Seeking Alpha

Unconventional Capital Wisdom

 
View as an RSS Feed
View Unconventional Capital Wisdom's Comments BY TICKER:
Latest comments  |  Highest rated
  • Female Health Company: Disaster De Jour With Attractive Risk/Reward [View article]
    tony, good question. They have mentioned in the earnings call that they are looking for companies or products that are "complementary to our current offering in market segment, product category or channel aspect." My guess is they could do something similar to male condom competitors by selling lubrication, vibrating rings/toys, female sponges and even potentially male condoms specifically marketed to women. I recently read about Sustain Condoms http://bit.ly/1AYhPC0 which would be an example. Since male condom brands Trojan and Durex mainly advertise to men FHCO could build their marketing around a female only brand, which I think would help differentiate their non-condom products.

    They also could branch out to other female health categories, however, I doubt this would be their first acquisition since I think FHCO is trying to build the brand around FC2. I could be totally wrong.
    Aug 7 04:10 PM | 2 Likes Like |Link to Comment
  • Update: Dividend Cut Provides At Least 50% Upside For Female Health Company [View article]
    tony,

    This is one of the rare times when competition can actually be a good thing at least in the beginning. The more options to choose from and more marketing/education should increase the acceptance and usage of female condoms with consumers in both the consumer and public health markets.

    Specifically looking at the public health market, a new competitor with the same focus on education along with FDA approval would be the biggest threat for FHCO. Cupid is the only other WHO approved condom but does not to have the resources nor do they focus on education as FHCO. Any new female condom will be as good as their marketing/education, otherwise what's the use of a "better" feeling condom if it is not used properly and does not feel better.
    Jul 17 01:29 PM | 2 Likes Like |Link to Comment
  • Winmark Corp: Win Is A Common Theme For John Morgan [View article]
    Another aside for those considering an investment in the company you might benefit from these readings.

    http://bit.ly/1jolZIj
    http://bit.ly/1jolZIm
    Jun 26 04:01 PM | 2 Likes Like |Link to Comment
  • JGWPT Holdings Has Massive Potential [View article]
    John,

    According to the S1:
    "Upon consummation of this offering, the Common Interestholders will beneficially own an aggregate of 18,391,664 JGWPT Common Interests assuming we sell the Class A Shares at $15.50 in this offering and the underwriters do not exercise their option to purchase additional shares. Pursuant to the operating agreement of JGWPT Holdings, LLC, the Common Interestholders may from time to time exchange their JGWPT Common Interests (together with the corresponding Class B Shares) for an equal number of Class A Shares. We have agreed to register the exchange of all these interests upon the expiration or earlier termination (if any) of their lock-up agreements with the underwriters of this offering which expire 180 days after the date of this prospectus with respect to 17,523,941 JGWPT Common Interests, 135 days with respect to 867,722 JGWPT Common Interests and 90 days with respect to 867,722 JGWPT Common Interests. The Class A Shares received upon exchange may be freely resold into the public market unless held by a Common Interestholder which is an affiliate of us. Certain of these holders (as well as other Common Interestholders) will have the right to demand that we register the resale of their Class A Shares received upon exchange and certain “piggyback” registration rights.

    We expect to reserve for issuance under the Plan a number of Class A Shares equal to 10% of the total number of shares of our capital stock that would be outstanding if all of the JGWPT Common Interests were exchanged for Class A Shares or Class C Shares, as applicable, immediately after this offering and the warrants to purchase Class A Shares to be issued to PGHI Corp. were exercised in full. We intend to file one or more registration statements on Form S-8 under the Securities Act to register Class A Shares issued or reserved for issuance under the Plan. Any such Form S-8 registration statement will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions or the lock-up restrictions described below.

    Lock-Up Agreements

    We, our executive officers and directors and certain Common Interestholders have agreed with the underwriters that, subject to certain exceptions, for a period of 180 days after the date of this prospectus, we and they will not directly or indirectly offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of our common stock or any securities convertible into or exchangeable or exercisable for common stock, whether now owned or hereafter acquired, or exercise any right with respect to the registration of the common stock, or file or cause to be filed any registration statement in connection therewith, or enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the common stock, whether any such swap or transaction is to be settled by delivery of common stock or other securities, in cash or otherwise, without the prior written consent of Barclays Capital Inc. and Credit Suisse Securities (USA) LLC, except that the underwriters have agreed that one-third of the JGWPT Common Interests held by any Other Member as of the date of this prospectus shall be released from such restrictions after each of 90, 135 and 180 days following the date of this prospectus. See “Underwriting—No Sales of Similar Securities.” Barclays Capital Inc. and Credit Suisse Securities (USA) LLC may waive these restrictions at their discretion."

    The 90 day part expires tomorrow.
    Feb 5 03:06 PM | 2 Likes Like |Link to Comment
  • Beneficial Mutual Bancorp: Upcoming 2nd-Step Conversion Offers Dillinger-Esque Returns [View article]
    Yuanxi,

    Thanks for the comment. The bank does have a 0.3% ROA, but as I am sure you will agree that the economic climate has driven down the profitability of many community banks, especially in the Philadelphia area. The main thing, however, is that poor credit quality is what buries a bank. So, we need to find banks that have strong loan and deposit mixes as well as positive trends in asset quality are the characteristics that could show who might benefit from the loan demand and interest rate increases. BNCL's main operations in Philadelphia can explain why the bank would be having some difficulties in profitability now as loan demand is not too high. The bank's loan mix is quite diversified between commercial and consumer debt and for the current economic climate can explain how overall banks in the area continue to have excess liquidity sitting on the side lines. Further, it isn't much of a surprise to have a bank with higher nonperforming assets to total assets, loans and the higher allowances for loan losses to loans. The main question is the bank's asset qualities out of whack with small community banks in their area and although their quality might be slightly negative, are the banks asset quality trends positive?

    BNCL has:
    Reduced npa - assets from 2.56% to 1.7% in the last year which is a positive sign.

    Reduced npa - loans from 4% - 3.09% in the last year, another positive sign. In a normal economy we'd like to see this ratio down towards at the most 1.25% but in the current economy it isn't too much alarm to see a commercially heavy loan portfolio (riskier) be twice the amount.

    Slightly grew allowance for loan losses to loans from 2.24% - 2.43% in the last year. This indicates the bank is still continuing to air on the side of caution.

    Raised the allowance for loan losses to nonperforming loans from 71.3% - 113% in the last year (*this excludes government student loans which of course makes sense to exclude because the government can garnish wages without a court order and can issue huge penalties in the event of a default). The higher allowance is a positive trend and it would be ideal to have a 200% allowance.

    Has somewhat struggled with their cost efficiencies as they have edged higher toward 80% when levels of 60% would be better. Management has said they are aware of this. Also the second step could help fund efficiencies in personnel and IT.

    Comparatively speaking, PBIP another smaller bank with somewhat similar branch locations has a similarly low ROA which was trading for a little more of a discount to book when you originally wrote about it. Their loan portfolio mainly weighed towards residential mortgages at something like 80%, so their npa ratio was lower due to the less riskier loans. One thing that did stand out was the low allowance for loan losses to nonperforming loans at 35% but I am sure that after the conversion that has now been worked out.

    Fox Chase Bancorp another similarly located, however, smaller bank has completed their second step and trades at 1.2x book and has somewhat better asset quality. They also have a low 0.5% ROA. The second step capital has given them the ability to deploy capital into more commercial loans and allowed them to get better asset quality. Keep in mind they were in a worse asset quality position than Beneficial pre-second step.

    Back to BNCL, they have a similar asset sensitive balance sheet that should benefit from the rising interest rates similar to the other two banks listed above. There doesn't seem to be too much evidence that 0.57x book is too high a price for a conservative community bank trying to regain their footing in a tough Philly economy where others have taken the same excess liquidity route.
    Jan 29 11:39 PM | 2 Likes Like |Link to Comment
  • Forget BlackBerry: Watsa's Resolute Forest Products Investment Gets More Bang For Your Buck [View article]
    Jake,

    Thanks for the comment and questions. You are right that it is hard to forecast the pension with the information provided to us. I used management's Q2 comments and some very basic back of the hand calculations to give readers a general idea of what could happen as interest rates rise. So, this is an exercise in trying to be roughly right.

    This is what was said during Q2 by the CFO :

    "....But, again, to illustrate assuming the year ended on June 30, the applicable discount rate would have improved by over 50 basis points and when taken together with the return on assets so far this year, the solvency deficit would be cut by about $425 million. Indeed, under the same assumption, our solvency ratio would have improved to over 72%."

    My assumption takes this information and extrapolates it. If a deficit cut of $425 million happens with a 50bps increase in discount rate, than an extra 100bps with similar equity market conditions and higher interest from bonds would equal slightly higher deficit reductions. According to the 10K the company has a 50-50% stock and bond target asset allocation for the pension plan, so even though the market has returned ~15%, only half of the pension has done that well while the other half still receives low returns. If the market does crash say 10, 20 or 30%, then we can guess half the portfolio will be effected. That would reduce my calculation, but my main point is that in the long run interest rates will rise and the probability of the pension deficit to reduce by a large amount is also very high.

    I also question who is running the pension portfolio but feel somewhat safe that the board has Fairfax Financial's Bradley P Martin to advise.
    Oct 4 08:27 AM | 2 Likes Like |Link to Comment
  • Weight Watchers: A Wonderful Business For A Great Deal [View article]
    FeelTheHeat, thank you for bringing up some valid points and you are right there is much more I could have written, but I felt my points were enough to get people digging into the company. Of course you do not agree.

    You state that I did not come up with facts, however, the long term business performance, even through previous marketing misses and fad diets, is enough fact to show readers that Weight Watchers has an enduring competitive advantage. Recruitment has suffered recently, you are correct, but look back to the early to mid-1990's when Jenny Craig-style pre-packed meals came to WTW's meetings and we see a similar decline in attendance. It took the company until 1997 to develop the POINTS system (reverting back to WTW's behavioral model) that led to attendance reaching late 1980's levels. Fast forward to now and we see a similar situation. Marketing misses and free apps have led to lower meeting attendance and management is currently in the process of developing a strategy to go forward. Sure, if Weight Watchers' strategy is a flop then the current valuation is justified. The main take away should be that the market is pricing for a flop in strategy while the largest shareholders have an incentive and control to get management to come up with a solid strategy to last for the long term (note Artal's Fund structure doesn't raise money in normal PE fashion and has no pressure to raise funds for another fund so can sit on a wonderful company and realize the most return over the longterm).

    You are also correct that the company has been buying franchises and has been doing so as far as the SEC statements go back to in 2001. The inherent problem of a company that oozes money is that they have to allocate the capital wisely giving shareholders the best return. Buying franchises at attractive prices allows Weight Watchers to use capital to upgrade income from royalties to straight fees. You say that the company is trying to hide meeting attendance but looking at the long term track record of ROIIC, WTW has produced high returns on their cash showing that these investments were well worth shareholder's time.

    In regards to the company paying down debt, it would be totally asinine for Artal to allow management to prematurely pay down debt when the company's cost of debt is 3% and WTW has been able to generate double digit return on capital over decades.

    We will see what levers Weight Watchers pull at the November meeting and of course I could be wrong, but at these prices the market has it baked in.
    Aug 27 06:11 PM | 2 Likes Like |Link to Comment
  • Idenix Pharmaceuticals: Potential Multi-Bagger Means Little Risk/High Reward [View article]
    Chris, thanks for your altruism. I'm hear to learn as well.

    I'll address your question on my choice of a 10% chance of buy out in another article soon, as I'm sure other readers would be interested to read about it.
    Aug 2 11:35 PM | 2 Likes Like |Link to Comment
  • Idenix Pharmaceuticals: Potential Multi-Bagger Means Little Risk/High Reward [View article]
    Duke, thank you. Yes, Idenix's old office and new office are in Cambridge and Baupost is in Boston, only a few T-stops away. Almost all pharmaceutical companies have their headquarters or at least a few buildings in Boston, so my educated guess is that Baupost went to every potential HCV opportunity that was severly undervalued and picked the one with the best risk/reward.
    Jul 31 04:56 PM | 2 Likes Like |Link to Comment
  • Alco's 50% Off Book Sale Represents Opportunity For Investors [View article]
    Whopper, great article. Looking at the number of shareholder lawsuits since announcing the deal, you aren't the only one who thinks that management is accepting a low-ball offer.
    Jul 30 10:52 AM | 2 Likes Like |Link to Comment
  • Update: Winmark Leasing Portfolio Growing, And Share Repurchases Continue To Indicate Shares Are Undervalued [View article]
    Oxboro,

    You point out possibly the biggest reason why most investors stay away from this company, yet is actually the reason why there is an opportunity.

    Accounting has its short-comings and goodwill is sometimes not accurately reflected with certain companies. Some companies produce huge returns on net tangible assets because it is hard to quantify brand assets, relationships with customers, etc,. Winmark earns over 100% after-tax on net-tangible assets after the special dividend and share repurchases. These returns are very special and can be a result of goodwill or intangibles not truly reflecting reality, only GAAP standards. I think that the company is truly returning 9-10% which would mean that there is hundreds of millions of hidden assets not on the balance sheet. Since this is a key reason why there is an opportunity, I'll write up a longer article to address this. Thanks for reading and commenting.
    Aug 18 11:50 AM | 1 Like Like |Link to Comment
  • Mr. Market Might Be Mistaken With Creative Learning Corporations' Auditor Change [View article]
    gte218u,

    Good comments and are the reasons why we don't own this company.
    Aug 14 11:32 AM | 1 Like Like |Link to Comment
  • Post Holdings: Great 'Cereal' Acquirer Meaningfully Undervalued [View article]
    Company is much cheaper today. Shorts are getting it right in the short term but long-term this could be very compelling entrance point.
    Aug 8 10:11 AM | 1 Like Like |Link to Comment
  • Update: Dividend Cut Provides At Least 50% Upside For Female Health Company [View article]
    I'll be providing an update soon in an article.
    Aug 3 12:05 PM | 1 Like Like |Link to Comment
  • Post Holdings: Great 'Cereal' Acquirer Meaningfully Undervalued [View article]
    NL2,

    Good comments. As you said it is really hard to brand and differentiate fresh eggs. On the flip side, food branding can be built with value added foods - packaged products - that save people time and have differentiated flavoring, etc,. So what I am guessing is that Stiritz sees processed egg products as a quick healthy food alternative that can be marketed heavily and many new products can be introduced. I don't think we have seen the same kind of marketing and brand building in this space as other packaged foods and that's what Stiritz sees. MFI seems to be the leader in the space, has brands and has a large distribution network, so it looks like the best platform to move forward in processed eggs.

    Since the future of MFI is likely to be transformed, I wouldn't think it is prudent to extrapolate the recent poor quarter of performance into the future. Curious to see what will happen with margins.

    Agree with you on the HLF drama, interesting stuff.
    Jul 23 08:41 PM | 1 Like Like |Link to Comment
COMMENTS STATS
205 Comments
53 Likes