Friday 26 December 2014
Sunday 14 December 2014
Update: Yahoo Stub
Ever since I made the Long YHOO/Short BABA & YAHOF pitch, things have been going my way.
YHOO is up 23%, BABA up 12% and YAHOF down 12%. On a net basis, this stub trade has been phenomenal, primarily because it is technically an infinite IRR trade.
I view YHOO as a BABA alternative trading at a discount. Even with the massive YHOO price appreciation, EV has only increased by $5B, from a NEGATIVE $12.5B to a NEGATIVE $7.5B. The market has accolade YHOO at a significant discount to book value because it is valuing what it believes to be value destructive actions by management. I disagree with this tenet.
I believe that MM is not as value destructive as what people believe she is. In fact, in the long run, she might actually be value accretive. It is hard to say, but at a NEGATIVE $7.5B EV, at current prices, YHOO should be worth at least $57.50 ascribing no value to YHOO core business and MM value.
YHOO is up 23%, BABA up 12% and YAHOF down 12%. On a net basis, this stub trade has been phenomenal, primarily because it is technically an infinite IRR trade.
I view YHOO as a BABA alternative trading at a discount. Even with the massive YHOO price appreciation, EV has only increased by $5B, from a NEGATIVE $12.5B to a NEGATIVE $7.5B. The market has accolade YHOO at a significant discount to book value because it is valuing what it believes to be value destructive actions by management. I disagree with this tenet.
I believe that MM is not as value destructive as what people believe she is. In fact, in the long run, she might actually be value accretive. It is hard to say, but at a NEGATIVE $7.5B EV, at current prices, YHOO should be worth at least $57.50 ascribing no value to YHOO core business and MM value.
Tribune Publishing
https://www.dropbox.com/s/1igrrzjxps9wxi8/Long%20Tribune%20Publishing%20%28TPUB%29.pdf?dl=0
Friday 12 December 2014
Thursday 20 November 2014
Sears: VW 2.0
Sears.
5% free float. 20% short interest.
$8.6b in real estate value. $1.4b in working capital. $3.5b in net debt.
Est. market capitalization = $6.5n = $61/share
This does not take into account of some of Sears most valuable businesses. For e,g, - Sears home service and protection business, Kenmore, Craftsman & Diehard to name a few.
I believe the value of the above additional value is more than enough to offset Sears pension liabilities and cost of winding down uneconomic stores.
In addition, you get a world class CEO. Eddie Lampert, who is an excellent capital allocator. Excellent is actually an understatement. Since 1988, Eddie Lampert hedge fund returned 29% CAGR. So you can be rest assured that you are in good hands. He WILL monetize Sears.
You can buy Sears today at $36/share, or a 70% upside to a very conservative intrinsic value. What is better is that the current short interest to free float ratio is 4 to 1. And the cost of borrow for Sears is 20%. Eventually, people will recognize the monetization efforts of Eddie Lampert and we will see a massive short squeeze. Similar to the one that occurred to VW in 2008. Probably not as bad, but it is a precedent.
The best part is that you can do this via warrants. Yesterday, Sears distributed its warrants. These are 2019 call warrants with a $28 strike price. You can buy these warrants at $17 per piece today. That translate to a 100% upside assuming no time and volatility premium. As I think that this will happen in short order (if not I will switch to a stock position), I believe that the premium, which is currently at ~$9, will actually expand. Assuming no expansion, these warrants have a 150% upside and optionality from additional value from Sears business, gamma expansion, or a massive short squeeze.
Thank you.
Wednesday 19 November 2014
Blucora: An Update
Since my last post, BCOR has dropped 12%, all while INTU, a closest comparable in the online tax segment, rose 6.7%.
When you wish for a stock price to go down so you can buy more, you know you have a great stock.
Over the LTM, BCOR Tax Preparation business had managed to achieve $50m in segment income, assuming run-rate EBITDA conversion, EBITDA is expected to be $40m, or roughly 17% higher than FY 2013.
While a crude method of valuation, using a comparable company valuation method is a good way to giving one a good ballpark estimate of the value of BCOR hidden tax prep asset.
INTU, the closest comparable, trades at 16.6x EBITDA. Using the same multiple would mean that TaxAct is worth $664 million, more than the entire EV of BCOR right now.
A fellow value investor have commented that I might have placed too high a multiple of BCOR search business and E commerce. I agree. I believe BCOR E-commerce and Search business is set to generate $70m-$80m in EBITDA collectively. Using a low 5x EBITDA on that, we get a valuation between $350m-$400m.
Tax Prep + Search + E commerce + net cash = ~$1.1B market capitalization, or roughly 100% upside from current prices.
When you wish for a stock price to go down so you can buy more, you know you have a great stock.
Over the LTM, BCOR Tax Preparation business had managed to achieve $50m in segment income, assuming run-rate EBITDA conversion, EBITDA is expected to be $40m, or roughly 17% higher than FY 2013.
While a crude method of valuation, using a comparable company valuation method is a good way to giving one a good ballpark estimate of the value of BCOR hidden tax prep asset.
INTU, the closest comparable, trades at 16.6x EBITDA. Using the same multiple would mean that TaxAct is worth $664 million, more than the entire EV of BCOR right now.
A fellow value investor have commented that I might have placed too high a multiple of BCOR search business and E commerce. I agree. I believe BCOR E-commerce and Search business is set to generate $70m-$80m in EBITDA collectively. Using a low 5x EBITDA on that, we get a valuation between $350m-$400m.
Tax Prep + Search + E commerce + net cash = ~$1.1B market capitalization, or roughly 100% upside from current prices.
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