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Matthew Gan  

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  • ShawCor - Several Catalysts To Fuel Further Growth [View article]
    Neither would I consider Mullen a competitor
    Feb 21, 2014. 03:24 PM | Likes Like |Link to Comment
  • Bridgepoint Education Not Out Of The Woods Yet [View article]
    Very detailed article with great insights, thanks!
    Oct 9, 2013. 01:20 AM | Likes Like |Link to Comment
  • CST Brands - Defensive Stock On The Upswing [View article]
    Here is my conclusion again for those of you who might have missed it:

    "I like to take a margin of safety of 33%, and as such, my entry price for CST is $25.83. Being very close to the entry price, the company should be closely monitored for further market changes."

    I never made a recommendation on whether if people should take a position. People take different margins of safety, so I left it up to the reader's discretion.
    Sep 30, 2013. 07:59 PM | Likes Like |Link to Comment
  • CST Brands - Defensive Stock On The Upswing [View article]
    Hey gabeazy, thank you for your questions.

    I'm still fairly academic at this point I guess. The upside potential is not yet at the required margin of safety (or I guess, the downside protection isn't yet significant enough). And not to say that there aren't risks; there are a number of a uncertainties, one of the biggest of which, is time. Lastly, but most importantly, I'm also currently without surplus cash.

    I see the biggest value driver for CST being its steady stream of predictable cash flows. Comparing this to the company's required return (especially in the current low-interest rate environment), the company seems to be returning adequate levels of cash.
    Sep 28, 2013. 11:55 PM | Likes Like |Link to Comment
  • CST Brands - Defensive Stock On The Upswing [View article]
    Hey ltc, in this case, I weighted the valuation derived from projected free cash flows of the company (what I meant by intrinsic valuation) more heavily that industry multiple valuations. In this case, the multiples that I do use become more of a reflection back to current market sentiments and are not relied on to make a judgement on the valuation the business. But you're right, it wouldn't be correct to solely rely on industry multiples to make a claim on the overvaluation or undervaluation of CST.

    However, in reference to what you said in a previous comment, our best yardstick for CST in this case would be other convenience store operators (despite slight differences in strategy). Some companies are more closely representative than others, but all in all, they're close enough to be compared to. Any differences resulting from different operating strategies were alluded to in the article. However, that's all they were used for, as a basis for comparison.

    EPV NAV analysis is a valuation method used by some value investors. (A better explanation can be found here: (
    In this case, it is fairly valid. The past margins were stable; we have an extensive history on the retail information (provided by Valero). In this case, I believe the best way to predict the future is by using the past (with appropriate adjustments).

    Incidentally, currently, the market is valuing CST roughly at its NAV. So why is it undervalued? Perhaps, people are worried about management's ability to increase margins. Perhaps, current growth prospects are fairly low. As a result, people seem to be overlooking their ability to return cash to investors. Comparing their cash flow generation to their risk levels and their required return on capital, the company appears to be undervalued.

    I don't like to get into the specific assumptions used for my DCF (everyone has slightly different opinions, and the numbers aren't exact science anyways), but the values I used were in line with past performance (except with adjustments made where they were otherwise stated such as gas margins). Maintenance capex was also increased significantly above management's current projections on capex requirements. In terms of long-term growth, I projected it to be roughly in line with the US economy as a default.
    Sep 28, 2013. 11:31 PM | Likes Like |Link to Comment
  • CST Brands - Defensive Stock On The Upswing [View article]
    Hey mvp, I appreciate your comments. This, in particular, was a very well-written and coherent rebuttal, and you certainly have done your research.

    I would like to make clear, however, that my valuation is based purely upon what the company has done and not based on undue confidence in management's ability to improve metrics. Specifically, in my models, I've maintained merchandising margins at roughly what they were in the past into the future, and I've decreased fuel margins as compared to historical figures due to the change in relationship with its supplier. I have also maintained most other operating metrics at roughly the same levels (unless they were stated to be different, in most cases, making a more conservative estimate). Based on this, I am confident in my instrinsic valuation.

    Any other performance improvements would be a bonus upon its current intrinsic value (and can be viewed as an added margin of safety). Since my analysis focused on finding the intrinsic value of CST based on FCF generation, whether if CST's stocks outperform or underperform its peers is another matter altogether. My valuation weighting reflected this fact.

    Okay, so in response to a few of your points:

    2) This was based on the opinions of CST's management as based on the most recent investor call. And it isn't so much about under-investment, and more about focus. Instead of having to take into account of the effects of decisions made in the retail division upon the entire Valero company, CST can now solely worry about trying different strategies and seeing how they would affect their bottom line.

    3) Admittedly, my article was submitted late (finished a few weeks prior to submission), and some information could be outdated. Valero had originally stated that they would seek to exit their investment within the first 18 months. That came sooner than expected. Again, my fuel margins were decreased to reflect this change, but that isn't to say relationships between the two companies would have dissipated altogether. The point was, this relationship is what could drive better contract terms.

    5) While they cannot make significant acquisitions, I don't see this to mean that they cannot make any acquisitions at all. But, you're right, this should be better viewed as a long-term source of value.

    6) My comparables chart is attached in the appendix, and as I mentioned before, this was an article solely focused on the performance and intrinsic valuation of CST Brands.

    Comments like yours adds another layer of depth to this insight. Thank you for reading!
    Sep 20, 2013. 11:56 AM | 1 Like Like |Link to Comment
  • CST Brands - Defensive Stock On The Upswing [View article]
    Actually, I should mention, as part of the tax-free spin-off process, CST is also somewhat limited in making strategic transactions and equity issuance for the next 2 years.

    So they can't
    a) have all or a portion of stocks acquired
    b) issue equity beyond certain thresholds
    c) repurchase stocks
    d) cease conducting business
    e) make any actions that prevents them from being tax-free
    Sep 19, 2013. 11:49 PM | Likes Like |Link to Comment
  • CST Brands - Defensive Stock On The Upswing [View article]
    I really like this idea, and was also thinking this when I did the valuation. There just doesn't seem to be a lot synergies between the two vastly different regions (geographically and operationally). Having both was important for Valero, but I'd say it's questionable for CST.

    I would love to hear some contrary opinions though.
    Sep 15, 2013. 08:03 PM | 2 Likes Like |Link to Comment