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John Rolfe

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  • Boyd Group Income Fund: A Rapidly Growing, High Return, Free Cash Machine At 9x Cash EPS [View article]
    In my view, no, because they haven't tied the balance sheet up in order to bring this component of their operations in-house. In your example (10x multiple), the implied return on the asset if they were to own it is only 10% pre-tax, well below what they're able to generate by investing their available capital into more productive outlets. From my perspective, return on capital and/or equity is not a theoretical construct, it's a real-world result of capital allocation decisions that management makes. In this case, they've found a superior structure (i.e. operating lease) that gives them access to an asset without requiring them to put up capital to get that access.
    May 19 06:39 AM | 1 Like Like |Link to Comment
  • Boyd Group Income Fund: A Rapidly Growing, High Return, Free Cash Machine At 9x Cash EPS [View article]
    Frank,

    The related party leases are in large part a function of the company's roll-up legacy, as related party leases seem to be a typical structure for many small and mid-sized privately-held companies. I'd rather that they didn't exist at all, but take some comfort in the fact that the aggregate dollar amounts being paid out to any one party are relatively modest in the grand scheme of things. I haven't independently verified management's assertion that these are all at market rates, but have found their overall approach to governance to be relatively conservative.

    With respect to acquisition multiples, I gain comfort from a couple of things. First, this management team has a history of being disciplined with respect to pricing acquisitions. They're very cognizant of return on capital and value accretion. You can go back and piece together multiples for their acquisitions and get some comfort in this regard. Private market multiples are typically at a discount to where Boyd trades, in part as a result of a very limited group of potential buyers, so accretion isn't difficult to come by. Note, as well, that these multiples are on a pure standalone basis, i.e. they don't make any forward assumptions regarding overhead takeout or associated margin expansion. Recent commentary from management, moreover, has pointed to incremental improvement in both the number of small deals they're seeing, and price flexibility on the part of sellers (read through last Qs earnings call transcript...if my memory serves me correctly they spent some time discussing the M&A environment).

    Brock (CEO) is a conservative guy overall, and the Company's DNA at this point is fairly risk-averse. After its brush with the downside of leverage a few years back, the management team really took a much more conservative view of risk and has demonstrated this ever since. Last year's equity offering is a pretty good example. Although there were clearly some shareholders that were unhappy with the dilution (and who would have likely argued for more leverage instead), it was not out of line with Brock's general financial conservatism.

    Hope that helps.
    Apr 24 09:18 AM | 2 Likes Like |Link to Comment
  • Boyd Group Income Fund: A Rapidly Growing, High Return, Free Cash Machine At 9x Cash EPS [View article]
    Buy the local (Canadian listed) shares (Bloomberg ticker BYD-U CN). They trade roughly 40,000 shares/day. Unfortunately, SA only permits write-ups on US-listed stocks, so I had to file this one under the US-listed pink sheet ticker which, as you pointed out, it basically untradable due to extremely low volume.
    Apr 18 06:27 AM | Likes Like |Link to Comment
  • Boyd Group Income Fund: A Rapidly Growing, High Return, Free Cash Machine At 9x Cash EPS [View article]
    Thanks for your comments Alex. I agree with respect to RLGT; I've been involved in the name for some time, and think that Bohn and his team are doing a good job. At some point, the market will take more notice of what they've done.
    Mar 26 04:33 PM | Likes Like |Link to Comment
  • A Profitable Bank With A Restructured Balance Sheet At 35% Of Tangible Book Value [View article]
    3Q nums out...

    Positives: continued sequential improvements in 1) earnings (both pre- and post-tax, although post-tax somewhat meaningless given material tax assets), 2) return on capital measures, 3) capital ratios, 4) efficiency ratio

    Negatives: 11bp seq decline in NIM (first decline in a while), allowance for loan losses +16 bp seq, total "troubled" loans (nonaccrual, ROE, TDR) ticked up sequentially, primarily due to increase in nonaccruals

    Will post more details if/when I get them.
    Oct 17 09:53 AM | Likes Like |Link to Comment
  • A Profitable Bank With A Restructured Balance Sheet At 35% Of Tangible Book Value [View article]
    Kraven,

    I suggest you speak with Lowell Dansker. If you pick up the phone and call the NY headquarters, he will get back to you in a timely manner. He's accessible, and very willing to discuss whatever issues or questions you might have. He can undoubtedly add more color than I can.

    That said, I'll take a swing at a some of your questions.

    With respect to historical loan loss provisioning, and the bulk sale required by regulators, I think that the Company will argue that their historical provisioning was appropriate, and that subsequent performance of the sold loans supports this. If my memory serves me correctly, the bulk loans were sold at around 70 cents on the dollar, and many of those were subsequently resold relatively quickly for 90 cents on the dollar. The OCC took a very hard line in the Company's opinion. The OCC has a reputation as the toughest of the bank regulators, and they have taken the position that the turmoil of 2008-09 was not an isolated event, but is something that may well occur again in the near future. As such, they were looking to impose some draconian assumptions on the loan books of the banks under their purview, and IBCA ended up being in the crosshairs. All that said, it is hard to argue that the operational changes demanded by the OCC have not strengthened the origination and monitoring process for IBCA, so even if you believe their historical loan process was flawed, you should have some comfort that it is now stronger than it once was.

    The issue of the Company's deposit base and associated cost is an interesting one. Some other investors in this name have commented (rightly) that IBCA is more of a real estate finance company with a bank charter, than it is a typical bank. I think there is some validity to this. Matching duration has clearly held higher priority with mgmt than the cost of funding; I find it hard to argue with them in this regard assuming they're able to keep originating loans at an attractive spread to the funding cost. I think the point is that you have to either agree with mgmt in this regard or not if you're going to buy into their strategy. The fact that it is somewhat difficult to analyze them in the manner of a traditional "bank" probably helps contribute to the discount at which they trade, and somewhat limits the addressable pool of investors willing to consider the equity. There are certainly lots of folks on the institutional side who take a pass on anything that doesn't fit neatly into their preconceived notions of how certain types of businesses should operate. I'm not trying to pass judgment...just pointing out what I see as reality. The upside of this is that it provides an opportunity if you are willing to buy into something non-traditional, the downside is that you may relegate yourself to a value trap. Again, I would suggest speaking with Lowell as he can articulate his strategy much better than I.

    Lastly, my understanding is that while they have had a ton of brokered deposits historically, they’ve been moving away from this channel to some extent, and as these roll off it should provide opportunity for NIM expansion.

    John
    Oct 14 07:59 AM | Likes Like |Link to Comment
  • A Profitable Bank With A Restructured Balance Sheet At 35% Of Tangible Book Value [View article]
    Joey,

    Thanks for the comments. Anecdotally (per Lowell), the Company has a strong record on recoveries from non-accruing assets. As you point out, this should provide an addl margin of safety.
    Oct 13 06:58 AM | Likes Like |Link to Comment
  • A Profitable Bank With A Restructured Balance Sheet At 35% Of Tangible Book Value [View article]
    Kraven,

    A couple of comments:

    With respect to TARP, mgmt would definitely like to get out from underneath this. The TARP loan rate ticks up to 9% in 2013, so that's a soft target from a timing perspective. Mgmt would like to take advantage of the current interest rate environment to refinance, possibly through a convertible preferred, or some combination of straight debt w/a warrant kicker. There are some restrictions related to TARP that limit their ability to dividend funds up to the holding company, however, mgmt feels that with a few more quarters of decent earnings under their belt they will be able to get the necessary consents from the Fed and the OCC. Time will tell.

    Future interest rates will certainly impact the cost of their funding source (CDs), however, I think this is more of a positive than a negative at this point. As the current batch of CDs roll off, IBCA should continue to benefit from cheaper funding. Cost of funds has dropped virtually every quarter sequentially over the last three years, and there is still a large gap between what they are paying today, and what they would be paying if they could refinance everything at current rates. With cost of funds currently near 3% (high, as you pointed out), there is a lot of room for rates to rise before they would see an aggregate increase in their cost to fund.
    Oct 12 07:24 AM | Likes Like |Link to Comment
  • A Profitable Bank With A Restructured Balance Sheet At 35% Of Tangible Book Value [View article]
    Agreed. Moreover, Lowell's knowledge of his loan book is impressive. While any loan book will be subject to the vagaries of the macroeconomy, I've developed a fair degree of confidence through my discussions with him (regarding specific loans) that there's a decent margin of safety on an individual loan level even in a relatively weak environment.
    Oct 11 10:58 AM | Likes Like |Link to Comment
  • Dart Group: A Growing Business at 3x Free Cash Flow [View article]
    Thanks for the comments/questions.

    I don't know what portion of year-end fiscal 2011 is restricted, but I would expect that it would be a relatively modest portion of the total, as it was in fiscal 2010.

    Your point regarding the cash balance and its relationship to customer prepayments is valid. The Company consistently runs a negative working capital cycle, as it collects customer cash in Aviation ahead of delivering the service/flight. As long as the business grows, the negative working capital cycle will be a contributor to cash flow, if revenue declines it will be a drag on cash flow. There are certainly highly divergent views with respect to how both the cash and the working capital impact on cash flow should be treated. Personally, I am comfortable giving them credit for the cash as I believe they have a reasonably long runway to continue growing Aviation and, as such, I expect that cash to continue to be available to them to do with as they please. However, the valuation is low enough, and the corresponding margin of safety high enough, that if you choose to penalize them to some extent by only giving them credit for a portion of the cash, the investment still appears attractive (in my opinion).
    Jul 26 07:14 AM | 1 Like Like |Link to Comment
  • Microsoft, Don't Buy Back Shares - Here's Something Else [View article]
    With all due respect, your analysis of a buyback's impact on book value per share is irrelevant. With the possible exception of fab-based semiconductor manufacturing (due to its asset intensity), book value has little relevance for a tech company. Microsoft's intrinsic value lies in its intellectual property, which is not reflected on the balance sheet due to the fact that it was developed internally. Tilson/Firm X's argument with respect to a buyback is based on the accretion that would occur from an earnings per share standpoint, which is much more relevant to MSFT from a valuation perspective than book value. We know that theoretically, a stock's intrinsic value is the present value of its future cash flows, and earnings per share is a good proxy for this. There are relevant arguments to be made regarding the advisability of a buyback, but this certainly isn't one of them. And to suggest that they want to do a buyback simply to decrease the outstanding number of shares, which could be just as easily accomplished by doing a reverse split, is pure folly. None of us are that uninformed.
    Jul 15 07:03 AM | 16 Likes Like |Link to Comment
  • Pernix Therapeutics: An Undiscovered Pharmaceutical Gem [View article]
    Jim,

    Any sense as to how big the negative impact to the company will be from the product ban?

    seekingalpha.com/insta...
    Mar 3 10:11 AM | Likes Like |Link to Comment
  • Why I Sold Out of China Media Express [View article]
    Steven, nice summary. This one seems to inflame a lot of opinions on both sides of the trade.
    Feb 1 07:18 AM | 4 Likes Like |Link to Comment
  • Is China Media Express a Top Tier Company? You Decide [View article]
    I don't have an axe to grind either way on this one, but the long-rumored Citron report on CCME has finally been posted:

    www.citronresearch.com/
    Jan 31 01:09 PM | 1 Like Like |Link to Comment
  • Is China Media Express a Top Tier Company? You Decide [View article]
    Nice comprehensive writeup.
    Jan 18 07:02 AM | 1 Like Like |Link to Comment
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