Bowen Qian

Bowen Qian
Contributor since: 2012
We don't believe we have the foresight to make accurate projections and judging by successive guidance changes, it appears management cannot either. For this reason, we believe in looking at the present rather than trying to forecast something that cannot be forecasted.
If you read the 10-K, ACCO cannot pay dividends / buy back shares unless they decrease their Debt/EBITDA levels even though management believed this could have been achieved last year. Are you willing to gamble that management guidance is credible this time around?
You're right and I've personally invested in both Western Digital and Seagate. You do have to look at the quality and sustainability if it's free cash flows however. You'll notice that a large portion of fcf contributions this past year is related to working capital items, which are one time in nature. Furthermore, it's revenue and and margins are facing significant pressure, which brings into question the sustainability of the cash flows.
Present value of unlevered FCF = enterprise value. Enterprise value - debt (&debt-esque instruments) + cash = equity value.
We have identified no hidden asset within ACCO that can be spun-off to generate shareholder value. Hidden assets would have been captured in our NAV analysis.
With regards to its future growth, management and Wall Street tend to have more favorable assessments toward future growth. Keep in mind that the company is facing rapid declines in its business and returning to growth will be an uphill battle for the company.
Hi David, we appreciate your comment. This article is a summary of our report on ACCO for our Value Investing course at school. We are not involved with any short sellers and we currently do not have short positions on the stock.
With regards to WACC, we implied a cost of debt instead of using the current yield to reflect long-term debt financing costs. At the time of writing, this figure was within a narrow range of ACCO's actual YTW. The 8% risk premium arose from the fact that the company has high business risk, which is exacerbated by its high financial risk due to its leverage. These factors demand a higher than normal equity risk premium.
The $1,177 million in adjustments are standard items such as $922 million in debt, in addition to an underfunded pension and operating lease liabilities. It appears you divided your EV of $1,633 million by 113 million shares outstanding without subtracting debt and other financial liabilities to arrive at $14.37/share. You can learn more about enterprise value calculations here:
Thanks for looking,
Bowen :)
I'm sure there are people in LATAM countries who wouldn't pay $4 for a burger. However, the numbers simply tell a different story. At 9.2% same store sales growth, there is clearly substantial demand for McDonald's in those countries. I do agree that continued monitoring is necessary to ensure that the growth isn't just a fad.
PE is trailing, if Facebook can grow fast enough, then this valuation is justified.
Going back to my RIM analogy...remember how much cash they had? Now look at how fast they're burning through that cash. Not saying that Corning will be making crazy losses, but a solid balance sheet does not a good company make.
Not to forget that one of RIMM's major segments were enterprise users, so it is indeed a business to business company. The thing with these companies I find, is that on the way down, the company is always going to appear cheap. RIMM, Nokia, etc...
Good points are raised. Not adding the SCP net cash position is an oversight on my part. I don't disagree with you in that it may take quite a few years for the OLED to overtake LCD as the most popular technology, but I guess the classic example of how this could play out is the RIMM analogy back in 2007. Also, I want to point out that Corning's net income has been cut in half in q1 from an yoy basis.
Well, my thought process is that the application for willow glass is rather uncertain since it has nothing of the sort has been introduced before. However, OLED is objectively better than LCD and will definitely be the next step (like upgrading to the new iPhone). Although it is possible that there are caveats with OLEDs that I am not aware of.
In the very long term, you might be right. But as of right now, the risk adjusted returns are not favorable in my book.
Thanks for the comment, I always enjoy rebuttals to my thesis so I can continue to improve my understanding. I agree with most of the stuff you're saying, but here's some other thoughts.
Fiber-Optics: Again, this accounts for a small portion of net income. Also, infrastructure upgrades tend to be more one-time - after the fiber has been laid, that's that. However, you do bring up a good point since countries like China and India could be laying more fiber going forward.
Life-sciences: I'm pretty neutral about the acquisition, appears only slightly accretive.
OLED: At the moment, they do have that JV with Samsung, and OLEDs do use the same amount of glass at the moment. Going forward though, with pressure on creating ever thinner screens, the glass will likely be replaced by some sort of membrane.
This stock could very will do very well, but I would like a much larger margin of safety for taking these risks.
Great point
As my article states, the Gorilla Glass segment is a miniscule part of their net income. Unless of course they can improve their margins on Gorilla Glass by cutting costs (since we know that bargaining with Apple on pricing is next to impossible).
Well OLED still requires glass from Corning, but will require less of it in the future.
It's totally possible, but that's just speculation.
Check out my brief on today's earnings release on my blog!
Good comment about Canadian banks, but I don't like them right now. Personally I think Canada is going to go through a huge real estate correction, and at least in the short term, I don't think these banks will do very well.