Mario Gabelli is the founder, chairman and CEO of Gabelli Asset Management Company Investors (GAMCO Investors). This New York-based company is a $30 billion dollar global investment firm founded in 1977 and since its inception it has become a diversified financial services corporation.
Mr. Gabelli set up the company as a broker dealer and now ranks as #346 on the list of wealthiest Americans in Forbes magazine´s 2006 Forbes 400 rankings, which estimated his net worth at $1 billion as of 2011.
Mr. Gabelli is a chartered financial analyst who followed the theory of value investing he learnt at Columbia. According to this method he rated companies based on cash flow rather than earnings and tried to calculate what he called the private-market value. This value was not the share price at which a stock was selling but the price per share someone was willing to pay. This method was used in the 1980s with leveraged buyouts where the managers of public companies would buy the company or part of it and take it private. This methodology was later trademarked as The Gabelli Private Market Value with a Catalyst Methodology.
Finally, Gabelli is member and former officer of the New York Society of Security Analysts, the New York Society of Auto Analysts and the Entertainment Analysts Group of New York.
I find it interesting to analyze Mario Gabelli´s holdings in order to generate seed investment ideas for further research. I believe that if a stock is a top holding from an important portfolio manager such as Mr. Gabelli, the company must have passed strict research standards, so my confidence level to invest goes upward.
Convio Inc. (CNVO):
Convio Inc is a company that provides on-demand constituent engagement solutions to not for profit organizations to enable them to raise funds more effectively, encourage the change and cultivation of relationships with donors, activists, volunteers, alumni and other constituents. CNVO provides the following solutions: Convio Online Marketing platform (COM) and Common Ground, its constituent relationship management application. These two types of solutions foster the use of Internet and the social media as new channels for constituent engagement and fundraising.
There are two interesting elements in CNVO. The first one, the 2011 results that the company reported and the second one, the improvement in sales and growth opportunities. As regards the first element, Convio reported $20.4 million in revenue, which represented a 20% increase year over year and full year revenue of $80.4 million, a 15% increase vis-à-vis 2010. Furthermore, Q4 adjusted EBITDA was $2.5 million, a 98% increase in comparison to the prior year and 2011 adjusted EBITDA for 2011 was $11.3 million, an increase of 22 percent from 2010. In general terms, performance improved 8.5% while the client base rose to over $1.35 billion online in 2011 with a 17% increase year over year. Finally, the company also gained an extended international share through the acquisition of Baigent Digital and a deal with Cancer Research UK, a leading cancer charity dedicated to saving lives through research.
As regards the second element, related to sales and revenue growth, CNVO increased the growth rate for the fourth consecutive quarter exceeding management´s guidance for both revenue and non-GAAP earnings per share. Sales continued accelerating in 2011 with a total of 35 clients on the Luminate CRM platform and over 200 new mid-market clients on the Common Ground platform. 2011 was a great year, and outperformed 2010´s results. Usage revenue rose 32 percent for the fourth quarter and 24 percent for all of 2011. At the end of 2011, management processed 191 million client mails, a 46% more than in 2010. Convio needs to continue delivering reliable solutions to generate favorable results.
CNVO´s current net profit margin is 18.50%, currently higher than its 2010 margin of 4.95%. I like companies that increased profit margins in comparison to other years. It is essential to know the reason why that happened. Current return on equity for CNVO is 21.75%, higher than the +20% standard I look for in companies I invest and higher than the 2010 average ROE of 9.24%.
In terms of valuation ratios, CNVO is trading at a Price/Book of 4.6x, a Price/Sales of 4.0x and a Price/Cash flow of 37.2 in comparison to its industry averages of 4.4x Book, 3.8x Sales and 16.4x cash flow.
Internap Network Services Corp (INAP):
InterNAP Network Services Corp. provides high performance Internet connectivity services to businesses that want to maximize the performance of mission-critical Internet based applications. Data of customers that are connected to service points is routed to and from destinations on the Internet through an overlay network. This network analyzes the traffic situation on the networks and delivers mission-critical information and communications faster and more reliably.
Which is attractive in INAP? First of all because INAP reported very good 2011 results. For instance, 2011 revenue totaled $244.6 million and in Q4 INAP reported $62.8 million. In addition, the company reported the highest annual and quarterly segment profit 1, segment margin 1, adjusted EBITDA 2 and adjusted EBITDA margin 2 in the company´s history. The segment margin for Q4 was 52.4% and the total 2011 segment margin reached 50.8%; Q4 adjusted EBITDA was 12.6 million and the 2011 adjusted EBITDA was 43.4 million; Q4 adjusted EBITDA margin was 20.1% and the 2011 adjusted EBITDA margin was 17.7%. Finally, in 2011, the company deployed 25,000 square feet of premium, company controlled data center space and is completing the acquisition of Voxel, an enterprise hosting and cloud services provider. INAP is a good pick because these financial results it reported are evidence of a successful plan it is executing. The company did not only report strong EBITDA in 2011 as a whole and in quarter four in particular, but it has also shown healthy performance from company-controlled collocation and managed hosting product lines. Most importantly, for 2012, it expects the acquisition of Voxel to enable it to increase results, jointly with the Los Angeles and Atlanta datacenters expansion. The latter will surely accelerate profitable growth in the company´s IT Infrastructure Service business.
INAP growth and profitability ratios are not really attractive. INAP´s current net profit margin is -0.70%, higher than its 2010 margin of -1.48%. I like companies that increased profit margins in comparison to other years but -0.70% is a dismal number. It is essential to know the reason why that happened. Current return on equity for INAP is -0.89%, lower than the +20% standard I look for in companies I invest but higher than its 2010 average ROE of -1.94%. In terms of income and revenue growth, INAP has a 3 year average revenue growth of -1.24%. The current net income year over year growth is 0.19, higher than its 2010 net income y/y growth of -4.72%. I do not like when current net income growth is lower than in the past. I look for companies that increase both profits and revenues.
In terms of valuation ratios, INAP is trading at a Price/Book of 2.0x, a Price/Sales of 1.5x and a Price/Cash flow of 13.2 in comparison to its industry averages of 4.4x Book, 3.8x Sales and 16.4x cash flow. INAP valuation is attractive in comparison to its Industry.
CH energy Group Inc (CHG):
CHG is a company engaged in the generation, purchase and distribution of electricity and in the purchase and distribution of gas. The company provides its services 85 miles along the Hudson River and between 25 and 40 miles east and west from it. It does so through valid franchises. The southern end of the territory is about 25 miles north of New York City, and the northern end is about 10 miles south of the City of Albany.
CHG has reported a very good year during which it has been able to face the challenges that arose and positioned itself for the future. Actually, CH Energy Group completed its strategic direction transition by divesting four renewable energy projects and Central Hudson responded wonderfully to stormiest conditions. 2011 also reported strong earnings, high dividend and low risk profile. The decisions management made on refocusing the company´s core energy delivery businesses proved out.
I liked the fact that despite the bad weather conditions, which were materialized through the Tropical Storm Irene and an unusual October snowstorm, the company had a strong performance delivering energy efficiency programs to customers and an efficient cost management. Earnings per share for 2011 were not as expected: 31 cents per share higher. However, Central Hudson earned 10 cents per share worth incentives, thus supporting results. Last but not least, the proceeds from the above-mentioned divestiture were used for share repurchases, which increased earnings per share by 9 cents with an additional 11 cents per share anticipated to occur in 2012.
CHG´s current net profit margin is 4.60%, higher than its 2010 margin of 3.51%. I like companies that increased profit margins in comparison to other years. It is essential to know the reason why that happened. The current return on equity for CHG is 8.72%, lower than the +20% standard I look for in the companies I invest but higher than 2010 average ROE of 6.38%. In terms of income and revenue growth, CHG has a 3 year average revenue growth of -4.72% and a 3 year net income average growth of 8.71%. Its current revenue year over year growth is 2.65%, lower than its 2010 revenue growth of 3.06%. I do not like when current revenue growth is lower than in the past year. It generally shows that business is decelerating for some reason. The current net income year over year growth is 21.58%, higher than its 2010 net income y/y growth of -12.04%. I like when the net income growth is higher than in the past.
In terms of valuation ratios, CHG is trading at a Price/Book of 2.0x, a Price/Sales of 1.1x and a Price/Cash flow of 8.6x in comparison to its industry averages of 1.3x Book, 1.3x Sales and 5.9x cash flow. It is essential to analyze the current valuation of CH energy Group Inc and check how is trading in relation to its peer group.
Thomas & Betts Corp (TNB):
Thomas & Betts Corporation is a leader in the manufacture of connectors and components for electrical and electronics markets across the globe. It operates manufacturing, distribution and office facilities around the globe. It also designs, manufactures and sells components used in assembling, maintaining and repairing electrical, electronic and communications systems.
There are two main reasons I found attractive in TNB. The first reason is that the company is permanently willing to differentiate itself from its peers by manufacturing quality parts and expanding its flagship brands on the job. The industry where TNB operates is crowded. That is why, management decided to invest in direct sales force and sent agents. With these investments, users do not have to contact fragmented distributors. They can directly request products to TNB. Most importantly, management has also reached an agreement with distributors, thus obtaining lower transaction costs. All these steps have enabled and will continue allowing TNB to improve margins and market share gains.
The second reason is the extraordinary growth TNB has experienced in commercial construction and industrial end markets given the generation of strong cash flow. The end market growth for firm´s products is directly related to the overall capital expenses of other companies. In 2008, project financing disappeared and commercial construction projects were set aside. Thomas & Betts was left with little demand or market visibility. Despite these headwinds, and the poor economic situation across the globe, the company has room to continue growing. This growth is driven by the improvement in renewable energy and energy efficiency. Last but not least Thomas & Betts' steel structure segment as well as its more traditional electrical segment should see some benefit.
TNB´s current net profit margin is 8.28%, currently higher than its 2010 7.27%. I like companies that increased their profit margins in comparison to other years. It is essential to know the reason why that happened. Current return on equity for TNB is 12.39%, lower than the +20% standard I look for in companies I invest but higher than its 2010 average ROE of 10.37%. In terms of income and revenue growth, TNB has a 3 year average revenue growth of -2.43% and a 3 year net income average growth of -10.51%. Its current revenue year over year growth is 14.63%, higher than its 2010 revenue growth of 9.37%. The fact that revenue increased from last year shows me that the business is performing well. The current net income year over year growth is 30.56%, lower than its 2010 net income y/y growth of 34.96%. I do not like when the current net income growth is lower than in the past year. I look for companies that increase both profits and revenues.
In terms of valuation ratios, TNB is trading at a Price/Book of 2.3x, a Price/Sales of 1.7x and a Price/Cash flow of 19.6x in comparison to its industry averages of 2.5x Book, 1.4x Sales and 9.9x cash flow. It is essential to analyze the current valuation of Thomas & Betts Corporation and check how is trading in relation to its peer group.
Financially speaking, TNB has reported a debt/capital ratio of 32% and the fact that it has EBITDA/interest coverage of more than 7 times, it should be able to repay its debt and continue growing.
Navistar International Corp (NAV):
Navistar International Corporation is an Illinois-based company that manufactures and markets commercial trucks, mid-range diesel engines, buses, military vehicles and chassis for motor homes and step-vans. It also provides service parts for various trucks and trailers. The company is a very large truck producer with Daimler and PACCAR and operates through the following industry segments: Truck (67% of total revenue in fiscal 2010, Engine (17%), Parts (collectively called manufacturing operations) (14%) and Financial Services (2%).
I think that Mr. Gabelli invested in NAV because it is a company that is performing very well primarily because one of its major clients is the US Government. Today, 25% of the company´s revenues come from the company´s sales to it. Most of its existing U.S. Government contracts extend over several years. I also think that Mr. Gabelli felt attracted to NAV because the company is carrying out acquisitions that are consistent with its strategic goals to access global markets. For instance, in 2009, the company formed a $39.2 million all-electric commercial truck venture with U.K.-based electric truck builder Modec Limited. After the initial 400 trucks in 2010, the JV will build several thousand trucks more. In 2009, the company formed a JV, NC ² Global LLC, with Caterpillar Inc. in the U.S. This venture will develop, manufacture and distribute commercial trucks targeted at Australia, Brazil, China, Russia, South Africa and Turkey. In 2009, the company purchased the engine components business from Continental Diesel Systems U.S., LLC to support its diesel power system components.
At the end of 2009, Navistar fully acquired Continental Mfg. Company Inc.´s cement mixer manufacturing business and also invested in Amminex, a Danish technology company and thus acquired another tool to explore cost-effective, customer-friendly technologies that joins with the company's Equity advanced Exhaust Gas Recirculation platform, which supports 2010 Emissions Standards Technology.
NAV´s current net profit margin is 12.34%, currently higher than its 2010 margin of 1.84%. I like companies that improved their profit margins in comparison to other years. It is essential to know the reason why that happened. In terms of income and revenue growth NAV has a 3 year average revenue growth of -1.77% and a 3 year net income average growth of 134.28%. Its current revenue year over year growth is 14.93%, higher than its 2010 revenue growth of 4.98%. The fact that revenue increased from last year shows me that the business is performing well. The current net income year over year growth is 672.65%, higher than its 2010 net income y/y growth of -30.31%. I like when the net income growth is higher than in the past.
In terms of valuation ratios, NAV is trading at a Price/Book of -11.2x, a Price/Sales of 0.2x and a Price/Cash flow of 3.0x in comparison to its industry averages of 3.0x Book, 0.5x Sales and 7.8x cash flow. It is essential to analyze the current valuation of Navistar International Corporation and check how is trading in relation to its peer group.
It is a must to study NAV´s valuation vis-à-vis its peers´ group. Now, Navistar International Corporation´s shares are trading at 7.6x the 2012 EPS estimate of $5.14. While the company´s trailing 12-month earnings multiple is 12.7, the peer group holds 16.2x and S&P 500 reported 14.3x. In the last five year period, shares have traded between 3.3x and 113.4x trailing 12-months earnings. Shares are trading at a discount in comparison to the peer group, based on forward earnings estimates. The current P/E is near its lowest end, at a 37% discount to the peer group for 2012.
What about NAV´s financial situation? Today the company has a debt/capital ratio of 1.5. Most of its debt, which amounts to $4.9 billion comes from the firm´s financing subsidiary. Navistar still has unrestricted cash to meet its debt payments. Even when its EBITDA/interest coverage ratio is only 2 times above the past ratio.