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John Rolfe

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  • 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
  • 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
  • Micron: Why I Think It's Different This Time [View article]'ve done a great job covering MU (INTC as well). I have one nit to pick with the article. Baupost doesn't have anywhere near 30% of his fund(s) in Micron. Baupost has roughly $30bn under mgmt, only a small fraction of which ($3.5bn) is invested in US equities. Since the 13D filing only requires disclosure of US equities, it might appear that their $1.1bn MU position is 32% of the portfolio, but in fact is 32% of their publicly-listed US equity holdings. It is closer to a 3% position of the overall/broader ($30bn) investment portfolio.
    Dec 3 02:44 PM | 3 Likes Like |Link to Comment
  • Apple: Is It HP All Over Again? [View article]
    If you're going to draw an Apple-HP management comparison, I think it might be more relevant to compare Cook to Hurd. As you stated, the market initially responded positively to both from a share price perspective. Both are/were similar to the extent they're operating guys at heart, i.e. they can take somebody else's vision and do a great job running with it. However, there's a decent argument to be made that both are lacking in their own internal vision. By all accounts, Hurd starved HP of the R&D it needed to ensure (or at least increase the chances of) successfully transitioning to a rapidly changing landscape, focusing instead on aggressive cost management to boost profit margins (and EPS) in the short-term. Cook, too, has yet to prove himself anything close to visionary. He certainly hasn't starved Apple on the R&D front, and he's kept the ball rolling on the existing product line(s), but he's yet to show that he is capable of positioning Apple to exploit the next great wave in consumer computing devices.
    Apr 22 07:55 AM | 3 Likes Like |Link to Comment
  • Boyd Group Income Fund: A Rapidly Growing, High Return, Free Cash Machine At 9x Cash EPS [View article]

    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
  • Meet Your New Monetary Overlord, Janet Yellen [View article]
    To be fair, she may actually have an amazing beard in combination with some extremely effective depilation techniques.
    Oct 9 10:57 AM | 1 Like Like |Link to Comment
  • Silicon Motion: Sifting Through The Wreckage [View article]
    I believe that your 2013 estimates are too aggressive. Management called for a 10% increase in the "non-LTE" portion of their business, which they stated was 85% of the total last year. So with roughly $240mm of 2012 non-LTE revenue growing at 0-10%, you get 2013 non-LTE revs of $240-$264mm. Add the $15mm of LTE and you get to $255-$279mm in 2013 revs. GM @ 46-48% yields $117-134mm, back out $72-76mm of OpEx to get $41-62mm of pre-tax, tax @ 15% yields $35-53mm of net income. Even with these (lower) numbers it's still awfully cheap, but figured I'd point out the discrepancy.
    Apr 29 07:14 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]
    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
  • 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
  • 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:
    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
  • Debt-Free Ikanos Communications Is a Bargain [View article]
    It's probably relevant to point out that the brutal reaction to the Jun Q earnings release didn't have much to do with the $400k revenue miss; it was a result of the 3Q guidance for a 25% sequential revenue decline, and a revenue run-rate that even with the announced cost cuts will at best take them to breakeven. There's a decent chance that given the complete overhaul of the management team they decided to take all their medicine at once and sandbag guidance, but its pretty rare that a revenue/earnings miss of this magnitude is resolved in just one quarter.
    Aug 12 08:37 AM | 1 Like Like |Link to Comment
  • Nam Tai: A Rapidly Growing EMS Provider At 4x EPS [View article]
    Sorry, been absent for a while. The investment premise has obviously completely changed since the original writeup, and has very little margin of safety left. Having a free upside option on a real estate parcel with ongoing operating cash streams providing your downside support is one thing, being (possibly) completely dependent on a real estate development project for your entire value is another thing entirely. Disconcerting, to say the least.
    Aug 6 06:36 AM | Likes Like |Link to Comment
  • Nam Tai: A Rapidly Growing EMS Provider At 4x EPS [View article]
    Agree with you. Valuation range is huge. Downside is that you own a bunch of cash plus real estate, but have an operating business with effectively no revenue that is (therefore) losing money. Upside is that they fill in the existing capacity with new customers/products and get back to $1 or $2 per share in EPS. In any case, the uncertainty level is extremely high.
    Apr 29 09:34 AM | Likes Like |Link to Comment
  • Nam Tai: A Rapidly Growing EMS Provider At 4x EPS [View article]
    Yes, a big surprise, and not of the positive variety. Obviously a very disappointing quarter. Surprising how quickly the LCM business collapsed. Next few quarters (at a minimum) are obviously going to be very tough. Difficult from here to figure out what the normalized earnings power of the business is. Long-term average has been roughly $0.75/share, so that may be an appropriate number to use for valuation purposes.
    Apr 29 09:29 AM | Likes Like |Link to Comment