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Amit Chokshi, CFA

 
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  • Analyst Estimates for Jarden in 2009 Look Ridiculously Optimistic [View article]
    My whole write up is based on how much cash I think JAH can generate in the coming year. Q4 is a seasonally strong cash generation business for JAH but they burn through it in Q1-Q3, it's a seasonal business and they use a lot of cash in terms of working capital. Just look at how much operating cash flow JAH produced in the first 3Qs of 2008 and 2007, it's $55MM and $23MM. That's their operating cash flow, and then they still had capex of $70MM and $55MM meaning they were burning cash on a purely operational level. The only way they've managed to handle their debt load is refinancing, just look at the cash flow statement www.sec.gov/Archives/e... here and under page 5, financing cash flows, these guys pay back some debt, like $20.7MM but tap their revolver/short term debt for $69MM and issue new debt of $25MM. Look what they did in the previous period.

    Q4 is basically JAH's entire year and is generally a strong operating cash flow period but they still don't get very far with their total cash production. Look at the 8-K www.sec.gov/Archives/e... for their Q4 07. They had $282MM in operating cash flow but still spent $32MM in investing cash flows and then they had to pay back about $150MM in debt, so the total net impact was $100MM in cash flow. Notice I didn't count the $40MM share repurchase either, I'm giving these guys as much lee way to show real, operating-related free cash flow. The biggest driver for JAH's cash flow in Q4 was the big swing in inventory since last year's xmas was much better than 08 will be.

    The potential risk I see is that JAH has roughly the same inventory level of $1.3B going into Q4 08 that it had in Q4 07 and those quarters were comparable with K2 and Pure Fishing. If sales are not as strong in Q4 08 as they were in Q4 07, inventory turnover will be weak and a big part of JAH's cash flow won't show up meaning there will be very little net cash produced for Q4 08 and likely until Q4 09. Even with a "good" Q4 07, keep in mind that JAH at $2.7B in net debt in Q3 07 going into JAH's strongest quarter, and ended 2007 with net debt of $2.5B and that was a good Q4. They have roughly the same level of net debt going into a worse holiday season with the same level of inventory, I'm not too confident they can pare much debt back in the next few months.
    Dec 6, 2008. 10:48 PM | Likes Like |Link to Comment
  • BioScrip Investors Would Welcome a Strategic Buyer [View article]
    I was writing it during the plunge actually and did not finish until late last night so the charts are slightly off given the massive drop yesterday.
    Sep 11, 2008. 09:08 AM | Likes Like |Link to Comment
  • 7 Reasons Why NRG’s Offer for Calpine is Laughable [View article]
    ATM,

    You state that I'm trying to intentionally mislead readers when you seem to be unable to read what I clearly stated in regards to certain points or ignore it in an attempt to create hollow criticisms for my points. For example, in Exiting Bankruptcy Dynamics you ask "are you saying that power cos out of Ch 11 will always experience share price appreciation" when I specifically and clearly wrote that there's "no guarantee" that CPN would perform in the same fashion to NRG and MIR in the second sentence of that segment.

    For Valuation you ask me where I got my multiples. I explicitly mention that the multiples are from highly levered IPPs like MIR and DYN for EV/EBITDA and for EVLTM Revenues for DYN, MIR, and NRG could also be used to value CPN. I don't see how when I explain the methodology how I'm fooling or misleading anyone, I'm clearly showing what I'm using for valuation. Secondly, using NRG's EV/EBITDA comp is not useful because it's gone through the deleveraging process in recent years. NRG was levered at 10.0x EV/EBITDA when it emerged from bankruptcy and valued in the mid teens EV/EBITDA in the first year coming out of bk.

    NOLs - CPN was unprofitable for one quarter yet you assume they won't generate profits such that the $5+B in NOLs would be worth very little. Discount the $5+B over a long period of time and it's still worth something to CPN as a stand alone. Secondly, part of what contributed to CPN's Q1 loss was higher than usual interest expense tied to liabilities subject to compromise which were part of exiting bk and will not repeat and on top of that CPN has been divesting assets for gains. You say I mislead readers yet you try to suggest a Q1 loss would carry on so that those NOLs would have little value.

    Peak Season - Yes summer comes around every year but NG is higher now than it was last year.

    Geographic concentration - I didn't imply that NRG is buying CPN for its geographic concentration. I stated, as with the other 6 points, why the NRG offer undervalues CPN and why CPN's concentration in those two regions is a benefit. But since you brought it up, have you read what NRG intends to do if it acquires CPN? NRG will sell its own plants in TX and keep CPN's and part of that strategy by NRG ties to the other points you take issue with in green power and CPN's fleet age.

    Green Power: Sure, we don't know what carbon legislation will entail but a company that generates power using gas and geothermal vs a company that relies on coal for 40% of its power generation is probably going to be on the right side of any legislation. I never assigned a specific value there but I IMO rightly suggest in an environment of increasing legislation focused on emission control, CPN is the best positioned out of all IPPs and provide data on emmission/air pollutants to back that assertion up.

    Fleet Age: Yes I realize CPN's fleet was younger when it was in bk, so what? When looking at major IPPs, CPN has the youngest fleet, NRG has an old fleet with a skew towards higher pollution plants. With longer lead times and higher material costs for new plants, the age of CPN's fleet, basically brand new, is a huge plus. Yeah, when CPN was in bk its fleet was that many years younger and the problem back then was massive overcapacity in the power markets. Now with the opposite occurring, having essentially brand new plants is an advantage. Even against other NG plants, CPN's fleet has superior heat rates (better fuel efficiency).

    Finally, I should have mentioned this earlier but let me point readers to NRG's situation just two years ago. Back in May 2006, MIR made a hostile offer to buy NRG for about $7.7B in equity and a total enterprise value of about $16B. That was a 33% premium to NRG's share price and that deal valued NRG at 5.0x LTM Revenues and 20x EV/EBITDA. If you used those multiples for CPN, the share price would be at a minimum of $36 per share. But more importantly, NRG laughed off the offer and was able to remain independent and over two years, basically went from being worth $5.8B pre MIR to $7.7B pre offer to now $10B+ in equity value. But apparently, what I've presented is just a twisted attempt to squeeze a few pennies out of my holding in CPN.
    May 28, 2008. 11:12 PM | Likes Like |Link to Comment
  • Here We Go Again - Sowood Manager Launching New Fund [View article]
    Why rip on guys that get a second chance? Didn't the great Bill Ackman blow up when he ran Gotham yet now he's idolized by all of these value investors.
    May 4, 2008. 09:37 PM | 1 Like Like |Link to Comment
  • Why We Doubled Our Position in Borders [View article]
    Where was the margin of safety at much higher levels, BGP has no asset backstop and just a bunch of leases in many second tier locations. It appears the only MOS was the presence of Ackman at higher levels. The idea that BKS would buy BGP sounds idiotic, why wouldn't they just wait for BGP locations to struggle and kick out and then go directly to the lessor to assume the leases and flat out push BGP out?

    BGP could be renting from Vornado for example and not be meeting its rent payments. BKS can just go to Vornado and say they'll assume the lease and then just boot BGP out for much cheaper than buying BGP. Also, with the current situation in commercial real estate and retail, why would BKS want to "expand" via an acquisition of BGP when nearly every retailer is pulling back? I don't think the BGP locations are all that unique or have little overlap relative to where BKS is, do they really need to BGP site 1-2 miles down the road from them?

    No LBO shop would touch BGP and no bank would refinance that on an EBITDAR basis. Also, why do you even mention EBITDA for a retailer that leases all of its stores? If you want to find what BGP would be financed for and more important what it's really valued at, used EBITDAR and gross up the leases for the enterprise value. Then step back and think if a bank would actually refinance that for a take private. I'm sorry but to be a professional fund manager and miss this is a considerably oversight IMO.

    I've been an admirer of Tilson's previous writings from the Fool and also his behavioral finance stuff but over time I've really been disillusioned with what he writes relative to what he does. If you're a Buffett disciple as you claim to be and manage $200MM in T2 I find it odd that your largest ideas are Ackman tagalongs in TGT and BGP. At least Ackman duped investors into being in a separate fund that doesn't impact this main fund's returns, yet in T2 you have calls and common TGT and are paying a tough price for it. Then to also own BKS and BGP? Not to mention prior investments in MCD and WEN/THI?

    I honestly can't see why an investor gets charged fees to be in a portfolio that is a mini Pershing Square to some extent. With $200MM you can invest in the most inefficient areas of the market and your recent coverage in Business Week regarding broken IPOs would make people think you are combing these pockets of inefficiency yet you plow a lot of your fund's capital into broadly followed stocks.
    Apr 18, 2008. 08:57 AM | Likes Like |Link to Comment
  • Jarden's 'Rope a Dope' Investor Relations [View article]
    I'll have a follow up in a few days but if you're that "anxious" post with your real name and email address and I'll send you my thoughts on JAH or do you prefer to post anonymously? LEH is one of my favorite research houses, if it wasn't for Bruce Harting, CFA and his views on DSL, it would have been much harder to make $ off shorting since his institutional clients would not have been holding the bag.

    What's so slanted about what I've written in regards to JAH over the past year I've followed the company? What is not factual in what I've presented?

    1) Did Franklin and Co issue a press release covering their paltry $2MM insider purchase? YES, and what the hell is the point of something like that, how many companies put out PRs highlighting a $2MM purchase? AP wires may pick up on the Form 4 filings but do companies release a statement about it?
    2) Where are the JAH filings that indicate Marlin Equities (Franklin) and Ian Ashken have gone on to create two SPACs on JAH time while JAH shareholders have lost 40-50% of their investment value? If you're happy to have your CEO and CFO spend their time investing in GLG and raising capital during the time they're supposed to be running your company while being paid by JAH shareholders, fine. But what have I said that was slanted with respect tothat?
    3) Any press release covering the acceleration of equity grants to Franklin and Co recently? NO, and I wonder why there would be a PR on Franklin spending a few bucks to buy shares but then no PR to cover the fact that they are getting equity grants accelerated.

    So what have I stated that is slanted or tabloid journalism, everything I've presented in FACT. Is your long position preventing you from reading anything that contradicts your position with an objective mind? Seems that way.

    You find it amazing that SA allows people to post contradictory but factual based work with real analysis? If I was long on JAH and published a rosy piece saying ignore the fact that Franklin and Ashken are making a fortune off other investments and investing their time in creating and directing these SPACs while they're supposed to be running your company, ignore the incredible debt load because those Margarita concoctions and bicycle playing cards are hot sellers, or ignore the difficult Q4 comparisons since they jammed that K2 acquisition in their to gum up any comparable analysis, then that would be fine with you?

    You see right through me? You're a pathetic anonymous poster upset about a contrary view to a position you hold. I do this for a living and put out any comments/analysis along with my real contact info. Do you think I'd publicly discuss any idea if I did not vet the idea and believe there was tangible analysis to back my viewpoint from the start, have you read the prior postings on JAH here? If I put out anything that resembles tabloid journalism, how does that benefit me from a professional standpoint? Seems you think people are that foolish to think that 1) writers here can move actually markets 2) that people can't distinguish between objective work and slanted short work (although slanted long views are fine).
    Feb 17, 2008. 04:57 PM | Likes Like |Link to Comment
  • Costco: Overpriced for Its Growth Rate [View article]
    Rich,

    Why would I short the RTH which includes a variety of beaten down megacap retailers? Those are the ones that have much more attractive valuations, 12-14x forward EPS for companies like KSS, WMT, TGT vs 20+x forward EPS for COST? COST's growth is basically food and fuel inflation, investors are paying those lofty multiples for a grocery company at this point since its discretionary items are doing much worse.

    I've illustrated in this post and the initial one a few months ago that COST has very specific issues regarding how its valued by the market.

    I would also say that the "intangibles" are fine, it's a great company but those intangibles you mention are more than reflected in its valuation. It's not much different than how TGT was perceived earlier this year, it has the "it" factor towards middle america. Other intangibles regarding the quality of the consumer extended to COH, HOG, etc. and it was not that long ago that SBUX had a variety of attractive intangibles before Street sentiment changed.

    Finally, the growth angle will have no relevance to COST right now. The market won't care if COST grows sales by 10-12% but comp store sales are 2%.
    Feb 14, 2008. 02:27 PM | Likes Like |Link to Comment
  • 6 Reasons Blackstone's Still a Short [View article]
    BX does M&A and lends in the middle market so it already has a smaller boutique ib in house. The CSFB/DLJ deal basically showed how worthless IB mergers can be (real IB mergers, not like C buying MS i.e. commercial + ib) and other banks have generally just picked off individual bankers to start up groups.

    The analysis is interesting but did you do much work on what GSO brings to BX going forward and how that might offset/mitigate the impact of some of the warnings you mention?

    Feb 5, 2008. 06:12 PM | Likes Like |Link to Comment
  • Why I'm Buying Circuit City Calls [View article]
    Calls might be an interesting gamble on CC given how oversold it is. I agree with your comments, management should be taken to the woodshed and this company could be bankrupt.

    A lot of CC "smart money" has been there since the teens, I wouldn't place much faith in that. Check out ROHI if you want an example of smart money that is getting fried as well.

    Also, why would this be a buyout candidate. LBO firms are choking on a bunch of crappy retail LBOs like Linen's N Things, Claires, etc. Why go down that road again with a struggling retailer?

    Secondly, they can't do a buyout, CC has no cash flow to lend against. The $480MM or so cash will be burned through which is why CC has set up the ABL facility.

    The book value is worthless too, for CC you need to do a liquidation analysis. !00% assessment for cash, but A/R would be taken down to 70%, inventory probably 50%, PPE would be down to 50% and other assets around 50%. The rest would basically be zeros as far as tangible value so CC really just has $2.7B in tangible assets $2.9B in liabilities. Not to mention the lease breakage costs too.

    Still, it's probably oversold and some calls might work out well but management is clueless and htere's little evidence that anyone wants to put in effort to bring anyone in to replace them. It's prob a tough job to take on too, competing with BBY, WMT, SHLD, COST, and TGT basically.
    Jan 9, 2008. 10:42 AM | Likes Like |Link to Comment
  • Simon Property Group: My Kind of Dividend Growth [View article]
    Even a 4-5 year horizon may not be good enough. If you took '98-'02 or so, SPG was not a good investment. You can probably find a lot of stocks that had phenomenal returns over the past 5 years considering if you bought in 2002 you were buying a lot of stocks at the bottom of the market shake out.

    You can find safer dividend plays in telecoms, tobacco, and big pharma. Also, I haven't look at SPG yet so I've missed the short angle for it but there could be much more to fall. The one area you might want to consider looking into is how their leases are structured.

    Are they flat rent with inflation kickers or do they get rent + a % of their tenant's sales over a certain level? If it's the latter, you need to factor in how some of the retailers who've struggled recently may impact SPG's earnings.

    SPG is down but could probably still be a good pure short or a good hedge against long retail positions.
    Dec 28, 2007. 09:07 PM | Likes Like |Link to Comment
  • Jarden Remains a Compelling Short [View article]
    Daniel, yeah excess cash is the right way to do it. It's at it's low so so realize it could easily kick up for a bit and probably do your own dd, I was short DSL at $68-70, was around $75 for about 6 months after I started shorting before it corrected so the point for me is if something doesn't make sense to me i'll stick with it for a while. I've been following JAH since last year and I wouldn't be surprised if it sees $30 before $15. My approach to shorting and sticking it out with a position might not makes sense/fit with others either, depends on the entire portfolio composition.

    prophets - K2 + JAH capex based on historical figures would seem to indicate they'd need about $100MM in capex, the run-rate interest expense based on the blended interest rate for their debt would be about $200MM and then factor in cash taxes of $116MM or so once you account for D&A of about $110MM. Those fixed charges before any principal amortization (which would be minor since the senior debt is 3 tranches of B loans, another move where the bankers are dopes) and capital leases is $420MM. EBITDA less capex would be around $500MM, resulting in a fixed charge ratio of 1.2x. Interest coverage is under 3.0x. Those are aggresive leveraged finance multiples for buyouts by LBO shops and would be a challenge in today's market against a fresh buyout. Conversely, JAH has a dwindling business with bad credit stats on a totally pro forma run rate basis. It's LTM EBITDA just about $360MM so once again people are betting that JAH will realize all these "synergies" they boast of with K2, if they don't or if K2's own deals (it bought a bunch of companies) fizzle out these guys slow down, the interest expense stays the same, principal amort, not much capex can be scaled back, and then their stuck with $1B+ in stale inventories with the majority as finished goods vs work in progress/raw material.

    Also, guys like TGT, WMT, SHLD might have heavier push backs during the holiday season, JAH argues that they have "leading brands" but many of these business were bankrupt before despite those leading brands. Don't know if you really have to have that CrockPot for the xmas or how many Margaritaville's can be sold through. Also, last call, good choice of words by JAH to indicate sell-in was good for sporting goods but based on GMTN and other results, sell -through probably won't be and there could be some returned products.

    All that said, JAH's CEO and CFO are wall street heavies, the banks and sellside are in their back pocket but I see some similarities between JAH and other failed consumer products platforms. SPC looked great on a pro-forma basis, had TH Lee running things and that got crushed by debt from $40 to $5, PBH had a similar experience, that was led by GTCR. So smart money, heavy debt, but exposure to big box retail that just squeezes you once you become dependent on them. Those margins don't leave much room for error when you have that heavy interest expense let alone principal amortization to deal with.
    Dec 20, 2007. 09:52 AM | Likes Like |Link to Comment
  • Crocs' New Majority Shareholder [View article]
    I read that article and did not find any specific investors or firms mentioned of the value-ilk that are investing in CROX. Any specific names you could provide?
    Dec 19, 2007. 08:08 AM | Likes Like |Link to Comment
  • Electronic Arts Takeover Is Almost Inevitable... But by Whom? [View article]
    Nintendo is a great company and has done some innovative things like the DS but my comment was mainly towards those who say the Xbox 360 and PS3 are "failures" vis a vis the Wii. I have a pretty good grasp of console history, the PS2 was heavily outsold by the Gamecube and Xbox during the last console cycle and we know where it ended up.

    Gamecube and Xboxwere cranking out over 600k units per month in the beg of the last game cycle, and PS2 was around 400k and even dropped to just 200k but eventually was firing off close to 3MM units per month by xmas time in 2002, basically the middle of a recession.

    Right now, every analyst loves the Wii and is taking the first year of sales and expecting these monthly sales to go on forever. There are not that many skeptics of the Wii and I think it's a "real system" but also that the inital results overstate its long-term run rate while conversely the slow sales rate of the PS3 are not reflective of where it will be as the cycle matures.

    The more advanced consoles require more time to adopt because the first cut on games usually doesn't showcase the power of those consoles. Now with Halo out and with GTA on the horizon in spring, I think the new games are really going to showcase what those platforms can do which will drive a lot more buyers towards those consoles.
    Dec 10, 2007. 11:19 AM | Likes Like |Link to Comment
  • Electronic Arts Takeover Is Almost Inevitable... But by Whom? [View article]
    Why do you think ERTS would be willing to sell to a console maker or why would a console maker be willing to buy it? Why not just co-create certain franchises? THe reason I am skeptical is because historically the PS2 was the biggest revenue driver for software players and I'm betting the PS3 will be too as the cycle matures. Wii IMO is a novelty, a cheap and fun console that non-gamers will buy and younger kids but will eventually collect dust. Sales are juiced in recent years due to the cost but I think the installed base will outweigh the benefits over time because I really don't think the people that were early adopters are necessarily long-term gamers.

    In contrast I think people are just starting to see the power the Xbox 360 and PS3 will have, the first run of games isn't going to showcase the hardware just yet. But that goes back to why I question whether ERTS would be a buyout target for a console maker.

    If MSFT bought ERTS, wouldn't the value of ERTS be reduced immediately or be a major washout? Big titles by ERTS sell well across the Xbox and 360 and I would expect MSFT to hoard ERTS's titles and not put it out for PS3, conversely the same would probably happen if SNE bought ERTS. MSFT doesn't make Halo available for the PS3 so why would it make Madden available for PS3?

    So that might have some say, that's the key and why a console player would go after ERTS, they can crush the other players because they capture that content. That could be true but current valuation for ERTS is based on streams from all consoles and you'd be paying for that and then having to build out/expect that owning Madden and other franchises drives more than enough people to your console platform. It could work I guess and guys like MSFT have shown a lot of patience and deep pockets in trying to develop their home ent division but it seems like the value of these software players could be a better fit for pure media companies.

    I think THQI and TTWO are prob the better targets, THQI could be perfect for DIS with Buena Vista since they have licenses to Pixar movies and other children's titles.
    Dec 10, 2007. 09:08 AM | Likes Like |Link to Comment
  • Portfolio Recovery Associates: The Shorts Will Be Proven Wrong [View article]
    You can do fine shorting PRAA and other debt collectors. Shorts make the bulk of their money between quarterly reports, pathetically low volume and wide bid/asks and no uptick required make it very easy to bring these stocks down 5-10% very quickly.

    The short case on PRAA and all other debt collectors is the need to constantly reinvest cash into bigger portfolios in order to maintain EPS growth. On top of that, prices have been high in recent years (~4%) which could mute returns and resulting in impairments. And shorts as suspect of the legal track/judgements for collecting. Shorts that take that view look at PRAA like a manufacturing facility or "normal" business where as PRAA is no different than say a bank or financial institution, that must always reinvest gains into new assets.

    I'm a big fan of the industry, have owned ASFI for many years personally and own it for my fund now too. The short interest there has generally been around 40-50% for many years. ECPG I believe is held by Tom Brown of Second Curve and Peltz has owned it for many years (he may not now but last time I checked).
    Oct 30, 2007. 08:57 AM | Likes Like |Link to Comment
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