Howie Man

Long/short equity
Howie Man
Long/short equity
Contributor since: 2011
The Topeka "initiation report" is literally only one paragraph long and appears to be computer generated.
Q3'15 FCF = -$19.6M EBITDA less $1.8M capex less $0.3M chg WC = -$21.7M
Balance sheet cash & equivalents at Q3'15 = $147M / 111M fd s/o = $1.33 per share
I hope this addresses your questions.
Thank you for the questions. The last page of CENX's presentation below details its sensitivity to the relevant commodity prices.
I should have mentioned, puts are relatively liquid and provide another way to express a short. The Nov 20 5s provide exposure to Q3 earnings.
Thanks for the question.
The consumer nut category is consolidated among 5 companies. There haven’t been any noteworthy new entrants in decades. The primary factors that determine success and provide barriers include:
- Access to a finite supply of raw nuts through contracts and relationships with a fragmented base of growers (see DMND’s contract and supply losses over the last three years).
- Processing and shelling capabilities help mitigate supply disruption (JBSS is vertically integrated).
- Each nut has its own idiosyncratic supply/ demand drivers and pricing dynamics. Knowledge of these niche crops is critical given the frequent swings in prices (inventory management, purchasing discipline, pricing power, etc). Contrast this other salty snack categories such as potato chips.
- It obviously takes years to build retail distribution, product awareness among consumers and everything that goes into managing a food brand.
The below 8K dated 7/28 lays out the pro forma numbers. As you'll see EBITDA goes from $11.0M to -$6.5M following the Gregory sale. Not sure where you are getting your EBITDA margin info.
The increased special dividend payout availability of $25M in the recently amended credit facility allows for up to a $2.25 per share dividend. With stable nut prices I think we'll see a payout close to that level, implying over a 6% yield. Management has indicated an announcement will take place in two weeks concurrent with the Annual General Meeting.
ONE is the only campus card provider still changing POS PIN swipe fees. If anything the ABA and other bank lobbying groups want the DoEd and CFPB to prohibit PIN fees to level the playing field. Below is a link to a recent Consumer Reports study (titled Campus Banking Products: College Students Face Hurdles to Accessing Clear Information and Accounts that Meet Their Needs). The report compares charges for all existing campus card providers. As you will see ONE is an outlier.
ONE is the only campus card provider still changing POS PIN swipe fees. If anything the ABA and other bank lobbying groups want the DoEd to prohibit PIN fees to level the playing field. Below is a link to a recent Consumer Reports study (titled Campus Banking Products: College Students Face Hurdles to Accessing Clear Information and Accounts that Meet Their Needs). The report compares charges for all existing campus card providers. As you will see ONE is an outlier.
Also correct. I was referring to FCF to the enterprise. No cash taxes and 65% pass-through on price increases are definitely attractive qualities.
If it does CBPX will generate over $150M in FCF even if vols are flat. That's a 13% forward FCF yield.
Looks like National Gypsum announced a 20% price increase for 2015. If even half this price sticks across the industry and vol growth is modest, then 2015 will be very strong for CBPX given its high pass-through rate.
I think it is likely they will pursue a sale given recent transaction valuations in the nut category. The major roadblock to pursuing such a sale was recently removed when the family patriarch and JBSS founder, Jasper "Jeff" Sanfilippo (now 82 years old), left the board of directors and dropped his Chairman Emeritus title earlier this year. The third generation is not involved. I would encourage you to reach out to management for additional perspectives.
Fair point but isn't Lone Star ultimately driving the process and likely seeking liquidity in the not too distant future? I think we can rule out USG for anti-trust reasons, but GP and National certainly have the capacity to pay-up and presumably should be willing to do so given the attractive qualities you thoughtfully outlined.
1) Total shares outstanding has been growing at slightly over 1% annually. I wouldn't consider this an item of concern. To account for this I use the FD share count in my valuation.
2) JBSS's business requires seasonal outlays to purchase nut inventory. This is funded through FCF and off its revolver at a rate of only 2.1%. JBSS has plenty of liquidity with over $70M of availability on its revolver. Management has been pretty savvy with cash management, keeping a low cash balance given its low cost of funds.
Some takeaways from the recent quarter financials:
- Revenue and EBITDA each grew 14% y/y with 70% of that growth coming from the more attractive consumer channel
- Fisher baking nuts now has a 32% market share nationally (#1 position with DMND at 28%) and continues to take shelf space and gain distribution
- Recent performance came despite the rise in raw nut costs (30% price increase in almonds and walnuts) further demonstrates its pricing power and margin stability
- Won-back a large snack nuts customer (Menards) during the quarter which will set JBSS up well going into the higher volume fall and holiday periods
- California drought is having limited impact on the almond and walnut crop as farmers have been supplementing irrigation with well reserves. Both grower groups are presently forecasting record yields and flat prices.
- Given stable raw nut prices, a special dividend ($1-$1.50) is likely forthcoming
- Despite the recent move JBSS still trades at about the same LTM multiples as when written-up
- Currently 6.8x EV/ LTM EBITDA, JBSS is a $50-60 stock at the 10-12x peer multiple
- Sale over the next 6-12 months is increasingly likely given the activity in the space and tone from management
The wallboard industry is still quite fragmented despite the consolidation you noted. CBPX seems like it would be a logical target for National, GP, USG or Sait Gobain. Do you have any thoughts on that?
All inventory is procured at harvest from a base of fragmented growers. Raw nuts prices are only determined annually at that time. There isn't a secondary market where prices fluctuate during the rest of the year like some ag products. JBSS sets prices based on cost and sells that inventory at those levels over the course of the ensuing year.
JBSS actually has a higher ROIC and ROE than all the peers mentioned other than BGS and is growing earnings at about 10%. The value of its supply chain shouldn't be understated. JBSS has contracts and developed relationships with hundreds of nut growers over the past 50 years -- providing a barrier against new competition that does not exist in most other CPG categories (eg. chips, crackers, etc.). A +10x multiple would work in an LBO particularly given the excess management overhead expenses that could be cut.
What are your thoughts on the other ANFI note that was just posted? Seems tough to refute.
GMs are getting decimated by AMZN and SPLS price cuts. Q1 management guidance shows a 50% drop y/y and this is includes a larger y/y contribution of the higher margin non-print segment. CHGG is also hemorrhaging cash at an accelerated rate. Since the November IPO to December 31 alone they have have burned through $36M. Honestly this looks like a 2015 bankruptcy (see Nebraska Books as a precedent).
The likely need for an equity raise in CY’Q1 is the catalyst that makes this timely.
ANFI says the new $64M rice processing facility will be completed in 2015 yet total capex amounts to less than $3M since the IPO. At the same time it has been unable to refinance its 10% debt, a process management stated began over a year ago. (It appears as if the local Indian banks know something the US shareholders do not.) Without a capital raise ANFI simply does not have enough cash to both purchase basmati inventory this season and spend on the new facility.
Look, the appearance of a few red flags can usually be explained or may just be coincidence, but the extent of the issues here defies credible explanation. Quite a few more flags have not even been mentioned (revenue recognition practices, implausible margins relative to industry, non-Basmati rice sales, operating and ownership structure, etc.). Hopefully my track record on here speaks for itself. If you feel the need to respond, address these specific issues rather than just saying “revenue and stock price are up so you are wrong.”
Thank you Don.
Here are some more troubling facts: Amira only launched its branded rice product outside India in 2011 and in India in 2009. Less than $4M has been spent on advertising and promotion since 2009. This equates to less than 0.5% of sales. This is next to nothing for a company that is seeking to build an international brand. Annie’s (BNNY) spent 4.3% of sales or $6M in 2012 alone. If Amira were to be in-line with other branded consumer products companies, it would have needed to spend $16M, wiping out almost all of the LTM earnings.
Amira states it current has capacity of 24 MIT/ hour, a fraction of that of the peers as represented in the table above. In order to grow, management has stated they are planning to build at a new facility and bring capacity to 60 MIT/ hour by 2015. This will cost $50-75M. Meanwhile Amira only has $33M of cash on the balance sheet and is consuming cash. Despite all this required future capex, Amira has reported less than $5M of D&A over the last three years. Yet another reason why historical earnings significantly understate the future economic earnings of the business. Management states they will not need to raise additional equity (they are likely tapped out on debt which is already running at a 12% interest rate), but don’t provide a reconciliation of the numbers.
What is even more troubling is the lack of active job postings on its sites, particularly its main site, When I tried to view a posting it said "Job posting no longer exists!" I literally couldn't find a single active posting. No wonder page views are down so much. They don't have a marketplace or network at all.
Footnote Finder did a nice job running through some of the risks and concerns with ANFI. Lots of hair on this one.
Good catch, thank you. Below is the proper link:
Management has stated publicly several times that they see little benefit to being public and would prefer to be private for financial and competitive reasons (largely having to disclose margins/ pricing). They have hired a new banker in Cantor Fitzgerald after Gleacher somewhat mismanaged the process last year.
The most logical buyers are Corizon (formed from the Vilatas - ASGR merger), Correct Care Solutions and Wexford. All are larger private operators that could buy CONM and slash SG&A. CXW should be included with GEO. Healthcare service providers MD, PRSC and LHCG are potential suitors as well. Obviously will be quite appealing to private equity given the revenue visibility, cash flow profile and growth prospects.
Budget constraints at the municipal and state level is actually a positive for CONM since it serves as an impetus for facilities that are internally managed to seek lower cost external providers. There are some political hurdles here, but CONM can offer inmate hc at approximately half the cost of an internal medical group. With 30-40% of local governments handling care themselves, there is a significant opportunity for CONM.
Rental depreciation is the cost of rental sales, otherwise a rental business would have nearly 100% gross margins. Check Rent-a-Center's financials as an example. Regardless, if you add it back as you are, then you need to also include it in your capex number. These DVDs they rent out are not free for HAST.
Got you, but D&A is $17.1M, you are including $12.1M of rental asset depreciation which is an operating expense (thus not captured in capex). FCF based on your method is actually -$1.1M.
Net income has actually turned negative (-$5.3M LTM) as has FCF (-$4.8M). You also have to consider the large lease obligations ($170M).
less cash taxes: $2.9M
less capex: $15.5M
LTM Unlevered FCF = -$4.8M
Basically the company has crossed a level where sales no longer cover fixed costs. Rental is effectively gone and Amazon is taking CD, books and games at an accelerating rate. Now HAST is saddled with large footprint stores. Sales and gross margins would have to recover for the the equity to have any value, very unlikely given the secular trends.
I am not talking about timers, but the fact that anyone can produce higher quality images with current digital camera technology. These cameras now cost less $150. One can become a CPI tech/ photographers after just a few hours of training, demonstrating this point. The contrived portraits with fake backgrounds reminiscent of elementary school picture-day that these studios provide are comical. Add the fact that the product is highly discretionary and you have a business in rapid decline.
Even if sales somehow stabilize, CPI is still EBITDA and cash flow negative. I encourage you to look more closely at the numbers and less at the stock chart.
New camera technology has without a doubt eroded CPYs position. You should listen to the Q&A from their call from last week, they are in a very challenging spot and have few options.
That article is dated, the economics of the business have changed. I am looking at the present state of the business and its prospects, you seem to be focused on the past.