilution during his tenure - What are the long run gross margins for the business? I haven't come across any statements by management about what this might be. It makes a huge difference what you assume here. I've seen some Goldman reports that model out 35% margins over the next 2 years, but the VIC write up assumes margins will remain flat at 42%. The VIC write up admits that margin assumptions is one of two key drivers of his model. Could anyone shed some light on this if they have any real industry insight (not looking for speculation)? I note that Kellogg achieves GM% of 40% but General Mills is about 35% and Kraft is lumpy between 32-38%. I have no doubt (or at least I give Stiriz the benefit of the doubt) about his ability to trim SG&A costs to improve EBIT margins as he did with Energizer, but I am not clear what POST can do at the gross margin level, and therefore seek someone more knowledgeable in the consumer packaged food industry for any insight on this matter. Thanks. Link to comment Share on other sites More sharing options...
CorpRaider Posted March 11, 2014 Author Share Posted March 11, 2014 Yeah I still haven't bought any because they keep privately placing sweetheart convertibles and now issuing shares. Seems like in this environment they should have been able to just do a big bond offering (after one big equity raise, if needed) for his acquisitions war chest instead of continuing to dribble out dilutive securities and now issue stock. I guess I just don't like all the moving parts. Link to comment Share on other sites More sharing options...
loganc Posted March 11, 2014 Share Posted March 11, 2014 According to the following presentation, Pro Forma Adjusted EBITDA for the twelve month period ended December 31, 2013 is $346 mm (see page 9. http://www.postholdings.com/media/491238/postholdings_guidanceupdate_20140310.pdf) This amount does not include the Powerbar/Musashi contribution, which is $15-17 mm. Add that, and the proforma adj EBITDA for 2013 would have been $361 mm Today's net debt: $1.5 bn (includes the $250 mm sr notes just announced minus the $250 cash raised from the equity issuance) Market cap: $2 bn EV = $3.5 Thus, EV/EBITDA = 9.7x My thoughts are that this is a cheap price to pay for the Post growth story and Stiriz's cap allocation skills. But I have the following questions/reservations before deciding to enter: - I was thrown off by the equity raise, as I previously posted. This is contrary to the chapter from Outsider CEO, which I think mentioned that Stiritz avoided share dilution during his tenure - What are the long run gross margins for the business? I haven't come across any statements by management about what this might be. It makes a huge difference what you assume here. I've seen some Goldman reports that model out 35% margins over the next 2 years, but the VIC write up assumes margins will remain flat at 42%. The VIC write up admits that margin assumptions is one of two key drivers of his model. Could anyone shed some light on this if they have any real industry insight (not looking for speculation)? I note that Kellogg achieves GM% of 40% but General Mills is about 35% and Kraft is lumpy between 32-38%. I have no doubt (or at least I give Stiriz the benefit of the doubt) about his ability to trim SG&A costs to improve EBIT margins as he did with Energizer, but I am not clear what POST can do at the gross margin level, and therefore seek someone more knowledgeable in the consumer packaged food industry for any insight on this matter. Thanks. Your Mkt Cap calculation appears to be light presumably due to the fact that you do not factor in the increased share count from the convertible preferreds. In terms of how I feel about the equity issuance, it really depends on what he uses the cash for (presumably to acquire CytoSport). Link to comment Share on other sites More sharing options...
TeddyLampert Posted March 11, 2014 Share Posted March 11, 2014 Loganc: If you have the info handy, would you mind walking through the steps for calculating the impact on the capital structure of the preferreds converting? Under what conditions would they convert? Thanks Link to comment Share on other sites More sharing options...
loganc Posted March 12, 2014 Share Posted March 12, 2014 Loganc: If you have the info handy, would you mind walking through the steps for calculating the impact on the capital structure of the preferreds converting? Under what conditions would they convert? Thanks Sure. There are two series of preferred shares outstanding: (1) 2.4mm shares of 3.75% Series B cumulative perpetual convertible preferred shares with $100.0 per share liquidation value and an initial conversion rate of 2.1192 shares of common stock per preferred share (equivalent to a conversion price of $47.19 per share of the common). The company has the right to redeem the shares on or after February 15, 2018 based on the trading price of the common. Fully converting the Series B would result in an additional 5.09mm shares of common stock. (2) 3.2mm shares of 2.5% Series C cumulative perpetual convertible preferred shares with $100.0 per share liquidation value and an initial conversion rate of 1.8477 shares of common stock per preferred share (equivalent to a conversion price of $54.12 per share of the common). As with the Series B, the company has the right to redeem the shares on or after February 15, 2019 contingent on trading price of the common. Fully converting the Series C would result in an additional 5.91mm shares of common stock. For the purposes of valuing POST, I think it is best to go ahead and factor in the conversion of these securities. Therefore, we need add approximately 11mm shares of common stock to the current share count. Also, as was noted previously in the thread, we should probably consider the impact of the options to be complete. I hope this helps. Link to comment Share on other sites More sharing options...
Hubris Posted March 13, 2014 Share Posted March 13, 2014 Actually looking at the converts this does take share count to 48 - 49 million shares including the issuance and options. Pro forma EBITDA of 345 million without the Nestle acquisition. So market cap is around 2800M and net debt around 1600M with total EV of 4400M. So the multiple here is a high 12-13x EBITDA definitely not cheap. I understand Stiritz's prospect here since he's always thought with a private equity mindset. If you can issue shares trading at 12x EBITDA and buy operating business at 8x - 9x EBITDA using 5x - 6x leverage this creates a lot of value VERY QUICKLY because it is an arbitrage between private market value and public market value. If you assume he uses 800 cash and his upcoming free cash flow of say 150 for a total of 950 to buy another asset(s). then this is trading at somewhere are around 9x forward multiple ( a large assumption here is that he manages to keep consolidating private label and active nutrition at around 8.5x EBITDA) Link to comment Share on other sites More sharing options...
Hubris Posted March 13, 2014 Share Posted March 13, 2014 Update: the offering was upsized so they issued 100M more debt and raised 55M in equity in exchange for 1M shares. Great! Link to comment Share on other sites More sharing options...
TeddyLampert Posted March 14, 2014 Share Posted March 14, 2014 Update: the offering was upsized so they issued 100M more debt and raised 55M in equity in exchange for 1M shares. Great! Hubris, Thanks for the insightful reply. While the rest of the market is down today, POST is up even following the news about the additional equity issuance. The share count on Bloomberg shows an adjustment has been made for the additional 5 mm shares issued. Back to the fundamentals... I concur with Hubris on the multiple arbitrage that is probably taking place at the moment. I recently re-read Outsider CEO to look for examples of other times when capital allocators have issued equity. There are essentially two scenarios: 1) the first is obviously when the shares are trading at a high valuation and you can use it as acquisition currency (ala Singleton/Teledyne). 2) the second case is when there are favorable tax consequences for acquiring a company using equity. I'm not a tax expert to figure out what's happening in the current POST situation, nor does POST provide enough commentary to explain its capital-structuring decisions. With a 15% increase in the share count, the acquisition had better be damn good! The challenge I have with investing in POST at this stage is that you're not investing in a business per se, but a strategy, akin to putting your money in a private equity fund and trusting that the managers will find deals that generate an overall 20% IRR for the entire portfolio. It would be great to get some better insight into Stiritz and his team if anyone has any sources. Link to comment Share on other sites More sharing options...
loganc Posted March 14, 2014 Share Posted March 14, 2014 The challenge I have with investing in POST at this stage is that you're not investing in a business per se, but a strategy, akin to putting your money in a private equity fund and trusting that the managers will find deals that generate an overall 20% IRR for the entire portfolio. It would be great to get some better insight into Stiritz and his team if anyone has any sources. I think this conclusion is completely logical. POST is an entity that changes pretty rapidly and I can't provide "up to date" commentary as I have a day job. But, when I did my analysis, about three months ago, it seemed like it would be difficult to lose money based on the stability of the core business. In other words, the downside to me seemed pretty limited and you would have the option of Stiritz making astute allocation decisions as your upside. Obviously, the aggression on the part of Stiritz and POST has been stepped up by doing this capital raise. To be honest, I don't know how I feel about it. As I said before, it depends on the deal they make but I am hard pressed to see that they will be able to do a deal in this environment on favorable terms. Link to comment Share on other sites More sharing options...
wbr Posted March 14, 2014 Share Posted March 14, 2014 Update: the offering was upsized so they issued 100M more debt and raised 55M in equity in exchange for 1M shares. Great! Hubris, Thanks for the insightful reply. While the rest of the market is down today, POST is up even following the news about the additional equity issuance. The share count on Bloomberg shows an adjustment has been made for the additional 5 mm shares issued. Back to the fundamentals... I concur with Hubris on the multiple arbitrage that is probably taking place at the moment. I recently re-read Outsider CEO to look for examples of other times when capital allocators have issued equity. There are essentially two scenarios: 1) the first is obviously when the shares are trading at a high valuation and you can use it as acquisition currency (ala Singleton/Teledyne). 2) the second case is when there are favorable tax consequences for acquiring a company using equity. I'm not a tax expert to figure out what's happening in the current POST situation, nor does POST provide enough commentary to explain its capital-structuring decisions. With a 15% increase in the share count, the acquisition had better be damn good! The challenge I have with investing in POST at this stage is that you're not investing in a business per se, but a strategy, akin to putting your money in a private equity fund and trusting that the managers will find deals that generate an overall 20% IRR for the entire portfolio. It would be great to get some better insight into Stiritz and his team if anyone has any sources. Raising equity isnt a bad thing per se. People are negatively biased when it comes to raising equity, because it usually happens in times of distress when the stock price is low and the effect of issuing cheap shares is devastating or when a company is making a lot of deals which are known to destroy value more often than not. But if the equity is issued at a reasonable price (like now) Stiritz can do a lot of good things with it. More equity also means that there is the potential for more debt (keeping the leverage constant) which is still very cheap. As long as he manages to do deals with this marginal addition of equity (and potential debt) that have a cash return on investment that is equal or higher than the "benchmark WACC" (with cost of equity 20% or higher) he is doing well. Based on Stiritz's track record he would not raise equity if there werent any compelling deals around. It's not surprising that he and other outsiders are so active right now, because it is easier to achieve a return that meets their criteria when interest rates are so low. Link to comment Share on other sites More sharing options...
Guest JoelS Posted April 12, 2014 Share Posted April 12, 2014 http://uk.reuters.com/article/2014/04/11/uk-michaelfoods-deals-idUKBREA3A1OW20140411 "Michael Foods Group Inc is in advanced talks to sell itself for close to $2.5 billion (1.4 billion pounds), with Tyson Foods Inc (TSN.N) and Post Holdings Inc (POST.N) emerging as final contenders to clinch a deal, people familiar with the matter said on Friday." Link to comment Share on other sites More sharing options...
loganc Posted April 12, 2014 Share Posted April 12, 2014 Nice find. Thanks for POSTing (zing). Link to comment Share on other sites More sharing options...
TeddyLampert Posted April 12, 2014 Share Posted April 12, 2014 Anyone have any updated thoughts on Post in general? Would the Michael's deal be consistent with whatever you think Post's strategy is? Shares have come down a lot and I'm wondering if there's a compelling reason to buy or if new material information has come out about the future of cereal or management's intentions. The Michael Foods deal would be at 9.5-10x If it's the same line about "trust/put your money with/no one can lose with Stiritz" I'm going to have to use the rolling-eyes emoticon ::) Link to comment Share on other sites More sharing options...
TeddyLampert Posted April 13, 2014 Share Posted April 13, 2014 Just wondering what you mean by this deal has change things? It either sounds very positive or very ominous. I can't really read what you mean. Link to comment Share on other sites More sharing options...
TeddyLampert Posted April 15, 2014 Share Posted April 15, 2014 http://online.barrons.com/news/articles/SB50001424053111904223604579487842610673798?mod=BOL_qtoverview_barlatest Link to comment Share on other sites More sharing options...
gfp Posted April 16, 2014 Share Posted April 16, 2014 Cereal Maker Post Holdings Is Likely Winner in Auction Of Michael Foods http://online.wsj.com/news/articles/SB10001424052702304626304579505583184543714?mod=WSJ_LatestHeadlines&mg=reno64-wsj http://www.michaelfoods.com/news/files/MFI_Q4_2013_Earnings_Release_FINAL.pdf Link to comment Share on other sites More sharing options...
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