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Thomas Finser

 
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  • Make Up Or Break Up: Unlocking Value At Hudson Global [View article]
    This is a good question. I would recheck the '11 and '12 annual reports (see item 12 in the footnotes). Column A of 1.2m to 1.3m is the running total accumulated as of the reporting period...equity comp overhang as of 12/31. If we go back to the '12 10-K, Item #12, roughly one third of this 1.2m share comp overhang relates to the Marquez employment agreement. The weighted avg. exercise price is $5 per share for Marquez and $14 for everyone else. I would also compare the compensation scheme with KFRC, KELYA, and RHI and others. What's interesting here is to peruse through the 14A's for HSON from '11 through '13. Their incentive structure has shifted over time and relative to other players. This is the type of stuff that matters because comp structure often signals shifts within the company--especially with a beaten down name people love to hate.

    I see a compensation structure that is getting "less bad", with incentive targets more akin to top quality HR peers. Long story short, the equity overhang at HSON, is more psychological than fundamental to passive minority shareholders. Philosophically I agree on your management compensation point. However, what matters most in my analysis is the rate of change/direction relative to the dollar-weighted average perception of the marginal buyer/seller. Herein lies the opportunity.
    Sep 23, 2013. 10:33 AM | Likes Like |Link to Comment
  • Make Up Or Break Up: Unlocking Value At Hudson Global [View article]
    Thank you for the great question. I would check out the Q2 earnings slides for a breakdown by geography. It’s important to note that all of Asia/Pac is 40% of Q2 gross margin dollars…ANZ is roughly half of this. While an important driver for HSON, Australia is roughly on par with the U.K. in terms of gross margin contribution. To see the impact of a hard landing, look no further than the U.K., this segment was over-indexed to financial services and banking. ANZ on the other hand, is more diversified by sector, with greater RPO/talent penetration.

    While ANZ is a risk, this variable is more than offset by operational improvements within the broader HSON conglomerate, tepid macro recovery assumptions in Europe, and acceleration in the U.S.

    No doubt, ANZ will remain challenging over the next year. The Manpower Employment Survey of 1,500 employers in Australia found that 17% plan on increasing hiring, 14% plan on decreasing hiring and 69% remain unchanged. This is far less robust than past quarters. The macro headwinds you referenced and the political uncertainty surrounding the election are not helping.

    Another interesting cut on ANZ is to look at Q2 annualized EBITDA margins. If we take the Q2 numbers (ex-corporate allocated) and run some EBITDA multiples, we’re getting a solid franchise in Australia, with growth optionality in Singapore and Hong Kong for free (as I referenced in the article). Americas might be worth $50m + $22m for Europe vs. the recent EV of $70m for HSON. Asia/Pac, even with breakeven Q2 EBITDA margins, is probably worth a lot more than zero.
    Sep 21, 2013. 09:45 AM | Likes Like |Link to Comment
  • Make Up Or Break Up: Unlocking Value At Hudson Global [View article]
    The market already knows this. As with most unloved stocks, HSON is here for the reasons you cited, though I don’t fully agree with your assessment of the CEO. When bad things happen to average management, the market tends to mistake causality with correlation (e.g. revenue is down 30% so management must have caused it). Breakup fees and director comp while frustrating to any decent capitalist, are less relevant to the story...missing the dollars for the pennies. Regarding their ability to unwind the “mishmash” of businesses, you may be right. This could be inefficient, sloppy and expensive…certain segments may not be separable. However this obfuscates the point: even with a sloppy dissolution of their portfolio, these assets are likely worth far more on a stand-alone basis. This being said, the first scenario highlighted above (turnaround) is most probable. The reason I’m sticking my neck out with HSON today, is that the convergence of shareholder pressure with BOD frustration and macro stabilization have created favorable conditions for a certain type of disciplined value investor. HSON is much further down this road than many appreciate today.

    Also, I would be mindful of descriptive language. Words influence perception of reality…they unconsciously trigger a self-perpetuating narrative. Words like “weak” and “disastrous” enfold a broader story about the company in question that is often just an interpretation of the past. This story pre-programs our ability to interpret the present situation and thus, taints our future projections. This is HSON.

    Seems like you’ve done a lot of homework here and I share many of your ideas. Thank you for taking the time to read this article and I appreciate your thoughtful comments.

    T
    Sep 13, 2013. 03:55 PM | Likes Like |Link to Comment
  • LCA-Vision: The Case For Calculated Optimism [View article]
    That's a tough question. It all depends on one's time horizon, investment style, objectives...if you're buying in size or merely looking at few thousand shares for a PA. From a fundamental standpoint, the greater the time/distance from '08 the better. Things are so depressed for the industry that we merely need more time of "less bad" for this to work out. On the LVC procedure volumes, we're only slightly ahead of the depths of '09 when the sky was falling and capitalism was coming to and end. So anything that's less bad is good (including a choppy macro recovery). Any slowdown is probably pushing out the recovery in procedure volumes...by how much I don't know. I can't predict when investor sentiment turns. However, when it happens, look out.
    Jun 27, 2013. 10:15 PM | Likes Like |Link to Comment
  • LCA-Vision: The Case For Calculated Optimism [View article]
    I am buying with that expectation. Of course I can only speak for myself. What is your definition of slowdown?
    Jun 27, 2013. 10:58 AM | Likes Like |Link to Comment
  • LCA-Vision: The Case For Calculated Optimism [View article]
    Not many surprises given the Q4 commentary and the 4/2/13 procedure volume update. Closing one Visium center was somewhat of a surprise, more so because of the limited discussion on the call. I see Visium as a low probability high payoff option we're getting for free. The mkt. isn't expecting much if anything from this initiative (though some sell-siders are a tad more optimistic than I).
    May 1, 2013. 09:43 AM | Likes Like |Link to Comment
  • LCA-Vision: The Case For Calculated Optimism [View article]
    Thanks for the thoughtful response Chris. I mentioned $107 state and fed NOLs are undiscounted in the financial snapshot section, tho admittedly this is less clear from the recap above. Agreed that $107 NOL is worth less when discounted to present. This story is less of an asset play (SOTP) and more of turnaround/operating leverage story with a freebie of NOLs.

    On procedure volume, they released comps in early April. The mkt. had a decent preview on the Q1 release. For seasonality, check out this link http://bit.ly/10TquqN. FSA reductions to $2,500 combined with choppy CCI account for some of Q1 YOY declines. Hope this helps.

    T
    Apr 30, 2013. 09:03 PM | Likes Like |Link to Comment
  • What's The Beef With Wendy's? [View article]
    Thank you for the comment. This view matches consensus. The sell-side has 14 “hold”+ 2 “sell” and 3 “buy” ratings on WEN. The stock is caught in “wait and see purgatory” for the reasons you mention. Although the market is often right, significant mispricing of risk is more likely to occur in the presence of:

    1. Disequilibrium, non-linear change from the quiet evolution of asymmetric pressure points.
    2. Over clustering of homogeneous opinion (often based on recent salient events).

    We can tick both boxes with WEN. As described in Part II, re-imaging is a potentially disequilibrium event in the LT growth trajectory. Furthermore, one may observe significant clustering of opinion from major thought leaders regarding LT prospects for WEN.
    Nov 7, 2012. 01:46 PM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks Hewitt. I agree with your thought process. However, we need to look at the full spectrum of risk/reward. My NAV of $6.95 is a conservative estimate of WEN today (not factoring in the growth options from Part II). Again, there are risk and rewards to this re-imaging initiative that must be layered into the analysis. I hope to clarify this point in the next segment.
    Nov 4, 2012. 11:07 PM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks for bringing up a good point. This is the reason for my analysis. We need to test these theories, at least on paper, to see what happens. My last article was focused on SOTP as of today (not a projection of future growth outcomes). In the next article in progress, I hope to address some of your concerns. Please stay tuned for the next segment.
    Nov 4, 2012. 10:59 PM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thank you for again for the thoughtful feedback. As you mention, my franchise margin estimates are on the low side. I'd rather err on the side of caution at this juncture. You bring up some good points on Trian which I'm currently addressing in the upcoming article. Setting past misdeeds aside, we need to examine the situation from a fresh perspective, re-examine the proxy statements and dig into the recent 8-K filings. There's a reason the stock trades at this level and we need to make sure the facts as of today line up with current sentiment embedded in this price. I'm also hoping to address this leverage question in the upcoming article. Please stay tuned.
    Nov 4, 2012. 10:48 PM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks Hewitt. I'm running risk/reward right now for the next article. The NAV of $6.95 is just the beginning. It gets more interesting when you look at growth...operating leverage from the slew of initiatives discussed in Part II. In terms of risk, I worry about time and opportunity cost. As I'll share, the most realistic downside is another 24 months of $4.16 and Trian making a stealth KO at $5-$6. Nobody cares about WEN and Trian could probably walk off with these assets at a discount to NAV.
    Oct 31, 2012. 07:50 PM | 1 Like Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanksso much Jim. I would look at the recent 10-K around p.59 where they discuss impairment oflong-lived assets.I see $1.2bn(round #s) forlong-lived intangibleassets. $900m ofthis is the Wendy's trademark value which could be inflated given the timing of initial valuation (pre-financial crisis).In short, thisis boosting thebook value inMorningstar. I don't have much insight into this beyond what's in the K. However, I'mnot overly concerned with book value at this point. I would focus on cash flow given the debt situation and likely capex requirements for WEN.

    Hope this helps. T
    Oct 30, 2012. 03:31 AM | Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Thanks for the great question Hewitt. Here is a link to the case study mentioned. http://bit.ly/VAntme

    On the operating leases, you ask a tough question for which I have no concise answer. There is no substitute for thoughtful deliberation on the unique situation of each company. Valuation is often more art than science and not all liabilities or obligations are created equal.

    Normally an operating lease obligation is NOT included as “capital” on the balance sheet. However, contractual obligations cannot be ignored. In a forced liquidation event, operating leases are often treated as debt.

    I decided against including OBS operating lease obligations for two reasons:

    1. My aim is to highlight the various operating assets as going concern entities. This is not a liquidation/exit analysis where I'm netting out assets and liabilities at the auction block next week. The aim is to show what the company-owned store asset is worth "as is" and as a stand-alone business.

    2. The lions share of operating lease obligations are related to corporate stores. I have deliberately assumed this obligation within comparable valuations for recent restaurant transactions. Though far from perfect, I have a reasonable proxy for the "net worth" per corporate store inclusive of all operating expenses and LT obligations. Note that many of these comparable stores are/were sold with significant LT lease obligations. Simply put, adding in this contractual obligation on top of my valuation for corporate stores may double-count.

    However, I understand your point. To include this significant LT OBS obligation, I would capitalize operating leases discounted by the cost of debt…assuming you believe WEN is a going concern. Unfortunately we get minimal help in the K for timing of these contractual obligations.

    I would consider a 20-year estimate discounted at 7% to 9% (don’t forget to net the total lease obligation against OBS lease income on p. 121). Deduct this from SOTP NAV to account for the OBS obligation. Please note, this is likely more of LBO type view and works in non-distressed situations. See this useful guide from Merrill for some color.
    http://bit.ly/PDWGsJ. Using this framework, I found minimal impact to the SOTP valuation.


    Thanks again for the great question.
    Oct 30, 2012. 02:26 AM | 2 Likes Like |Link to Comment
  • A Long-Term Value Case For Wendy's, Part III [View article]
    Unlikely. YUM is refocusing on core brands and talking down M&A. PE deals more likely at this juncture. Trian clearly has plans for WEN and Peltz is certainly mulling things over given $4.16. That said, I would not base an investment thesis on the deal catalyst alone. This is a management execution story relative to low expectations implied in today's price.
    Oct 28, 2012. 12:43 PM | 2 Likes Like |Link to Comment
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