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  • R.R. Donnelley's Breakup Announcement - What This Means For Income Investors [View article]
    This is a convoluted and expensive dividend cut. Simple as that. RRD claims $400-500m in FCF, but has also been spending up to $200m plus per year on M&A (cash flow statement understates it as they have been issuing equity to the sellers) to simply keep EBITDA and FCF flattish, hence is really maintenance capex. Looked through this lense, payout ratio is >100% and dividend is unsustainable. Hence split up, let the new companies announce dividends at lower level and you never have to put out a dividend cut press release....
    Aug 10, 2015. 09:04 AM | 3 Likes Like |Link to Comment
  • ADT Bonds Yield Over 5% [View article]
    I think you need to re-check your FCF calculation. ADT has some funny accounting around Capex that you need to adjust for. Starting from CFO, 2014 had CFO of $1,519m, whereas capex within CFI was just $84m, pointing to $1,435m of FCF, which is what you derive above. However, you must also deduct the two other categories of capex that ADT reports, subscriber system assets and dealer generated accounts, which is spending ADT must incur to maintain its subscriber base and hence revenue (material spending of $526m and $658m on each). After deducting these items FCF is just $251m. To me this makes the $5.2b of debt far less enticing and helps explain why over 20% of the shares are sold short.
    Jul 22, 2015. 07:57 AM | 2 Likes Like |Link to Comment
  • R. R. Donnelley's Tale Of A Frozen Dividend [View article]
    On RRD, I think people miss the fact the business is in fact in decline. Without acquisitions 2014 EBITDA would have been -5% or so instead of the +10% reported, so they need acquisitions to hold the earnings / free cash flow base, so acquisition spending should be treated as capex. On this basis, they spend around $200m each year on acquisitions. So if you take their $400-500m FCF, less $200m in acquisitions, you get around $250m in cash to reward shareholders with. This compares to the $200m dividend and hence the dividend may not be as safe as people think.
    Also, on the roll up story, why are they paying for these deals with half equity now? They are diluting current shareholders because they have too much debt.
    Mar 4, 2015. 07:16 PM | Likes Like |Link to Comment
  • Republic Services, Inc.: Why You Should Avoid Shares Right Now [View article]
    Article misses the mark.
    i) Bill Gates owns 27.5%, he had been capped at 25% but signed a new deal a few months ago at which point he said he would buy an extra 5%, so he is half done his current buying spree. He is actively buying every day for the past month.
    ii) Dividend yield is not a valuation metric, look at FCF yield and RSG is pretty much inline with WM on this metric, the only difference is payout ratio choice. On a total yield basis (buybacks & dividends) RSG is ahead of WM.
    iii) Growth is expected to come from an impending turn in commercial volumes, which have been negative since the recession (earnings have held up despite the most profitable segment being under pressure).
    Aug 13, 2014. 10:11 AM | 3 Likes Like |Link to Comment
  • Cintas: Dressing The American Worker [View article]
    Hi Joey,
    Interesting article, but I totally disagree with your last point on who would gain or lose market share.

    Typically the largest, less nimble player is the source of market share gains for the smaller upstarts. In this case, UNF / GK are likely to take share from CTAS given more aggresive pricing and given they need the volume to gain economies of scale.
    Apr 15, 2013. 02:54 PM | Likes Like |Link to Comment
  • Barnes Group Deal Could Benefit Other MRO Players [View article]
    Biggest thing MSM got is the salesforce of Barnes. The initial price is no doubt rich and you never like to see deals done for revenue synergies, but if MSM can close the gap between the Barnes sales force productivity and its own, the deal will be a massive home run.
    Apr 5, 2013. 04:22 PM | Likes Like |Link to Comment
  • Canadian Pacific Railway: Off The Tracks After Ackman [View article]
    Interesting points, but a couple of holes that need to be pointed out.

    "These primarily Canadian-based individuals, funds and sell-side analysts are largely playing a momentum trade, not a fundamental investment, in CP shares." --

    this is wrong, the CP bulls reside in the US (look at Analyst ratings) as Canadians are well aware of the history of under-performance out of this asset.

    Secondly, Canada has been invaded before, during the War of 1812, but emerged victorious....
    Apr 2, 2013. 01:57 PM | 6 Likes Like |Link to Comment