Seeking Alpha


View as an RSS Feed
View SteinwayCapital's Comments BY TICKER:
Latest  |  Highest rated
  • Manhattan Bridge: Radical Share Issuance [View article]
    now his share ownership goes from 1.8 million to 2.8 within a 4.6 milion share structure.

    noteworthy is that CFO resigned in June and was promptly replace from within. This is not a self described 2 member organization, although the website lists 2, 3 other names who have some roles within company. I would assume though the 2 member description is accurate.

    there is a lot of key man risk here within this firm.

    Do you know any of the insiders?

    I ran into this Lyron Bentovim board member years ago on conjunction of the Three-Five Systems (TFSIQ) liquidations. although promised as a 32 cents liquidation, eventually it returned like 11-12 cents and only after 3-4 years in process. Lyron effectively took control of this situation and was the only person in charge of liquidation. I never understood to whom the valuable corporate real estate was sold. I was never given the answers on that. Was there impropriety or was it just a case of advisors gutting the liquidation estate from within with lots of fees and billable hours?

    What I want to say with this is that great business people are not always or rarely on the lookout to share the spoils of their risk taking with outsiders. it would frankly surprise me if they did.

    So whatever book value sits within this company, it may only be there to enhance the credit rating of the company with outside organizations from whom they need credit from time to time to close on some of their deals.

    From the deal pipeline, this company looks very similar to Franklin Credit with high interest short term loans and one day Franklin Credit imploded. it looks like a lot what they are doing now is residential type loans and possibly they do lots of foreclosure on that.. so could be a classic loansharking operation where they might not take too much risk on the underlying properties and appraised values.

    However, value quickly evaporates to the shareholders with such radical share issuances. The other board members do not own much of the shares to begin with, which seems odd in the Jewish small co context.
    Sep 7 10:57 AM | 1 Like Like |Link to Comment
  • Valuation Gap Makes Gold Miners Attractive, But All Miners Aren't Created Equal [View article]
    Anyone looked into Primero Mining?.. lots of motivated sellers/ arbitrageurs dumping the paper for the wrong reasons. Northgate, the buyer got a superior offer and Primero ended up being the spurnt bride.. Primero as a Goldcorp spin-off lead by Iamgold`s Conway is incredibly cheap as we speak. Conway has only been at the helm of Primero for 12 months and the latest quarterly earnings looked good. Primero had decent positive earnigns, which bidder Northgate had losses. Due to the recent counterbid for Northgate, the market is now loving Northgate and dumping Primero. For a not so well followed name like Primero, the attention it is getting right now is of the negative kind. It does require a contrarian mindset to step up to this plate. There is a little hedge issue with Silver-Wheaton that can be resolved over time with production growth. It is though a show me aspect of the story. So far, investment analysts have been bearish because of the hedges. And I think Conway is tired of answering hedge questions on the conference calls. The people following this name do not seem to get beyond those pedestrian hedge issues that indeed are short term constraints to earnings. Second half of 2011 should be all unhedged and the stock price created by those motivated sellers is quite an intriguing opportunity. I believe Primero will recover from this and they walked with the 25 MM breakup fee. Hard to believe that it is trading now below where it was trading in early July when they got the offer from Northgate. Its one of the few gold/silver mining stocks trading at book value. Its definitely an underdog in the junior gold sector but operationally heading in the right direction. They recently listed on NYSE and trade now under PPP. The main listing has been in Canada. (P.TO). It will take a few capex dollars for them to get to the desired annual output of 200,000 oz of Gold. Currently they are annualizing closer to 100,000 oz. Primero is a one-mine organization. The exploration they are doing happens in their existing Mexican mining property San Dimas. The Capex budget runs at around 30 MM per annum with most of that going into exploration and some into expansion of milling throughput. Milling throughput is being ramped up from 1800 tons to 2500 tons per day. Thanks to arbitrageurs there is some indiscriminate selling going on. Not heavy duty selling but a 15-20% drop in share price amid record volume in this otherwise fairly illiquid name. Goldcorp still owns 35% of shares and they have the right to own up to 50% via conversion of notes. My operational view on this has always been that Conway will make it happen. We are 12 months into this Goldcorp spin-off story. Thank the arbs for providing this bargain basement opportunity at this point in the gold cycle. Primero story is a production growth story. Operationally it is to be evaluated as to how well they manage to get to their targeted 200,000 oz per year target. This is an organic goal of theirs with the help of some exploratory drilling programs and some facilities expansion capex.
    Aug 29 11:04 PM | Likes Like |Link to Comment
  • 5 Low Priced Gold Stocks on the Rebound [View article]
    The cheap way to invest in Northgate seems to be via Primero. Possibly even unhedged, as a backdoor strategy to buy Northgate at discount, subject to deal closing. Almost everyone I have fielded on this assumes this is a done deal with the bulls cheering loudly for Northgate and nothing else. This has left Primero quite by the wayside, as if this deal was not to close. The drawback is that Primero only has canadian listing and US pink sheet. for the bulls who have bid up Northgate's US stock listing, the question is where would Northgate stock be without Primero deal or future prospective leadership of Joe Conway? it would still be an OK gold miner but one that also has some risks. The risks of not so smooth upstart production at Young Davidson in 2012 are not small. Every upstart goes through hickups and geological debottlenecking during rampup. So nobody can really claim that Young Davidson is a surefire and smooth ticket to riches. The risks of Kemess North not getting beyond blueprint exist. The Australian mines have a history of being minor contributors. Some of the mines in Australia were part of the Leviathan Resources spinoff from LionOre as part of a merger that I investigated years ago. The Leviathan assets had always been sleepers and not appreciated enough within the LionOre Nickel company. None of the historic owners of Leviathan had ever the resources or motivation to invest in those assets or mines. Principally lack of resources has dogged these mines and their performance. Northgate could easily be considered on its own a glass half full or a glass half empty, depending how you look at it. A top notch CEO able to win support for projects and capital raises makes all the difference here. This is why I ask: What is Northgate without top notch Conway leadership? As a long Northgate investor for quite some time, the huge Primero spread is puzzling. It could be a great arb opportunity though. Also a backdoor unhedged entry opp into Northgate itself. Some folks have mixed feelings about Ken Stowe. We have to give him some credit though. He was smart enough after 10 years to pave the way for new transition and future leadership at the company. If Kemess North is to be proposed again for mine extension, it better be done under new leadership. This seems definitely on the drawing board. The targeted combined production volumes of Primero/Northgate seem achievable after investing some 300-400 MM in mining PPE. Northgate stock is a bit ahead of itself with market aggressively re-rating as mixed-bag mid-tier, while Primero trades at steep discount to proposed deal value. This business combination is for investors with the long haul in mind. I think post closing we will face years of hustling along to move any of the mining opportunities closer to target. This is a grab-bag of options. just like Leviathan Resources was a grab-bag when it was spun off in Dec 2004. What Northgate makes with this grab-bag is really a function of mining capex soundly employed. Joe Conway will have his work cut out for himself if he is to turn this into the next Iamgold. It wont happen by switching on the autopilot for sure.
    Jul 25 11:33 AM | Likes Like |Link to Comment
  • Investors Flee Berkowitz's Fairholme Fund; They Should Be Piling in [View article]
    kind of reminds me of Olstein Financial Alert fund during the crisis, in the crisis and after the crisis. Nobody would have said that Robert Olstein is a fool for that matter. And he sure did recover some of the lost territory for those who held on. The enduring love affair with the corrupt financial system can work both ways. I am glad I sold my Goldman shares out profitably. In this market you have to be a market timer. Even if uncle sam makes a few bucks here and there. I sure enough can buy my goldman shares much cheaper today if I wanted but I wont really here. Cash is good to have for as long as banks continue to treat their clients as fools. Having had my insights into the Kinetics fund family during the internet heydays and subsequently, I kind of know first hand how these fund inflows go. they come and go. Even the sadly beaten UBS is thinking again about doing acquisitions. The banksters mentality just never changes. I generally would side with Marc Faber who isnt that gung-ho on the asset shufflers that dominate the economy. As the Icelandic prime minister said during the crisis, everybody go back to fishing. What can we say to the hordes of unemployed banksters. Everyone go back to farming, teaching, manufacturing, mining and doing some real work. lights out.. game over.
    Jul 7 10:18 AM | Likes Like |Link to Comment
  • Just One Stock: The Fertilizer Producer Nurturing the Ag Commodities Boom [View article]
    Very helpful responses. Thanks. This explains where the Miss Chem phos property ended up. Apparently, there was another phosphate related entity within the Miss Chem bankruptcy estate, a subsidiary called Mississippi Phosphates Corp (MPC) which was spun off to creditors in 2004 into a separate creditors trust. This trust was dissolved in 2007 and shares distributed to the creditors. MPC now trades under the ticker PHOS as Phosphate Holdings. Essentially this is a DAP processing plant with decent capacity, but with no internal phos rock sourcing. Interesting asset, but only in the right part of the cycle. Things for PHOS have to fall perfectly in place for them to make good profits. They source all phos rock from Morocco. The earnings over the years have been rather unpredictable. Capacity utilization and raw material sourcing and pricing has dogged them at times. At other times they have performed very well. I have been speculating that these assets would fit much better into the existing operations of a bigger company such as MOS or CF, POT or Agrium. But at what price. PHOS is studying strategic alternatives, a process started in December and disclosed to shareholders in March. These guys got quite some ammonia terminaling assets as well, but not currently used by them. It is more of an asset play and difficult to value as outsider.
    Jun 3 05:42 PM | 1 Like Like |Link to Comment
  • Bunge: An Immediate Buy [View article]
    Thanks for sharing your perspectives on BG. been following this names since 04 and part of my long term asset allocation. Expect to own a bigger company and so far it has worked out well.
    May 9 09:23 AM | Likes Like |Link to Comment
  • Just One Stock: The Fertilizer Producer Nurturing the Ag Commodities Boom [View article]
    For the time being they delivered the goods in Q1. good article. I may have to pass for the moment on CF. but I like their assembled asset base.

    Do you know if the CF phosphate mine that opened in 2010 in Hardee County was taken over as a project from Terra and is that the same mine that once belonged in 1988 to Mississippi Chemical? Just trying to connect some dots here with another investment of mine that once owned significant phosphate acreage in that area but never developed a mine. Miss Chem actually sold its potash acreage in 1988 for 57 million. It is pure speculation on my side whether they sold it to CF of TRA. or to a
    different party. it would though be a nice coincidence. There were not that many players that had built up credible acreage in that area that was worth being mined eventually with all permits in place. Given the stuff going on at MOS its a nice asset to have a permitted Florida mine in place.
    May 6 04:56 PM | 2 Likes Like |Link to Comment
  • CF Industries Delivers - But Will the Weather Play Along? [View article]
    Great quarter indeed and Terra purchase by CF indeed looks smart.

    CF today owns many of the Mississippi Chemical assets that many moons ago were absorbed by Terra. I wonder how much these assets contributed to the story. X years after Miss Chem bankruptcy filing.

    Maybe its time for CF to make a run on the part of Miss Chem that Terra couldnt get as part of the Miss Chem reorg.

    It seems like an interesting little piece that would nicely fit into today's CF.

    I was most eager to invest in CF, but with all the risks I prefer 10times to own PHOS and wait for CF to make a run for it. I even accept CF shares. Food for thought. With such a deal, CF would reassemble the old Miss Chem under one roof and get a nice and large ammonia terminal on top of it.

    Could this all make strategic sense for CF? The way i understand it, creditors prevented Terra at the time to get what they left behind in PHOS. As unleveraged play with 100 MM market cap, and ramping up some 80 MM in EBITDA soon, this little play would pay for itself very fast.

    Food for thought.
    May 6 04:35 PM | Likes Like |Link to Comment
  • Buying Brazilian Stocks (Part III): Consumer Staples [View article]
    Dont forget NYSE listed Bunge (BG) which has extensive Brazil/Argentina operations and 2/3 of workforce in Brazil. Strong operational presence albeit selling stuff internationally in some 60 countries if i recall correctly..

    I am a shareholder of BOBS and BG for quite a while. The main story at Bobs is the Bob's burgers which have some 700 plus points of sale. The in boca al lupo is a coffee chain and not pizza knockoff. while you forgot to mention the famous Doggis hot dog gain with a handful of stores. KFC is in Rio only and Pizza Hut in Sao Paulo so far but Bobs has master franchise for all Brazil. Thus if they are successful, they take KFC and Pizza Hut national over time. There is a similar KFC master franchise company by the way in Malaysia. forgot the name but is listed and doing very well. Just food for thought. Bobs should do pretty well over time particularly since they are continuing to improve their image by delivering top quality product in the market place, particularly as it relates to the dominant Bob's Burger chain. The high ROI in part comes from owning the franchise system for Bob's Burger, allowing them to extract over time nice royalties from all franchisees. with 700 plus Bobs franchisees the story is already good. when Bobs gets to 1500 franchisees, this is when the ROI party really starts to kick in. Even go ballistic, if you allow such superlatives. in the 7 years i followed BOBS they have doubled their franchises in the market.. Over the past 12-13 years they probably tripled.. ..
    Apr 25 05:30 PM | Likes Like |Link to Comment
  • A Writer Scorned: Buffett Biographer Can't Let Sokol Issue Pass [View article]
    There is no issue with what Sokol did. As an analyst, I frequently take positions in companies that I find worthwhile to invest, and there is absolutely no guarantee that any of my fund clients will ever follow suit on any of my recommendations. Give you an example. Amcol (ACO). At 20 bucks, nobody wanted to hear about it. at 35 bucks its the typical coulda, shoulda, woulda tale. I remember on one instance some 10 years ago when Rockwell Automation and Rockwell Collins split up and Rockwell Automation traded in when issued trading at 10-12 bucks and I made a significant commitment to this name. I had published my report on this name weeks before buying the stock. My employer at the time deemed my buying of the when issued shares of ROK a grave conflict of interest, and asked me, that if I planned to do any further updates on the stock, I would either have the choice to sell my shares and send out future updates, or not sell my stock and not send future updates. I chose in this case to sell my shares so my clients would have the benefit of this marvelous investing opportunity. I am quite sure that these types of internal conflicts are difficult to handle for any firm. I was not aware of any wrongdoings when i bought shares or ROK for instance. It was a high conviction putting your money where your mouth is. I am pretty sure that situations like the Sokol investment in Lubrizol happen all the time. These can be legitimate investments to begin with. As a player, Mr. Sokol certainly attracts his fair share of player-haters. If you believe in high conviction investments such as I do, then taking a large stake in a company of decent familiarity (such as in Mr. Sokol's case Lubrizol) is not such a big deal. I am about to make a concentrated investment in another company and I grant you that I have no clue if any of my clients will like or dislike the name and honestly, I could not care less, as in the past. What matters is that I have done my homework. Clients have to know for themselves what risks they can stomach over what holding periods. I am pretty sure that Sokol didnt wait for anyone to bail him out. People who make bold investments of the High Conviction kind will always create some talk. Anyone on this board still remember young fund manager Cara Goldenberg and the stock tips she gave Warren Buffett that got her a free dinner. That was a brash and in the face move to all those fans that are willing to pay dearly for a dinner with Warren. Cara's stock tip Valeant Pharma turned out to be a kick ass investment, but not without causing plenty of controversy along the way. Instead of questioning the morality of a person such as Sokol or by extension Buffett, why not congratulate Sokol for investing acumen, just in the same fashion as a Cara Goldenberg could be congratulated on her acumen for putting her high convictions in a stock that quadrupled from levels when recommended to Buffet. I guess, Buffet was impressed by Cara's approach, but didnt ultimately invest to the best of my knowledge. The same could have happened with Sokol's investments or any of mine and it never disproves the original investment thesis to begin with. Food for thought.
    Apr 4 08:22 AM | Likes Like |Link to Comment
  • Brazil Fast Food: So Tasty, Insiders Can't Get Enough [View article]
    Turbocheese was delayed thus far..

    I came though back with some Grazingbull research insights on the insiders.

    I am not done with this investigative research.

    Here are my conclusions though at this relates to one of the families with heavy ownership interest and which is actively on the buying trigger.

    I had to research them, because I didnt really know well who they are and their sources of wealth that allows them to buy plenty of shares and become bigger players at what they do.

    In this respect it is noteworthy that the Brazilian press speculates about the "mysterious owners of Bobs", because they are quite below the radar screen in their personal and business affairs.

    Bobs is a household name and the financial press in Brazil keeps feeding the rumor mill on this name all the time. However there is very little useful background info on the insiders.

    Thus, I set out on my own in my typical covert tactics. Digging through lots of court docs, company filing and other records available to me.

    What I found out is that one of the controlling family owns a 13-14% stake in the World Trade Center Sao Paulo and related hotel and convention space. This is a modern 200,000 square meter building centrally located in Sao Paulo and built in 1995. I reviewed minutes of shareholder meetings. The family members of the Bobs insiders own 1512 debentures in the underlying. There are 11300 debentures outstanding. so do the match on this. Each debenture has a face value of 39,000. Do not ask me what the dividend and debenture payout policy is or has been in past. Based on casual reading this complex should be worth a lot and other than the convertible debentures there are very few liabilities on the balance sheet. This tells me that this interest in a very recognizable building with decent cash flow could be very decent collateral to borrow against. The company that own and operates WTC SP is called Hauscenter SA, and although it has a BM&F Isin number, the underlying papers do not trade.

    So for whoever has been wondering like me if the insider trades are for real or just a trade blotter fiction, I think there is some validation of underlying family wealth, although the insiders like to be very secretive and not even the press knows what they are up to. As investigative guru on the block I will though track what these guys are up to whenever something surfaces.

    I have not investigated a number of angles such as the Alpha Centauri vehicle used by insiders to purchase shares. I never had issues with the insiders per se and do not really know their sources of family wealth other than that they have it through a number of more or less disclosed entrepreneurial undertakings. There are 3 generations at some level involved in BFFC and affiliates such as Bigburger Ltda. Insiders appear to have ownership in gas stations, food service businesses, real estate and construction and engineering services. The head of one family appears to be a civil construction engineer who based on delineated life accomplishments must be in his mid to late seventies.

    This is far from a comprehensive reporting on the background of insiders. There is much more to it and I printed out a stash of docs for my ongoing files. I wont belabor here with lengthy reports of any nature. I'll be doing more background checks on identifiable movers and shakers. So far one can clearly pinpoint to strong entrepreneurial underpinnings. Although the extent of involvements may not be fully comprehensive for all involved parties.

    Most importantly there seems to be evidence that the insiders have co-habited in other ventures with other shareholders. For parties who have on other message boards speculated about buyouts and the like. This can never be ruled out. Albeit it could make sense to keep the Delaware organized hold co around for quite some time in case this entity helps the families in their wealth planning strategies. I dont want to fuel speculation either way.

    Enclosed follows a snippet from this magnificent property in Sao Paulo.

    Mar 25 03:46 PM | 3 Likes Like |Link to Comment
  • Brazil Fast Food: So Tasty, Insiders Can't Get Enough [View article]
    sorry for not proofreading. the commentaries are more long term and background oriented.

    Short-term I am happy with all the price action. It works in everyone's favor.

    Today I had the first conversation with a brazilian national who was raving about the DoubleCheddar on their menu. which apparently is a lot better than the McCheddar of McDonalds according to this guy. I neither know the MCheddar nor the DoubleCheddar. This guy was also raving about the quality of the buns.

    Interestingly, this guy has never traveled abroad. From my historic interactions with the Brazilian community in NY from2003 to 2008, the Brazilian expats in NY, many of which were living there for many, many years had not much good to say about BOBS. For people who do not travel much outside of their country and may not even have a passport, BOBS as a dining option is just fine and apparently, for as long as they keep up with the menu and keep it attractive, they even love it. And frankly, there is ample evidence that they have beefed up the menu over the past 2-3 years.

    Evidently, one testimony is not enough to establish a trend. I am sure though that there are plenty of Brazilians just like this fellow who doesnt have any issues with Bobs and what it was 10-15 years ago, but care about the NOW.

    I just looked before at the 12 month chart in this and looks like a very nice and steady accumulation pattern. Something is cooking here.

    Based on seasonality and summer (which in southern hemisphere is during the northern hemisphere winter), Q1 2011 should produce strong results. Two years ago I went to the Sambodromo in Rio and Bobs had a nice presence. Not sure if they did this catering event as well this year. Most likely. From hotel occupancy stats in Rio this year I know that this year saw record arrivals and occupancies. People returned and stayed longer on average. These stats are only for the Carnaval period of this year which is over now. Given that Bobs sells a lot of ice cream and milk shakes, seasonality and events have to be considered. Comes June to October some places here get quite some rainfall and temperature cools down. In sao paulo it can easily get well below 15 degrees. Here in Rio I haven't seen winters with much lower than 16 degree temperatures. No matter how you put it, ice cream doesn't sell well at 12-16 degree temperatures.

    The historical stock chart and earnings pattern seem to suggest that earnings are variable, albeit as a whole upwards trending. Investors tend to extrapolate six month seasonally skewed results into annualized numbers. This may not work in this case for people who care to forecast earnings with more precision.

    Time to get back into the armchair and rest.

    For anyone in need of interesting, ultra-cyclical, agricultural price action I highlight Phosphate Holdings (PHOS) as a side pick. This is a deeply cyclical producer of diammonium phosphate and emerged 2007 from bankruptcy (part of the Mississippi Chemical estate). This biz has 90% exposure to US fertilizer market, principally grain, corn, etc. Q4 number were abnormally bad due to maintenance turnaround. DAP prices are up 93% and PHOS forecasts 20,000 tons more output in Q1 2011. If EBITDA in Q4 was 5.2 MM, where can they get in Q1 11 and whole 2011? This is definitely not Brazil related, but it may appeal to folks investing in BOBS due to underfollowed nature. PHOS emerged from bankruptcy and has equity of 59 MM and 7 MM in net debt and 8.5 million shares. They are overcapitalized once they get back to regular earnings. They already made a special cash distribution in 2008, but then tanked in 2009 when agricultural markets were clobbered. I think 2011 will be the year to head up again with the way soft commodity prices have been evolving. Way up.
    The company formed in Q4 a special committee to explore strategic options. I have no idea if they have a buyer lined up, are willing to shop the company around to a strategic acquirer or are thinking more along the lines of return of capital, as they did in 2008 with the special dividend. PHOS was distributed to the creditors of MPC Trust Co which was a sub of Mississippi Chemical. Major capex expansion was completed here in 1998 which means that PHOS should not make expansion capex in physical plant for years to come. The useful life of existing assets is easily another 25 years. This is not a mining company but a agricultural fertilizer processor. It is a chemically related cyclical biz strategically located on Mississippi River. The phosphate rock being processed and imported into US comes from Morocco from state owned company OCP. This makes OCP in principle a natural buyer with strategic interest in these assets. The same can be said about Bunge which already has a JV with OCP and would be a natural buyer of US exposed assets of this kind. Food for thought for those interested in the global food theme.
    Mar 23 05:24 PM | 1 Like Like |Link to Comment
  • Brazil Fast Food: So Tasty, Insiders Can't Get Enough [View article]
    you're welcome.

    Danny. generally the trend has been one of gradual improvement.
    12-13 years of steady ownership and reasonably consistent growth strategy certainly helps.

    I tend to pay attention to the little details that I see in the go to market and appearance of BOBS.

    Today I tried to sign up for their newsletter on their website and the feature doesnt work. BOBS managers, if you are watching, fix it.

    I also went onto the Bob's Original website which is a good idea in principle to have 2 Bobs location with the original food items that Bobs served in 1952. Unfortunately, certain parts of that website are not functional. Go fix it. This is BOBS in its usual ways. the idea is great, but the follow through. Since I live in Rio I will check out some of this and see if the Bobs original stores based on their retro-theme is in any way interesting. The food items I saw on the menu looks like American diner food and to be honest, I do miss good old american diner food around here. Bob, the founder of the chain was an American wimbledon tennis champion. Evidently, a company with a 60 year history has lots of collective memories to share and revel in. There is room for different store formats and menu items, but not unlimited room since it is all about marketing. Right now i see a go to market with 3, 4 different websites. Those being:

    1 website with content from Bobs corporate
    1 website with content from BOBS public relations/imprensa
    1 website with Bobs's Original.
    There maybe other Bobs websites that I am not aware of.
    There is even an Orkut presence although not linked to the homepage of Bobs.
    All social networking ends with parts of website disabled or not functional such as newsletter and content pages.

    Mind you, I am not looking to spot weaknesses but I am interested as shareholder to read up and get involved on what they offer and how they position themselves in the market.

    There has always been my impression that they want to do too many things at the same time. And end up not delivering on all their promises.

    On walking home last night, i noticed that they took down that horrible KFC advertising and replaced it with a mainstream one, not containing any untruthful statements. Well done. Evidently it cannot be very effective advertising to claim that something is a new store in the neighborhood when all the locals know that it isnt. You lose immediate credibility in the market place.

    Even so, I will be than interested to see how they reposition KFC and Pizza Hut brands in Brazil. I do see more people walking on the streets with KFC chicken tenders buckets. Their latest KFC promotion is all about Sharing the Good Stuff ( A Boa e Dividir) which seems to me a more positive market message about a food concept. KFC also advertises agressively on billboards and electronic billboards. I honestly have never entered one of their KFC locations.

    On Bobs, most store awnings have received a complete visual makeover for the better in 2010. The corporate imagery is better, plain and simple. And there seems to be some more consistency.

    Now it appears that they have been experimenting since 2010 with a novel store concept called Back Express by Bob which is a store format that is anchored in airport corridors, metro locations and other not well ventilated high traffic locations. They had 8 of these in service at one time and were aiming to hit 50. I do not know how many they have at this time of writing. Generally these store formats would require less capital investment and less upfront franchising fee.

    In a way Back Express is a scales down version of Bob's Burgers and similar in size and investment requirement to the Ice cream/Milk shake kiosks. This is a 2010 store format creation and I have not seen any of those.

    I do not know at this point how many stores of what type are in their portfolio of 750 points of sale. Evidently there are various types with different characteristics.

    Generally the upfront franchising fee that Bobs is asking for has been lowered in the past 4-5 years from about 90,000 reais to about 30-60,000 reais. the 30,000 would apply to the best of my knowledge to ice-cream kiosks but the capital required is still in the area of 200,000 plus in the case of Back Express and not sure what it actually is for ice-cream kiosks.

    Honestly, I do not care if they open more Kiosks, Back Express, Bob's Original or Bob's Burgers formats for as whatever they open makes economic sense and improves group profitability over time and leads to strengthening of brand and more effective regional sales territories. In terms of growth potential, and geographic coverage, these guys have ways to go, but getting high quality franchisees in the door will be the challenge. Since I have absolutely no insights into these efforts I withhold judgment.

    I am sure Bobs management has a good sense of the competition they are up against as the Bobs CEO is also the head of the Brazilian Franchisor Association, ABF. There are many interesting franchising concepts available in Brazil to anyone with 200,000 to 1 million reais in capital. Examples are things like Parme, Spolettos, Giraffas, Mega Mate, Rei do Mate and many more.

    After reading the menu items, I think i will go today to Bobs and have a TurboCheese and see what this looks like. Otherwise the Bobs Picanha is my favorite and there are no complaints about size of servings or quality of meat. The preparation time at Bobs is typically longer than at MacDo and the difference appears to be a bigger emphasis on cooking to order, rather than pre-cooked foods. One of their priorities listed in 2010 was to reduce the time it takes to deliver orders. The Back Express store format is based on the notion of fast delivery speeds, apart from fitting into particular locations where small store format is needed.

    Mar 23 10:32 AM | 2 Likes Like |Link to Comment
  • Brazil Fast Food: So Tasty, Insiders Can't Get Enough [View article]
    I have been investing in BOBS since 2004 and whatever I heard from expats living in NY about BOBS was negative. I did very well by not heeding their opinion about this stock. In the end what matters here is that they restructured their operations. settled unsavory tax liabilities. Moved substantially from owning and operating restaurants to just being a franchise system owner and manager. And most importantly they have build up scale in the 7 years i owned the stock developing from 450 points of sale to 750. And they are now involved in multiple restaurant platforms, whereas 7 years ago they were only involved with their very own Bob's Burgers. Bob's Burgers still needs a bit work to get to the standards of a US company in similar category. The drawback is that their menu is confusing and cluttered and their restaurants are not as tightly run as McDonalds. there is some inconsistencies form one restaurant to the other precisely because the owner operators do a little bit as it pleases them, "Brazilian Style".

    By far the worst thing about BOBS is truth in advertising. They are not good at it and better watch that if they want to evolve because there are lots of restaurant choices in Brazil and you cannot run a credible franchising business without truth in advertising. example. there is a KFC operated chain restaurant in the Largo de Machado area in Rio de Janeiro on the corner of Rua 2 de Decembro with Rua Catete. For the past 2 years they have been pretenting with posters and placards that this is a new store opening. Meanwhile this location has existed in current location and format for the past 7 year or longer. They are not good in keeping with the truth. Also they constantly run promotions on elevator based electronic advertising with a big disclaimer of promotion subjects to change without notice. when you go to a restaurant, they almost never have any of the promotions. or simply dont honor. This is why I say "Brazilian Style".. Geitinho brazileiro. None of this goes on at the McDonalds that is located on the opposite street corner of 2de Decembro and Catete..

    All this service and promotional inconsistency does not necessarily count against BOBS as a long term investment but it helps explain why BOBS with 750 units in the franchise systems is not nearly as profitable as it could be.. compare BOBS for instance with the roughly 800 points of sales own and managed and franchises by Carrols (Pollo Tropical/Taco Cabana/ 300 Burger Kings). Carrols which trades under TAST has about 80 MM per annum in EBITDA. Bobs is far away from such revenue and store metrics and make no mistake, A burger at BOBS in Brazil or the KFC foodstuff has a very similar price point to stuff that sells in US fast food grease joints.. If you want cheap frills hamburger you can have a X-tudo on any curbside VW-Combi for 3 REAis, which is a fraction of what it will be at a BOBS. At the end of the day, if all bobs were run by a tight standard and each bobs woudl look need and organized as McDonalds the dining concept would get a lot more respect and turnover from locals. Where BOBS does well is with milkshakes, and Ice cream kiosks in shopping malls and other high traffic venues. but those points of sales generate much less revenues and have much cheaper upfront entry points. I think if you put 50,000 reais down and an acceptable location you can run an Ice-cream kiosk at a high traffic location. So in a way a lot of the points of sales growth has been in the longer hanging fruit areas. New Bobs restaurants generally look good. The older legacy places are a little bit out of control and in need of tighter operational standards, corporate audits, etc. some refurbishment is needed on occasion. Unfortunately Bobs is not a franchise system owner who pays a lot of attention to these knitty gritty details that matter to become the most wanted franchise in a given country. I think they have even outsource the corporate systems audit to a third party. Imagine McDonalds outsourcing its quality control and store audit unit to a third party. Unimaginable. so some aspects of Bobs are run in amateur fashion. And I think I know why. The current owners, managers and operators of Bob come from a background of operating and running gas stations. In a way they know what the ancillary sales Item of food can do at gas stations but beyond that it appears that the logistics of it all is not their forte. Hence whenever possible they outsource vital aspects to third parties. it is an abdication of operational management. If you delegate your food logistics to the national food purveying giants such as sadia and coca cola, just because you have no great internal logistics it speaks quite a bit to the constraints under which you operate. I have never seen a Bobs branded truck delivering buns, patties, relishes and other wares. They are not getting the branding and consistency aspect that comes with their business. Because I do see McDonalds logistics trucks, SAdia trucks I even see Rica (chicken meet) trucks and all these companies understand how to get their share in the minds and hearts of Brazilians. Bobs is only present in media/billboard advertising with its string of proken promises, inconsistent messages and then, when there is an even they make up with an exclusive sponsorship at a venue where the sales are guaranteed because there i no other vendor on premise such as at CArnaval/Sambodromo events etc.

    Bottom line, is that Bobs could be the number 2 competitor to McDonalds and give them a credible run for market share. Because their food/meet cuts are much better than mc donald. Unfortunately, they serve the meets pretty dry up. This points to a weak corporate kitchen because bob uses prime meats which mc donalds doesnt, yet when it comes to finishing touches, Bob leaves it to chances that the customer will accept just any burger they get at any price. The truth is there are lots of Burger choices in Brazil and many of them much better.

    Bobs better learn from the Boomerang chain in Rio or from Joaquin's in Sao Paulo. These guys serve prime brazilian fast food burger material that would easily sellable in US or any large fast food franchisign market... i have always said to myself.. how can BOBS get away with what they deliver to the end costumer.

    As shareholder I would be most happy if they get their act together.
    Some of their newer stores such as the ones anchored in airport locations or in the Northeast taht are new markets adn sales territories look great.

    GEtting grips on the legacy stores and getting the operators to make required investments on all levels is key.. With an increasing share price, and more institutional interest it could be an opportune thing to put a real word business plan together and even do a rigths offering and get 25 MM USD in fresh capital in the door to get necessary strategic projects done with more credibility.

    It is very obvious to me that BOBS has been reinvesting a lot internally over the past 10 years and this has depressed reported profits. I hope they get beyond the usual shortcuts and brazilian trickeries of claiming to be the best when you are really not. The market for franchising systems is very competitive in Brazil and there are magazines published on this topic and league tables that rank franchises on a number of criteria and unfortunately, bobs is not amongst the most lucrative in its category. They rank in teh top 10 in some categories, but not in the most relevant.

    I do believe that BOBS spends a lot of time roadshowing its franchises in lots of places in the country and this stuff is expensive. Having few franchisees in far away territories is also a very expensive undertaking for them. In many states, BOBs is way underrepresented but the company has no ability to have an edge logistically and quality control wise and operationally. They do not have enough cash flow to venture in credible way into X-many states where they have, 1, 2, 3 locations only. This is where bobs has to be more realistic or tie up in much more credible way with private equity and raise capital intelligently and with solid business plan communications.

    It does help that they brought in the former CEO of Sadia on their board of director and as advisor. The CEO of Sadia had a strong marketing background but he was ousted in 2009 when Sadia ran up huge Forex losses and wa taken over by Perdigao. This guy had a tenure of 20 or so years at Sadia in various capacities and is a well recognized person in the Brazilian corporate world. he doesnt have an operative role at Bobs but he has taken on an operative role at Bunge Brazil Ltd (which is the Brazil subsidiary of NYSE Bunge). Just so we understand. BOBS has beefed up its board with credible advisors and board members, but they are not running teh show completely. So one cannot overinterpret into these executive appointments. I am pretty sure that this guys employemt contract at Bunge will be of much more operational relevance than the board seat at BOBS. the two functions though are not mutually exclusive. Bunge is also very poor with regards to the brands of their edible. oils, margarines, shortenings and consumer foods businesses in Brazil. Bunge competitor in these areas are Unilever, Sadia, Cargill (Liza).

    Brazil has some great brands in certain areas and marketing talent is out there in abundance. Now it would be about time to turn BOBS into a prime brand and turn that thing around. Truth in adverstising is what sets a top shop apart from an also-ran organization. There is the saying, where there is smoke there is fire.. If certain operational practices used in advertising are OK, what else is considered OK by insiders who run the show according to their best abilities.

    The good thing is that Bobs stock has been rewarding. the bad thing is that it has nto been as rewarding as it could be. Till 2014/2016, BOBS need to do lots of things. And since this is a domesting market play, they better start to better cater to the domestic markets because places like Boomerang or Joaquins are usually nicely filled, which cannot be said about many Bobs. I will admit that I do not stand with a store counter in front of any of these locations. the evidence i have is anecdotal. but what I simply want to suggest is that BOBS could have a kick ass restaurant turnover..

    I work as an expat with about a dozen brazilian co-workers. the only fellow co worker ordering bobs are the corporate counsel and oen intern. the other well to do and well educated professionals do not think about having lunch dinner at bobs. tonight as I was heading out of work, everyone was feasting a subway sandwich while finishing a few things. Subway franchises are always filled with people. again anecdotal evidence. These are however experiences from someone down in the local markets where Bob operates and not remote site observations.

    With regards to insider transactions there appear to be two institutions affiliated with certain executives scooping up some shares. It may not mean that it is all teh money that belongs to said executives, but the executive have certain interests in these partnerships that own said shares that were purchased.
    Mar 22 09:57 PM | 8 Likes Like |Link to Comment
  • It May Be Time to Load Up on Coffee Holding Co. [View article]
    Thanks Pitbull for this insightful article. JVA came up in a screen on monday and I remembered all these articles on the coffee wars and takeover of Diedrich Coffee by GMCR (Peet having lost that war). your article helped me cut through the smoke and provide helpful background on the managers which is something I increasingly value in my investments. Thanks for sharing your insights in a great article... Just ran some number through the thinkolator and it seems like that some of the peer companies were pretty much the size of JVA back in 1999/2000 with sales of 70-65 MM and EBITDA of 5-7 million. Backed by a motivated and capacitated management team, maybe this can evolve in similar fashion over the next 10-15 years. Evidently, today, GMCR and PEET have EBITDA of 180 and 45 MM respectively. the progression from 5 MM to 45 MM and 180 MM does not come overnight. Only with sound management and incentive structures can this be achieved. I am not familiar with how gmcr and peet ahve grown into the firms they are today. probably some M&A and share count increases along the way. possibly. I gather that this is a business where in order to grow more money has to be reinvested in capacity or add capacity through M&A. JVA certainly has run a disciplined ship since going public in 03. put some chips into this and will see what happens over the next few years. I was amazed by the volume yesterday. Given 53% insider ownership on 5.5 million shares outstanding, 20% of share traded today which probably represented more like 44% of public float. Great article, great timing.
    Mar 18 09:42 AM | Likes Like |Link to Comment