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  • Lindsay Corp.: Irrigating The Emerging Markets With A Modest Valuation [View article]
    On balance, I viewed the Claude Laval (Lakos) acquisition positively. LNN spent $29m to acquire this $25-30m revenue filtration business and management believes Lakos will be accretive to FY2014. Any accretive acquisition is preferable to holding low-return cash.

    On their FQ4 call, LNN mentioned that only 30-35% of Lakos' end-market is related to irrigation, with the rest coming from industrial filtration applications. A move outside of Lindsay's core competency can be concerning, but I generally defer to management's judgement with tuck-in acquisitions like these.
    Oct 25 02:30 PM | Likes Like |Link to Comment
  • Lindsay Corp.: Irrigating The Emerging Markets With A Modest Valuation [View article]
    We released our letter today addressing the issues you point out: http://prn.to/HjwXmq
    Oct 25 02:00 PM | 1 Like Like |Link to Comment
  • Lindsay Corp.: Irrigating The Emerging Markets With A Modest Valuation [View article]
    I have no opinion on VMI unfortunately. I haven't done enough work on their non-irrigation business.
    Oct 25 09:40 AM | Likes Like |Link to Comment
  • Lindsay Corp.: Irrigating The Emerging Markets With A Modest Valuation [View article]
    I think some investors are short LNN as a proxy for shorting corn, and others are bearish on 2014 numbers. We're making the calculated guess that international growth will compensate for the US slowdown, and that over the long-term, this company has a bright secular growth runway, and that the market will ultimately see past 2014 numbers, and focus on the long-term opportunity available to Lindsay internationally.
    Oct 25 09:40 AM | 1 Like Like |Link to Comment
  • Lindsay Corp.: Irrigating The Emerging Markets With A Modest Valuation [View article]
    Toro produces simplistic drip irrigation parts, which is a similar business to the one that John Deere is divesting. Drip irrigation is a commoditized, lower-margin technology that makes sense for certain crop types (vineyards, orchards, small vegetables), but not for the large fields that mechanized irrigation services.

    Jain is the same story. If you take a look at their product page you'll see that this is a very low-end technology with little product differentiation:
    http://bit.ly/1d3n9r9
    Oct 24 04:04 PM | 1 Like Like |Link to Comment
  • Lindsay Corp.: Irrigating The Emerging Markets With A Modest Valuation [View article]
    1) We don't have a precise statistic, but its safe to assume that the vast majority of center pivot customers in the U.S. are growing corn. If corn prices fall, some may rotate their fields to soybean or wheat, but these crops require less frequent hydration. Therefore, a soybean farmer may not consider advanced irrigation an urgent priority.

    Usage also varies by country. In Brazil pivots are frequently used for the sugar crop. In Russia, it's sunflowers/vegetable oils. You can see from the chart below that irrigation drastically increases yield no matter the crop.
    http://bit.ly/1d3n32H

    2) The consensus right now is that U.S. growth falls in F2014 as farmers defer purchases because of lower crop prices.

    Historically, 1/3 of Lindsay's business is dryland expansion, 1/3 is conversion from less efficient irrigation systems, and 1/3 is replacement of expired equipment. While dryland expansion should slow, old systems will still be replaced and farmers remain economically incented to upgrade from the gravity method.
    Oct 24 04:03 PM | 2 Likes Like |Link to Comment
  • Lindsay Corp.: Irrigating The Emerging Markets With A Modest Valuation [View article]
    We're on the same page. We'll probably write a letter to that effect shortly.
    Oct 24 03:15 PM | 1 Like Like |Link to Comment
  • Morgans Hotel Group: Woeful Operations And Board Circus Mean Sell [View article]
    Sounds good, I understand. I guess we'll see. It's not very easy to create strong luxury boutique hotel brands, and the Mondrian and Delano are two of the better ones. The amount an international operator would be paying is just not that much. With a $7.50 bid already previously submitted, the thinking is that there are buyers for this company that justify an investment at the current share price.
    Aug 30 03:58 PM | Likes Like |Link to Comment
  • Morgans Hotel Group: Woeful Operations And Board Circus Mean Sell [View article]
    Hi Josh, a strategic acquirer submitted a $7.50 unsolicited bid for the company late last year and earlier this year. The hotel market is hotter now than it was then. Operationally, the company's hotels are doing better than they were last year. I feel that the value in this company is in its ability to provide a platform off of which a strategic acquirer can build out an international luxury boutique hotel chain. Given that a bid was put in at $7.50, the thinking is that this stock is worth $7.50 or higher in a competitive sale process. As for whether the company will be put up for sale, the shareholder base here strongly wants a sale process. Either this board will undertake it, or another one will replace it to conduct a sale process.

    disclosure: long
    Aug 26 03:06 PM | 1 Like Like |Link to Comment
  • ServiceNow: Beating Revenues By $4m Does Not Negate Overvaluation Concerns [View article]
    NOW remains one of our highest conviction short ideas. While the sellside interpreted Q2 2013 results as an unmitigated positive, we saw many signs of stress:

    - ServiceNow's CEO, Frank Slootman, was again forced to admit that PaaS is not the $20bn+ market opportunity that many believe it to be. Slootman stated, "The customers have been paying for platform all along, right...Are we trying to go compete against pure play vendors in that space? Not really." The sellside continues to reference this "untapped" market opportunity to justify their valuation models. But we think the most honest of the group will be forced to revise their thesis.
    - The Revenue and Billings 'beat' was driven by $5m of one-time revenue for the Knowledge conference. This was a significant jump from $2m in Knowledge revenue last year, an increase that the analysts hadn't built into their models. The Billings 'beat' was also aided by an increase in "multi-year" contracts, which grew to 12% of contract value versus 7% in the quarter prior. These multi-year deals provide worse economics to NOW as customers receive a heavily discounted price to pay several years upfront. But NOW continues to offer them partly because it makes the Billings numbers look stronger.
    - Excluding the effect of these two one-off items, NOW may have actually missed the Street's expectations.
    - NOW's CFO, Michael Scarpelli, guided towards flat sequential billings in Q3. If NOW is no longer growing quarter-to-quarter, how can one justify a 20x+ LTM revenue multiple?
    - Salesforce productivity is quickly deteriorating. It cost NOW $52.3m to acquire just 138 new customers in the quarter. Excluding $8.3m of one-time costs associated with the Knowledge conference, this translates to $309,000 of expense per new customer. Compare this to $212,000 per customer in Q2 2013. Based on these numbers, the business is requiring more bodies, and higher costs, just to maintain its current growth trajectory.

    Valuation still matters. At $43/share, ServiceNow has a $7.2bn market capitalization ($6.9m EV) versus a paltry $405-$410m of expected 2013 revenue. This translates to a 17x revenue multiple, something previously only seen in Series-A VC rounds for companies like Twitter and Facebook. But unlike some of the other open-ended growth stories that are punishing short sellers in the current bull market, NOW's end-market is finite. The more levers that NOW pulls to hit its numbers (multi-year discounts, higher staffing costs, one-time revenue streams), the closer the story is to unwinding.
    Aug 13 10:08 AM | Likes Like |Link to Comment
  • Amerco Looks Promising Heading Into Earnings [View article]
    UHAL reported great numbers: yhoo.it/1b5E4pN
    Jun 5 06:04 PM | 2 Likes Like |Link to Comment
  • Amerco Looks Promising Heading Into Earnings [View article]
    I agree with all of your comments.
    Jun 5 10:33 AM | Likes Like |Link to Comment
  • Amerco Looks Promising Heading Into Earnings [View article]
    UHAL will not be spinning out its real estate holdings; the self-storage service offering is combined with the truck rental offering to offer a seamless service other rental firms cannot offer. Furthermore, there are tax and REIT ownership limitations which will prevent the Shoen family from spinning out a REIT.
    Jun 4 10:41 AM | 2 Likes Like |Link to Comment
  • EZchip: Bullish Case Continues To Myopically Overlook Competitor Comments, Production Delays, And Stock-Based Compensation Expense [View article]
    We call it trivial only in the context of our overall short thesis, in that an NP-5 design loss is only one of many ways that EZCH would fail to hit the Street's 30% growth target. It's hard to argue that the entry of a lower-cost, horizontally-integrated competitor into this niche field won't at all challenge pricing and market share. Perhaps EZCH does have an NP-5 design win in one class of routers, but maybe Cisco and ZTE also source BRCM silicon for another 100Gb device. Or maybe the vendors leverage BRCM's presence to negotiate EZCH down on pricing. And Huawei's order delay might be because they are using BRCM silicon (EZCH only speculates that it's in-house). At a price of 32x P/E, the valuation does not incorporate the potential for these suboptimal scenarios to play out.

    As for the specific issue of ZTE and Cisco being customers of EZchip's NP-5 product, I recognize the disclosure you point out.
    Yes, "Cisco has selected a customized version of the NP-3, NP-4 and NP-5 for its principal CESR platforms" and "ZTE has also selected the NP-4 and NP-5 for several of its CESR platforms." These statements don't elaborate on the extent of the Cisco / ZTE relationships / contracts with respect to the NP-5.

    Management had plenty of opportunity to clarify the extent of the NP-5 contracts in its conference call. Here's the call transcript: http://seekingalpha.co...

    Search for the term NP-5. And see for yourself whether the company uses language that confirms that customers have already selected the NP-5, or that management "believes" and "expects" NP-4 customers to transition to the NP-5.
    Mar 26 02:58 PM | Likes Like |Link to Comment
  • EZchip: Bullish Case Continues To Myopically Overlook Competitor Comments, Production Delays, And Stock-Based Compensation Expense [View article]
    You laud EZchip's customer base. OK, let's talk about that customer base. EZchip earns 40-50% of its revenue from a customer that could build an in-house chip within a year or two, should it decide to dedicate resources to the task. EZCH longs argue that Cisco won't bring designs in-house because it would distract focus from other areas. OK, this seems reasonable when Cisco's costs for the EZChip designs are $20m to $30m (we're not even including the costs that go to MRVL for the manufacturing). But the EZchip long thesis is based on revenues doubling over the next 3 years. Would Cisco still be willing to use EZchip designs if it were costing it $70m to $100m? And frankly, why would Cisco even be willing to pay that much? Why not just tell EZchip that they don't want to. What is EZCH going to do -- stand up to Cisco and lose 50% of their revenue base?

    Another 20% of revenue is transitory, as Juniper decided to move to in-house silicon in 2009. ZTE is a lumpy, unpredictable 10% contribution and EZCH has little visibility on their near-term spending habits. The final two Top 5 router vendors are Alcatel (not a customer) and Huawei (a partial customer in the best-case scenario). Examples abound in the tech hardware sector of niche merchant vendors with extreme valuations whose shares fell overnight on the loss of a key customer account.

    I'm not sure whether anyone knows with certainty whether BRCM is selling NPUs to Cisco. Broadcom earns $8bn a year, making it unlikely that they would call out a design win that stole a measly $25m of revenue from EZchip. But BRCM is just one of the many risks present in this name. What you've neglected to focus on are EZCH's production delays, constant shareholder dilution, the low likelihood that management can live up to the market's expectation of 30%/year revenue growth, etc. That 30% growth hurdle is the consensus view. Anything less and investors/analysts will be disappointed and the stock likely falls.
    Mar 26 10:59 AM | Likes Like |Link to Comment
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