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Tom Shohfi, CFA

 
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  • CenturyLink Shocks The Market With Its Dividend Cut [View article]
    $2B in repurchases over two years plus the reduced dividend actually results in an INCREASE of cash out to shareholders by 30%. The move suggests that management believes that a buyback is better for shareholders. Yet, despite both of these, the market drives prices down >15%. Part of the reaction can be attributed to poor "capital allocation strategy" marketing by management. This investor myopia on cash dividends can drive the price down for a less expensive buyback.
    Feb 14, 2013. 09:03 AM | Likes Like |Link to Comment
  • Sell Rambus, Company Will See A Gradual Decline [View article]
    It appears as though the "Ramboids" that launched vicious attacks against me in 2009 have decreased in numbers. I hope that other pieces on this stock can be written to produce a rational discussion without fear of a backlash from zealots. I wrote a bearish piece on Rambus that foreshadowed many of the problems with their business model:

    http://seekingalpha.co...

    It's great to be passionate about investing, but the level of unfounded optimism from "Ramboids" in the past has been simply amazing, all while ignoring the fact that the business has been performing terribly.
    Aug 29, 2012. 12:12 PM | Likes Like |Link to Comment
  • Is Vonage a Takeover Play? [View article]
    IMHO, Skype is not the same as Vonage. Like Google, Skype has become a verb - that type of social integration is extremely valuable. Skype has a robust video chat platform, a vast global user base and some decent intellectual property. It also doesn't have the fixed costs that Vonage has - all of Skype's brand recognition has been built and maintained with little advertising while Vonage continues to struggle in a price war against discount VOIP service operators that target many of the same end users. Any decent size telecom can replicate VG's technology with spending that would be a drop in the bucket of their current capex. They're also not likely to offer a premium for a flat/declining revenue stream.

    Management has done some nice work to improve cost structure recently, yes (and I mentioned that). It's likely that they've also benefited from lower advertising costs on television and online due to the disappearance of prior big spenders (US autos, real estate related, etc). But, considering that the negative equity on the balance sheet is ~10x 2009 FCF, there is still a long way to go. Speculating on a takeover neglects to consider many of these fundamental issues.
    Mar 23, 2010. 09:42 AM | 3 Likes Like |Link to Comment
  • Is Vonage a Takeover Play? [View article]
    Why would anyone buy VG when they can slowly take customers away from them at low acquisition costs?

    The author's analysis is flawed. P/S is not a particularly useful measure - GM's P/S was 0.01 for many years - was it a value? No. As for the forward P/E of 29 - how many analysts' estimates account for that number? This company has gone OCF positive and seen improved profitability over the past few quarters due to reduced SG&A and some debt mark-to-market accounting advantages. However, Vonage still has major churn issues, a large debt load and no IP advantage.

    It's as likely a candidate for bankruptcy as it is for acquisition.
    Mar 20, 2010. 09:39 PM | 2 Likes Like |Link to Comment
  • According to its latest 13-F filing, nine of the Harvard Endowment Fund's 10 top publicly-traded positions are in ETFs - mostly those run by iShares (BLK). The tenth, for the record, is Spider-Man producer Marvel Entertainment (MVL).  [View news story]
    Interesting to see that there are a number of other small merger arbitrage positions in this portfolio - XTO, Cadbury, I2 Technologies, Sun Micro, YouBet, etc... they are small, however, and it makes me wonder if the accompany acquiring short position is also held. It does say something about the managers' position on M&A and rising equity volatility.
    Feb 21, 2010. 06:21 PM | 1 Like Like |Link to Comment
  • How to Invest in Six Demographic Trends [View article]
    I wouldn't say he was wrong about BWA - the stock is up 60% over the past year and has outperformed many auto and auto parts manufacturers. ALV has done better, yes, but if you want to have a relative stock argument, there's always a better opportunity. My last auto pick, SORL, is up 400%+ since I pointed it out at $2.00 - seekingalpha.com/artic.... Does that make you wrong about ALV? Certainly not.

    It was a nice set of picks aside from SYNO, which has been handily outperformed by traditional weight loss plays WTW and NTRI, and INTX. Intersections has not kept up with the NASDAQ since the market bottom March.
    Jan 12, 2010. 11:57 AM | Likes Like |Link to Comment
  • Sigma Designs to Acquire CopperGate [View article]
    The drop in ROE has been reflected with a 80% decrease in share price since the 2007 high (with 35% ROE). Furthermore, ROE is distorted because of the cash stockpile - take half the cash out and see what ROE looks like. I can't make the argument that management has made an effective use of that cash - the jury will be out for a while on the latest transaction. I care about cash flow, not ROE. Bank executives are often compensated on ROE... that's enough to demonstrate how misleading the metric is, and that's particularly true for the tech sector.


    On Oct 17 08:37 PM pone wrote:

    > Except for two exceptional years in 2007 and 2008, SIGM rarely has
    > a return on equity of more than about 8% average, looking back over
    > the last seven years. Is this really the kind of growth against
    > equity that anyone should get excited about?
    Oct 18, 2009. 03:12 PM | 2 Likes Like |Link to Comment
  • Sigma Designs to Acquire CopperGate [View article]
    Nice analysis, Tom. I had also considered writing a commentary piece on the transaction. As SIGM shareholders, we can take solace in the fact that management did not spend $200-$250M for CopperGate. That number had floated around before the deal was announced. SIGM had $192M of cash/equivalents and and short term investments as of Aug 1st (plus another $40M in long term auction rate securities), so there is still a nice a cash stockpile of $100M after the transaction. That's still probably too much working capital, but management may be less likely to do another repurchase after doing so last time at such a high price per share. I for one would like to see them announce a new buyback of around $30M (which is 10% of shares out prior to transaction, 30% of cash and 75% of 3 Year average FCF) to fight some of the short selling that has kept the stock down.

    Frankly, I think the synergies are much more top line oriented than with costs. Geography will be one basic challenge to trimming R&D expense. Then there's the differences between the two technologies - they're complementary in use but not so much in development. The deal is structured to retain and provide incentives for CopperGate's existing talent - a plus for the new company but goes contrary to R&D expense reduction. SIGM's management must believe that the deal will offer a more complete IPTV suite that can keep Broadcom from taking a large percentage of market share, particularly with AT&T. Their offerings fit into AT&T's strategy more so than Verizon and its fibre to premises offerings.

    I have a detailed model that I'm adjusting to the deal, but here's a back of the envelope calculation that I believe is fairly conservative:

    Disc Rate 13.00%
    FCF Addition (mm) $22
    Pre Transaction Post Transaction
    Long Term Yearly FCF $40 $62
    FCF Perpetuity $307.69 473.0769231
    Net Cash 192 100
    Target Market Cap 499.6923077 573.0769231
    Shares Out 26.8 30.8
    Target Price 18.64523536 18.60639361

    Basically, the new company would have to increase FCF by $22M (over 50%) to equal the prior valuation of SIGM. That's an aggressive assumption and a likely contributing factor to the stock's sell off. If the contribution is $15M in long term FCF, which is more realistic in my opinion ($10M in income is already there and it's bound to grow at a double digit rate), the estimate drops from $18.60 to $17.

    We'll have to see how quickly they can integrate and provide the combined offering to customers. Broadcom has been looming, but, as many SIGM longs believe, it has already been priced into the equation.
    Oct 17, 2009. 10:47 AM | 4 Likes Like |Link to Comment
  • S&P upgrades Conseco (CNO) to stable from negative after hedge fund manager John Paulson says he intends to increase his stake to 9.9% and buy up to $200M of the $293M in convertible notes the insurer is selling; shares now up 25.1%.  [View news story]
    Wow... S&P is sure showing the value of their equity and debt analysis. They're letting John Paulson and the rest of the buy side elite do the jobs of their analysts!
    Oct 14, 2009. 11:28 AM | 2 Likes Like |Link to Comment
  • In Defense of the Rating Agencies, Once Again [View article]
    Before mass-securitization and the rise of CDOs, the rating agencies integrity was based on the credibility of due diligence behind their debt ratings. When they destroyed the meaning of those ratings by hastily slapping seals of approval on garbage CDO, CDO^2 and other products, that integrity disappeared and their biggest cash cows have been crippled beyond repair. Moody's and S&P have been trying to diversify their business models because they know the game is over.

    This process was in effect before securitization. Corporate bond prices predicted ratings changes long before they actually occurred. The ratings system had been made obsolete by market efficiency. We already have the mechanism to eliminate the role of ratings all together: credit default swaps. With a liquid, well regulated CDS market priced on an exchange to mitigate counterparty risk, periodic spread averages can be used to determine credit quality more accurately and efficiently than through the antiquated rating agencies model. We can use one of the culprits of the financial meltdown to make credit markets more stable and functional without the nonsense of "traditional" credit ratings.
    Sep 23, 2009. 01:19 PM | 2 Likes Like |Link to Comment
  • Clorox (CLX +2.1%) call option trades have hit an eight-year high amid new speculation that the company's a target for Procter & Gamble (PG). The most active options were $60 Oct. 16 calls, with Clorox at $58.95.  [View news story]
    Are investors fully considering regulatory risk? Clorox owns huge market share in the US in a number of areas that P&G operates in (www.wikinvest.com/stoc...). Even if the deal goes through, will the DOJ allow it? I believe there would be some serious resistance.
    Sep 22, 2009. 01:43 PM | Likes Like |Link to Comment
  • With stakes high at the Mobilize 2009 conference, Motorola (MOT +1.9%) fills in details on its Android (GOOG) bets, with a social-networking platform called MOTOBLUR and a new phone model for the holidays.  [View news story]
    Blur? That is almost the worst name for a phone that I've ever seen. Great, a phone with a social network integrator - not revolutionary. Plus, as the presentation says, it has "Good Voice Quality." Not quite a strong pitch. This is not the saving grace that Motorola needs to make itself relevant again in the smartphone arena. But, as their exec Jha says "this is a starting point, the beginning of a volley over the next 12-18 months." Guess we'll have to wait for the next iteration. The last Motorola smartphone that featured this type of event was the Windows Mobile powered Q. One thing is for sure, this is another indication of how irrelevant Microsoft is in the mobile OS market today. The mobile market is supposed to be the biggest avenue of growth for search <bing>.
    Sep 10, 2009. 02:31 PM | Likes Like |Link to Comment
  • Why Is Vonage Up 500% in 5 days? [View article]
    Despite it's trek down to sub-$100M market cap, VG has always had excellent liquidity which is making these monstrous moves even more baffling. Getting access to shares to sell short is difficult given "actual" naked shorting enforcement is also contributing to the mania. Fundamentals have been improving lately with two straight quarters of positive operating cash flow. At least in the short term, the market finally believes VG can avoid bankruptcy. They are doing better in terms of managing marketing expenses, but the balance sheet and customer bleed are awful. I wouldn't be surprised to see the stock back below $1 next week.
    Aug 26, 2009. 10:49 AM | 2 Likes Like |Link to Comment
  • 5 (More) Profitable Smallcaps Trading at a Fraction of Tangible Book Value [View article]
    13-D fillings ( www.sec.gov/answers/sc... ) just showbeneficial ownership of the company's shares. Since these filings were made shortly after the debt announcement, it is unclear whether or not these are new holders on the open market or the beginning of senior debt owners converting into new shares. Either is possible. I tend to believe the latter because the filings include huge blocks of shares and there were only 4M shares traded on July 1st following the announcement. Here is a summary:

    Company Shares

    Goldman Sachs Asset Management 1,534,369
    Hale Capital Partners 149,488
    Highbridge Capital Management 1,325,136
    Tennenbaum Capital Partners 1,325,135
    Aug 11, 2009. 10:03 AM | Likes Like |Link to Comment
  • 5 (More) Profitable Smallcaps Trading at a Fraction of Tangible Book Value [View article]
    GSIG has not filed formal financial statements since that announcement in October 2008. Their last statement says that the company's cash position has not been impacted by the revenue recognition issues - finance.yahoo.com/news... - but it's likely that cash pile has been impacted by the company's results since it's last report and is now significantly lower. We will see when they finally file formal financial statements. Revenue declines and high interest payments on their debt from the Excel acquisition ( www.gsig.com/investors... ) likely exacerbated losses. Recently, much of that debt was converted into equity - finance.yahoo.com/news... - at extremely high dilution to shareholders. The stock is still very speculative. Best.
    Aug 10, 2009. 06:51 PM | Likes Like |Link to Comment
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