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Chris Bailey

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  • Micros - Is It The Best $4 Billion Company You Have Never Really Looked At? [View article]
    Thanks...but it is not the full story. To that end you inspired me to write this:
    Jun 24 02:40 PM | Likes Like |Link to Comment
  • Timken - Should You Buy Pre Or Post The Spin-Out? [View article]
    Thanks for the comment. Subsequent to this article (and following a pullback in Timken shares in late 2013) I did buy the stock and still own it today. I actually posted on it today following the CMD, see
    Jun 19 05:17 PM | Likes Like |Link to Comment
  • Canon Can't, Unfortunately [View article]
    Fair enough. I am hopeful that the company's management team (who are - by Japanese standards - quite shareholder friendly) will do the decent thing with the large cash on the balance sheet and buy back some shares. Trading remains mixed clearly and FX volatile. Let's see what the next quarter's numbers bring.
    Mar 12 09:04 AM | Likes Like |Link to Comment
  • Canon Can't, Unfortunately [View article]
    Yes i did - shares are rarely holds so i flipped from short to long.
    Mar 11 06:38 PM | Likes Like |Link to Comment
  • McGraw Hill Financial: Very Good Progress [View article]
    Thanks for this. Share has done well. I wrote an update post the MHFI and MCO here

    Well done on keeping the faith, i bought post publishing the article and took very good profits in the mid 70s.
    Feb 12 08:09 AM | Likes Like |Link to Comment
  • Timken - Should You Buy Pre Or Post The Spin-Out? [View article]
    My pleasure, been quiet on SA recently but am coming back once results season kicks off. For daily (global) insights take a look at
    Jan 3 10:46 AM | Likes Like |Link to Comment
  • Timken - Should You Buy Pre Or Post The Spin-Out? [View article]
    Valuation is always subjective, only one part of the equation (management, margin sustainability, industry, regulatory and related also very important) and open to interpretation...but here are a few views from me.

    For a quick sum-of-the-parts analysis, i would value a mainstream, reasonable but slightly cyclical business like bearings at x10 ebit (i prefer pre-tax measures rather than post-tax like P/Es). For the base number i use an estimate of next year's ebit (i.e. 2014 FY ebit today) as the stock market looks forward not backwards.

    I attach a lower multiple to a structurally challenged business like Timken's steel business i use a multiple of x6 estimated forward ebit.

    As i am doing a sum-of-the-parts for the full business (and by considering the bearings and steel businesses only i am only focusing on the trading businesses) i need to deduct from this the 'negative value' attributable to central costs. These i deduct at a multiple of x8 ebit. I got the central costs information from company disclosures.

    Add the numbers together and you get an estimated value for the it to the current market cap...and make a decision.

    As i said above, this is necessarily a quick and open-to-interpretation method. Cash flow purists will want to do a multi-year DCF, some fundamental analysts would want to quote EV/ebitda ratios, technicians will look at charts etc. For me, the above gives me a quick valuation feel, which i then augment by looking through company documentation, reading about the industry etc.

    Inevitably market exuberance (or pessimism) can have an impact too. In the former, multiples rise and my approach can struggle to find opportunities (this characterised many shares in H2 13) but in a pessimistic period i have found it highlights opportunities that Mr Market is ignoring. Of course nothing is perfect, forward expectations of earnings change and evolve as does industry structure, management capability and big picture exogenous factors. Plus fundamental-based investing is as much psychological as data-interpretive. The trick, i find, is not just to find valuation anomalies but where expectations differ markedly from reality.

    As a rough rule of thumb, for the year forward's earnings (ebit) i would use these multiples. For each point below x4 interest cover (how many times interest payments on debt are covered by ebit) i deduct x2 pts of multiple. E.g. a low growth company with debt and x3 interest cover i would value at x4 ebit)

    x6 low growth business
    x8 cyclical business, solid balance sheet
    x10 middle-of-the-road company
    x12 growth company
    x14 structural growth company

    Hope that helps.
    Jan 3 04:41 AM | Likes Like |Link to Comment
  • The Timken Company: Watch This Unfolding Spin-Off Situation For 2014 [View article]
    Nothing is guaranteed in business but my view would be to be a bit more optimistic about the spin-off.

    If we take a step back, the argument for vertical integration was the one attached to the growth of conglomerate businesses a generation or two ago. The trouble with conglomerates is that they tend to have significant dis economies of scale. Any inherent benefit from having an in-house supplier is often more than fully wiped out by disadvantages such as a lack of incentive to find new customers, cross-subsidies which blur the correct future application of investment and overburdensome central management. Yes, questions remain on this specific spin-off about the application of debt/pension liabilities and investors willingness to own a 'steel stub', but a newly liberated steel business may surprise a few people over the next few years.
    Dec 22 01:39 PM | Likes Like |Link to Comment
  • The Timken Company: Watch This Unfolding Spin-Off Situation For 2014 [View article]
    Yes i did (link here for anyone who did not catch it:

    I will show my age now, but i remember back 10+ years ago when i phoned up an analyst at a bulge bracket firm who had just published a report on why SKF (Swedish bearings co) was a structural buy because it was changing/focusing. He was very right and the parallels today with Timken are good. I wouldn't dismiss the steel business completely like Mario G appeared to, but certainly it will be sold down in a spin-off (and which is why i have attributed a low valuation on a SOTP basis).
    Dec 18 03:35 PM | Likes Like |Link to Comment
  • The Timken Company: Watch This Unfolding Spin-Off Situation For 2014 [View article]
    Enjoyed the article - and thanks for the link to my original piece. I wrote up some further thoughts at my own site the other week which are broadly consistent with your own.

    Totally agree that 2014 is a year investors should keep an eye on Timken.
    Dec 18 01:26 PM | Likes Like |Link to Comment
  • Tyson Foods - The Real Beef? [View article]
    Thanks for the comment. Let's see how the thesis develops at the next quarterly update. My instinct is that the theme continues and the market is still underestimating the turnaround. We will see on the 18th November.
    Nov 6 03:43 PM | 1 Like Like |Link to Comment
  • Alcoa - Thoughts On The First Big Q3 Earnings Number [View article]
    Here in the UK most people associate 'AA' with 'Automobile Association' (car breakdown service and related). Buying an annual membership of that has proved to be a better investment than AA shares over recent years. Good luck.
    Oct 9 05:46 PM | Likes Like |Link to Comment
  • Alcoa - Thoughts On The First Big Q3 Earnings Number [View article]
    Thanks for the comment. I agree that it does not take much to materially change supply/demand, as shown in one of the charts in the report. My view is that the company has broadly speaking become wedded to the global economy and is a geared play on that. As i remain cautious, i re-review at the US$7 handle but not before.
    Oct 9 05:45 PM | Likes Like |Link to Comment
  • Agricultural Theme Play Opportunity: Syngenta [View article]
    Thanks for the comment, i would agree with you on this. To this end, i wrote a few notes here on this very issue, at the time of the Monsanto disclosures:
    Oct 7 03:13 PM | 1 Like Like |Link to Comment
  • European Telecoms Sector Bid [View article]
    They are ongoing, as are the interactions with the Foundation too. Deal expected to close in the first half of 2014 so plenty of time.

    My view - it is a coin flip here and tough to call. Sorry to hear that you are down on your trade. Good luck.
    Oct 3 09:20 AM | Likes Like |Link to Comment