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AdamGaglio

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  • FTD Companies - A Free Cash Flow Monster With 50% Upside [View article]
    Hi Hayden,

    FCF will fluctuate for all sorts of reasons. I'm only focused on a normalized earning number and don't add back some non-cash expenses like stock based comp.
    Apr 23 10:35 AM | Likes Like |Link to Comment
  • FTD Companies - A Free Cash Flow Monster With 50% Upside [View article]
    Hi Nat,

    Yes, I was referring to guidance that came out after your article was published. I missed that, so thanks for clarifying. Now that management's estimates are out, I think it makes sense to go with the more conservative numbers.

    "I believe the 10% pre-tax yield is high IF one believes the company's competitive position is solid and will hold up for a reasonable length of time."

    We may just have to agree to disagree on the correct multiple for this business. Trying to come up with a fair value multiple based upon different assumptions gets me to the ~15X normalized earnings (post-tax) range. It's not trading much below that and I think that assigning a higher multiple requires some justification. If it is a buy at this point I don't think it's a screaming one.

    "To understand the basis for my comment about the pre-tax yield, you need to look at the context I framed it in, which was the company's cost of debt financing.

    This company has been highly levered by two private equity firms in the past. It could at some point do a significant dividend recap, continue with massive buybacks, or be taken private."

    If that is the basis for your thesis FLWS looks as attractive with a debt-free balance sheet.

    In any event, thanks for the idea and thanks for responding.
    Apr 23 10:27 AM | 1 Like Like |Link to Comment
  • FTD Companies - A Free Cash Flow Monster With 50% Upside [View article]
    Nat,

    Thanks for the interesting article. I have a few questions concerning your assumptions.

    You say: "I estimate that full year 2014 EBITDA - CAPEX will be around 80 Million. With a current enterprise value of around 789 million, that represents a cash flow yield of over 10%"

    What are your assumptions for this? Management is forecasting 2014 EBITDA of 80-86 million. Subtracting the expense of stock based comp gets you to a forecast of 73.2-79.2 million of EBITDA. Management expects cap-ex for 2014 of 10 million. Let's be aggressive with our numbers and replace that with a maintenance cap-ex estimate of only 8 million (also more in line with depreciation). That gets us to 65.2-71.2 million in EBITDA-Cap Ex. That's ~15% less than your estimate. Is there a reason to think management is really sandbagging with their EBITDA estimates? Their estimates seem very much in line with historical numbers.

    Assuming that your estimate of $80 million of EBITDA-MCX is correct, that represents a yield on the enterprise of 10%. However, that is a pre-tax estimate. Is there a reason to believe 10X pre-tax cash flow is too low? That is a ~6.6% post tax yield. On the face of it, there's nothing unusual about this valuation. From where do you derive a price target of $45? That would imply an EV of 1023 million or almost 13X your pretax cash flow estimate and 14X the high end of pretax cash flow using management's estimates. Again, on the face of it these are not attractive multiples for a mature business. The story sounds wonderful- spinoff, share buybacks, amortization obfuscating earnings, etc. I'm just having a hard time seeing a compelling valuation here.

    Thanks,
    Adam
    Apr 21 03:08 PM | Likes Like |Link to Comment
  • General Communication: Value Hides In Alaska [View article]
    Hmm, well we might just have to agree to disagree. I still don't see the logic of using a multiple for the combined entity when you have all of the information necessary to calculate a multiple for GCI only. It seems to me that it's also diluting the accuracy of your valuation by adding unnecessary data to your EV multiple calculation like the value of the minority interest. In other words, if you calculated only GCI's EV/EBITDA, you wouldn't need to estimate a minority interest value- fewer assumptions, more accuracy. In any event, I liked the article, thanks for responding!
    Feb 16 04:19 PM | Likes Like |Link to Comment
  • General Communication: Value Hides In Alaska [View article]
    Yeah, I believe you're correct about that. My point is not that you calculated it incorrectly but rather that it's not the multiple you should be looking at. If we're trying to figure out what the GNCMA equity should trade at we should be looking at the GNCMA EV/EBITDA first, not an EV/EBITDA multiple of the combined GNCMA-AWN entity. Do you agree?
    Feb 16 03:31 PM | 2 Likes Like |Link to Comment
  • General Communication: Value Hides In Alaska [View article]
    Adding minority interest to EV is the standard way to do it- if you're also adding the EBITDA generated by the minority interest to the denominator of your EV/EBITDA multiple. In this case, you'll have calculated the EV/EBITDA multiple of GNCMA+AWN. If you're trying to calculate what the equity of GNCMA should be trading at, you should only be worried about the EV of GNCMA. So you'd only include GNCMA's EBITDA and not add back the minority interest to EV. If you do this you'll see that the company is more undervalued than your original calculations indicate (I think).
    Feb 16 12:16 PM | Likes Like |Link to Comment
  • Banks Are Doing The Job Of An Activist At Dolan Media [View article]
    Man, tough crowd. Makes you think twice about submitting an original idea or different way of looking at things.
    Nov 22 08:24 AM | Likes Like |Link to Comment
  • Banks Are Doing The Job Of An Activist At Dolan Media [View article]
    Thanks, I did do the work and did know that. Customer concentration is obviously a risk but it needs to be qualified. If the relationship was great and the business was sticky then it's not a big worry. It's also a risk that can be controlled on the portfolio level through position sizing. If that was the basis of your short thesis then I agree that we disagree.

    Edit: And yes I did pay attention to the credit agreement. I talk about it in the post you just responded to?
    Nov 12 01:48 PM | Likes Like |Link to Comment
  • Banks Are Doing The Job Of An Activist At Dolan Media [View article]
    Weighing Machine,

    I think that this was a very dangerous short idea prior to the credit amendment and still quite dangerous in the period between the amendment and the call. The fact that it has worked out for shorts is, in my opinion, mostly due to the fact that DR is declining because of DMs financial condition. The company now appears to be in a vicious cycle.

    The risk/reward of a short was pretty terrible. -2 or 3 times your money on the downside and +1 on the upside. You better be right pretty darn often with those payouts.

    I agree with your initial analysis in principle although I think some of your assumptions are aggressive. That being said, I think you were off point in this article. Read through the credit amendment and take note of the minimum adjusted EBITDA requirement. Unless I'm misinterpreting, there's no way for the company to remain in compliance with this without the 10 million or so EBITDA from the Business Info segment. One other very minor error I saw in your analysis is your discounting of the 17.5mm note. The company actually received an 11mm note, 3.5mm in cash, and the remaining 3mm was the assumption of liabilities.

    One lesson to learn from this is how important it is to understand the business and not just operate in the value investing echo chamber. This idea was floating around that the DR business is 'sticky' because there are high switching costs (not necessarily monetary) for customers. As was stated on the conference call, B of A simply directed their business to DR's competitors. Instead of being sticky, it appears as though DR has to compete for business every single time they finish a project.

    One more thing to be suspicious of is the idea that this is a low cap-ex business. It very well might be, but when the company has to make an acquisition like Act Litigation Services to remain competitive that should be regarded as a capital expenditure. Management has stated that post acquisition, they were in a solid competitive position. Again, that may be the case but in a new industry highly dependent upon technology (or algorithms), systems can become obsolete quickly. I think the maintenance cap-ex number may be a lot more difficult to forecast than people would like to believe.

    In any event, the original idea had merit but this has turned out to be a bust thus far.
    Nov 12 12:51 PM | 1 Like Like |Link to Comment
  • Biglari Wants To Create More Value At Cracker Barrel [View article]
    Hi Mick,

    Debt as a % of capitalization is just not the correct way to look at debt levels. The fundamentally important ratio is net debt/EBITDA which would NOT be at a dangerous level as Biglari explains in his presentation: http://1.usa.gov/1astcqW

    Its capital structure post-dividend would be conservative compared to the peer group. Given this, I can't understand why you think that the current levels, which are far below the peer group, are unhealthy. This implies that either the restaurant industry is dangerously indebted or you're wrong about what constitutes a healthy debt level.

    Net debt/EBITDA measures the ability of the company to pay down the debt. What information is contained in the debt as a % of capitalization number? The 33% as a rule of thumb is completely arbitrary. The capital structure of a company should be proportional to the size and predictability of cash flows. Biglari's presentation explains exactly why debt would not be at dangerous levels using actual operating numbers.

    You called into question this statement: "Paying down debt when the financing environment is favorable is also asinine." This statement is simply a fact. Paying down debt provides the company with a return on capital equal to the interest rate on the debt. As interest rates are incredibly low, we're at a point in history where paying down debt has never been less attractive. This isn't an opinion, it's a fact of business.

    "The new debt would be a new drag on company growth."
    I'm not sure what this means? Are you saying that the company will not have the capital to open more stores? If so, that is exactly true. The point of recapitalizing CBRL is to remove capital from where it is currently earning poor returns and give it to shareholders who can reinvest it better than CBRL management. You can say that the debt will lessen CBRL's growth (I agree, it will) but it is illogical to ignore what shareholders will earn by investing the $20 dividend into something else.

    "Yes the new stores don't immediately show a great performance: it takes a while to build up a clientele." Considering this is very easy to understand, don't you think it's strange to claim that the author doesn't understand this? What's going on is not a misunderstanding on the author's part. It's a disagreement about where the capital should be allocated. You say the $20 should stay with CBRL management where it continues to generate low returns and Biglari thinks the $20 should go to shareholders who can use it to generate higher returns.
    Nov 1 09:22 AM | 1 Like Like |Link to Comment
  • Biglari Wants To Create More Value At Cracker Barrel [View article]
    Unfortunately, this is how many managers see the situation too. The simple fact is that capital should be deployed where it will generate the highest returns. It makes no difference whether the opportunity does or does not lie in CBRL's primary line of business.
    Oct 30 02:17 PM | Likes Like |Link to Comment
  • Chart Of The Day – Wednesday, September 25, 2013 [View instapost]
    So when we have the next financial crisis do we still get to blame the 'free market'?
    Sep 25 09:23 AM | 1 Like Like |Link to Comment
  • Sardar Biglari Devilishly Sidesteps His Hotly Debated Compensation Scheme [View article]
    Fair enough! It's definitely an interesting set of transactions.
    Sep 19 08:32 AM | Likes Like |Link to Comment
  • Sardar Biglari Devilishly Sidesteps His Hotly Debated Compensation Scheme [View article]
    The 8K filed July 2nd separately announced the transaction- a month before the rights offering was finalized and 10Q released. Don't you think it's a little bit biased to imply that he 'slipped' the transaction in?
    Sep 18 04:10 PM | 1 Like Like |Link to Comment
  • Sardar Biglari Devilishly Sidesteps His Hotly Debated Compensation Scheme [View article]
    "With everyone focusing on the current Rights Offering set to expire, the company has slipped something unusual into the most recent 10-Q and rights prospectus."

    Wasn't this announced separately at the beginning of July?
    Sep 18 09:05 AM | Likes Like |Link to Comment
COMMENTS STATS
30 Comments
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