Seeking Alpha
View as an RSS Feed

Matthew Dow  

View Matthew Dow's Comments BY TICKER:
Latest  |  Highest rated
  • Philips: Company Breakup Will Unlock Value For Shareholders [View article]
    OK, apologies for my last comment I actually also have misread the recent press releases on March 2nd. These were specifically about the Lighting components business - i.e. the Automotive & Lumileds spin-off. I had estimated this at only 1x Sales (1.2B Euro) in my analysis, but it appears private equity firms are lining up bids for about double this amount, or 2x Sales. There have not yet been any releases on the valuation of the remaining Lighting business (which I listed at about 7B euro in my analysis), and for this we should expect more details on a potential IPO or other options in May at the annual meeting.
    As I mentioned in my last comment I was conservative on this valuation of the spin-off, so this announcement only strengthens my overall SOTP valuation by adding another ~1B to it (+3%).
    Mar 5, 2015. 10:32 AM | Likes Like |Link to Comment
  • Philips: Company Breakup Will Unlock Value For Shareholders [View article]
    Thanks for your comments. After my article was submitted, indeed earlier this week there was some sources in news articles saying that private equity firms were going to bid about 2.5m euro for Lighting. For my higher estimate, I had taken my forward expectations for EBITDA, including depreciation and put a 10x multiple on it. My figure had included some margin improvements. We don't know what the final bid will be, but it appears to be much less. However I would point out several other things here which still make me reasonably comfortable overall in my SOTP valuation:
    1. I was conservative on the components, Lumileds/Automotive. I estimated it at only 1.2B euro, but many analysts have predicted double that price.
    2. As mentioned in response to other comments above, you can easily make a case I was conservative in Healthcare and Consumer Lifestyle, particularly Healthcare. I estimated Healthcare at 18B euro, but if you took a slightly highly sales multiple then this would easily have been a few billion euros higher.
    3. The 293m EBITA in 2014 does not include Lumileds and Automotive. They had included those as discontinued operations.
    4. I would also add that no bids have been accepted, and there were also reports they would discussion the available options at the annual meeting in May, which could also maybe include an IPO option.

    In any case, putting all the factors together and I still am confident in the overall valuation of the group.
    Mar 5, 2015. 12:22 AM | Likes Like |Link to Comment
  • Philips: Company Breakup Will Unlock Value For Shareholders [View article]
    Thanks for the nice words. Yes we will see how it does play out. I agree that these don't seem like value multiples at first glance, but It's worth noting that if you look at a lot of the comps I listed for Healthcare and Consumer Lifestyle both (so about 66% of the sales and even more of the profits), many trade for multiples well over 20x EPS.
    Mar 4, 2015. 08:39 AM | 1 Like Like |Link to Comment
  • Philips: Company Breakup Will Unlock Value For Shareholders [View article]
    Thanks for your detailed comment. You raise some points around the risk of the thesis, which of course is valid, there are always risks. Here are some thoughts to keep in mind:
    1. In terms of EPS estimates, we should remember that especially in 2014 they had a lot of one-time charges relating to several of the challenges I highlighted. EBIT dropped from about 1.8B to only 486m from 2013 to 2014, but this included a lot of restructuring costs, 366m in patent litigation costs, plus inventory write-downs related to the Cleveland incident. So again a lot of this will reverse in 2015 and 2016, which is why EPS estimates are correctly forecasted as much higher.
    2. As for the SOTP valuation, like any valuation techniques including DCF models a change in assumptions can vary the results a lot. However in terms of margin of safety I believe I was conservative in many of my values. For example in Healthcare you have a lot of comps which trade at very high multiples. I think there is even further value there, and my 2x EV Sales multiple used could be conservative for many parts of that business.
    3. For your comments on Osram and Lighting in general - yes it is a tough business. I think Philips though is doing quite well in certain segments, for example the prof. lighting solutions which is growing high double digits and is very promising. Their spin-off here will also not have the legacy conventional products, it will be all positive growth areas so they should get good value for it
    4. On consumer lifestyle I agree competition is fierce, although Philips has spent a lot of time to be a premium brand and only focus on higher margin product lines and where they have a sizeable market share.
    5. On exchange rates - To some degree you are right a higher Euro can hurt parts of Philips, but keep in mind its a very global company, and actually there are many exchange rate factors at play. For example in recent quarters they had forex issues with countries like Russia severely impacting results as well. I think the point here is that this is less likely to be a factor for PHG investors in 2015 compared to what we saw the last year. Euro could strengthen and help PHG stock, otherwise it is likely to be more flat and not have such an impact. Either way I believe the break-up and improving 2015/2016 results will be the bigger factors here leading to my forecasted upside.
    Mar 4, 2015. 06:45 AM | 1 Like Like |Link to Comment
  • Philips: Company Breakup Will Unlock Value For Shareholders [View article]
    Thanks to everyone who commented so far. @TAS - Is your critique based on your experience in the 1980s, 30 years ago, or based on something more recent? For me, the path the current CEO is putting the company on is very responsive to shareholders and value generation. Also the stock has been paying dividends and regularly increasing them every few years for decades. So not sure I understand that part of your comment. The facts speak for themselves:
    1. See my graph in the article - CAGR of dividend rate growth in the last 20 years (1995-2015) is 9%. That is respectable.
    2. The company is committed to paying 40-50% of net income as dividends. As margins have been improving in their 5 year operational improvement program, ROIC is going up. We can logically infer here that net income is improving, which will increase the dividend rate further. They raised it in 2014, and I would expect another raise in 2016. Share outstanding have decreased overall in the past 5 years, and should decrease further as they complete their buyback program in the coming year.

    Finally I'd add that spin-offs and company break-ups are tough decisions, but often they are very lucrative to shareholders. I think Houten is the right man for the job here, as he has come in clearly with a plan to unlock value overtime, through the margin improvement program (Accelerate!), combined with breaking up the company into more logical pieces. He was also one of the key architects and CEO for the Philips spin-off of NXP Semiconductor (NXPI) about 8 years ago. He returned to Philips in 2011 to take his current role, but you can't argue with how well NXPI turned out - company went public in 2011 at about $10/share, and today it's at $98/share.
    Mar 4, 2015. 12:47 AM | Likes Like |Link to Comment
  • Digimarc Corporation: Time To Buy This Hidden Gem [View article]
    good question. honestly, I have not followed it recently. I can't comment now on recent technology trends, company growth, customer make-up, etc. But I will say looking back at the stock the past few years - there is a pretty clear pattern on valuation and management behavior. When the stock is in the mid 20s, mgmt is cashing options consistently. The times it dipped below $20, they seemed to hold off... and the stock has routinely bounced back. At an EV/EBITDA now over 20x, it seems a bit pricey, and is likely more attractive at a valuation in the lower teens on EBITDA multiple.
    NOw this could be wrong if anything has materially changed in their business prospects/growth rate, as I said I havent looked at that recently, but thanks for the quesiton, it has triggered me to take another look :)
    Mar 1, 2015. 05:37 AM | Likes Like |Link to Comment
  • Announcing Seeking Alpha's First-Ever Investment Pitch Contest [View article]
    One further question from my side - if the article is for the contest, is it published right away, or not until the contest ends? I'm asking, because if some contest articles were published for example next week, and some not for a few more weeks.... the earlier ones would have time to collect reader comments, which may/may not influence the judging. Ideally all contest submissions have the same playing field in terms of prior readership before judging... but curious how you have thought of that.
    Feb 20, 2015. 09:50 AM | Likes Like |Link to Comment
  • SMTP Earnings And 2 Big Acquisitions [View article]
    Stock is down big today on the announcement of dividend suspension. However the announcement that SharpSpring is accelerating growth is really good news, and I think the company is set to really push forward on top line revenue expansion in 2015 and 2016. Interested to see how it all shakes out at earnings in a few weeks, especially on current margins, but I still think the company looks very undervalued and misunderstood at these levels. After earnings I'l update my thesis.
    Feb 19, 2015. 02:14 PM | Likes Like |Link to Comment
  • Announcing Seeking Alpha's First-Ever Investment Pitch Contest [View article]
    Daniel, Great idea this is interesting. One general question I have - as there is only 2 prizes, 1 long and 1 short, but I suppose you'll get lots of great submissions.. for all those who don't win, will their articles still be selected as normal Pro articles for $150 or possible even $500 top ideas? In other words.... what is the incentive to try really hard but end up as #2 and not get chosen? Thanks!
    Feb 19, 2015. 02:09 PM | Likes Like |Link to Comment
  • Congress begins TurboTax filing probes [View news story]
    Of course it might help if they actually did something in Congress, i.e. work together to make the tax code simpler!! Probably half of these "fradulent" filings are because of such convoluted tax laws that poor individuals make honest mistakes when using the software.
    Feb 17, 2015. 08:37 AM | 1 Like Like |Link to Comment
  • Sypris Solutions: Weakening End Markets Signal More Downside Can Be Expected [View article]
    Honestly no I have not. What I always liked about the company however, was that it was heavily dependent on a few customers, several of which conveniently report quarterly results a few weeks before them. Made analyzing it not so hard. I had a long position for about a year which was mostly flat, and after i finally sold out, of course a few months later the stock popped big time.... but it has since fallen again. It's trading very low now, could definitely be interesting if their cyclical markets are seeing any upswing. Maybe time I take another look!
    Feb 15, 2015. 10:49 AM | Likes Like |Link to Comment
  • SS&C Technologies: Advent Acquisition A Game Changer [View article]
    Nice article. I was actually in the midst of doing a detailed analysis and write up of Advent, which has had minimal coberage on SA. I decided to stop after this announcement, as most upside is now priced in. But it is definetly a very solid software business with 90% reocurring revenues and stable market share. As the founder stepped away a few years ago, they have bern looking at strategic alternatives, so no surprise they are now selling out. I expect indeed good synergied here
    Feb 11, 2015. 03:17 AM | 2 Likes Like |Link to Comment
  • Ubiquiti +10.6% on enterprise-driven FQ2 beat [View news story]
    I agree Philip. I liked the quarter overall, especially Enterprise which was a big positive surprise. Im feeling even more comfortable now for 2015 and 2016, ill try to publish a small update within a few days.
    Feb 6, 2015. 03:03 AM | 3 Likes Like |Link to Comment
  • Facing A Take-Private, Books-A-Million Deserves Your Attention [View article]
    Thanks for the shout out! Indeed I believe you are right- good chance of this deal now closing, at least at $2.75. I doubt Andersons would try a second time now unless they were quite sure of sucess. With that said, im not going to play this anymore; 65% profit in 3 months was good enough for me, in my case I dont feel its worth it holding out for the merger.
    Feb 2, 2015. 12:54 PM | 1 Like Like |Link to Comment
  • Books-A-Million: Forgotten And Deeply Undervalued [View article]
    Just as I hoped, Andersons will try again to go private. Ive sold out here today for a 63% profit in about 3 months. Can't complain about that!
    Jan 30, 2015. 09:53 AM | Likes Like |Link to Comment